2017 (1) TMI 1175 - AT - Central Excise

Imposition of penalty u/s 11AC - shortage of stock - accounting mistake - duty voluntarily paid by assessee immediately on being pointed out - whether levy of penalty justified? - Held that - the appellant admitted the shortage during the stock taking. It was explained that the shortage may be some mistake in the accounting of the stock of the finished goods. The finding of the lower authorities that the goods were clandestinely removed is without any basis. I do not find any material that the appellant admitted the charge of clandestine removal at any point of time. In any event, the appellant is not disputing the demand of duty which they have already paid on the spot - the imposition of penalties u/s 11AC is not warranted - demand of duty with interest upheld - appeal allowed - decided in favor of appellant.

Summary

Issues:
Shortage of Ferro Manganese during a visit by Central Excise officers leading to duty liability payment; Confirmation of duty demand and penalties imposed including on Managing Director and General Manager; Appeal challenging the Order-in-Original and penalties imposed.

Analysis:
1. The appellant, engaged in the manufacture of Ferro Alloys products, faced a shortage of 63.000 MT of Ferro Manganese during a Central Excise officers' visit, resulting in the immediate payment of duty liability amounting to ?3,06,281.00. Despite the payment, a show cause notice was issued, leading to the confirmation of duty demand and imposition of penalties under various provisions of the Central Excise Rules, 2002 along with interest. Penalties were also levied on the Managing Director and General Manager. The lower appellate authority upheld the Order-in-Original and penalties, prompting the present appeals.

2. The appellant's counsel argued that the Order-in-Appeal lacked natural justice and erroneously imposed penalties since the duty was paid before the show cause notice. Citing legal precedents, including judgments from the Hon'ble High Court of Madras and Chhattisgarh High Court, it was contended that penalty imposition was unwarranted. The appellant relied on previous Tribunal decisions emphasizing that personal penalties on directors require a conscious act justifying such penalties.

3. The Revenue contended that the shortage in finished goods was due to clandestine removal without following Central Excise procedures or payment of duty, supported by the General Manager's admission of the shortage. After hearing both sides and examining the records, it was found that the appellant had admitted the shortage during stock taking. The argument of clandestine removal lacked substantiation, and since the duty was promptly paid, penalties under section 11AC were deemed unnecessary. Legal precedents were cited to support this stance, highlighting that penalty imposition was not justified when duty payment occurred before the show cause notice.

4. Referring to judgments from various High Courts, the Tribunal concurred that since the duty had been deposited prior to the show cause notice, imposing penalties was unjustified. The Tribunal emphasized that in the absence of any intention to evade duty payment or engage in malpractice, penalties under Section 11AC were unwarranted. Consequently, the demand for duty and interest was upheld, while the penalties imposed on the appellants were set aside, leading to the disposal of the appeal in favor of the appellants.

In conclusion, the Tribunal's judgment focused on the key aspect of duty payment preceding the show cause notice, leading to the setting aside of penalties imposed on the appellants, including the Managing Director and General Manager, based on legal precedents and the absence of intentional wrongdoing in duty evasion.