2009 (5) TMI 463 - AT - Central Excise

Waste scrap-penalty- shortage- the appellant- company are manufacturers of plywood and were clearing the said goods on payment of duty. On further investigation, it was found that apart from shortages of raw materials and finished goods, it was also noticed that the appellant had cleared cuttings and trimmings of veneers, as waste wood. A show cause notice was raised directing the appellant to show cause as to why the cuttings and trimmings of veneer should not be classified under Chapter Heading No. 4404.90 and subjected to duty. The adjudicating authority after considering the replies and submissions made by the appellant before him, came to the conclusion that the appellants are liable to pay duty and imposed an equivalent amount of penalty under the provisions of Section 11AC on the appellant. The learned Commissioner (Appeals) in the impugned order, after granting a personal hearing and considering the written and oral submissions made by them, upheld the entire Order-in-Original. Aggrieved by such an order, the appellants are before us. Held that- Hence, though there is no allegation of removal of these goods clandestinely or otherwise, since there is a shortage of finished goods, the appellants are liable to pay excise duty on the said shortages, which is noticed by the authorities during the stock verification. In view of this, we confirm the demand of duty of Rs.1,18,828/- on the shortages noticed by the lower authorities and uphold the impugned order to that extent.7. Another issue in this appeal is demand of Rs.10,253/- on the resins which was found short. The appellants are not challenging this part the confirmation of the demand of the duty, hence, the impugned order to this extent it upholds this confirmation of demand, is upheld. As regards the penalty, we find that the penalty has been imposed under Section 11AC of Central Excise Act, 1944. Since we have held that the demand of the duty on the waste wood is unsustainable, there cannot be any penalty on such an amount of duty. We find that the penalty imposed on these two employees is unwarranted. The impugned order to the extent upholds the penalties imposed on these two employees, is also not sustainable and is liable to be set aside and we do so.

Issues Involved:
1. Excisability of waste wood generated during plywood manufacturing.
2. Demand of duty on shortages of finished goods.
3. Demand of duty on shortages of raw materials.
4. Imposition of penalties under Section 11AC of the Central Excise Act, 1944.
5. Imposition of penalties on two employees under Rule 209A and Rule 26 of Central Excise Rules, 2002.

Detailed Analysis:

1. Excisability of Waste Wood:
The primary issue was whether the waste wood generated during the manufacture of plywood is excisable. The appellant argued that waste wood is not specified as an excisable commodity under the Central Excise Tariff and hence, no excise duty can be levied on it. They cited several precedents, including the Tribunal's decisions in Eveready Inds. Ltd. v. CCE and Jenny Plywood Industries Ltd. v. CCE. The Tribunal found that the waste wood, comprising cuttings and trimmings of veneer, does not fall under Chapter Heading 4404.90, which pertains to veneer sheets and sheets for plywood. The Tribunal also referenced the Supreme Court's decisions in UOI v. Ahmedabad Electricity Co. Ltd. and Elphistone Metal Rolling Mills v. CCE, emphasizing that mere listing in the Schedule to Central Excise Tariff Act does not make an item excisable unless it is produced or manufactured in India and is marketable. Consequently, the demand for duty on waste wood was set aside.

2. Demand of Duty on Shortages of Finished Goods:
The appellant contested the demand of Rs.1,18,828/- for shortages found during stock verification, arguing that the shortages were due to non-posting of entries and not unaccounted removals. The Tribunal noted that the appellant did not challenge the stock verification at the time and failed to justify the shortages. Although there was no allegation of clandestine removal, the Tribunal held that the appellant is liable to pay excise duty on the shortages of finished goods, thereby upholding the demand.

3. Demand of Duty on Shortages of Raw Materials:
The appellant did not challenge the demand of Rs.10,253/- for shortages of resins found during stock verification. Therefore, the Tribunal upheld the demand for duty on the shortage of raw materials.

4. Imposition of Penalties under Section 11AC:
The Tribunal examined the imposition of penalties under Section 11AC, which are applicable only if the conditions specified in the section are met. Since the demand for duty on waste wood was set aside, the corresponding penalty was also deemed unsustainable. Additionally, the Tribunal found that the shortages of finished goods did not result from clandestine removal but possibly from improper accounting. Therefore, the penalty under Section 11AC was not justified. Instead, a penalty of Rs.10,000/- was imposed under Rule 25 of Central Excise Rules, 2002, for improper accounting.

5. Imposition of Penalties on Two Employees:
The Tribunal found no evidence to support the imposition of penalties on the two employees under Section 209A and Rule 26 of Central Excise Rules, 2002. The employees were not shown to be aware that the goods were liable for confiscation. Therefore, the penalties imposed on them were set aside.

Conclusion:
The Tribunal set aside the demand for duty and penalties on waste wood, upheld the demand for duty on shortages of finished goods and raw materials, imposed a reduced penalty of Rs.10,000/- for improper accounting, and set aside the penalties on the two employees. The appeals were disposed of accordingly.

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