Gokal Steel Rolling Mills vs Commissioner of Central Excise and Another

Hemant Gupta, J.—The present appeal has been preferred u/s 35G of the Central Excise Act, 1944 (for short the "Act") arising out of an order passed by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi on June 30, 2010 upholding the penalty to the extent of duty evaded under rule 96ZP(1) of the Central Excise Rules, 1944, in respect of compounded levy scheme. The appellant, herein, was served with two show-cause notices subsequent to physical verification of the dia of the rolling mill, i.e., gear box/pinion stand on August 21, 1999. The center to center distance was found as 261 mm. in respect of upper two pinions and as 258 mm. in respect of the lower two pinions as against the declared 245 mm. in the declaration dated September 1, 1997. The annual capacity of production of a mill is determined keeping in view the factors, i.e., "d", "n", V and "i". The authority found that the factors, "n" and "i" could not be checked/verified as the mill was not in working order but the factor "d" was found with variations and consequently, a show-cause notice as to why penalty u/s 11AC of the Act be not imposed was issued. The stand of the appellant before the adjudicating authority was that semi-skilled persons working in their workshop have repaired the bushes and gears which led to variations in the "d" parameters. Considering the aforesaid explanation, the adjudicating authority vide the order dated June 27, 2006, imposed the penalty of Rs. 1,23,620 after re-determination of the production capacity.

Such order has been affirmed by the Tribunal vide the order dated June 30, 2010 but found that the compounded levy scheme is a separate and comprehensive scheme and that penalty is leviable under rule 96ZP(1) only.

The learned counsel for the appellant has vehemently argued that the variations in "d" factor was due to wear and tear of the machinery and the said fact has been accepted by the Tribunal in its order dated June 30, 2010. Therefore, the penalty could not be imposed under rule 96ZP(1). It is also argued that 100 percent. penalty has been imposed upon the appellant without giving any reasons and such imposition of penalty runs counter to the judgment of this court in C.W.P. No. 18099 of 2009 Bansal Alloys and Metals P. Ltd. v. Union of India (2013) 20 GSTR 566 (P&H) decided on November 8, 2010.

This court while issuing notice of motion found that the following two questions arise for consideration:

(iv) Whether the Tribunal was correct in imposing penalty of an equal amount under rule 96ZP when the same had not been invoked in the show-cause notice?

(v) Whether the Tribunal was correct in not giving the benefit of reduced penalty as per the proviso to section 11AC when the penalty was imposed initially u/s 11AC more so when there has been no intentional act to evade payment of appropriate duty?

We have heard learned counsel for the parties and is of the opinion that even the said two questions do not arise for decision. Firstly we shall discuss question No. (iv).

No doubt that the show-cause notices served upon the petitioner gives reference to section 11AC of the Act but the penalty has been imposed under rule 96ZP. It is well settled the mentioning of wrong provision in the order or for that matter in the show-cause notice does not render the proceedings illegal. The question to be examined is whether, the authority, which has the power to impose penalty has given show-cause notice and that the pre-conditions for imposition of penalty under rule 96ZP are satisfied.

The learned counsel for the appellant could not point out that the authority to issue show-cause notice was different than who has served the notice nor it could be pointed out the pre-conditions are not satisfied. It was argued that consequence of the order u/s 11AC is different than the penalty imposable under rule 96ZP. It is submitted that the appellant could pay 25 percent. of the penalty amount in complete discharge of the liability in terms of section 11AC of the Act, but that is not the situation under rule 96ZP(1). But we do not find any merit in the said argument. The proviso, contemplating discharge on payment of part of penalty was inserted vide section 100 of the Finance Act, 2000 with effect from May 12, 2000, i.e., after the relevant period in the present case. Therefore, the benefit of the proviso cannot be availed of by the appellant during the relevant year. The petitioner has thus suffered no prejudice for the reason that the show-cause notice was served as that u/s 11AC of the Act.

Now coming to question No. (v), we find that the appellant has improved its stand than what was taken in the reply to the show-cause notice. Earlier, the stand of the appellant was that due to repairs carried out by semi-skilled workers, the "d" factor has changed leading to increased production capacity. But the report of the technical experts was relied upon to assert that it is normal wear and tear of the machinery which led to variations in "d" factor. The Tribunal found that "d" factor is 258 which fact was accepted by the representatives of the appellant. The Tribunal also found that the variations between 258 and 261 were due to wear and tear. After returning such finding the Tribunal upheld the aforesaid penalty.

We do not find any merit in the argument that the variation in "d" factor from 245 declared by the appellant and 258 determined by the Tribunal was due to normal wear and tear. The Tribunal has held that the variations between 258 and 261 as proposed in the show-cause notice was due to wear and tear.

We find that the penalty imposed is legal and justified. The reasons of imposing penalty are inherent in the order dated June 30, 2010 when the Tribunal has affirmed the stand of the appellant as untenable. Relevant paragraphs of the order read as under:

I have carefully considered the submissions from both sides and perused the records. The ''d'' factor initially declared by the appellants was 245. The reports of the experts relied upon by the appellants suggest that ''d'' factor could be affected due to wear and tear of bushes. While this could be so, the report also clearly indicates that the bushes required to be periodically replaced. It is common knowledge that the main machinery will get damaged if the bushes are not periodically replaced. The Commissioner, in all fairness, accepted the opinion of the technical experts and redetermined the ''d'' factor as 258 and which the appellant has no problem in the appellant firm that the semi-skilled workers changed the ''d'' factor during repairs carried out a couple of months earlier to the visit by the officers does not deserve to be accepted. I am surprised at the claim that the repairs of machinery were done by the semi-skilled workers. It was incumbent upon the appellant to intimate any change in parameter which has a bearing on the annual production capacity determination. It is not disputed by the appellants that they have not given any such intimation to the Commissioner. The plea was change of ''d'' factor from 245 to 258 was due to wear and tear of bushes seems to be an afterthought. Having admitted that semi-skilled workers have changed the parameters, a contrary claim that the entire variation was due to change in dimensions of the bushes due to wear and tear is not acceptable. Perhaps, the technical opinions given by experts explain the difference between 261 as determined by the officers on August 21, 1999 and 258 as recommended by them. This small variation between 258 and 261, perhaps, was due to wear and tear. At any rate, the appellants are not disputing the ''d'' factor as 258. Therefore, in the absence of fulfilling the mandatory requirement of sending intimation regarding change in parameters of annual production capacity to the Commissioner, it cannot be said that the Commissioner was not justified in demanding duty from July 16, 1998. It is clear from the reasoning adopted by the Commissioner that he has taken various claims including the change in dimensions of parameters due to wear and tear and technical opinions and held that the duty is demandable, confirmed is only Rs. 1,23,620 as against the original demand of Rs. 14,28,136 + Rs. 89,321.

Therefore, there is no reason for interfering with the demand of duty as upheld by the Commissioner. Regarding interest, the duty based on annual production capacity requires to be paid by the specific dates. It has no relevance to the date of clearances of the goods. Therefore, the differential duty requires to be paid along with interest applicable.

The appellant improved its stand at different stage of proceedings. The variation in the "d" factor was found as a matter of fact, therefore, the mens rea in not declaring the increased capacity is apparent. Though the authority has imposed 100 percent. of the short amount of the duty as penalty but keeping in view the fact the amount of penalty is only Rs. 1,23,620, we do not find that such amount calls for any interference. Such amount is not even sufficient to set off the expenses incurred by the Department in prosecuting the present proceedings forced upon the Department for the wrongful and changing stand of the appellant. In view of the said fact, we do not find any merit in the present appeal. The same is dismissed.