2014 (12) TMI 1033 - AT - Central Excise

Non following the procedure for sending the goods for Job work and receiving the goods back after processing - use of private challans - voilcation of rule 57 F(6) (i) rule 57F(4), Rule 57F(6)(ii), 57F(7), Rule 9(1), rule 53, rule 173F, rule 173G(4) indicating that goods cleared for job work have to be accompanied by proper job work challans - Confiscation of goods - Penalty u/s 11AC - Held that - Detailed procedure has been laid for job work or clearance of inputs/ partially processed inputs, reversal of credit on clearance and availment of credit on receipt back of goods to the factory. Admittedly these procedures have not been followed and further no duty has been paid/reversed by the respondents towards removals for job works in contravention of rule 57F(6) (1). There is clear admittance by the Director of the company that they have not followed the procedure and removals have effected without following laid down procedure, it is evident that benefit of job work could not be extended only based on verification report of Assistant Commissioner that goods have come back to the factory, knowingly well that private Challans have been used and no records have been maintained. In absence of maintains of records in the factory, and non-intimation to the Central Excise authorities no co-relation was possible. - Decided in favor of revenue. Regarding demand of duty on clearance of castings without following job work procedure, I do not find force in revenue s appeal as they have already accepted that all goods have came back. Once revenue itself is satisfied, no question of demanding duty arises. Of course, for violation of job work procedure and non-reversal of 10% of the value, penal provisions are attracted. However I do not agree with revenue for imposition to equal penalty considering that appellants were not aware about correct procedures. No mens-rea has been imputed manifesting their intention to defraud the revenue knowingly, thus equivalent penalty is not justifiable. - From the facts as brought on record it is observed that a very casual approach has been adopted by the appellant. Accordingly, I consider that penalty has to be imposed on appellants to ensure that the legal provisions are not ignored rendering these provisions as redundant. Regarding other issue of dropping demand and not imposing any fine and penalty on seized goods, I find that non-recording of goods in excise records has been manifested and admitted by the partner. For non-accountal, no lenient view could be taken. Goods were rightly liable for confiscation and redemption fine and penalty imposable. Commissioner (Appeals) was not right in dropping demands and penalties on this account. Departmental appeal is liable to be accepted. Non-recording of goods in excise records has been manifested and admitted by the partner. For non-accountal, no lenient view could be taken. Goods were rightly liable for confiscation and redemption fine and penalty imposable. Commissioner (Appeals) was not right in dropping demands and penalties on this account. - Penalty imposed on Director - Decided partly in favour of Revenue.

Issues Involved:
1. Legality of goods cleared on private challans and returned after job work.
2. Non-maintenance of records and non-reversal of 10% value of goods.
3. Unaccounted goods found during the search.
4. Imposition of penalties on the company and its director.

Detailed Analysis:

1. Legality of Goods Cleared on Private Challans and Returned After Job Work:
The adjudicating authority held that goods cleared on private challans and returned to the premises were duly accounted for after job work, concluding that no confiscation was warranted and no mandatory penalty under section 11AC or interest under 11AB was liable. However, a penalty of Rs. 50,000 was imposed on the assessee for procedural failure, and Rs. 25,000 on the Director under Rule 209A of Central Excise Rules, 1944. The Commissioner (Appeals) upheld this decision.

2. Non-Maintenance of Records and Non-Reversal of 10% Value of Goods:
The Revenue challenged the legality of the Commissioner (Appeals)'s order, arguing that goods cleared for job work must be accompanied by proper challans and debiting 10% of the value of inputs. The goods moved out of the factory without proper Central Excise invoices, violating substantive law. The Director admitted that no records were maintained for inputs sent for job work and no 10% value was debited, violating Rule 57F(4) of Central Excise Rules.

3. Unaccounted Goods Found During the Search:
Unaccounted goods were found during a search, violating Rule 53, which mandates maintaining a stock account and daily entries. The goods were not entered in the RG-I register, and movements were not accounted for on 57F(4) challans. The Director admitted the lapse, and the use of private challans indicated mens rea in the accounting and job work procedure.

4. Imposition of Penalties on the Company and Its Director:
The Tribunal noted that the movement of goods on private challans was illegal, and verification reports could not legalize such acts. The Director admitted non-compliance with procedures, and the total value of goods cleared without following modvat rules was Rs. 85,07,881. The Tribunal found merit in the Revenue's contention that no credit could be allowed on this value and that penalties were justified for procedural violations.

Regarding the demand of duty on castings, the Tribunal noted that the Revenue accepted that all goods returned to the factory, hence no duty demand arose. However, penalties for procedural violations were warranted. The Tribunal imposed a penalty of Rs. 2,00,000 on the appellant and enhanced the penalty on the Director to Rs. 1,00,000.

The Tribunal also found that the Commissioner (Appeals) was incorrect in dropping demands and penalties on seized goods, as non-accountal was admitted. The original order for confiscation, redemption fine, and penalties was restored.

Conclusion:
The departmental appeal was partly accepted. The order dropping the demand of Rs. 12,76,182 was confirmed, but penalties were imposed on the appellant and enhanced on the Director. The order dropping penalties on seized goods was set aside, and the original order was restored. The judgment was pronounced in open court on 21.11.2014.

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