1998 (11) TMI 589 - AT - Central Excise

Issues Involved:
1. Legality of the impugned order regarding confiscation of goods, confirmation of demand, and imposition of higher penalty.
2. Allegations of clandestine removal of goods.
3. Validity of admissions and statements by the Director and employees.
4. Adequacy of evidence for evasion of duty and removal of goods without payment of duty.
5. Relevance and accuracy of purity registers and other records.
6. Justification for higher penalties and confirmation of demands as per the show cause notice.

Detailed Analysis:

1. Legality of the Impugned Order:
The application under Section 35-E(4) of the Central Excise Act, 1944, was filed by the Collector of Central Excise & Customs Ahmedabad against the order-in-original dated 8-5-1992. The main contention was whether the impugned order, which did not confiscate the goods, confirm the demand, or impose higher penalties, was legally correct and proper. The application sought to modify the order by confiscating the seized goods, confirming the demand of Rs. 309,487.50, and imposing penalties.

2. Allegations of Clandestine Removal:
The Respondents were engaged in the manufacture of Hydro-chloric Acid and availed Modvat credit on inputs. During a visit by Preventive Officers, shortages of 29,070 kgs of Caustic Soda flakes and 18,621 kgs of Hydro-chloric Acid were noticed. The respondents debited Rs. 42,966/- for the credit taken on these inputs. Further investigations revealed that the respondents had cleared several bags of Hydro-chloric Acid without payment of duty. The show cause notice demanded a total duty of Rs. 309,487.50 and proposed penalties.

3. Validity of Admissions and Statements:
The JDR argued that the case involved clandestine removal, supported by admissions from the Excise Clerk, Cashier, Accountant, and Director. These statements were not retracted and were considered inculpatory. The Modvat credit was taken, and duty was paid upon inspection by the officers. The JDR contended that the demand should be confirmed, and higher penalties imposed.

4. Adequacy of Evidence:
The Respondent's consultant argued that no goods were seized, only shortages were noted, and no excess goods were found. The purity register was not a stock register, and there was no positive evidence of clandestine removal or shortage. The cross-examination of the Superintendent revealed that no inquiries were made with the purchasers to confirm the receipt of goods. The department failed to discharge its burden of proof for clandestine removal and shortage.

5. Relevance and Accuracy of Records:
The adjudicating authority considered the statements of the Director and employees, the defence taken by the appellant, and the cross-examination of the investigating officers. It was noted that the purity register entries did not correlate with the actual removal of goods. The entries were made at the semi-finished stage, and no evidence was provided to show that the goods were cleared without payment of duty. The cross-examination revealed that the Superintendent did not make inquiries to correlate the quantity mentioned in the vouchers with duty-paying gate passes.

6. Justification for Higher Penalties:
The assessment of shortages by eye estimate was admitted by the Superintendent and ignored in the review order. There was no positive evidence for shortages and clandestine removal. The impugned order, which was exhaustive and considered all available material, concluded that there were no sufficient grounds to impose higher penalties or confirm the demands as per the show cause notice.

Conclusion:
The application by the Department to modify the impugned order by confiscating goods, confirming the demand, and imposing higher penalties was rejected. The adjudicating authority found that the evidence provided by the Department was insufficient and unsatisfactory to support the allegations of clandestine removal and evasion of duty. The impugned order was upheld, and the application was dismissed.

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