2022 (10) TMI 466 - AT - Central Excise

Clandestine removal - 3996.286 MT formaldehyde (including 262.400 MT found short) - Shortages detected in the stock - HELD THAT - There is no reasonable explanation in the impugned order and also in the previous order of this Tribunal, whereby the clandestine removal of finished goods have been alleged at 1378.595 MT of formaldehyde. The actual/installed capacity of production have been ignored, which has caused prejudice to the appellant. It is further found that the appellant have already suffered civil consequence by the impugned order in view of duty both on the allegation of clandestine removal as well as on the shortage of finished goods and raw materials. It is further found that not a single instance of clandestine removal have been found by revenue by way of interception of any consignment without proper invoices/challan etc. There is not reasonable basis for imposition of penalty under Section 11AC/Rule 209A of the Central Excise Rules, 1944 - the penalty set aside under Section 11AC on the appellant company and also the penalty imposed on the two directors Shri Promod Lunawat Shri Mukesh Singhaniya under Rule 209A of Central Excise Rules, 1944 are set aside. Appeal allowed.

Summary

Issues: Alleged clandestine removal of formaldehyde, duty demand, penalty imposition

Alleged Clandestine Removal of Formaldehyde:
The appellant, a formaldehyde manufacturer, faced allegations of clandestine removal following a search revealing shortages of methanol and finished stock. The initial demand was contested, citing lack of access to relied upon documents. The Tribunal acknowledged this procedural flaw and remanded the matter for a fresh decision. Despite incomplete document sharing in the subsequent round, the Tribunal found merit in the appellant's argument regarding the stock-taking method. The final assessment reduced the alleged clandestine removal quantity to 1378.595 MT, considering chemist analysis and production capacity. The Tribunal emphasized the duty liability on stock shortages and directed re-quantification of duty and penalty assessment based on revised calculations.

Duty Demand and Penalty Imposition:
Upon further remand, the duty demand was recalculated, resulting in a confirmed amount of Rs. 21,11,422. Additionally, penalties were imposed under Section 11AC and Rule 209A of the Central Excise Rules, 1944, on the directors and a co-appellant. The appellant challenged these penalties, arguing that the confirmed clandestine removal quantity lacked a reasonable basis due to overlooking the production capacity. The Tribunal agreed, noting the absence of concrete evidence supporting the alleged clandestine removal. Consequently, the penalties under Section 11AC and Rule 209A were set aside for the appellant company and its directors. The appeal was partially allowed, providing relief from the imposed penalties.

This detailed analysis of the judgment highlights the issues of alleged clandestine removal, duty demand, and penalty imposition, outlining the procedural history, Tribunal's considerations, and final decisions in each aspect of the case.