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TMI Blog1989 (12) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... y premises of the appellants and at the premises of certain persons at various places. The current R.G. 1 Register which is a statutory record for the production of cement was not available at the factory. The officers then did a physical check of the cement stock which revealed that the physical stock of clinker was found to be 1547.840 M.T. as against balance of 3666 M.T. showing a shortage of 2,118.160 M.T. Similarly, there was a shortage in Gypsum also. The officers seized some of the records for further investigation. Based on the recovery percentage of the cement on the ratio of 1 Tonne of clinker to yield 98 to 100% of cement with addition of 5% Gypsum, the Department came to the conclusion that the factory had manufactured a quantity of 2,118.160 M.T. of cement out of the equal quantity of clinker found short and that this quantity had been removed by the appellants clandestinely without payment of Central Excise duty amounting to Rs. 4,76,586. The officers also, searched the residential premises of one Hukkeri, Accounts Officer of the firm at Bangalore, and the seizure of certain documents therefrom, as well as the documents seized from the factory, led to the departmental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, submitted that he is not challenging that part of the Collector s order demanding duty and that the appellants are confining the appeals only to the question of penalty on the appellant firm as well as the other appellants viz. Shri Jayaram and Shri Sitaram. Appellant Jayaram is the Managing Director of the cement factory and appellant Sitaram is a Director in the Board of Directors. The learned Counsel contended that the appellants have from the beginning given the explanation that Shri Hukkeri, Accounts Officer was responsible for the clandestine removal of cement from their factory and that the Managing Director and the Director were not aware of his activities. He further pointed out that it is significant that the incriminating documents have all been seized only from the residential premises of Hukkeri at Bangalore and not from the factory premises. The Assistant Works Manager of the factory in his statement following the visit of the officers had also said the same thing that Hukkeri was the right person to explain about the shortages. The learned Counsel argued that the functions of the Managing Director having overall control of the operation of the factory are such tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of cement from the factory. It is also significant, according to the learned S.D.R., that the appellants have not spelt out what steps they took or what enquiries were made by them to get at the root of the problem of clandestine removal attributed by them to Hukkeri. In any case the learned S.D.R. pointed out that even after the search and seizure of incriminating documents, the appellants had not filed any criminal complaint against Shri Hukkeri. 5. The submissions made by the learned Counsel and the learned S.D.R. have been carefully considered. The appellants herein are not contesting the duty demanded but they are only questioning the penalty imposed on the appellants. The argument that only Hukkeri was responsible for the clandestine removal of cement from the factory and his activities were unknown to the Managing Director is not very convincing. Shri Hukkeri in his statement on 16-4-1987 has clearly stated that cement was being sold from the factory strictly as per the written orders from the Head Office at Bangalore and also oral orders from the Managing Director, the wholetime Director and the Director. The statement of appellant Jayaram also contains material, as poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es the penalty on the firm itself is lawful. Under Rule 221 read with Rule 225 of the Central Excise Rules, 1944, Managing Director and Director being in charge of the company is liable to pay the excise duty on behalf of the company before the removal of excisable goods. Therefore, such employees of the company are also responsible and liable for penalty for contravention of the provisions of Central Excises Salt Act and the rules made thereunder if any. This view has been taken by the Hon ble Bombay High Court in Garda Chemicals Pvt. Ltd. v. Assistant Collector of Central Excise, Kalyan and Another reported in 1984(15) E.L.T. 18 (Bombay). The High Court observed that a company which is a Central Excise Licensee has to act through its officers and that in the matter of responsibility of the corporate body for making declaration and obtaining licence the provisions have been made in Rule 221 of the Central Excise Rules, 1944. The Court also referred to Rule 225 which lays down that if any excisable goods are in contravention of any condition prescribed under the Rules removed by any person from the place where they are produced, manufactured or warehoused, the producer, manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of duty occurred at the direction of the Managing Director Shri Jayaram and we have also found on evidence that the version that it was all done by Shri Hukkeri without the knowledge of the management is not borne out. However, in the matter of the imposition of penalty on the employees of the company the observation of the Delhi High Court that the corporate veil will have to be lifted to determine the liability of a Director would necessitate, therefore, an assessment of the role played by the employees of the company in the offence and, on this principle the evidence on record clearly shows that the appellant Jayaram, being in overall charge of the unit, and on the basis of evidence that the removal took place with his knowledge and direction, has rightly been held to be liable for penalty. However, in the matter of appellant Sitaram, who is a Director of the company, the evidence on record discloses that this appellant did not have an active role to play in the offence by and large although admittedly as one of the Directors of the company, he had moral responsibility. In any case, the facts and circumstances of the case are such that the benefit of doubt can be extended to thi ..... 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