2004 (3) TMI 239 - AT - Central Excise

Summary

Issues:
Excess stock found in factory, show-cause notices alleging non-accountal of goods, confiscation of goods, imposition of penalties, appeal against original authority's orders.

Analysis:
The appellants, steel product manufacturers, were found with excess stock of finished goods and raw materials in their factory compared to recorded balances in statutory records. Show-cause notices were issued by the department alleging non-accountal of goods to evade duty, leading to confiscation and penalties. The original authority confiscated the goods with an option to redeem on payment of fine and imposed penalties, which were contested by the appellants. The appellate authority upheld confiscation but reduced the quantum of redemption fine and penalties. The present appeals challenge the appellate authority's orders.

The counsel argued that the excess quantities found were negligible and satisfactorily explained to investigating officers. For finished goods, differences in quantity were due to cross-sectional weight noted in RG-I versus actual weighment for clearance. Allegations of clandestine removal lacked evidence of mens rea, crucial for invoking Rule 173Q(1)(d) of Central Excise Rules for confiscation and penalties. The department relied on High Court decisions to support confiscation and penalties even without mens rea.

Regarding excess raw materials, counsel argued Rule 173Q did not apply to duty-paid raw materials found short or in excess. Confiscation and penalties were ordered under Rule 25 of Central Excise (No. 2) Rules, 2001, similar to Rule 173Q, but the case law on mens rea should apply. The judge analyzed precedents and concluded that mens rea was essential for penal liability under Rule 173Q(1)(d) for finished goods and that Rule 25 could not be invoked for raw materials without mens rea.

The judge found that mens rea was not established against the appellants for either finished goods or raw materials, rendering confiscation and penalties unsustainable. The allegation of clandestine removal for raw materials was baseless as they were duty-paid, aligning with the decision in a cited case. The judge applied the precedent from Bhillai Conductors to the case of finished goods and ruled in favor of the appellants, setting aside the impugned orders and allowing the appeals.