2018 (7) TMI 840 - AT - Central Excise

Clandestine removal - shortages of scrap - closure of factory - evidences to prove clandestine activity - Penalty u/r 26 - Held that - The demand is solely based upon the shortages detected by the officers during the course of their visits Admittedly, there is no other evidence indicating procurement of raw materials, clandestine manufacture of the goods, their transportation or identification of the buyers etc., so as to lead to the inevitable conclusion of clandestine removal - It is well settled law that the allegations of clandestine removal, cannot be upheld merely on the basis of shortages in stock - demand set aside. Penalty on the individuals - Held that - Inasmuch as, there is no dispute about the fact of settlement of dispute by the main noticee M/s. Ashok Magnetics Pvt. Ltd., before the Settlement Commission, penalty proceedings against the other co-noticees i.e., Director and the employees, are not sustainable - penalty set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Alleged clandestine removal of goods based on shortages detected during a visit.
2. Imposition of penalties under Rule 26 of Central Excise Rules on the main appellant and other co-noticees.

Detailed Analysis:
1. The case involved allegations of clandestine removal of goods based on shortages found during a visit to the factory. The Central Excise officers detected shortages of scrap at the factory, leading to proceedings against the main appellant for confirmation of duty demand and penalties. The appellant contested the Revenue's case, highlighting contradictions in the allegations of shortages and invoice issuances without scrap removal. The appellant argued that shortages alone cannot prove clandestine removal without additional evidence. The Superintendent clarified that no weighments were conducted, and materials were estimated. The Tribunal noted that mere shortages cannot conclusively prove clandestine removal, citing legal precedents. The Tribunal found no substantial evidence to support the clandestine removal allegations solely based on shortages and overturned the demand of duty.

2. Regarding the imposition of penalties under Rule 26 on the main appellant and other co-noticees, the appellant argued that the main noticee had settled the dispute before the Settlement Commission, which should have led to dropping penalty proceedings against the co-noticees. The Tribunal referred to legal precedents, including a decision by the Mumbai Bench, establishing that settlement by the main noticee results in dropping penalty proceedings against co-noticees. As the main noticee had settled the dispute, the Tribunal concluded that penalty proceedings against the other co-noticees were not sustainable. Consequently, the penalties imposed on the co-noticees were set aside. The Tribunal allowed all three appeals, overturning the impugned orders and providing consequential relief to the appellants.