2011 (6) TMI 486 - AT - Central Excise

Cenvat credit of duty paid on inputs and capital goods shortage of raw material - Director accepted the shortage of the raw materials and finished goods, that he satisfied with the manner of stock taking, that he is ready to deposit the duty on the goods found short, that the raw materials found short has been consumed in the manufacture of finished goods and that the finished goods found short had been cleared without issuing the central excise invoice and without payment of duty Held that - penalty on him under Rule 26 of the Central Excise Rules, 2002 would be attracted as under this rule, penalty is imposable on any person, who in relation to any excisable goods is concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner dealing with, any excisable goods which he knows or has reason to believe are liable to confiscation, Revenue s appeal is allowed.

Summary

Issues:
1. Imposition of penalty under Rule 26 of the Central Excise Rules, 2002 on the Director of a company in a case involving shortage of raw materials and finished goods detected during a factory visit.

Analysis:
The case involved the Director of a company engaged in the manufacture of ERW Pipes charged with Central Excise Duty. During a factory visit, a shortage of raw materials and finished goods was detected, leading to a duty demand of Rs. 95,447. The Director admitted to the shortage and accepted responsibility for the missing raw materials and finished goods. The jurisdictional Assistant Commissioner confirmed the duty demand but did not impose any personal penalty on the company or the Director. Subsequently, the Commissioner (Appeals) imposed a penalty of Rs. 5,000 on the company under Section 11AC. The Tribunal remanded the matter back to the Commissioner (Appeals) for a fresh decision. In a new proceeding, the Commissioner (Appeals) imposed a penalty of Rs. 95,447 on the company but did not penalize the Director, citing the penalty already imposed on the company. The Revenue appealed, arguing that a penalty under Rule 26 should be imposed on the Director due to his involvement in the case.

The Tribunal noted that the key dispute revolved around whether a penalty under Rule 26 of the Central Excise Rules, 2002 could be imposed on the Director. The Director had admitted to the shortage of raw materials and finished goods during the factory visit. He also acknowledged that the missing raw materials had been used in the production of finished goods, which were sold without issuing invoices or paying duty. Rule 26 allows for penalties on individuals involved in activities related to excisable goods that are liable to confiscation. Based on the Director's statement, the Tribunal concluded that a penalty of Rs. 10,000 should be imposed on him under Rule 26. The Commissioner (Appeals)'s decision to exonerate the Director was set aside, and the Revenue's appeal was allowed.

In conclusion, the Tribunal upheld the imposition of a penalty under Rule 26 of the Central Excise Rules, 2002 on the Director of the company in question. The decision was based on the Director's admission of involvement in the case of missing raw materials and finished goods, which constituted a violation of excise rules. The Tribunal emphasized the individual liability of the Director separate from the company's penalty, highlighting the application of Rule 26 in such circumstances.