Shortage of Goods attracts Penalty under Rule 25 of CER, 2002

PJ/Case Law/2011-12/1138

Case: S. K. Sacks Pvt Ltd v/s Commissioner of C. Ex, Chandigarh

Citation: 2011 (266) ELT 259 (Tri-Del)

Issue: - Shortage of goods attracts penal action u/R 25 but evidence is required for invocation of penal action under Section 11AC

Brief Facts: - The Central Excise officers visited the premises of Appellant-assessee on 10.05.01 and noticed shortage of 40, 187/- kgs of inputs namely plastic granules on which credit was taken. The appellant accepted the shortage and paid the credit involved voluntarily. For the said shortage of inputs, separate proceedings are going on.

On, 03.11.2001, the Central Excise officers again visited the factory of the appellant and noticed that there was shortage of huge quantity of finished goods namely plastic woven fabrics and plastic sacks. The Director of appellant claimed that the shortage of finished goods was attributable to shortage of inputs found on 10.05.01.

Revenue issued show cause notice proposing to demand duty with interest on shortage of finished goods and for imposition of penalty under Rule 25 of CER, 2002 read with Section 11AC of the Central Excise Act, 1944. The party deposited the amount of duty involved on 04.11.01 and on 05.06.03 respectively. The Original Authority confirmed the demand with interest and imposed penalty equal to the amount of duty.

In appeal, the Commissioner (Appeals) upheld the demand but reduced the penalty to Rs. 60, 000/-. The Revenue is in appeal before the Tribunal seeking enhancement of penalty. Appellant assessee is in appeal challenging the confirmation of duty with interest and the imposition of penalty of Rs. 60, 000/-.

Assessee’s Contention: - Appellant contended that duty is payable only on removal of goods under Rule 4 of CER, 2002. Therefore, the Lower Authorities erred in demanding the duty and the Commissioner (Appeal) erred in sustaining the penalty. Reliance was placed in judgment given in Allied Industries Ltd v/s CCE, Surat [2009 (235) ELT 337 (Tri-Ahmd)], Sun Pharmaceutical Industries Ltd v/s CCE, Daman [2009 (234) ELT 666 (Tri-Ahmd)] and in Ganga Kisan Sahkaru Chini Mills v/s CCE, Meerut [2009 (233) ELT 136 (Tri-Del)].

Revenue’s contention:- Revenue contended that it is a clear case where Section 11AC should be invoked and there was no justification in reducing the penalty to Rs. 60, 000/-. It was submitted that the party was a habitual offender and no leniency is to shown to them. It was submitted that shortage of inputs on 10.05.01 had no bearing on shortage of finished goods noted on 03.11.01.

Reasoning of Judgment: - The Tribunal noted that the investigating officers had not further investigated the shortages of finished goods after duty was deposited by the appellant. And a cryptic show cause notice was issued invoking Section 11AC. Thus, before the adjudication, the entire amount of duty involved was paid. It was held that there is no justification linking the shortage of inputs on 10.05.01 to shortage of finished goods on 03.11.01. It was noted that shortage of inputs could explain excess of finished goods but shortage of inputs cannot explain shortage of finished goods.

The Tribunal further noted that there is no evidence relied upon by the Revenue to substantiate the charge of clandestine removal of finished goods. It was held that the manufacturer’s obligation to account for the goods manufactured is a strict obligation and failure to do so clearly attracts the provisions of Rule 25 (1) (b) of CER, 2002. It is a clear case of non-accounted shortage and penalty is warranted under Rule 25 (1) (b). However, there is no evidence adduced by the Revenue requiring invocation of Section11AC. In the circumstances, penalty of Rs. 60, 000/- imposed on appellant by the Commissioner (Appeal) upheld.

Decision:- Appeal of the Revenue as well as of the appellant-assessee rejected.

Comment:- This is a good decision which has defined the circumstances where Rule 25 penal action or penalty under Section 11AC can be invoked.

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PJ/Case Law/2011-12/1138

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