2002 (1) TMI 1342 - AT - Central Excise

Summary

Issues Involved:
1. Alleged suppression of production and clandestine removal.
2. Denial of Modvat credit on inputs.
3. Imposition of personal penalties u/r 209A of the Central Excise Rules.

Summary:

1. Alleged Suppression of Production and Clandestine Removal:
The appellants, engaged in manufacturing simple and musical clocks, were accused of suppressing production and clandestinely removing goods based on discrepancies between raw material consumption and production records. The Department's demand notices alleged that raw material issues did not reconcile with the production and sale of clocks, indicating suppression of production and clearance. The adjudicating authority confirmed the duty demand and imposed penalties based on the consumption of a few raw materials recorded in delivery challans. However, the Tribunal found that the Department failed to consider the consumption of all necessary raw materials and did not conduct a physical verification of stock. The Tribunal held that the Department's reliance on delivery challans for internal movement of raw materials was incorrect and that the foundation of the demand was flawed. The Tribunal emphasized that the Department must prove procurement of all raw materials, utilization of labor, electricity consumption, and transportation expenses to establish clandestine removal, which was not done in this case.

2. Denial of Modvat Credit on Inputs:
The appellants were denied Modvat credit on the grounds that inputs were removed to job workers without prior permission u/r 57F(2). The Tribunal noted that the processed materials were used in the manufacture of the final product and that the job workers were within the same premises. The Tribunal held that minor procedural violations should not result in the complete denial of Modvat credit, especially when the Department did not dispute the use of processed materials in the final product. Therefore, the denial of Modvat credit was deemed unjustified.

3. Imposition of Personal Penalties u/r 209A:
Personal penalties totaling Rs. 2,25,000 were imposed on M.U. Patel and Rs. 10,000 on R.B. Patel u/r 209A. The Tribunal ruled that since the Department failed to prove clandestine removal and the applicability of Rule 173Q, the imposition of penalties u/r 209A was unwarranted. Consequently, the appeals of M.U. Patel and R.B. Patel were allowed.

Conclusion:
The Tribunal set aside the impugned orders, allowing the appeals with consequential relief in accordance with the law. The Department's failure to prove clandestine removal and the unjustified denial of Modvat credit led to the decision in favor of the assessees.