2018 (3) TMI 339 - AT - Central Excise

Clandestine removal - excess stock of finished goods - confiscation - redemption fine - penalty - Held that - the authorities below have recorded the statement of the Director, the appellant No. 2 herein, stating that he has accepted that the excess found stock was kept in the factory premises, with an intention to remove the same clandestinely, without payment of Central Excise duty. However, on verification of the statement recorded from Shri Sunil Kedia on 1.8.2009, I find that no such statements were furnished by him before the Central Excise officers. Thus, I am surprised as to how the authorities below have recorded such fact, which is not emanating from the statement recorded by the officers of the department on the spot from the Director of the company. In absence of any credible evidence regarding the intention to remove the goods in clandestine manner, the imposition of redemption fine and penalties cannot be sustained in the eyes of law. Confiscation of excisable goods - imposition of fine/penalty under Rule 25 - Held that - the law is well settled that in absence of the ingredients like suppression, or wilful mis-statement as provided under Section 11AC of the Central Excise Act, 1994, the provisions of Rule 25 ibid cannot be invoked. This Tribunal in the case of Industrial Thermo Pack 2015 (3) TMI 1145 - CESTAT NEW DELHI under identical set of facts of non-maintenance of proper records, has set aside the redemption fine and penalty, holding that there was no deliberate or mala fide intention to remove the goods clandestinely. Penalty on the Director u/r 26 - Held that - since the goods cannot be confiscated, there is no question of imposition of penalty on the Director of the assessee-appellant under Rule 26 ibid. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Confiscation of goods due to non-maintenance of records.
2. Imposition of penalties under Rule 25 and Rule 26 of the Central Excise Rules, 1994.
3. Validity of the appellant’s defense regarding non-maintenance of records due to personal reasons.
4. Applicability of Section 11AC of the Central Excise Act, 1994 for imposing penalties.

Issue-wise Detailed Analysis:

1. Confiscation of goods due to non-maintenance of records:
The Central Excise officers conducted a surprise visit to the appellant’s factory and found discrepancies between the recorded entries and the actual stock. The appellant had not maintained the raw material register after 1.7.2009 and the finished goods register from 19.7.2009. Consequently, the department seized the excess stock of finished goods and initiated proceedings for confiscation. The adjudication order dated 9.1.2012 confirmed the confiscation of goods valued at ?15,49,820/- with an option to redeem on payment of ?8 lakhs as redemption fine.

2. Imposition of penalties under Rule 25 and Rule 26 of the Central Excise Rules, 1994:
The adjudication order also imposed penalties of ?4 lakhs on the assessee appellant under Rule 25 (1) and ?4 lakhs on the Director under Rule 26. The Commissioner (Appeals) upheld these penalties. The department argued that the appellant contravened Rule 25 by not maintaining the production register, exposing them to penal consequences.

3. Validity of the appellant’s defense regarding non-maintenance of records due to personal reasons:
The appellant argued that the non-maintenance of records was due to the sudden illness of the Director’s maternal uncle. The appellant provided a Chartered Accountant’s certificate dated 12.4.2010 to clarify the stock as of 31st July 2009. The appellant contended that non-maintenance of records did not equate to clandestine removal of goods and relied on judgments from the Gujarat High Court and the Tribunal to support their stance.

4. Applicability of Section 11AC of the Central Excise Act, 1994 for imposing penalties:
The Tribunal noted that the authorities did not record any findings regarding the Chartered Accountant’s certificate or the Director’s personal circumstances. The Tribunal emphasized that for invoking Rule 25, the conditions under Section 11AC, such as fraud or willful misstatement, must be met. The Tribunal cited various judgments, including the Gujarat High Court’s decision in Saurashtra Cement Ltd., which held that penalties under Rule 25 require proof of intent to evade duty.

Conclusion:
The Tribunal found no credible evidence of intent to remove goods clandestinely. It held that the imposition of redemption fine and penalties was not sustainable in the absence of willful intent to evade duty. The Tribunal referenced multiple judgments to support that penalties should not be imposed without proof of deliberate deception. Consequently, the Tribunal set aside the impugned order and allowed the appeals, ruling in favor of the appellants.