1989 (12) TMI 157 - AT - Central Excise

Summary

Issues Involved:
1. Demand of duty on cement manufactured.
2. Imposition of penalties on the appellants.
3. Responsibility for clandestine removal of cement.
4. Non-compliance with principles of natural justice.
5. Applicability of penalties under Rule 173Q to individuals.
6. Adequate opportunity for defense.

Detailed Analysis:

1. Demand of Duty on Cement Manufactured:
The Collector of Central Excise, Belgaum, demanded duty of Rs. 4,31,031.31 on Ordinary Portland (O.P.) Cement manufactured by the appellants under Rule 9(2) of the Central Excise Rules, 1944, read with Section 11-A of the Central Excises & Salt Act, 1944. The appellants did not contest this duty demand in their appeal.

2. Imposition of Penalties on the Appellants:
The Collector imposed a total penalty of Rs. 15,04,000/- on each of the appellants under various Central Excise Rules including Rule 173Q. The appellants challenged the penalties, arguing that they were excessive and that the clandestine activities were conducted by an employee without their knowledge.

3. Responsibility for Clandestine Removal of Cement:
The Department concluded that the factory had clandestinely removed 4,033.855 M.T. of cement without payment of duty, based on shortages found during a physical check and documents seized from the factory and the residence of an Accounts Officer. The appellants argued that the clandestine activities were conducted by Shri Hukkeri, Accounts Officer, without their knowledge. However, the tribunal found that the Managing Director and other directors were aware of and involved in the clandestine activities, as evidenced by statements and documents.

4. Non-compliance with Principles of Natural Justice:
The appellants claimed they were denied adequate opportunity to defend themselves because they were not provided with the reply to the Show Cause Notice submitted by Shri Hukkeri. The tribunal rejected this argument, stating that the appellants had waived their right to cross-examine Hukkeri and had not contested his statement during adjudication proceedings.

5. Applicability of Penalties under Rule 173Q to Individuals:
The appellants argued that penalties under Rule 173Q could only be imposed on the manufacturer and not on the Managing Director or other directors. The tribunal disagreed, citing Rules 221 and 225 of the Central Excise Rules, 1944, which allow for penalties on individuals in charge of a company. The tribunal referred to judicial precedents, including decisions by the Bombay and Delhi High Courts, which support the imposition of penalties on directors and managing directors.

6. Adequate Opportunity for Defense:
The tribunal found that the appellants had been given adequate opportunity to defend themselves. The Show Cause Notice had detailed the adverse contents of Hukkeri's statement, and the appellants had failed to cross-examine him. The tribunal concluded that the appellants had waived their right to this defense.

Conclusion:
The tribunal upheld the order imposing penalties on the firm but reduced the penalty amount to Rs. 7.5 lakhs. The penalty on appellant Jayaram was reduced to Rs. 3 lakhs. Appellant Sitaram was given the benefit of doubt, and the penalty on him was set aside. The appeals were disposed of accordingly.