2009 (7) TMI 284 - AT - Central Excise

Penalty - shortage of finished goods and inputs ascertained during stock verification involving central excise duty of Rs. 1,53,165/-. - representative of the respondents failed to furnish any reason for shortage. There is no material available that the goods were cleared clandestinely. - Respondent accepted the shortage and debited the duty immediately, before issuance of show cause notice - imposition of penalty under Section 11AC of the Act is not warranted.

Summary

Issues:
Imposition of penalty under Section 11AC of the Central Excise Act, 1944 based on shortage of goods discovered during stock verification.

Analysis:
The case involved the manufacturing of M.S. Bars and Structures by the respondents, classified under sub-headings 7214.90 and 7216.90 of the Central Excise Tariff Act, 1985. During a stock verification conducted by Central Excise officers, a shortage of finished goods and inputs amounting to Rs. 1,53,165/- in central excise duty was discovered. The authorized signatory accepted the shortage and debited the duty immediately. The original authority confirmed the duty demand and imposed penalties under Section 11AC of the Act, along with a separate penalty on the signatory. The Commissioner (Appeals) set aside the penalties, stating that duty was debited before the show cause notice was issued, which led to the Revenue appealing against this decision.

The learned D.R. argued that the penalties should be upheld, citing the decision of the Hon'ble Supreme Court in a similar case. It was contended that the respondents failed to provide a satisfactory explanation for the shortage, leading to the presumption that the goods were cleared clandestinely, justifying the penalty under Section 11AC. However, the Tribunal analyzed the case law and emphasized that the mere payment of duty before the issuance of a show cause notice does not automatically absolve the imposition of penalties under Section 11AC. It was crucial to establish the presence of the elements outlined in the Act, including mens rea.

Referring to a relevant case law, the Tribunal highlighted that penalty under Section 11AC is warranted only when all the required elements, including mens rea, are satisfied. In the absence of evidence indicating clandestine clearance or mens rea on the part of the respondent, the Tribunal concluded that the penalties were not justified. Therefore, the Tribunal rejected the appeals filed by the Revenue, upholding the decision of the Commissioner (Appeals) and ruling against the imposition of penalties under Section 11AC of the Central Excise Act, 1944.