2005 (6) TMI 190 - AT - Central Excise

Summary

Issues:
1. Shortage of 594.25 Kgs. of 40's yarn and 2328 Kgs. of Staple Fibre.
2. Clearance of 4559.7 Kgs. of Staple Fibre Roving Ends without debiting 10% of its value.
3. Duty demands and penalty imposed under Central Excise Rules.

Analysis:

Issue 1: Shortage of Yarn and Staple Fibre
The officers found a shortage of 594.25 Kgs. of 40's yarn and 2328 Kgs. of Staple Fibre during a visit to the factory. The department raised duty demands and penalties based on these shortages. The adjudicating authority confirmed the demand and penalty, which was upheld by the first appellate authority. However, upon examination, it was found that the evidence of clandestine removal was not sufficient. The Manager's explanation regarding the re-winding of defective cones was supported by the Managing Director. Clandestine removal requires positive evidence, which was lacking in this case. Citing a previous case law, the finding of clandestine removal was rejected, and the demand for duty on the yarn was set aside.

Issue 2: Clearance of Staple Fibre Roving Ends
Regarding the clearance of 4559.7 Kgs. of Staple Fibre Roving Ends without debiting 10% of its value, the lower authorities found this removal to be clandestine. However, it was revealed that the input was processed by a job worker and returned to the appellants, as confirmed by a statement. As per Rule 57F, the appellants were entitled to take credit upon returning the reprocessed inputs. Since the necessary steps were completed before the officers' visit, the demand under Rule 57F(6) was deemed invalid. The argument of intent to evade duty was also dismissed, leading to the setting aside of the demand on this count.

Issue 3: Penalty Imposition
The appellants were penalized under Section 11AC, equal to the sum of the duty demands. However, as the duty demands were set aside, the penalty was also deemed unsustainable. It is established that when the duty demand is reduced to zero, the penalty under Section 11AC is correspondingly reduced. Therefore, the penalty imposed on the appellants could not be upheld. Consequently, the impugned order was set aside, and the appeal was allowed.