2017 (6) TMI 315 - AT - Central Excise

Clandestine removal - Shortage of stock - demand of duty with penalty - Held that - the department has not taken full pains to make fool proof case against the assessee. The whole case is made mainly on the mere statement of the Director of the Company - the charge of clandestine removal by an assessee is itself a serious charge which needs to be proved beyond reasonable doubt. Revenue is required to go to the customers to whom the said non-duty paid goods were cleared. When there is no record of such clearances in any form (loose slips or printed record) found, department s charge is mere statement. Penalty u/s 11AC of the CEA - Held that - the Revenue fails to offer any substantial evidence against the appellants to prove fraud, collusion, willful misstatement with intent to evade duty - the present case appears to be covered by Tribunal s decision in the case of Ranjan Processors vs. CCE, Jaipur II 2009 (9) TMI 867 - CESTAT NEW DELHI where the penalty imposed under section 11AC was modified and a reduced penalty was imposed u/r 27 of CER, 2002 - the penalty of of ₹ 71,893/- imposed on the appellant-assessee is reduced to a penalty of ₹ 5,000/-. Imposition of Penalty on Shri Surendra Kumar Bhura, Director of the assessee company - Held that - when there are no malafides established in case of the appellant Director, penalty under Rule 26 in his case cannot be sustained. Appeal allowed - decided partly in favor of appellant.

Summary

Issues:
- Appeal against order in appeal sustaining penalty reduction
- Shortage of finished goods found during preventive checks
- Voluntary payment of duty for shortages
- Confirmation of demand and penalties by department
- Lack of foolproof case against the assessee
- Imposition of equivalent penalty under section 11AC
- Insufficient evidence to prove fraud, collusion, or willful misstatement
- Comparison with Tribunal's decision in a similar case
- Reduction of penalty under Rule 27 of Central Excise Rules
- Imposition of personal penalty on the Director
- Lack of malafides established in the case of the Director

Analysis:
The case involves an appeal against an order sustaining a penalty reduction for an appellant-assessee regarding a shortage of finished goods discovered during preventive checks. The Director of the company accepted the shortage of goods due to staff negligence, leading to voluntary payment of duty for the shortages. The department confirmed the demand and imposed penalties on the appellant and the Director. The Tribunal noted the lack of a foolproof case against the assessee, primarily relying on the Director's statement. The charge of clandestine removal required substantial evidence, which was lacking, as no records of clearances were found. The imposition of an equivalent penalty under section 11AC was deemed inappropriate due to insufficient evidence of fraud or intent to evade duty.

In line with a previous Tribunal decision, the penalty was reduced under Rule 27 of the Central Excise Rules, 2002, from ?71,893 to ?5,000. The personal penalty on the Director was dropped as malafides were not established, and his knowledge was not proven from the facts on record. The Tribunal concluded that the provisions of section 11AC were not applicable in this case, leading to the modification of the impugned order and the disposal of both appeals accordingly.