2016 (12) TMI 208 - AT - Central Excise

Demand - Clandestine removal - Held that - It is noticeable from the finding recorded by the adjudicating authority that conduct of the appellant was good and accounts maintained were trustworthy, as is Revealed from para 12.02 of the adjudication order. He records that there was no doubt about the conduct of the appellant. But surprisingly in para 12.03, he imputed culpability of the appellant for no reason stated. In such circumstance, decision of the authority is arbitrary and is liable to be set aside From the finding recorded by Adjudicating Authority any mischievous conduct of the appellant is not appreciable. Therefore imposition of penalty under section 11AC as well as Rule 25 of the Central Excise Rules, 2002 is uncalled for. In absence of mens rea of the Managing Director, penalty imposed on him is also unsustainable - appeal disposed off - parties are allowed only on penalty aspect - decided partly in favor of appellant.

Summary

Issues:
1. Levy of duty and penalty on the appellant company for excess stock found during inventory.
2. Imposition of penalty on the Managing Director.
3. Appeal against the penalty under section 11AC of the Central Excise Act, 1944.

Analysis:
1. The investigating officers discovered excess stock in the production area of the appellant company during inventory, leading to the inference of unaccounted removal of excisable goods. This resulted in a duty levy of &8377; 2,32,365 and a penalty equal to the duty amount under Rule 25 of Central Excise Rules 2000 read with section 11AC of the Central Excise Act, 1944. Additionally, a penalty of &8377; 2,32,365 was imposed on the Managing Director. However, the penalty on the Managing Director was reduced to &8377; 25,000 by the appellate authority, who upheld the rest of the adjudication. The appellant argued that maintenance of excise register was difficult due to staff issues but maintained proper accounts of goods removal and production. The invoices in question were issued against duty paid clearances.

2. The adjudicating authority acknowledged the good conduct and trustworthy accounts maintained by the appellant, as evident from the adjudication order. However, there was an arbitrary imputation of culpability without reason. The authority's decision was deemed arbitrary and set aside. It was concluded that there was no mischievous conduct by the appellant, making the imposition of penalties under section 11AC and Rule 25 of the Central Excise Rules, 2002 unwarranted. The penalty imposed on the Managing Director was deemed unsustainable due to the absence of mens rea. Consequently, the appeals of both parties were allowed only on the penalty aspect.

3. The learned departmental representative supported the orders of the appellate authority. After hearing both sides and perusing the records, it was noted that the conduct of the appellant was commendable, and any imputation of mischievous conduct was unjustified. Therefore, the penalties under section 11AC and Rule 25 were deemed unnecessary. The Managing Director's penalty was also considered unsustainable without evidence of deliberate intent. As a result, the appeals were allowed solely on the penalty aspect, with the rest of the adjudication upheld. The judgment was dictated and pronounced in open court by Shri D.N. Panda, Judicial Member of the Appellate Tribunal CESTAT CHENNAI.