Full Judgment
2. The relevant fact that arise for consideration are the appellants are availing Modvat credit on the inputs i.e. transformer oil in their factory. The appellants are engaged in the manufacture of transformers and were also repairing transformers sent by UPSEB and other Government Department. From the scrutiny of the records, it was noticed by the revenue that the appellants were consuming modvatable inputs i.e.
transformer oil in the transformers that were repaired and cleared without payment of duty. Show cause notice was issued to the appellant for the reversal of the proportionate Modvat credit on the quantity of transformer oil which were consumed in the repairs and for imposing penalty. The adjudicating authority confirmed the demand and also imposed penalty. On an appeal, Commissioner (Appeal) set aside a part of the demand and confirmed the demand of Rs. 1,47,674/- (Rupees One Lakh Forty Seven Thousand Six Hundred and Seventy Four only) and imposed equivalent amount of penalty under Section 11 AC. Hence this appeal.
3. The learned consultant appearing for the appellants submits that, the appellant is not disputing that they are liable to pay the amount of duty on the transformer oil used for repairing of transformer. His contention is against the penalty that has been imposed on the appellant. It is his submission that the learned Commissioner (Appeal) has upheld the penalty imposed on the appellant under Rule 173Q but reduced the same. It is his submission that the penalty imposed on the appellant under Rule 173Q and Section 11AC is not sustainable as the appellant had always kept the department informed about the activity of repairs being carried out by them, on the transformers sent by the Government agencies.
4. The learned DR on the other hand reiterates the findings of the learned Commissioner.
5. Considered the submissions made at length by both sides and perused records. I find from the records that the appellants were availing Modvat credit on the transformer oil which is one of the input for the manufacturing of transformers. It is also undisputed that the appellants are repairing the transformers of the State Electricity Boards and other Government agencies and clearing the same without payment of duty. The cardinal principal for availment of Modvat credit on any inputs is that the input should have been used on any relation to the final product on which the appropriate duty is paid. It is very evident from the records that the appellant had not paid any duty on the transformers which were repaired and cleared by them. If that be so, the appellant are not eligible for availment of Modvat credit on the transformer oil which is consumed by them in such repair of transformers. Hence the demand of the duty confirmed on the appellant is upheld.6. As regards, the penalty imposed on the appellant under Rule 173Q of the Central Excise Rules 1944,1 find that the penalty has been imposed under Rule 173Q without invoking any specific Sub-clause of the said Rule, the Hon'ble Supreme Court in the case of Amrit Foods v.Commissioner of Central Excise, U.P. as reported as 2005 (190) E.L.T.433 (S.C.) had categorically held that the imposition of penalty under Rule 173Q cannot be sustained if the specific Sub-clause of the said Rule is not invoked against the assessee. Respectfully following the said judgement, I find that the penalty imposed on the appellant under Rule 173Q is liable to be set aside and I do so.
7. As regard, the penalty imposed on the penalty under provisions of Section 11 AC, I find that the provisions of Section 11 AC has been invoked against the appellant on the ground that they had suppressed the facts of use of modvatted transformer oil in transformers which were repaired. I find from the records that the appellants were regularly filing RT-12 returns with the authorities and were filing RG-23A Part I register to the Range Authorities along with RT-12 returns. It is noticed that the appellants were issuing entire quantity of the stock of transformer oil to the shop floor on the same day for production purposes. This information was always available with the revenue and they should have been alert in detecting such anomaly when the returns were filed to them. In this case, I find that it is not the intention of the appellant to evade the payment of duty by using modvatable transformer oil in the repairs of the transformer sent by the Government authorities. At the most, it can be considered as mis-interpretation of the provisions of the Modvat rules. For this, the appellant need not be visited with equivalent amount of penalty.
8. In the facts and circumstances of the case, to my mind, the penalty imposed on the appellant under Section 11 AC is liable to be reduced to Rs. 50,000/- (Rupees Fifty Thousand only) to meet the ends of justice.
9. Accordingly, the impugned order is modified to the extent, as indicated in the above paragraphs and appeal filed by the appellant is allowed partly.
(Operative part pronounced in open court on 1-9-2006 after conclusion of arguments)