1995 (5) TMI 137 - AT - Central Excise

Issues Involved:
1. Confirmation of duty demand.
2. Imposition of penalty.
3. Allegation of theft vs. misappropriation.
4. Applicability of Rule 147 of the Central Excise Rules for remission of duty.
5. Limitation period for issuing the show cause notice.
6. Vicarious liability of the appellant company.

Detailed Analysis:

1. Confirmation of Duty Demand:
The appeal contested the order of the Collector (II), Customs & Central Excise, Shillong, which confirmed a demand of Rs. 1,93,302.45 in duty. The Department's case was based on the physical verification conducted from 8-3-1990 to 23-3-1990, revealing a shortage of 1,17,153 Kgs. of unsorted tea. The Department argued that the shortage was due to clandestine removal rather than theft, as the factory was secured with security fencing and a chowkidar, and the keys were with the Assistant Manager. The Tribunal upheld the demand, stating that the goods were clandestinely removed with the intent to evade duty, and thus the demand was not barred by time.

2. Imposition of Penalty:
The Collector imposed a penalty of Rs. 50,000.00, which was contested by the appellants. The Tribunal noted that under Rule 173Q(1)(a), any manufacturer who removes excisable goods in contravention of the Rules is liable to be penalized. The Tribunal held that the appellant company was vicariously liable for the actions of its employees, who had removed the goods without paying duty. However, the penalty was reduced to Rs. 10,000.00 considering the facts and circumstances of the case.

3. Allegation of Theft vs. Misappropriation:
The appellants claimed that the shortage was due to theft by the previous Group Manager and the Assistant Manager. However, the Collector concluded that the shortage was due to misappropriation by the factory executives, as indicated by the police certificate. The Tribunal agreed with this conclusion, noting that the police had registered a case under Sections 406 (misappropriation) and 420 (cheating) of the IPC. The Tribunal emphasized that since the Assistant Manager had the keys and was an employee, the shortage could not be considered theft but rather misappropriation.

4. Applicability of Rule 147 of the Central Excise Rules for Remission of Duty:
The appellants argued that the duty should be remitted under Rule 147, which allows for remission if goods are lost or destroyed by unavoidable accident. The Tribunal rejected this argument, stating that Rule 147 does not apply to cases of misappropriation or criminal breach of trust. The Tribunal cited the Andhra Pradesh High Court's decision in Bir Bahadur Rice and Oil Mills v. Collector, which held that a manufacturer is liable for breaches committed by employees under Rule 225.

5. Limitation Period for Issuing the Show Cause Notice:
The appellants contended that the demand was barred by limitation, as the physical verification was completed on 23-3-1990, but the show cause notice was issued on 11-6-1991. The Tribunal dismissed this argument, noting that the appellants themselves had reported the shortage on 28-2-1990, indicating that the goods had been clandestinely removed prior to the officers' visit on 9-3-1990. Therefore, the demand was not barred by time.

6. Vicarious Liability of the Appellant Company:
The Tribunal held that the appellant company was vicariously liable for the actions of its employees under Rule 225 of the Central Excise Rules, 1944. This Rule states that if excisable goods are removed in contravention of the Rules by any person, the producer or manufacturer is liable as if they had removed the goods themselves. The Tribunal cited the Andhra Pradesh High Court's decision, which upheld the principle of vicarious liability for breaches committed by employees.

Conclusion:
The Tribunal confirmed the demand of Rs. 1,93,302.45 and upheld the imposition of a penalty, though reduced it to Rs. 10,000.00. The arguments regarding theft, remission of duty under Rule 147, and the limitation period were rejected. The appellant company was held vicariously liable for the actions of its employees.

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