1984 (6) TMI 155 - AT - Central Excise

Issues Involved:
1. Shortage of non-duty paid tobacco in the appellant's warehouse.
2. Simultaneous invocation of Rules 223A, 9(1), and 173Q.
3. Quantum of penalty imposed.
4. Legal interpretation of Rules 223A and 173Q.
5. Applicability of precedents and burden of proof.

Detailed Analysis:

1. Shortage of Non-Duty Paid Tobacco:
The case arose from a stock-taking conducted on 16-12-1977 and 17-12-1977, revealing a shortage of 60,573 kgs of tobacco in the appellant's warehouse. The Collector of Central Excise inferred that this shortage indicated unauthorized removal of tobacco in contravention of Rule 9(1) of the Central Excise Rules, 1944, and demanded duty of Rs. 3,15,767.95 under Rule 223A. A penalty of Rs. 5 lakhs was also imposed under Rule 173Q(1).

2. Simultaneous Invocation of Rules 223A, 9(1), and 173Q:
The appellants argued that Rules 223A, 9(1), and 173Q could not be invoked simultaneously. The Central Board of Excise & Customs upheld the demand for duty and penalty but reduced the penalty to Rs. 3 lakhs. The Board opined that the provisions of Chapter VIIA of the Central Excise Rules would prevail in case of a conflict, thus justifying the penalty under Rule 173Q.

3. Quantum of Penalty Imposed:
The appellants contended that the observed shortage was minor (0.54%) and could be due to accounting errors. They cited the Supreme Court's decision in Hindustan Steel Ltd. v. State of Orissa, emphasizing that penalties should not be imposed unless there was deliberate defiance of law or contumacious conduct. The Tribunal ultimately decided that a penalty of Rs. 60,000 would be appropriate, considering the circumstances and the lack of evidence of unauthorized removal.

4. Legal Interpretation of Rules 223A and 173Q:
The appellants argued that Rule 223A dealt solely with stock-taking and that any penalty under this rule should be limited to Rs. 2,000. They contended that Rule 173Q did not apply to stock-taking deficiencies. However, the Tribunal found that Rule 173Q(1)(b) covered both excesses and shortages and that, in case of conflict, Rule 173Q would prevail over Rule 223A. The Tribunal concluded that Rule 173Q(1)(b) applied to the shortage in question.

5. Applicability of Precedents and Burden of Proof:
The learned Senior Departmental Representative referenced the Gauhati High Court's decision in Langharajan Tea Estate v. Central Board of Excise & Customs, arguing that the burden of proof shifted to the appellant once a shortage was established. The Tribunal, however, distinguished the present case from the Gauhati High Court case, noting that no specific accounts were shown to clash. The Tribunal also referenced the Supreme Court's guidelines in Hindustan Steel Ltd. v. State of Orissa, emphasizing that penalties should be imposed judiciously.

Conclusion:
The Tribunal concluded that Rule 173Q(1)(b) applied to the shortage, and the penalty should be reduced to Rs. 60,000. The appellants' liability for duty was upheld, but the penalty was moderated in light of the circumstances and the lack of evidence of unauthorized removal.

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