ORDER
V.P. Gulati, Vice-President
1. The prayer in these applications is for dispensation of pre-deposit of a penalty of Rs. 63 Lakhs. The appellants have been penalised for the reason that they had removed the inputs in respect of which the Modvat credit had been taken without payment of duty in violation of the requirements of Rule 57F.
2. The learned Consultant for the appellants has pleaded that the appellants are a Government of India Undertaking and they have got the clearance from the Committee of Secretaries constituted in terms of the judgment of the Hon’ble Supreme Court in the case of ONCC and who have allowed the appellants to contest the appeal before the Tribunal after making the payment of the duty as demanded in terms of the impugned order. The learned Consultant has stated that the duty amount of Rs. 62,71,869/- has already been paid under protest and they are now before us for the dispensation of the amount of penalty levied by the learned lower authority. The learned Consultant has pleaded, as it is, the appellants were not required to pay the duty as held payable by the learned lower authority, inasmuch as duty to be paid in terms of the decision of the Larger Bench in the case of American Auto Service . He has pleaded in terms of this Larger Bench decision, in the event of an assessee clearing the goods in respect of which earlier Modvat credit had been taken, the amount of duty payable would be equal to the Modvat credit which was taken by the appellants. He has referred us to para 11 of this majority decision of the Tribunal which is reproduced below for convenience of reference:
11. With utmost respect, we do not agree with this view. The reason being that the classification and its assessment has already been finalised at the original manufacturer’s end and such an act of approval of classification and assessment cannot be reopened at the stage of the user of inputs. Further there is no provision in the Act and Rules for reopening the settled classification and assessment at the purchaser’s end. The term “appropriately” cannot be read to mean “effective duty of excise” as prevalent at the time of manufacture and removal of goods, at the first instance by the original manufacturer of the goods. As the Rule 57F(l)(ii) is placing a burden on the user to make the payment of duty, therefore, a legal fiction has been created, to consider the user of the inputs as a manufacturer, only to recover the credit already utilised by him on such inputs. This is a requirement for payment of duty on the inputs removed for home consumption, as at the stage of its removal, the duty which it had suffered, has already been utilised by the user of input. Therefore, in order to undo this act, the duty which the input had suffered earlier, is required to be paid back, even if the duty had been reduced at a level lower than the rate at which duty had been paid by the original manufacturer. The proviso to Rule 57F(l)(ii) makes this aspect clear. Therefore, the Rule directs the user of the input to maintain the level of rate of duty, even if rates of excise duty have come down. This same benefit availed by revenue is also required to be granted to the user of inputs when the rates go up by recovering only the rate of duty utilised by him at the time of taking credit. Therefore “appropriate duty of excise” has to be taken as the rate of duty which he suffered at the first instance and it cannot be read to mean “effective rate of duty” as prevalent at the time of clearance of inputs for home consumption. The view expressed in the SAE India Ltd.’s case is required to be accepted and followed. This view appears to have been the understanding of the department also, as can be seen from the Trade Notices referred to before us.
3. He has pleaded, as it is the appellants have paid in excess of the amount due. He has further urged that so far as the payment of the amount in terms of the Larger Bench decision is concerned, the appellants are not contesting the appeal to that extent. He has, therefore, prayed for dispensation of the pre-deposit of the penalty.
4. The Learned JDR for the department has pleaded that the ratio of the Larger Bench decision may not apply to the facts of this case inasmuch as in that case the issue related to the demand of higher duty on account of the classification of the goods. He has pleaded that the appellants, inasmuch as they have admitted the liability to the extent of Rs. 44,96,478/- which amount is equal to the Modvat credit taken in respect of the goods which were cleared the appellants are liable to penalty and he has, therefore, pleaded for dismissal of the appellant’s plea for dispensation of the penalty.
5. We find after going through the facts of the case that the appellant’s case is prima facie covered so far as to the extent of demand is concerned by the ratio of the decision of the Larger Bench in the case of American Auto Service referred to supra. We also observe that the appellants are not contesting the demand equal to the Modvat credit taken by them in respect of the goods. The issue, therefore, to be decided only relates to the quantum of penalty which is leviable and in respect of which a leniency is pleaded before us. Since the issue falls in a short compass, with the consent of both the sides, the appeals themselves are taken up for disposal by dispensing with the pre-deposit of the penalty.
