Full Judgment
2. We have perused the records and heard both sides. The only issue for consideration is whether penalty is attracted in the present case under Section 11AC of the Central Excise Act. That section also may be read: Section 11AC - Penalty for short levy or non-levy of duty in certain cases - where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reasons of fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under Sub-section (2) of Section 11A, shall also be liable to pay a penalty equal to the duty so determined: Provided that where such duty as determined under Sub-section (2) of Section 11 A, and the interest payable thereon under Section 11AB, is paid within thirty days from the date of communication of the order of the Central Excise Officer determining such duty, the amount of penalty liable to be paid by such person under this section shall be twenty five per cent of the duty so determined: Provided further that the benefit of reduced penalty under the first proviso shall be available if the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso: Provided also that where the duty determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, for the purposes of this section, the duty as reduced or increased, as the case may be, shall be taken into account: Provided also that in case where the duty determined to be payable is increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, the benefit of reduced penalty under the first proviso shall be available, if the amount of duty so increased, the interest payable thereon and twenty five percent of the consequential increase of penalty have also been paid within thirty days of the communication of the order by which such increase in the duty takes effect.
1) the provisions of the section shall also apply to cases in which the order determining the duty under Sub-section (2) of Section 11A relates to notices issued prior to the date on which the Finance Act, 2000 receives the assent of the President; 2) any amount paid to the credit of the Central Government prior to the date of communication of the order referred to in the first proviso or the fourth proviso shall be adjusted against the total amount due from such person.
2. It is to be noted that the penalty under the above section arises only in cases involving "fraud, collusion or any willful mis-statement or suppression of facts...with intent to evade payment of duty".
Therefore, the only relevant issue is whether these elements are present in the case. Penalty has been imposed by the lower authorities in the following factual situation.
3. The appellant is a manufacturer of coated paper. Paper is the main input for the manufacture. That input is procured from paper mills who are engaged in the manufacture of paper. Paper consignments come in huge reels. The appellant is entitled to take credit of (Modvat) duty paid on the paper by the manufacturer of paper. This credit can also be taken upon receipt of input. The appellant was, therefore, taking credit applicable to each consignment at the time of receipt of the consignment.
4. Some paper gets damaged during transport and such damaged paper is not used in the manufacture of coated paper. The paper so damaged is the outer layers of the reel. When each reel of paper is mounted on the manufacturing machine and the reel (sic) the extent of damage comes to be noticed and the damaged paper is discarded. The appellant was selling such damaged paper as waste paper. It was also discharging Central Excise Duty on the quantity of waste paper so disposed of. In the invoice, the paper was described of 'Thabha'. The fact of taking Modvat credit on the entire quantity of paper received and the sale of Thabha on payment of duty were disclosed in the statutory records as well as in the returns tiled on a monthly basis. During the period 28.11.97 to 31.3.02, the total credit attributable to waste paper worked out to Rs. 9,70,297/-.
5. Central Excise authorities took the view that the appellant was not entitled to take credit on the quantities of damaged paper. Thereupon the appellant deposited the amount of Rs. 6,07,164/-. Subsequently, Rs. 3,63,133/- was also deposited. The matter did not end there. A SCN dt.21.8.02 was issued to the appellant alleging that it had violated Modvat rules in relation to the damaged paper and the notice proposed recovery of amount under Rule 57(1) as well as imposition of penalty under Section 11AC. In adjudication, a penalty of Rs. 9,70,297 equivalent to the credit taken on the damaged paper was imposed.
However, when the matter came up before the Commissioner (Appeals), he reduced the duty and penalty to Rs. 3,63,133/-. (the amount which was outstanding).
6. The submission of the Ld. Counsel for the appellant is that Section 11AC is not involved in the present case and therefore, the penalty is not imposable. It is being emphasized that the initial taking of credit was correct in-as-much as the assessee is entitled to take the amount of duty paid on inputs received as credit at the time of receipt of the goods. It is also being pointed out that at the time of taking credit on a consignment, quantum of damaged paper is not known and for that reason also the appellant was right in taking the duty amount paid by the supplier as credit. It is also the submission that since the appellant was paying duty on the clearance of damaged paper, it was meeting the legal requirement of not taking credit on unused inputs. It is being emphasized that, in any event, a charge of suppression of facts or mis-statement of facts with intent to evade payment of duty could not be raised in-as-much as full facts of the case were known to Central Excise authorities. Ld. Counsel would emphasis that keeping of detailed statutory accounts by the appellant and entry of removal of thaba in the accounts has been accepted even in the impugned order. The main point held against the appellant by the lower authorities is that it was claiming excise duty also from insurance in regard to the damaged paper and this was not disclosed to revenue (sic). The submission of the Ld. Counsel on this is that there is nothing illegal or extra-ordinary in including duty paid in the insurance claims and there was no requirement to declare insurance claims to excise authorities.
7. Ld. DR would emphasis that having claimed the excise duty on the damaged paper through insurance, the appellants should have disclosed this aspect to the Central Excise authorities and failure to do the same is suppression of facts with intent to evade payment of duty and therefore, penalty is justified.
8. We may read the finding in the impugned order in relation to penalty: In respect of the remaining amount of Rs. 9,70,297/-, the show cause notice was issued to the appellant covering the period 28.11.97 to 31^st March, 2002. The same is, therefore, correctly issued within the maximum time limit of five years as laid down under Section 11A and other provisions of the Act and the Rules. The appellant's contention that the extended period of five year is not applicable in their case as they had not suppressed any facts from the Department is without any merit. It is true that the Audit parties visited the appellant's unit from time to time but the visit is normally with a specific objective. The Audit parties are not expected to know each and every activity of the appellant nor do they examined every aspect. The fact of claiming Central Excise duty from the insurance company as well as availment of Modvat credit on damaged paper was never disclosed to the Department as mentioned in the impugned order. Thus, the extended period of five years has been correctly invoked and upheld in the impugned order.
Revenue is not disputing the fact that full facts relating to taking of credit and duty paid clear of thaba were known to the Central Excise Authorities through the statutory records as well as returns filed.
Non-declaration of details of insurance claim cannot be held against the assessee as suppression of facts, as there was no statutory requirement to disclose insurance claims to excise. There is also no legal provision that insurance claim cannot include the tax paid on the damaged or lost goods. A charge of fraud or suppression would have (sic) some force if the appellant had not paid duty on the damaged paper. Data on record also shows that the duty paid by the appellant on the damaged paper was almost 2/3^rd of the credit taken on those goods.
In these circumstances, we are of the view that the appellant's contention that the ingredients of Section 11AC are not present in this case and short levy of duty is not the result of any fraud or suppression of facts with intent to evade payment of duty Merits acceptance. Accordingly, Section 11 AC was not attracted.
9. In the result, the appeal is allowed by setting aside the penalty imposed.