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2013 (5) TMI 567 - AT - Central ExciseShortage of goods - Penalty - Personal penalty on director - show cause notice issued alleging clandestine removal of the goods in absence of reasonable explanation on the shortage of inputs and finished stocks - Held that - Mere shortage of finished goods or raw materials in the stock cannot by itself construed that the said goods were removed clandestinely by the assessee. The department has to adduce positive evidences of such removal of goods clandestinely demonstrating the intent to evade payment of duty. In the present case even though it was explained by the Managing Director that shortage of goods could be attributed to the fact of theft that might have taken place during the closure of the factory, the department had not carried out any further investigation to ascertain the correctness of the said statement. In absence of any contrary evidence no force in the argument of the A.R. that the goods must have been clandestinely removed. No merit in the submission of the A.R. that the penalty under Section 11AC is invocable against the respondent. However, the respondent is required to pay duty involved on such shortages which could not be explained and the respondent are liable for general penalty for the said discrepancy. Since no penal provision is invoked in the Show Cause Notice other than Section 11AC, no penalty could be imposed on that count. Thus in absence of direct or indirect involvement of the Managing Director Shri A.K. Agarwal in the clandestine removal of the goods no personal penalty under Rule 26 of the Central Excise Rules, 2002 is imposable on him.
Issues Involved:
1. Shortages in stock of finished goods and raw materials. 2. Allegation of clandestine removal of goods. 3. Imposition of duty and penalties. Detailed Analysis: 1. Shortages in Stock of Finished Goods and Raw Materials: The respondents, engaged in manufacturing iron and steel products, had discontinued their manufacturing activities in July 2002. During a visit by the Central Excise audit team on 11-2-2003, discrepancies were found between the recorded and actual stock of raw materials and finished goods. The audit team discovered shortages in M.S. Rod (77.953 MT) and M.S. Scrap (43.617 MT), with a total assessable value of Rs. 12,99,590.20, and a total duty of Rs. 2,97,934.00. Similarly, shortages in inputs such as billets/ingots, M.S. rounds, and furnace oil were noted, with a total Cenvat credit availed of Rs. 7,34,735.00. The Director admitted the shortages, attributing them to theft due to inadequate security following the factory's closure. 2. Allegation of Clandestine Removal of Goods: The Revenue issued a show cause notice demanding a total duty of Rs. 10,15,748/-, including Rs. 2,07,934/- for the shortage of finished goods, Rs. 7,37,006.56 for the shortage of inputs, and Rs. 71,745/- for the removal of finished excisable goods against specific invoices. The adjudicating authority confirmed the demand and imposed equivalent penalties under Section 11AC of the Central Excise Act and a personal penalty on the Managing Director under Rule 26 of the Central Excise Rules, 2002. However, the Commissioner (Appeals) confirmed only the demand of Rs. 71,745/- with interest under Rule 8(3) of Central Excise Rules, 2002, and dropped the remaining demand and penalties. The Revenue contended that the shortages indicated clandestine removal, supported by the Managing Director's admission and the lack of proper stock accounting. The respondent argued that the department failed to provide positive evidence of clandestine removal, referencing multiple Tribunal judgments supporting their stance. 3. Imposition of Duty and Penalties: The Tribunal considered the submissions and records, noting that the shortages were admitted by the Managing Director, who attributed them to theft due to poor security during the factory's closure. The Tribunal emphasized that excise duty is levied on manufactured goods, which must be accounted for in statutory registers. Failure to account for shortages implies liability for duty payment. However, mere shortages do not automatically indicate clandestine removal without positive evidence. The Tribunal found no merit in the Revenue's argument for invoking Section 11AC penalties, as the department did not investigate the theft claim. The Tribunal agreed with the Commissioner (Appeals) that no personal penalty under Rule 26 could be imposed on the Managing Director in the absence of direct involvement in clandestine removal. Consequently, the Tribunal set aside the Commissioner (Appeals)'s order dropping the demand of Rs. 9,44,003/- for shortages and allowed the Revenue's appeal to this extent, while upholding the rest of the order. Conclusion: The Tribunal concluded that the respondent must pay duty for unexplained shortages but rejected the imposition of penalties under Section 11AC and personal penalties under Rule 26, due to the lack of evidence for clandestine removal. The appeal was disposed of accordingly.
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