2007 (6) TMI 94 - AT - Central Excise

Demand - Department made demand on the following ground (i) Shortage of socks on verification of stock (ii) Socks sold to the DTA without payment of correct duty - Held that demand not sustained in first case but in second cases it is partly allowed along with penalty

Summary

Issues: Duty demand on alleged clearances of Socks without payment of duty under Section 11A of the Central Excise Act, 1944; Imposition of penalty under Section 11AC and Rule 209A of the Central Excise Rules; Verification of stock shortage; Duty demand on clearances to Domestic Tariff Area without payment of duty under proviso to Section 3 of the Central Excise Act.

Analysis:
1. Duty Demand on Alleged Clearances of Socks without Payment of Duty:
The impugned order demanded duty amounting to Rs. 81,48,576/- on the value of alleged clearances of socks without payment of duty under Section 11A of the Central Excise Act, 1944. The appellants challenged this order, arguing that they were a 100% Export Oriented Unit (EOU) manufacturing socks exempted from central excise duty. The duty demand was based on a shortage of finished goods found during stock verification and clearances through a trading company. The Tribunal found that the shortage claim was flawed as the appellants had informed the department about additional stock in another godown and had exported significant quantities, which, if considered, would negate any shortage. The duty demand was set aside based on lack of evidence supporting clandestine removals.

2. Imposition of Penalty under Section 11AC and Rule 209A:
Penalties under Section 11AC and Rule 209A of the Central Excise Rules were imposed on the main appellant-unit and its Managing Director. The Tribunal upheld the penalty under Section 11AC but limited it to Rs. 1,76,728/- based on the correct duty liability. The penalty under Rule 209A on the Managing Director was reduced to Rs. 20,000/- considering the quantum of duty evaded. The imposition of penalties was justified due to the incorrect payment of duty on clearances, but the amounts were adjusted based on the actual duty liability determined by the Tribunal.

3. Verification of Stock Shortage:
Regarding the stock shortage, the Commissioner's findings were questioned as the shortage claim was not properly refuted by the assessee. However, the Tribunal noted that the appellants had informed about additional stock and exports, which, if considered, would eliminate any shortage. The Tribunal found the Commissioner's conclusion flawed and set aside the duty demand related to the stock shortage due to lack of proper verification by the department.

4. Duty Demand on Clearances to Domestic Tariff Area:
The duty demand on clearances to the Domestic Tariff Area (DTA) without payment of duty was based on the proviso to Section 3 of the Central Excise Act. The appellants argued that the correct provision should be the main Section 3(1) and not the proviso for the relevant period. The Tribunal agreed, stating that the duty payable would be Central Excise Duty, and the proviso was applicable only after its amendment from 14-5-2001. The duty liability on clearances was recalculated, and penalties were upheld based on the correct duty provisions, with adjustments made to reflect the actual duty payable.

In conclusion, the Tribunal disposed of the appeals by setting aside the duty demand related to stock shortage, recalculating the duty liability on clearances, and adjusting the penalties imposed on the appellants based on the correct duty provisions and quantum of duty evaded.