2009 (5) TMI 757 - AT - Central Excise

Summary

Issues:
1. Central Excise duty on physician samples not paid under Rule 4 of Central Excise Valuation Rules.
2. Imposition of penalty under Section 11A (2B) of Central Excise Act, 1944.

Analysis:
1. The appellants were engaged in manufacturing P&P medicines and did not pay Central Excise duty on physician samples as required by Rule 4 of Central Excise Valuation Rules. Subsequently, they paid the outstanding duty of Rs. 4,17,551/- along with interest.

2. A show cause notice was issued for penalty imposition. The Original Adjudicating Authority found no grounds for penalty under Section 11A (2B) of the Central Excise Act, 1944. However, on appeal, the Commissioner (Appeals) imposed a penalty of Rs. 20,000/- citing Rule 25(1) of the Central Excise Rules, 2002. The Commissioner justified the penalty by stating that although there was no intent to evade duty and the differential duty was paid before the notice, a penalty was still warranted due to the failure to pay duty on physician samples as per rules.

3. The appellants, though absent during the proceedings, submitted in writing that since there was no misstatement or intent to evade duty, no penalty should be imposed. The department argued that the failure to pay duty on physician samples justified the penalty. The Tribunal noted that Section 11A(2B) exempts penalty if duty is paid before notice without intent to evade duty. As no intent to evade duty was found by the Commissioner (Appeals), the penalty was deemed unjustified, and the appeal was allowed.

4. The Tribunal emphasized that Section 11A(2B) precludes the issuance of a notice for duty demand if duty and interest are paid before notice service without any intent to evade payment. The exception applies only in cases involving fraud, suppression, or misstatement to evade duty. As no such intent was established, the penalty imposed by the Commissioner (Appeals) was set aside based on the legal provisions, and the appeal was allowed.