2007 (2) TMI 405 - AT - Central Excise

Summary

Issues:
1. Appeal against penalty under Section 11AC upheld by adjudicating authority.
2. Shortage of inputs and finished goods found during a visit to the factory.
3. Commissioner (Appeals) set aside the demand of duty but upheld the penalty.
4. Contention regarding the sustainability of penalty under Section 11AC.
5. Commissioner (Appeals) decision on duty liability and penalty imposition.

Analysis:
1. The appellants filed an appeal against the impugned order where the penalty under Section 11AC was upheld by the adjudicating authority while dropping the demand. The case involved the appellants engaged in drawing copper wire and aluminum wire under the Modvat scheme, availing credit for duty paid on inputs used in finished goods. The officers found shortages of inputs and finished goods during a visit to the factory, leading to the confirmation of demand and penalty imposition by the adjudicating authority.

2. The Commissioner (Appeals) in the impugned order disposed of the appeal by acknowledging that duty liability does not arise, but upheld the penalty citing clandestine removal of goods by the appellants. The authorized signatory admitted the shortages in inputs and finished goods during physical verification, leading to the imposition of penalty under Section 11AC. The revenue contended that the shortages were admitted, justifying the demand and penalty.

3. The appellant's contention was that since the Commissioner (Appeals) set aside the demand of duty, the penalty under Section 11AC was not sustainable. The argument was based on the acceptance that the demand was not sustainable, and therefore, there was no issue of clandestine removal, relieving the appellants from penalty liability.

4. The Commissioner (Appeals) decision on the duty liability and penalty imposition was crucial. The Commissioner found that duty liability did not arise due to the shortage of goods being cleared on payment of duty, but still maintained the penalty due to the clandestine removal of goods. However, as the demand was set aside and no appeal was filed by the Revenue against this order, the imposition of penalty under Section 11AC was deemed not sustainable.

5. Ultimately, the Tribunal allowed the appeal, setting aside the penalty under Section 11AC as the demand was not sustained by the Commissioner (Appeals). The decision highlighted that the provision of Section 11AC imposes penalties when duty is not paid due to fraud or misstatement, which was not applicable in this case. Therefore, based on the Commissioner's decision regarding demand sustainability, the penalty imposition was deemed unwarranted.

(Order dictated and pronounced in the open Court on 8-2-2007)