2010 (3) TMI 67 - HC - Central Excise

Demand shortage of raw material - On 15.7.1998, the officers of Central Excise (Preventive), Division-II, Gurgaon visited the premises of the factory and in the followup action and interception of a tempo in transit it was found that the tempo was carrying finished goods of the respondents. On physical verification of the stock, there was shortage of raw material and shortage as well as excess quantities of different types of finished goods were found which involved a total duty of Rs.2,41,460/-. Held that - a tempo carrying the finished product manufactured by the respondent was intercepted and it was found that non duty had been paid on the goods being carried in the tempo. It is thus, clear that the respondent was trying to remove the goods in the tempo clandestinely. We are of the considered opinion that penalty can only be imposed on the goods which were removed from the premises and intercepted in the tempo. Thus, the respondent is liable to pay penalty on the goods which were removed in the tempo from the factory premises and the same were intercepted - However, the goods which were not removed from the factory premises and were still lying, although some of the invoices had not been entered in the Register, no penalty would be leviable as no clandestine removal had taken place.

Summary

Issues:
- Whether the Customs, Excise and Service Tax Appellate Tribunal was justified in setting aside the penalty imposed by the Adjudicating Authority under Section 11 AC of Central Excise Act, 1944?

Analysis:
The case involves a dispute regarding the imposition of a penalty on a respondent, a company engaged in the manufacture of glass products, for alleged clandestine removal of goods from their factory premises. The Revenue challenged the order of the Customs, Excise & Service Tax Appellate Tribunal (the Tribunal) that partly accepted the respondent's appeal, leading to no penalty being imposed. The respondent was found with shortages and discrepancies in stock during a visit by Central Excise officers, resulting in a show cause notice and subsequent penalties. The Tribunal set aside the penalty, prompting the Revenue to contest the decision.

The appellant argued that the clandestine removal of goods was established as a tempo carrying finished goods was intercepted, revealing shortages and discrepancies in stock. The appellant contended that penalties were justified due to the respondent's history of removing goods without duty payment. On the other hand, the respondent claimed that the goods in question, although not entered in the Register, had not been removed from the factory premises, attributing the discrepancies to wastage and administrative errors.

The High Court analyzed the facts and concluded that penalties should only apply to goods that were actually removed clandestinely from the factory premises and intercepted, not those still within the premises. The court rejected the Revenue's argument of potential clandestine removal, emphasizing the need for concrete evidence rather than speculation. Consequently, the court ruled that penalties would be recalculated based on the goods actually removed clandestinely, remanding the case to the adjudicating authority for further proceedings.

In summary, the High Court upheld the imposition of penalties only on goods proven to have been removed clandestinely, while goods remaining within the factory premises without evidence of removal were not subject to penalties. The court emphasized the importance of concrete evidence in determining penalties for clandestine removal, rejecting speculative arguments. The judgment highlights the need for a clear link between the goods intercepted and those actually removed clandestinely for penalty imposition.