2006 (8) TMI 343 - AT - Central Excise

Issues Involved:
1. Imposition of penalty on the appellant company and its Director.
2. Alleged clandestine removal of excisable goods and evasion of central excise duty.
3. Validity of stock verification and shortage detection.
4. Applicability of Section 11A(2B) of the Central Excise Act, 1944.
5. Relevance of prior case law and precedents cited by the appellant.

Detailed Analysis:

1. Imposition of Penalty on the Appellant Company and its Director:
The appellant company contested the penalty of Rs. 40,000/- imposed by the Commissioner (Appeals), while the Director challenged the penalty of Rs. 5,000/-. The penalties were imposed due to the alleged clandestine removal of goods and evasion of central excise duty. The Assistant Commissioner had initially imposed a penalty equal to the duty amount of Rs. 1,50,474/- on the company and Rs. 5,000/- on the Director. The Commissioner (Appeals) reduced the penalty on the company but upheld the penalty on the Director.

2. Alleged Clandestine Removal of Excisable Goods and Evasion of Central Excise Duty:
The Central Excise Preventive Branch, based on intelligence, conducted a physical stock verification at the appellant's factory and found a shortage of 2340 pieces of PVC pipes. The Director admitted the shortage and agreed to deposit the central excise duty of Rs. 1,50,474/-. The department issued a show cause notice alleging violation of Rules 4, 6, 8, 10, and 11 of the Central Excise Rules, 2002, and proposed penalties under Section 11AC of the Central Excise Act, 1944.

3. Validity of Stock Verification and Shortage Detection:
The appellant argued that the stock verification report was not valid and that there was no corroborative evidence of clandestine removal. However, the Commissioner (Appeals) and the Assistant Commissioner found the stock verification conducted in the presence of panch witnesses to be valid. The Director's admission of the shortage and his explanation that goods might have been removed in his absence were considered sufficient evidence of clandestine removal.

4. Applicability of Section 11A(2B) of the Central Excise Act, 1944:
The appellant contended that since the duty was paid before the issuance of the show cause notice, no penalty should be imposed, citing the Karnataka High Court's decision in CCE, Mangalore v. Shree Krishna Pipe Industries. However, the Tribunal noted that Section 11A(2B) provides that no notice shall be served if the duty is paid before the notice, except in cases involving fraud, collusion, willful misstatement, or suppression of facts. The Tribunal found that the clandestine removal was done with intent to evade duty, making the explanation to Section 11A(2B) applicable, thus justifying the penalties.

5. Relevance of Prior Case Law and Precedents Cited by the Appellant:
The appellant relied on several precedents, including decisions of the Karnataka High Court and the Tribunal's Larger Bench, which held that no penalty should be imposed if the duty is paid before the show cause notice. However, the Tribunal distinguished these cases based on the amendment to Section 11A(2B) and its explanation, which were not in force during the periods relevant to the cited cases. The Tribunal concluded that the statutory explanation excluded the benefit of Section 11A(2B) in cases involving intent to evade duty.

Conclusion:
The Tribunal upheld the findings of the lower authorities, confirming the duty liability and the penalties imposed. The appeals were dismissed, affirming the penalties of Rs. 40,000/- on the appellant company and Rs. 5,000/- on the Director, based on the established clandestine removal of goods with intent to evade duty. The Tribunal emphasized the applicability of the amended Section 11A(2B) and its explanation, which precluded the appellant from avoiding penalties despite the pre-notice payment of duty.

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