2017 (11) TMI 139 - AT - Central Excise

Penalty u/r 15(2) of CCR, 2004 - confiscation of excess stock - mens rea - Held that - there had been negligence on the part of the appellant in maintaining the records - appellant submits that the shortage could be due to mere processing loss during the course of manufacture. I find that this is an inescapable consequence of the process of manufacture and needs to be pre-determined - matter on remand. Penalty u/s 11AC of CEA - Held that - there is no material on record available of fraud, suppression, collusion, willful mis-statement or contravention of any provision with an intent to evade payment of duty. In the present case, the appellant had reversed the amount demanded on the quantity found short and therefore, penalty under Section 11AC is not justified - duty demand with penalty set aside. Appeal allowed in part and part matter on remand.

Summary

Issues: Central Excise - Confiscation of excess stock, demand of duty, penalty imposition, redemption option, shortage of raw materials, imposition of penalty under Rule 15(2) of Cenvat Credit Rules, 2004, mens rea requirement for penalty, negligence in record-keeping, processing loss during manufacture, imposition of penalty under Section 11AC of Central Excise Act, reversal of demanded amount, fraud, suppression, collusion, willful misstatement, evasion of duty.

Analysis:

The case involved the appellant, engaged in manufacturing welding electrodes, facing a discrepancy in stock during a physical verification by Central Excise Officers. The officers seized excess stock leading to a Show Cause Notice proposing confiscation of goods, duty demand of ?2,08,508/-, interest, and penalty. The Adjudicating Authority confiscated the excess stock, allowing redemption on payment, and imposed penalties. The Commissioner (Appeals) partially set aside the order, upholding the duty demand for raw material shortage, leading to the present appeal.

During the hearing, the Consultant argued for the reversal of the entire credit amount and emphasized the necessity of establishing mens rea for penalty under Rule 15(2) of Cenvat Credit Rules, 2004. The Consultant highlighted instances of short-supplied inputs accumulating over time. On the other hand, the A.R. supported the lower authority's findings, pointing out the appellant's record-keeping negligence. The appellant's Counsel attributed the shortage to processing loss inherent in manufacturing, emphasizing the need for pre-determination.

The presiding Member, after considering submissions, found no fault in the impugned order. Regarding penalty under Section 11AC of Central Excise Act, the absence of evidence of fraud, suppression, collusion, or willful misstatement to evade duty led to setting aside the penalty. Noting the appellant's reversal of the demanded amount for the shortage, the Member deemed penalty under Section 11AC unwarranted, upholding the duty demand while rescinding the penalty.

Ultimately, the appeal was partly allowed, with the pronouncement made on 24.07.2017, concluding the legal proceedings in the matter.