2004 (11) TMI 460 - AT - Central Excise

Demand - Cenvat/Modvat - Shortage of inputs - Improper accounting alleged - Penalty - Non-accountal of goods

Summary

Issues:
1. Disallowance of Modvat credit under Rule 57-I
2. Imposition of penalty for non-accountal of finished goods under Rule 173Q

Analysis:

1. Disallowance of Modvat credit under Rule 57-I:
The appeal stemmed from the Commissioner's order disallowing Modvat credit of Rs. 1,54,737 under Rule 57-I and the proviso to Section 11A of the Central Excise Act. The Commissioner found a shortage of raw materials in the appellant's factory, leading to the disallowance of credit as the shortages were not explained. Additionally, the Commissioner imposed penalties and interest under Rule 57-I. However, upon examination, it was revealed that the Commissioner's focus was on improper accounting of inputs rather than clandestine removal after taking Modvat credit. The appellant argued that the inputs were not clandestinely removed, but there were discrepancies in accounting procedures. As per Rule 57F of the Central Excise Rules, the Commissioner should have imposed a penalty for improper accounting instead of demanding duty. Consequently, the Tribunal held that the penalty and duty were not justified, leading to the allowance of the appeal.

2. Imposition of penalty for non-accountal of finished goods under Rule 173Q:
The Commissioner imposed a penalty of Rs. 1 lakh for non-accountal of finished goods under Rule 173Q, despite unconditionally releasing the alleged unaccounted goods. The Tribunal noted that Rule 173Q allows penalties for unauthorized removal or non-accountal of goods. In this case, since the goods were released without confiscation, the penalty for non-accountal should not have been imposed. The Tribunal agreed with the appellant's contention that the penalty was unwarranted in this scenario. Therefore, the Tribunal held that the penalty was not justified, leading to the allowance of the appeal and the setting aside of the penalty.

In conclusion, the Tribunal ruled in favor of the appellant, holding that the penalties imposed were not justified. The disallowance of Modvat credit and the imposition of penalties were deemed inappropriate due to the lack of evidence supporting clandestine removal and the release of goods without confiscation. Consequently, the appeal was allowed, and the penalties were set aside.