2011 (2) TMI 851 - AT - Central Excise

Penalty u/s 11AC - There is no dispute about the shortage of the finished products and the cenvated inputs involving duty/cenvat credit of Rs.4,10.401 - Commissioner (Appeals)s findings that there is no evidence of clandestine removal of the goods is incorrect and the order of the Commissioner (Appeals) setting aside the penalty on the respondent u/s 11 AC is also not correct - Since this is a case of clandestine removal, in accordance with the ratio of the Hon'ble Supreme Court in the case of Union of India Vs. Rajasthan Spinning Weaving Mills Ltd. 2009 -TMI - 33419 - SUPREME COURT OF INDIA , penalty on the respondent company under Section 11 AC would be attracted. As regards penalty on Director of the respondent company - find that the order-in-original does not discuss any evidence that the clandestine removal had taken place with his knowledge or that he was, in any manner, concerned in the disposal of the goods, which he knew are liable for confiscation - Thus, penalty on Director of the respondent company is set aside.

Summary

Issues:
1. Duty demand and penalty imposition on the respondent company for shortage of finished goods and inputs.
2. Imposition of penalty on the Director of the respondent company.
3. Application of reduced penalty under Section 11 AC.

Analysis:
1. The case involved a central excise duty demand and penalty imposition on the respondent company due to shortages of finished goods and cenvated inputs. The central excise officers found significant shortages during a physical verification, leading to a duty demand of Rs.4,10,401. The respondent admitted the shortage, indicating possible removal without payment of duty. The Asstt. Commissioner confirmed the duty demand, appropriated the amount already paid, and imposed penalties. The Commissioner (Appeals) upheld the duty demand but set aside the penalties. The Revenue appealed this decision before the Tribunal.

2. The Departmental Representative argued that the shortages were admitted by the respondent's representative, suggesting clandestine removal. It was contended that penalties should be imposed on both the company and its Director. On the other hand, the respondent's Counsel highlighted that mere shortages do not prove clandestine removal, and there was no justification for penalizing the Director. The Counsel also pointed out the failure to offer the option for reduced penalty under Section 11 AC before issuing the show cause notice.

3. The Tribunal analyzed the submissions and records, noting the admitted shortages and the respondent's statement indicating possible removal without payment of duty. Citing the Supreme Court's ruling in a similar case, the Tribunal concluded that penalty under Section 11 AC was warranted due to clandestine removal. However, since the duty had been paid before the show cause notice, the penalty should be reduced to 25% of the duty demand. Regarding the Director's penalty, the Tribunal found no evidence linking him to the clandestine removal, thus setting aside the penalty on the Director.

In conclusion, the Tribunal dismissed the appeal related to the Director but allowed the appeal concerning the respondent company. The Commissioner (Appeals) decision was set aside, and the Asstt. Commissioner's order was restored with the modification that the penalty on the respondent company would be reduced to 25% of the duty demand confirmed.