Judgment:
1. Stay Petition: Since the issue to be decided in the appeal is only with reference to leviability of penalty or its quantum we take up the appeal itself today with the consent of parties and therefore grant waiyer of pre-deposit of penalty pending appeal today.
2. Appeal: Shri Sriram Panchu, the earned Counsel for the appellant submitted that the appellant has got two manufacturing Units, one at Ambattur in Tamil Nadu and the other in Sahaganj in West Bengal where identical manufacturing activity takes place in the manufacture of tyre. Proceedings were instituted against the appellant on the ground that the appellant had in contravention of the MODVAT Scheme and Rules thereunder purported to transfer MODVAT Credit available at the Ambattur factory to the other Unit and the proceedings resulted in the impugned order. The earned Counsel contended that while there may be technical irregularity procedurally in regard to transfer of the available credit the Department has not sustained any loss and the duty paid nature of the input is beyond the pale of controversy and the entire operation took place with the consent and blessings of the Departmental officers and therefore, whatever may be the nature of infraction, certainly it would not entail penal consequences and imposition of penalty is not called for and the Id. Advocate made a fervent plea for setting aside the penalty.
3. Shri J.P. Gregory, the learned SDR submitted that procedural infraction is admitted and in the entire MODVAT Scheme, transfer of credit from one factory to another is not permitted in the facts and circumstances of the case.
4. In the facts and circumstances of the case and taking note of the fact that transfer of credit from one factory to another factory was not permissible under the law or under the rules, we are inclined to hold that penal consequences naturally flow from the breach and irregularity; nevertheless bearing in mind the fact that the Departmental officers were kept informed about the transfer of credit and were not averse to this procedural irregularity, we are inclined to think that leniency is called for and in this view of the mutter, we reduce the penalty to Rs. 1,00,000/- (Rupees one lakh). The appeal is otherwise dismissed..
5. Per Shri V.P.Gulati.--I observe that the appellant in this case has done documentation in a manner to suggest as if that the appellant has transferred the inputs from their factory to their sister concern while not stating that transfer in effect took place on paper. The Earned Counsel fairly conceded that the appellant had purchased inputs and had taken MODVAT Credit in respect of the same and utilised the same in their factory for manufacturing tyre cord warp which was intended for their sister concern. He pleaded that by transfer of the Tyre cord warp they reversed the MODVAT Credit in respect of the inputs proportionately used in the job work done by them for their sister concern and their sister concern took the corresponding MODVAT Credit at their end. He was asked to refer to any provision in law which allowed such facility and he pleaded that while there is no such provision in law for such transfer, the fact remains that their exercise has been Revenue neutral and there has not been any loss to the Government on account of their this action. I observe that the appellant worked out a mechanism of operation between their Unit and sister concern to suit their convenience and it is not clear as to why they had to resort to this course of action when the law did not provide for the same. The appellant's plea is that the appellant informed the Supdt. of Central Excise in whose jurisdiction the sister concern functions about what the appellant was doing. This does not in any way clothe the appellant's action with any legality. It is not clear to us as to under what provisions of law their other Unit can take MODVAT Credit by transfer of inputs which had been purchased by the appellant and which had been utilised in their own unit for manufacture of Tyre cord warp, It is for the concerned Central Excise authorities to look into this aspect of the matter. I find that the appellant had deliberately gone about creating records indicating as if the inputs had been transferred from their unit to their sister concern. In view of above, I hold that while the action of the appellant is reprehensible, interests of justice would be served if the penalty is reduced to Rs. 1,00,000/- (Rs. one lakh),