2010 (8) TMI 826 - AT - Central Excise

Duty demand - Penalty - Clandestine removal of goods - Unaccounted stock - Held that - Merely because the defence statements were not accepted by the lower authorities it cannot be said there is violation of principles of natural justice in not considering the documents submitted by the appellants. The authorities have relied upon the private records maintained by the appellant-firm corroborated by the initial statements of Manager, the Accountant and also a Partner and further letters submitted by the said partner himself. No valid defence has been produced before them to contradict the earlier statement of Shri Veeramuthu Pillai dated 8-6-2001 which stands generally corroborated by various letters addressed by him to the Central Excise authorities. The plea that the unaccounted clearances related to unbranded goods which were manufactured in the houses of the employees, in the given facts and circumstance, is clearly an afterthought. As already mentioned the various letters by Shri Veeramuthu Pillai was only to extricate him of the charge of prior knowledge of clandestine activity in his firm and inasmuch as no separate penalty has been imposed on him, this issue need not be further dealt with. As it is a clear case of unaccounted and clandestine removal which stands admitted, invocation of extended period of limitation and imposition of equal amount of penalty on the appellant-firm are justified - However, Penalty reduced - Decided partly in favour of assessee.

Summary

Issues:
- Unaccounted production and clandestine removal of chewing tobacco
- Validity of Show Cause Notice issuance
- Principles of natural justice in adjudication process
- Invocation of extended period for demand of duty
- Liability and penalties on employees involved in clandestine activities

Analysis:

Unaccounted production and clandestine removal of chewing tobacco:
The case involved the discovery of unaccounted production and clandestine removal of chewing tobacco by the appellant-firm. Initially, statements from the Manager, Accountant, and a Partner of the firm confirmed the unauthorized manufacturing and clearance of tobacco products without duty payment. Subsequently, the Manager and Accountant retracted their statements, attributing the activities to themselves without the knowledge of the Partner. The Partner, in his subsequent letters, attempted to distance himself from the clandestine activities, claiming lack of prior knowledge. Despite these contentions, the records seized from the premises and the initial admissions formed the basis for confirming the duty demand and penalties on the appellant-firm.

Validity of Show Cause Notice issuance:
The appellant challenged the validity of the Show Cause Notice, alleging irregularities in the issuance process. However, the Tribunal found no merit in the contentions, noting that the Notice was issued with the approval of the Additional Director-General of Central Excise Intelligence. The absence of evidence contradicting this approval and the reliance on seized records and initial statements supported the validity of the Notice.

Principles of natural justice in adjudication process:
The appellant raised concerns regarding the adherence to principles of natural justice during the adjudication process. Despite the appellant's claims of non-consideration of defense documents and lack of separate hearings, the Tribunal held that the authorities had appropriately relied on the records, initial statements, and subsequent letters to reach a decision. The failure to accept defense statements did not amount to a violation of natural justice, given the corroborative evidence available.

Invocation of extended period for demand of duty:
Due to the suppression of production and clandestine removal activities, the Tribunal upheld the invocation of the extended period for the demand of duty. The concealment of clearances through distinct record-keeping practices warranted the application of the extended limitation period, as the appellant had failed to provide substantial evidence supporting their claims of unbranded goods and lack of duty liability.

Liability and penalties on employees involved in clandestine activities:
While penalties were imposed on the employees initially, the Tribunal reduced the penalties significantly, considering the circumstances. As the employees were not deemed beneficiaries of the clandestine activities and had shown loyalty by retracting their statements to protect the Partner, the penalties on the employees were set aside.

In conclusion, the Tribunal rejected one appeal, allowed two appeals, and provided detailed reasoning for each issue raised, emphasizing the importance of evidence, procedural compliance, and equitable treatment in the adjudication of the case.