2015 (6) TMI 985 - AT - Central Excise

Penalty under Section 11AC - shortage of inputs/finished goods were found - clandestine removal of goods - Held that - As during the course of stock taking certain shortages were found but the contention of the appellant that stock taking was done on eye estimation basis has not been reverted by the Revenue without any supportive evidence and there is a shortage of around 0.56%. That shortage may be due to the stock taking by way of eye estimation basis. Furthermore, revenue has not produced any corroborative evidence to allege goods have been removed clandestinely without payment of duty. As Revenue has failed to prove the mala fide act on the part of the appellant to allege clandestine removal of the goods. Therefore, in the absence of any ingredient of Section 11AC of the Act penalty on the appellants are not imposable. - Decided in favour of assessee.

Summary

Issues:
Appeal against penalty under Section 11AC of the Central Excise Act, 1944.

Analysis:
The case involved appeals against penalty imposition under Section 11AC of the Central Excise Act, 1944. The appellants were visited, and shortages of inputs/finished goods were found without a satisfactory explanation. The appellants reversed the Cenvat Credit for the shortage and paid interest immediately. A show cause notice was issued, leading to duty demand confirmation, interest appropriation, and penalty imposition equivalent to duty. The appellants contested the penalty, arguing that stock taking was based on eye estimation without physical verification, and the shortages were minimal (0.56% and 0.46%). They claimed no evidence supported allegations of clandestine removal. The absence of mala fide intent meant Section 11AC penalty was unjustified.

During the case, the appellants claimed stock shortages were due to eye estimation stock taking, which the Revenue failed to disprove. The Revenue couldn't provide evidence of clandestine removal without duty payment. The case law cited by the Revenue was deemed inapplicable due to significant stock shortages in that case. As the Revenue couldn't establish mala fide intent for clandestine removal, the Section 11AC penalty was deemed unwarranted. Consequently, the impugned orders imposing penalties on the appellants were set aside, and the appeals were disposed of.