ORDER
M.V. Ravindran, Member (J)
1. These appeals are directed against order-in-appeal No. 94-95/CE/MRT-I/04 dt.27.2.04 and order-in-appeal No. 91-92/CE/MRT-I/04 dt.27.2.04 wherein the anneal of the appellants was disposed of by the appellate authority upholding the confirmation of the demand and the penalty.
2. The relevant facts for consideration are that the appellants were manufacturer of Elastic Yarn i.e. in the nature of rubber thread covered by yarn. The appellants in both the cases were filing the declaration as prescribed under Notification No. 13/92-CE earlier. During the period of investigation and the period in dispute, both the appellants had not filed the said declaration with the authorities. The premises of both the appellants were visited by the officers of Central Excise and they came to conclusion that the appellants had misdeclared their product as yarn covered with ‘Rubber or Elastic Yarn” and ‘Nylon covered with Elastic Yarn’ thus claimed the exemption not eligible to them. The appellants had also not taken out the Central Excise Registration Certificate. A SCN was issued to both the appellants and demand was confirmed by the adjudicating authority and penalty was imposed on both the appellants under Section 11AC of the Central Excise Act and Rule 173Q of the Central Excise Rules, 1944. On an appeal, the Commissioner(Appeals) in his order-in-appeal No. 91-92 dt.27.2.04 confirmed the amount of duty, allowed the benefit of Modvat credit to the appellants but set aside the penalty imposed on the appellants under Section 11AC. but upheld penalty imposed under Rule 173Q. In respect of Order-in-appeal No. 94-95, the appellate authority upheld the demand of the duty and also upheld the penalty imposed under Section 11AC and Rule 173Q on the appellants. Hence this appeal.
3. Ld. Advocate appearing for the appellant submits that he has preferred this appeal only in respect of non-imposition of penalty on the appellants. He categorically submits that they are not challenging the demand of the duty and the classification of the product. He submits that the imposition of penalty under Section 11AC in respect of order-in-appeal No. 94-95 dt.27.2.04 is not correct in-as-much as the appellants were on bonafide belief that their products were not excisable. He submits that their plea of Modvat credit on the inputs if the products of liable duty, was accepted by the Commissioner (Appeals) and the Modvat credit available to them for the disputed period is about Rs. 13 lakhs while the total duty payable works out to Rs. 6 lakhs approximately without concession. He relies upon the decision of the Division Bench of this Tribunal in the case of Shivalik Agro Poly Products v. CCE. Chandigarh reported in 2001 (130) ELT 736. In respect of imposition of penalty under Rule 173Q in the case of both the appellants he submits that SCN does not bung out any specific clause of Rule 173Q for imposition of penalty. In the absence of his specific course in the SCN, the penalty imposed under Rule 173Q is not maintainable. He relies upon the recent decision of the Hon’ble Supreme Court in the case of Amrit Foods v. CCE, U.P. reported at 2005 (1990) ELT 433 (SC).
4. Ld. DR on the other hand submits that the appellants herein are not eligible for any leniency in respect of the imposition of penalty under Section 11AC or under Rule 173Q. He submits that the appellants have willfully misdeclared the classification of the product to avail the benefit of the exemption notification and hence they have evaded duty by suppressing the correct classification of the product. In respect of the imposition of penalty under Rule 173Q, he submits that Hon’ble Supreme Court in the case of CC(Import) v. Jagdish Cancer & Research Centre reported at specifically states that the SCN has to be read as a whole as to whether the person concerned is made aware of the various grounds on the basis of which action is proposed to be taken and as well as the nature of action. He submits that this decision of the Hon’ble Supreme Court is binding in respect of the imposition of penalty under Rule 173Q.
5. Considered the submissions made by both the sides and perused the records. I find that the dispute is only in respect of imposition of penalty on both the appellants. In respect of Appeal No. E/2743/04-NB(SM), the appellate authority has held that penalty is not imposable under Section 11AC of the Central Excise Act, 44. The Deptt. is not challenging the said findings. In respect of the penalty imposed under Rule 173Q of the Central Excise Rules. 44. I find that the SCN issued to the appellants has not mentioned any specific clause of which violation was made.
6. In respect of Appeal No. E/2742/04, I find that the appellant authority has reduced the penalty imposed upon the appellants under Section 11AC. From 28.9.96 penalty is imposable which is equivalent to duty evaded from that date. He has not mentioned the quantum of penalty under Section 11AC but has left it to the lower authorities to work out the quantum of penalty. I find that the ratio of the decision of the Shivalik Agro Poly Products(supra) squarely covers the situation in this appellant’s case. The appellants were manufacturing and clearing the products without payment of duty and not availing the Modvat credit. From the statement which was produced before me, if found to be correct, the appellants are eligible for availment of Modvat credit to the tune of Rs. 13 lakhs. In the case of Shivalik Agro Poly Products(supra), para 7 it was held as under:
In regard to imposition of penalty of Rs. one lakh, we find that the credit of duty on inputs was higher than the duty payable on the final product. Thus, there was in actual fact, no duty payable. In the circumstances, we find that imposing a penalty of Rs. one lakh was not warranted. Thus, the order imposing the penalty of Rs. one lakh is set aside.
7. Applying the ratio as mentioned above, I find that if the total duty payable by the appellants, without considering the concession available to assessee works out to Rs. 6 lakhs approximately, still they are eligible to avail Modvat credit to the tune of Rs. 13 lakhs which is higher than the duty payable on the final products. There cannot be any reason for the appellants not to pay the duty if they are eligible for availment of Modvat credit more than the duty payable on the final products. Hence the imposition of penalty under Section 11AC on the appellants in this case is not sustainable.
8. In respect of imposition of penalty under Rule 173Q on both the appellants. I find that the SCN in respect of both the appellants does not specifically mention under which Clause the said penalties are to be imposed. In the absence of any specific Clause, it cannot be presumed that the appellants were put to notice about the violations of the Rule 173Q under which they are sought to be penalized. I find that in the case of Amrit Foods(supra) on an appeal filed by the Revenue in Civil Appeal No. 7275/03 it was held as under:
5. The Revenue has preferred an appeal from the order of the Tribunal setting aside the imposition of penalty under Rule 173Q of the Central Excise Rules, 1944. The Tribunal has set aside the order of the Commissioner on the ground that neither the show cause notice nor the order of the Commissioner specified which particular clause of Rule 173Q had been allegedly contravened by the appellant. We are of the view that the finding of the Tribunal is correct. Rule 173Q contains six clauses the contents of which are not same. It was, therefore, necessary for the assessee to be put on notice as to the exact nature of contravention for which the assessee was liable under the provisions of the 173Q. This not having been done the Tribunal’s finding cannot be faulted. The appeal is, accordingly, dismissed with no order as to costs.
9. From the above ratio, it is clear that the Hon’ble Supreme Court has laid down the law stating that for imposition of penalty under Rule 173Q, the particular clause of the said rule has to be mentioned on the SCN issued to the assessee.
10. In view of the above, I find that the order-in-appeals to the extent, they are upholding the imposition of penalty under Section 11AC and Rule 173Q are liable to be set aside. The impugned orders set aside to that extent and appeals allowed.
Order dictated in the open Court.