2011 (5) TMI 603 - AT - Central Excise

Clandestine removal - duty demand and imposition of penalty - Held that - When there is huge shortage of finished goods and removal without payment of duty has been admitted, no further evidence of proving clandestine removal is necessary - the respondent has paid the duty on the goods found short before the issue of show cause notice the option to pay reduced penalty u/s 11AC has not been given by the adjudicating authority, thus following the decision held in K.P.Pouches vs. Union of India (2008 (1) TMI 296 - HIGH COURT OF DELHI) the benefit of reduced penalty equal to 25% under provisions to Section 11AC cannot be denied. It is clear that authorized representative had knowledge about the clandestine removal of the goods without payment of duty, penalty under Rule 26 of Central Excise Rules had been rightly imposed on them by the original adjudicating authority and setting aside of the penalty of the Commissioner(Appeals) is not correct - Decided against the assessee by reducing penalty

Summary

Issues Involved:
1. Whether penalty under section 11AC should be imposed on the respondent companies for shortage of finished goods.
2. Whether penalty under Rule 26 of Central Excise Rules should be imposed on the authorized representatives of the respondent companies.
3. Whether the benefit of reduced penalty under the proviso of section 11AC can be denied when duty has been paid before the issue of show cause notice.

Analysis:

Issue 1: Penalty under section 11AC on the respondent companies
In both cases, significant shortages of finished goods were detected during stock checking, and the respondents admitted that the shortage was due to goods being removed without payment of duty. The Commissioner(Appeals) set aside the penalty, stating there was no evidence of clandestine removal. However, the Tribunal disagreed, citing the Hon'ble Supreme Court's judgment in Union of India vs. Rajasthan Spinning & Weaving Mills Ltd. The Tribunal held that penalty under section 11AC should be imposed due to the admitted removal of goods without duty payment. Nevertheless, since the duty was paid before the show cause notice, the Tribunal applied the Hon'ble Delhi High Court's judgment in K.P.Pouches vs. Union of India and ruled that the benefit of reduced penalty cannot be denied. The penalty imposed was modified to 25% of the duty demand.

Issue 2: Penalty under Rule 26 of Central Excise Rules on authorized representatives
The Tribunal found that the authorized representatives had knowledge of the clandestine removal of goods without duty payment. Consequently, penalty under Rule 26 of Central Excise Rules was rightly imposed on them by the original adjudicating authority. The Tribunal held that setting aside the penalty by the Commissioner(Appeals) was incorrect, and the penalties on the authorized representatives were upheld.

Issue 3: Benefit of reduced penalty under the proviso of section 11AC
The respondents argued that since duty was paid before the show cause notice, the reduced penalty should apply. The Tribunal agreed, stating that the benefit of reduced penalty cannot be denied in such cases. Additionally, it noted that in one case, 25% penalty had already been paid, and therefore, the penalty payable would be equal to 25% of the duty.

In conclusion, the Tribunal set aside the Commissioner(Appeals) order, restored the penalties on the respondent companies at 25% of the duty demand, upheld the penalties on the authorized representatives, and disposed of the revenue's appeal and the Cross Objections accordingly.