2012 (11) TMI 518 - AT - Central Excise

Penalty under Section 11AC of the Central Excise Act alleged that shortage in physical stock of inputs on the date of visit of the factory by the departmental officers Held that - Though there was a shortage of inputs noticed by the Department, but no evidence has been brought on record either from their past conduct or evidence showing any attempt to remove such inputs from the factory without discharging/reversing Cenvat credit - penalty equivalent to the duty involved, only on account of the shortage in the physical stock of inputs noticed during the visit of the officers, cannot be upheld under Section 11AC of the Central Excise Act, 1944 - waiver of pre-deposit allowed.

Summary

Issues:
Imposition of penalty under Section 11AC of the Central Excise Act for shortage in physical stock of inputs.

Analysis:
The case involved an Application for waiver of pre-deposit of penalty amounting to Rs. 1,40,830/- imposed by the adjudicating authority under Rule 15 of Cenvat Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1944 due to a shortage in physical stock of inputs noticed during a routine verification by visiting officers. The Director of the applicant admitted the shortage and paid the CENVAT Credit on the said shortage. The Appellant's Advocate argued that there was no evidence of removal of inputs without payment of duty and cited case laws stating that mere notice of shortage is insufficient to invoke Section 11AC. Hence, he pleaded for a waiver of the penalty.

The Department's representative contended that it was a case of non-accountal of inputs as the Director could not explain the shortage, implying possible clandestine removal. The Director's admission of the shortage and lack of retraction were highlighted to support the imposition of an equivalent penalty under Section 11AC.

After hearing both sides, the Tribunal considered the issue of penalty imposition under Section 11AC in light of the shortage of inputs observed during the visit. The Tribunal noted the lack of evidence suggesting removal of inputs without discharging/reversing Cenvat credit. In the absence of such evidence, the Tribunal opined that penalty equivalent to the duty involved solely for the shortage in physical stock cannot be upheld under Section 11AC. Consequently, a strong prima facie case for waiver of the penalty pre-deposit was established, leading to the waiver of the penalty amount of Rs. 1,40,830/- and allowing the Stay Petition.