6. The learned Consultant for the appellant’s Shri Rajappa has pleaded that there was some mistakes committed in the appellant’s organisation over the period 1988-1993 and the concerned staff, without appreciating the impact of their action for removal of the goods in respect of which Modvat credit was taken, without payment of duty, had been doing this over a period of time. He has pleaded that he does not contest so far as the leviable of these goods to duty is concerned. This duty, however, he has pleaded, in terms of the Larger Bench decision cited supra, will be equal to the Modvat credit which was taken in respect of the goods in question. He has pleaded, this amount had already been paid by them. The appellants, he has pleaded are a Government of India Undertaking and no particular individual can be taken to have benefited by the act of removal of the goods without payment of duty. He has also pleaded that there was no mala fide on the part of the appellants and penalty should not have been levied and at best a nominal penalty should have been levied.
7. We have put it to the appellants that the appellants by removal of the goods had the advantage of the money which had been realised on the goods as spare parts and that too on a much higher price. For the use of this money, the appellants should have derived a substantial advantage. We had asked the learned JDR as to what is the rate of interest that the department has been charging in respect of the provisions now applicable for the levy of interest. He is not able to enlighten us in this regard. However, in the present case, we take note that the appellants had not paid the duty, that if the appellant had paid the duty as required by law at the time of removal, the funds have been borrowed from the Bank, the interest of atleast 18% would have been charged. -This position has not been contested but it was pleaded that varying rates of interest are charged. Taking into consideration these facts, we had asked the learned Consultant and the learned JDR to do an exercise as to the amount of Modvat credit which was utilised by them and for that how much would be the interest liability over a period of time. This figure according to them, approximately comes to Rs. 40 lakhs. We had pointed out to the learned Consultant that this advantage that the appellants had gained out of the money that they had realised and the liabilities they would have otherwise incurred by payment of duty at the time of removal of the goods had to be neutralised. Further, the appellants are liable to penalty for their removal of the goods without payment of duty.
8. The learned JDR has pleaded that the appellants, in total disregard of the position in law, had been taking Modvat credit in respect of the goods in question without utilising the same in their factory and removed them for sales and derived a substantial profit out of the sale of the goods. He has pleaded, in equity the duty should be paid by them on the sale price realised by them. He has pleaded that the appellants are liable to penalty and no leniency should be shown in the facts and circumstances of this case.
9. We have considered the pleas made by both the sides. We observe that the appellants are an organised set up having their own hierarchy of officers at the supervisory level and they must be having also their own internal audit to ensure that the proper procedure are followed and the due compliance with the law is made. It is not understandable how from 1988 to 1993 the removal of the goods without payment of duty could not have been detected. The only inference that can be drawn is that the appellants had chosen to keep quiet about the whole thing. Even after the case has been detected, they did not come forward to pay the amount in full only after the clearance of the Committee of Secretaries had been obtained. In this background, therefore, we hold that the plea of bona fides cannot be accepted.
10. We observe, the appellants had the advantage of the money over a long period and on their own calculation which has been seen by the JDR, the interest liability alone has been calculated at the rate of 18% , which would come to around Rs. 40 Lakhs. The appellants do not dispute that they are required to pay the amount of Rs. 44,96,478/- that is the amount equal to the Modvat credit taken in respect of the goods in question. We observe that the appellants have rightly pressed in to service the ratio of the decision of the Larger Bench. The Larger Bench has clearly held that in case of the goods received for manufacture by an assessee on which Modvat credit is taken at the time of removal of the same, there has to be no further re-assessment of the duty liability and the duty to be paid would be equal to the Modvat credit that had been taken by the assesses. It does not matter whether the revision of duty is called for by reason of re-classification or change in the rate of duty or value of goods. Following, therefore the Larger Bench decision, we uphold the plea of the appellants that the duty liability would be equal to the Modvat credit taken earlier by them in respect of the goods in question. Inasmuch as the appellants had the advantage of larger amounts, and also taking into consideration the pleas made and facts and circumstances of the case we hold that the ends of justice would be served if the penalty levied on the appellants is reduced to Rs. 50 Lakhs (Rupees Fifty Lakhs). We observe that the amount already paid by them over and above the amount of Modvat credit which had been taken would be adjusted against this penalty now ordered by us. The appellants are required to pay the balance amount.
11. The appeals are, therefore, decided in the above terms.
(Pronounced and dictated in open Court).