2005 (7) TMI 248 - AT - Central Excise

Appellate order - Demand duty - Non-accountal of goods - manufacture of Compact Discs such as Compact Discs (Audio) Compact Discs (Video) and Compact discs (ROM) also known as Computer Software - Confiscation - HELD THAT - The seizure made by the officers of 44, 661 nos. of CD was totally illegal and improper. The seizure consisted of 33, 607 nos. of CD Audio and 11, 054 nos. of CD Rom. While the CD Audio were taken from the stocks of 54, 076 nos. of CD Audio which have already been accounted for at page 2 of the RG -1 Register the CD ROM were taken from the stocks of 35, 930 nos. of CD ROM which have already been accounted for at page 72 of the RG-1 Register. Thus the seizure of the CDs already accounted for in the records on the ground that these have not been accounted for is arbitary and illegal action on the part of the seizing officers. Besides the seizure of 11, 054 nos. of CD ROMs which are non-dutiable is totally uncalled for. On this ground alone the Order passed by the ld. Commissioner who upheld the Order of the lower authority justifying the seizure made by his officers deserves to be set aside. Whereas the allegation in the Show Cause Notice is about the non-accountal of the excess stock of goods the ld. Commissioner has held his Order that the assessee had cleared the goods without payment of duty as if the allegation was about shortage of goods At more than one place particularly in his Order the ld. Commissioner had mentioned about the shortage of goods. This only shows total non-application of mind on the part of the ld. Commissioner in passing his Order and on this ground alone his Order-in-Appeal deserves to be quashed. It is very clear that mere non-entry of the productions in the RG-1 will not bring in the liability to confiscation under provision of the Central Excise Rules if there is no corresponding material of clandestine clearance also available. Unaccounted production goes in tandem with clandestine removal and evidence of both has to be present in a given case to avoid the charge to be determined on an assumption/presumption. Applying the tab for liability to confiscation in this case under Rule 173Q(1) we find the test to be not positive. The confiscation arrived is to be not upheld is to be set aside. In this view when the order as regards the confiscation liability goods in question is not being upheld on merits in law then there in no reason to visit the other appellants with penalty under Rule 209A. Consequently the orders are set aside appeals allowed.

Summary

Issues involved:
1. Confiscation of CDs under Rule 173Q(1) of the Central Excise Rules, 1944 and penalty thereunder.
2. Demanding duty on the price of Music companies sale prices for whom the CDs were being manufactured and recovery under Section 11A(1) with interest.
3. Imposition of penalty under Rule 209A of Central Excise Rules, 1944 on the directors for acts of omission and commission.

Detailed Analysis:
1. The applicants were involved in the manufacture of various types of Compact Discs (CDs) on a job work basis for Music and Software Companies. Central Excise officers found discrepancies in the stock of CDs during a surprise visit. The officers alleged confiscation of CDs and demanded duty payment based on Music companies' sale prices. The C.C.E. (A) found excess stock of CDs, which the appellants failed to account for properly. The C.C.E. (A) concluded that the excess stock was intended for clandestine removal without duty payment. The C.C.E. (A) imposed penalties under Rule 173Q citing non-maintenance of statutory records and evasion of duty. The C.C.E. (A) held the directors liable for penalty under Rule 209A for their involvement. The Tribunal upheld the C.C.E. (A) decision regarding confiscation and penalty.

2. The Tribunal considered additional grounds presented by the applicants, highlighting discrepancies in the findings of the lower authorities. The Tribunal criticized the lower authorities for not properly examining the RG-1 Register entries and failing to consider the explanation provided by the appellants regarding the stock discrepancies. The Tribunal found the seizure of CDs to be illegal as the stock was already accounted for in the records. The Tribunal also noted errors in the Commissioner's order, where allegations of non-accountal were treated as shortages. The Tribunal referenced legal precedents to establish that mere non-entry in the RG-1 Register does not automatically lead to confiscation without evidence of clandestine removal. The Tribunal set aside the confiscation and penalty orders based on the lack of merit and legal grounds.

3. The Tribunal's analysis focused on the legality and justification of the confiscation and penalty imposed by the lower authorities. The Tribunal emphasized the need for evidence of clandestine removal to support confiscation under Rule 173Q. Since the confiscation was not upheld, the Tribunal deemed the penalty under Rule 209A unnecessary and set aside the orders, allowing the appeals. The Tribunal's decision highlighted the importance of proper examination of records, adherence to legal procedures, and the requirement of evidence to support allegations of duty evasion and clandestine removal.