Goods returned as defective - since they could not be re-processed, assessee writing them off in books of accounts - as goods are lying in factory, no duty payable - consequently mandatory penalty not imposable
THE respondents are manufacturer of pesticide and insecticides and were clearing the goods on payment of duty. The respondents have received back some goods in their factory, earlier cleared by them, as defective. Therefore, following the provisions of Rule 16(1) of the CER, 2001 the respondents took credit on the goods returned to them by their customers.
After certain period of time, the respondent realized that they could not re-process these goods.
So, these goods, lying in the factory, were written off in their Books of Accounts.
But naturally, this came to the notice of the department. The respondents were directed to reverse the credit taken by them on these goods and which they did along with the interest.
SCN followed and the adjudicating authority imposed a mandatory penalty u/s 11AC of the Act r/w Rule 13 of the CCR, 2002.
The respondents challenged this order and the Commissioner(A) was pleased to set aside the penalty.
Revenue is, therefore, in appeal before the CESTAT and submits that mandatory penalty is imposable in view of the SC decision in Rajasthan Spinning & Weaving Mills - inasmuch since the demand has been confirmed, penalty is inescapable.
The respondent submitted that duty is payable at the time of clearance of the goods and since in the present case the goods were lying in the factory, they were not required to pay even duty. However, since they have paid duty along with interest and which they are not protesting, penalty is not imposable.
The CESTAT observed -
"6. As per the section 3 of the Central Excise Act, 1944, as the goods were lying in the factory of the respondents, therefore, the respondents were not required to pay duty. Although the respondents are not contesting duty liability and interest paid by them, therefore, I am not passing any order on the liability of the duty. As the duty is not payable, question of mandatory penalty does not arise. Therefore the decision cited by the learned AR is not applicable to the facts of this case. In these circumstances, the impugned order is upheld and the appeal filed by the Revenue is dismissed."