Per A.C.C. Unni :

This matter has come up before this Larger Bench on reference by a Two Member Bench vide Miscellaneous Order No. 206/2000-A dt. 11.5.2000. The Referral Order was made while hearing an Appeal filed by M/s Jay Yuhshin Ltd. against Order-in-Original passed by the Commissioner of Central Excise, New Delhi by which a duty demand of Rs. 55,91,225/- was confirmed against the assessee under Section 11A (1) of the Central Excise Act, 1944 and an equivalent amount of penalty imposed on them under Section 11AC of the Act apart from holding that interest on the aforesaid amount of excise duty will also be payable by the assessee under Section 11AB of the Act.

2. The Referral Order had noted that there was a conflict of views between different Benches of this Tribunal on the question raised before the Bench, viz., that in a case where the Department alleges intention to evade payment of duty, whether it was sufficient if the assessee shows that he had an alternative procedure available to him which, if followed, would have allowed him the benefit of set off or modvat credit, thus making the alleged short levy/non levy of duty, Revenue-neutral and whether that would be sufficient ground for establishing that there was no intention to evade duty.

3. On behalf of the assessee it had been argued that there was a catena of decisions of the Tribunal (mentioned in Para 3 of the Referral Order) supporting the contention that no intention to evade payment of duty can be attributed to an assessee where the situation results in Revenue-neutrality. As against this there was a decision of another coordinate Bench of the Tribunal in the case of M/s International Auto Products (P) Ltd. vs. CCE 1999 (35) RLT 58 (CEGAT) holding that the plea of Revenue neutrality will not be sufficient to hold that there was no intention to evade duty.

4. We have heard extensive submissions made before us by S/Shri V. Lakshmi Kumaran and M.P. Dev Nath, ld. Advocates for the assessee and Shri Sanjeev Srivastava, ld. JDR for the Respondent Commissioner.

5. The brief facts which had given rise to the disputes are as under:

The appellants, interalia, are engaged in the manufacture of lock sets, parts and accessories of goods falling under Chapters 83, 84 and 87 of the Central Excise Tariff Act, 1985. For some of the items manufactured by them, they receive components from M/s Maruti Udyog Ltd. (MUL) under cover of invoice issued under Rule 57F(4)(i) and (ii) of the Central Excise Rules, 1944. They avail of modvat credit of the duty paid on the said components. The components supplied by MUL were supplied free of cost and the final products manufactured by the appellants are cleared on payment of duty to MUL who, in turn take modvat credit of the duty paid by the appellants on the said items. The appellants however, did not include the cost of the items supplied by MUL in the value of the final products cleared by them to MUL. Sometime around September, 1997 the Department raised the point with them that the appellants should have included the cost of the free supply of components in the value of their final products. On being informed of the position by the Department, the appellants voluntarily debited the amount of duty payable by them on this account on 8.9.97. Thereafter on 10.7.98 die Department served a Show Cause Notice (SCN) on the appellants proposing to confirm the demand of duty and proposing to impose penalty on the appellants. On adjudication, the duty demand was confirmed. In addition, an equivalent amount of penalty under Section 11 AC was imposed on them apart from ordering payment of interest under Section 11AB.

6. The main contention advanced on behalf of the appellants before us is that the demand of duty for the period beyond six months was not sustainable since there was no intention on the part of the appellants to evade payment of duty. It is contended that the appellants were under the bonafide belief that since the components were suppl