2002 (2) TMI 191 - AT - Central Excise

Summary

Issues:
Penalty imposed on the appellants for non-payment of duty on scrap generated at job worker's premises.

Analysis:
The appellants, manufacturers of Motor Vehicle Parts, were availing Modvat facility on inputs under Rule 57A of the Central Excise Rules, 1944. They used to send rough forgings for machining to their job workers under Rule 57F(4). Central Excise officers found that scrap of steel generated during machining at job workers' premises had not been returned to the appellants' factory nor cleared on payment of duty as required by Rule 57F(5). The department imposed a penalty of Rs. 3 lakhs on the appellants, which was later reduced to Rs. 1,49,991 by the Commissioner (Appeals). The appellants contested the penalty, arguing that they had been paying duty on such scrap since 1991. The appellants had paid the duty on the scrap generated during the material period after the visit by Central Excise officers. The department alleged that the appellants suppressed facts to evade duty payment, but there was no evidence of intent to evade payment. The Tribunal found that there was no evidence of mens rea on the appellants' part to evade duty payment. Therefore, the penalty imposed on the appellants was set aside, and the appeal was allowed.

In the present case, the key issue was whether the appellants had suppressed facts with intent to evade payment of duty on scrap generated at job worker's premises. The department alleged that the appellants had cleared the scrap without payment of duty, valid invoice, or proper accounting. However, the Tribunal noted that the duty on the scrap had been paid by the appellants according to the department's formula, albeit after the visit by Central Excise officers. The Tribunal found that there was no evidence of intent to evade payment of duty on the part of the appellants. The allegation of suppression of facts was not supported by positive evidence, and mens rea was not established against the appellants. Therefore, the penalty imposed on the appellants was set aside.

The Tribunal analyzed the relevant provisions of Rule 57F(4) and (5) under which the duty on scrap generated at job worker's premises should be paid and the waste returned to the manufacturer's factory. The Tribunal observed that the duty on the scrap had been paid by the appellants for the last decade in accordance with the department's formula. There was no scope for penal action against the principal manufacturer under Rule 57F(5) as the duty on the scrap had been paid by the appellants. The Tribunal emphasized that any finding of intent to evade payment of duty should be supported by positive evidence, which was lacking in this case. Since mens rea was not established against the appellants, the penalty imposed on them was set aside, and the appeal was allowed.