2008 (11) TMI 603 - Commissioner - Central Excise

Summary

Issues Involved:
1. Shortage of stock found during physical verification.
2. Alleged clandestine removal of fabrics based on private records.
3. Imposition of penalties under relevant sections and rules.

Issue-wise Detailed Analysis:

1. Shortage of Stock Found During Physical Verification:
The Anti Evasion team conducted a surprise visit to the factory premises of the respondents on 1-11-2002 and found a shortage of 15,151.75 meters of processed man-made fabrics compared to the RG-1 register. The department issued a show cause notice demanding recovery of Rs. 25,455/- for the shortage. The respondents contested the accuracy of the physical verification, citing the absence of a panchnama and independent witnesses. The adjudicating authority observed that the stock verification was not beyond doubt and dropped the demand. The appellate authority upheld this decision, noting the lack of proper measurement documentation and the absence of corroborative evidence.

2. Alleged Clandestine Removal of Fabrics Based on Private Records:
The department alleged that the respondents clandestinely removed 1,297,098 meters of fabrics, involving a duty of Rs. 22,12,495/-, based on private records seized during the visit. The respondents argued that the records were not resumed under a proper panchnama, and the handwriting was not verified. They also pointed out the absence of evidence such as excess consumption of electricity, raw materials, or corroborative statements from buyers. The adjudicating authority found that the evidence was insufficient to prove clandestine removal and dropped the demand. The appellate authority agreed, emphasizing the need for concrete evidence and noting that the burden of proof lies with the department.

3. Imposition of Penalties:
The department sought penalties under Section 11AC of the Central Excise Act, 1944, and Rule 25(1) of the Central Excise Rules, 2002, for the respondents' alleged contraventions. Additionally, penalties under Rule 26 were proposed for the proprietor and authorized signatory. The respondents argued that penalties were unwarranted due to the lack of evidence and the principle that penalties on a proprietorship firm should not be separately imposed on the proprietor. The appellate authority upheld the adjudicating authority's decision to drop the penalties, citing the absence of conclusive evidence and the principle that penalties cannot be imposed in the absence of proven contraventions.

Conclusion:
The appellate authority rejected the department's appeal, affirming the adjudicating authority's decision to drop the demands and penalties. The judgment emphasized the need for concrete evidence in cases of alleged clandestine removal and the importance of following proper procedures during investigations. The decision underscored that assumptions and presumptions cannot substitute for tangible evidence in establishing contraventions and imposing penalties.