2017 (4) TMI 322 - AT - Central Excise

Shortage of stock - imposition of penalty - Held that - The penalty u/s 11AC is imposable to the extent of 100% of duty evaded by the manufacturer. Whether the present case is a case of duty evasion by resorting to clandestine activities or is a case of bona fide action is required to be examined. As already observed, that the clearance of product during a holiday, which product is already entered in the records, without raising an invoice can be considered to be a bona fide action of the assessee, thus not inviting any penal action against them in terms of Section 11AC. However, the fact remains that the goods were cleared without payment of duty and without raising the invoices, though may be, under compelling circumstances, thus inviting penal action u/R 25 - imposition of penalty of ₹ 1 lakh in terms of the provision of Rule 25, would be justifiable - appeal rejected - decided partly in favor of assessee in terms of reduction of penalty.

Summary

Issues: Detection of shortage of goods during factory visit, imposition of duty, imposition of penalty under Section 11AC, challenge to personal penalty of ?5,50,195.

The appellant, engaged in manufacturing MS Bar, faced a shortage of bars during a factory visit, leading to detection of a shortfall valued at ?33,38,560 involving Central Excise duty of ?5,50,195. The appellant admitted the shortage, attributing it to goods being cleared on a holiday without invoices, promptly paying the duty after officer's visit. A show cause notice was issued, culminating in an order confirming duty and imposing a penalty under Section 11AC of the Central Excise Act, 1944, which was challenged in the appeal.

The main contention in the appeal was against the imposition of a personal penalty of ?5,50,195. The appellant argued that the clearance without invoices was due to an emergency situation on a holiday, not clandestine removal, thus Section 11AC penalties should not apply. The appellant had entered the manufactured goods in the daily register, making it impossible to clear them without issuing invoices, despite the holiday situation.

The Tribunal noted that the penalty under Section 11AC is for duty evasion, necessitating an examination of whether the case involved clandestine activities or bona fide actions. While the emergency clearance without invoices could be considered bona fide, the act of clearing goods without payment or invoices, even under compelling circumstances, invoked penal action under Rule 25, not applied by the adjudicating authority.

Considering the circumstances, the Tribunal reduced the penalty to ?1 lakh under Rule 25, justifiable based on the facts. The appeal was rejected except for the penalty reduction, emphasizing that despite the emergency situation, the clearance without proper documentation still warranted penalty under Rule 25.

In conclusion, the Tribunal upheld the duty imposition but reduced the penalty under Rule 25, finding the circumstances justified a lesser penalty than initially imposed under Section 11AC.