2012 (7) TMI 230 - AT - Central Excise

Legality of reduction of penalty leviable u/s 11AC even on proven and admitted shortage of stock - Appellate authority made contradictory approach by admitting shortage on one side and negating clandestine removal on other side - Held that - It is clear that assessee failed to adduce evidence before the appellate authority to defend the adjudication. There was no controversy of the fact found by investigation when physical verification resulted in discrepancy in stock and more particularly, shortage of raw material. Possible inference that may arise is either the raw materials were removed as such or those must have been instrumented to make finished goods for clandestine removal. It would be proper, if the first appellate authority thoroughly re-examines the facts and evidence and come to a rationale conclusion about the veracity of the SCN - matter remanded back.

Issues:
1. Contradictory approach of appellate authority in reaching a conclusion.
2. Failure of the assessee to provide evidence before the appellate authority.
3. Reduction of penalty by the appellate authority.
4. Appeal by the revenue against the reduction of penalty.

Issue 1: Contradictory approach of appellate authority
The judgment highlights the confusion arising from the contradictory approach of the appellate authority in reaching a conclusion. The authority noted an admitted shortage and acknowledged the duty payment against it. However, the authority failed to establish clandestine removal despite the shortage, leading to a lack of evidence supporting the invocation of Section 11AC of the Central Excise Act, 1944. The judgment criticizes the lack of congruity in the decision-making process and emphasizes the need for a thorough examination of the law.

Issue 2: Failure of the assessee to provide evidence
The judgment points out that the assessee failed to present evidence before the appellate authority to contest the adjudication. The discrepancy in stock, particularly the shortage of raw material, was not adequately explained by the assessee. Referring to a judgment of the Hon'ble High Court of Madras, the judgment suggests that the raw materials might have been used for clandestine removal, highlighting the importance of a detailed re-examination of facts and evidence by the appellate authority.

Issue 3: Reduction of penalty
The judgment addresses the reduction of penalty from Rs. 6,84,575 to Rs. 2 lakhs by the appellate authority. It emphasizes that in the presence of elements of Section 11AC of the Central Excise Act, 1944, there is no discretion to reduce the penalty. The matter is remanded to the appellate authority for a comprehensive review of the grounds of appeal and evidence before making a decision on penalty imposition.

Issue 4: Appeal by the revenue against penalty reduction
The judgment discusses the appeal by the revenue against the reduction of penalty imposed on the assessee. It highlights the necessity for the appellate authority to thoroughly examine the evidence related to Section 11AC of the Central Excise Act before making any decisions on penalty imposition. The judgment also notes the prolonged proceedings due to the absence of the assessee, leading to a decision made in the absence of the party.

In conclusion, the judgment emphasizes the importance of a coherent and law-based decision-making process by the appellate authority, the necessity for the assessee to provide evidence to defend adjudication, and the requirement for a detailed review of penalty imposition in line with the provisions of the Central Excise Act, 1944.

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