2013 (11) TMI 985 - AT - Central Excise

Penalty u/s 11AC of Central Excise Act - Shortage of finished product vis-a-vis balance recorded in the RG-1 register Held that - Just because any goods whose production has been recorded in the RG-1 register and subsequently those goods were not found in the factory and there is no satisfactory explanation for such shortage, it has to be concluded that the goods found short and whose shortage has not been explained satisfactorily, have been cleared clandestinely without payment of duty - just because the production of those goods had been entered in the RG-1 register, it cannot be the defence of the appellant that there was no intention on his part to evade the duty - Similarly, the appellant having sufficient balance in the RG-23A register, cannot be the ground for concluding that there was no intention to evade the payment of duty. The penalty under Section 11AC of the Act has rightly been imposed - no cognizance of the earlier finding that this is not a case of clandestine removal, can be taken, and this has to be treated as a case of careless drafting the order - Provisions of Section 11AC are attracted and hence the penalty under this Section has been correctly imposed. The appellants pleaded that since in the case the entire duty demand on goods found short had been paid before the issue of show cause notice and no option to pay reduced penalty under proviso to Section 11AC has been given Relying upon K.P. Pouches (P) Ltd. vs. Union of India 2008 (1) TMI 296 - HIGH COURT OF DELHI - the appellant company cannot be denied the benefit of reduced penalty - the plea of learned Counsel of the appellant regarding applicability of proviso to Section 11AC is correct and, as such, the benefit of the proviso cannot be denied - Accordingly, the penalty under Section 11AC is reduced to 25% of the duty demand Decided partly in favour of Assessee.

Summary

Issues:
- Shortage of finished goods vis-`a-vis balance in RG-1 register
- Imposition of duty demand, interest, and penalty
- Appeal against penalty under Section 11AC and Rule 26
- Dispute over intention to evade duty and clearance without payment
- Penalty imposition on partner for involvement in clearance without duty payment

Issue 1: Shortage of finished goods vis-`a-vis balance in RG-1 register

The appellant, a manufacturer of copper products, faced shortages in copper wire rods, copper strips, and copper scrap compared to the RG-1 register balance during a stock check. The shortages were acknowledged by a partner of the appellant firm, leading to a duty demand of Rs. 7,50,229. The Commissioner (Appeals) found the shortage but questioned the allegation of clandestine removal. However, the subsequent finding confirmed that the shortage was due to goods being removed without duty payment and proper invoices, justifying the penalty under Section 11AC.

Issue 2: Imposition of duty demand, interest, and penalty

Following the stock check, the Jurisdictional Additional Commissioner confirmed the duty demand on the goods found short, along with interest and an equal penalty amount. The duty demand was calculated based on the cum-duty price. The Commissioner (Appeals) upheld the penalty under Section 11AC and Rule 26, leading to appeals by both the appellant firm and the partner. The duty demand was not contested, focusing solely on the penalty imposition.

Issue 3: Appeal against penalty under Section 11AC and Rule 26

The appellant challenged the penalty under Section 11AC, arguing that the shortage was due to recorded production in the RG-1 register, thus negating the intention to evade duty. The appellant also contended that the penalty under Rule 26 on the partner was unjustified due to the lack of clandestine removal. However, the defense maintained that the partner's admission of removing goods without duty payment warranted the penalties.

Issue 4: Dispute over intention to evade duty and clearance without payment

The appellant's argument that the shortage was due to recorded production and sufficient balance in the RG-23A register was dismissed. The Tribunal held that the shortage, unexplained satisfactorily, indicated clandestine removal without duty payment. The Commissioner's contradictory findings were deemed a drafting error, upholding the penalty under Section 11AC due to the unchallenged duty demand and admission of removal without payment.

Issue 5: Penalty imposition on partner for involvement in clearance without duty payment

The partner's statements admitting the clearance of goods without duty payment and invoices, without retraction, led to the imposition of penalties under Rule 26. The partner's involvement in the sale of excisable goods without duty payment supported the penalty imposition. The Tribunal upheld the penalties, emphasizing the partner's knowledge of the goods' confiscation liability.

In conclusion, the Tribunal upheld the duty demand but reduced the penalty on the appellant firm to 25% under Section 11AC, following the precedent of the K.P. Pouches case. The appeals were disposed of accordingly, maintaining the penalty imposition on the partner and confirming the duty demand with modifications to the penalties.