2024 (10) TMI 288 - AT - Central Excise

Clandestine removal - Confirmation of duty along with interest and imposition of penalty under section 11AC of the Central Excise Act, 1944 - imposition of personal penalty under Rule 26 - invocation of Extended period of limitation - HELD THAT - There is no dispute about the authenticity of the records and who had maintained them. The only dispute is regarding how the shortage of WIP is interpreted. The appellant s explanation is that it is due to dust of about 5% generated during the manufactured which it claims to have not accounted for and dumped on the roads because its sale value is low but this loss has already been taken into account in the WIP register and the shortage is after accounting for these losses. Since the raw material were already put through the process of manufacture the logical conclusion would be that the final goods were manufactured but lesser quantity was recorded in the final products register and duty was paid. The remaining quantity was not found in the factory. The shortage is also not of small quantity in the case of OUDH SUGAR MILLS LTD. VERSUS UNION OF INDIA 1962 (3) TMI 75 - SUPREME COURT but in this case, of the 933 MT only 70 MT was found in stock. There are no hesitation in upholding the decision of the impugned order that the appellant had removed the goods found short clandestinely and is liable to pay excise duty under section 11A invoking extended period of limitation along with interest and penalty under section 11AC. Penalty on Shri Tekriwal - HELD THAT - Rule 26 shows that the pre-requisite for imposing penalty under Rule 26 is confiscation of the goods and the person being concerned in any manner with such goods. In this case, the Commissioner dropped the proposal to confiscate the goods. Therefore, Rule 26 cannot apply. Appeal disposed off.

Summary

Issues Involved:
1. Confirmation of duty demand along with interest and imposition of penalty under Section 11AC of the Central Excise Act, 1944.
2. Imposition of personal penalty on Shri Pankaj Tekriwal under Rule 26 of the Central Excise Rules, 2002.

Issue-wise Detailed Analysis:

1. Confirmation of Duty Demand and Imposition of Penalty:

The core issue revolves around the alleged evasion of duty by the assessee, M/s. Hi Tech Abrasives Ltd., through under-reporting of production and clandestine removal of goods. The Directorate General of Central Excise Intelligence (DGCEI) conducted an investigation based on intelligence received. During their visit, they found a significant discrepancy in the work-in-progress (WIP) inventory. The records showed 951.646 MT of WIP, but only 70 MT was physically present, indicating a shortage of 882 MT.

The assessee argued that this shortage was due to manufacturing losses, including dust loss, which was not accounted for due to its low market value. However, the tribunal noted that all production losses, including dust loss, were already accounted for in the WIP register. The tribunal concluded that the shortage could not be explained by dust loss, as the dust was of some market value and would have been accounted for or sold by any prudent business.

The tribunal further stated that the raw materials consumed and the finished goods manufactured were properly recorded, and the discrepancy was only in the WIP. The tribunal dismissed the appellant's reliance on previous judicial decisions, emphasizing that each case is fact-specific and the evidence in this case pointed towards clandestine removal of goods. The tribunal upheld the duty demand under Section 11A(4), along with interest under Section 11AA and penalty under Section 11AC, citing the extended period of limitation due to the clandestine nature of the removal.

2. Imposition of Personal Penalty on Shri Pankaj Tekriwal:

Shri Pankaj Tekriwal, the Director of the company, was penalized under Rule 26 of the Central Excise Rules, 2002. The rule stipulates penalties for those involved in dealing with excisable goods liable for confiscation. However, the tribunal found that the Commissioner had refrained from confiscating the goods, which is a prerequisite for imposing a penalty under Rule 26.

The tribunal highlighted that for Rule 26 to apply, there must be a confiscation of goods, which was not the case here. Consequently, the tribunal allowed the appeal of Shri Pankaj Tekriwal, setting aside the penalty imposed on him.

Conclusion:

The tribunal upheld the impugned order concerning M/s. Hi Tech Abrasives Ltd., confirming the duty demand, interest, and penalty due to the established clandestine removal of goods. However, it set aside the penalty imposed on Shri Pankaj Tekriwal, as the conditions for applying Rule 26 were not met.