2014 (6) TMI 234 - AT - Central Excise

Confiscation of goods - Penalty - Incomplete RG-1 register - Tribunal decided in favour of assessee - Difference of opinion - Matter referred to larger bench with following questions of law - Whether in the facts of the case and the law applicable including the various decisions of judicial forums discussed, the seized goods are not liable to confiscation and the assessee company and the Director not liable to penalties as held by Member (Judicial) OR Whether in the facts of the case and the law applicable including the various decisions of judicial forums discussed, the seized goods are liable to confiscation and the assessee company and its Director are liable to penalties as held by Member (Technical).

Issues Involved:
1. Confiscation of raw materials and finished goods found in excess during the search.
2. Imposition of penalties on the manufacturing unit and its Director.
3. Interpretation of Rule 25 of the Central Excise Rules, 2002.

Issue-Wise Detailed Analysis:

Confiscation of Raw Materials and Finished Goods:
The premises of the respondent were searched, and raw materials and finished goods were found in excess of the quantities recorded in the statutory records. The goods were seized, and proceedings were initiated proposing confiscation and penalties. The Joint Commissioner ordered confiscation with an option for redemption on payment of a fine and imposed penalties. However, the Commissioner (Appeals) set aside the confiscation and penalties, citing the absence of mensrea and mere non-entry in the RG-1 register as insufficient grounds for such actions.

The appellate authority relied on various Tribunal decisions, including Oceanic Cooling Towers P. Ltd. and Saboo Berlac Ltd., which held that the requirement of accountal under Rule 25 applies to final excisable goods, not raw materials. The Tribunal found no justifiable reasons for confiscation of the seized raw materials, as the law on this issue was settled by precedent decisions.

Regarding the finished goods, the Commissioner (Appeals) noted that Rule 25 provides for confiscation if the manufacturer does not account for excisable goods. The appellate authority, citing the Pepsi Foods case, held that accounting for goods is different from non-recording in the RG-1 register. The absence of any evidence indicating intent to evade duty led to the conclusion that confiscation was not warranted.

Imposition of Penalties:
The Commissioner (Appeals) observed that penalties under Rule 25 require evidence of mensrea or intent to evade duty. The appellate authority relied on the Bhilai Conductors P. Ltd. decision, which emphasized that mere non-accountal in the RG-1 register, without evidence of intent to evade duty, cannot justify penalties. The Tribunal upheld this view, stating that delayed entries in the RG-1 register alone do not constitute grounds for penalties.

Interpretation of Rule 25:
The Tribunal examined the interpretation of Rule 25, which deals with confiscation and penalties for non-compliance with excise rules. The appellate authority distinguished between non-accountal and non-recording in the RG-1 register, emphasizing that non-accountal implies a failure to explain the presence of goods. The Tribunal noted that the statutory records were produced after the search, and the non-entry in the RG-1 register was due to the accountant's irregular attendance.

The Tribunal also addressed the argument that penalties require proof of intent to evade duty. The Dharmendra Textiles case was cited to support the view that statutory penalties can be imposed without mensrea if prescribed by law. The Tribunal concluded that Rule 25(b) and (c) do not require intent to evade duty, unlike Rule 25(d), which explicitly mentions it.

Separate Judgment by Member (Technical):
The Member (Technical) disagreed with the Member (Judicial), arguing that the non-recording of raw materials and finished goods in the statutory records constituted a clear contravention of Rule 10 and Rule 25(b). The Member (Technical) emphasized that the presence of goods not entered in registers must be accounted for, and the explanation provided by the respondent was not satisfactory.

The Member (Technical) argued that the conclusions drawn by the Member (Judicial) were erroneous and contrary to higher court decisions. The Member (Technical) proposed reducing the redemption fine and penalties, considering the quantum of duty that could be evaded through non-recording.

Points of Difference:
The points of difference between the Members were whether the seized goods were liable to confiscation and whether the assessee and its Director were liable to penalties. The Member (Judicial) held that the goods were not liable to confiscation, and no penalties were warranted, while the Member (Technical) held the opposite view.

Conclusion:
The Tribunal, after considering the submissions and precedents, found no justifiable reasons for interfering with the impugned orders and rejected the Revenue's appeal. The Member (Technical) proposed a different view, emphasizing the need for accountability and the imposition of penalties, albeit reduced. The points of difference were noted for further consideration.

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