Whether penalty imposable under section 11AC without proving clandestine removal?

PJ/Case Law/2014-15/2130

Case:- R.S. INDUSTRIES Versus COMMISSIONER OF CENTRAL EXCISE, KOLKATA-II

Citation:-2014 (301) E.L.T. 382 (Tri. - Kolkata)

Brief facts:-Briefly stated the facts of the case are that the Appellant are engaged in the manufacture of excisable goods, namely, MS Flats, Rounds, Squares, etc. falling under Chapter 72 of the Central Excise Tariff Act, 1985. Their factory was visited by the Central Excise Officers on 10-8-2006. During the course of Joint Verification of the physical stock of the finished goods, the Officers noticed a shortage of 48.280 MT in comparison to the entry of stock in Daily Stock Account i.e. RG-I Register. The Appellant had accepted the said shortage in the stock and agreed to discharge applicable Central Excise duty on the same and tendered the Cheque No. 469532, dated 10-8-2006 for Rs. 1,38,676/-. Consequently, a show cause notice was issued to them on 7-5-2007 for appropriation of the duty paid and imposition of penalty under Section 11AC of the Central Excise Act, 1944. On adjudication, the ld. Assistant Commissioner of Central Excise confirmed and appropriated the duty and also imposed penalty of equivalent amount under Section 11AC of the CEA, 1944. Aggrieved by the said Order, the Appellant had filed an appeal before the ld. Commissioner (Appeals), who had rejected their appeal. Hence, the present Appeal. Thepresent appeal is filed against Order-in-Appeal No. 100/KOL-II/2011, dated 19-8-2011 passed by Commissioner of Central Excise (Appeals), Kolkata.

Appellant’s contention:-The appellant has submitted that in the present Appeal, they dispute only the issue of imposition of penalty under Section 11AC of the CEA, 44 by the Adjudicating Authority and confirmed by the ld. Commissioner (Appeals). He has made a categorical submission that the appellant are not before this Tribunal challenging the Orders of the lower authorities with regard to confirmation and appropriation of duty of Rs. 1,38,676/- paid by them on 10-8-2006 relating to shortage of finished goods of 48.280 MT. The appellant explaining the purported shortage of 48.280 MT in the physical stock of the finished goods in comparison to their RG-1 Register, submitted that during the course of physical stock verification, while furnishing the weight of MS Flats, Rounds, Squares, etc. lying in bundles, they had informed the average weight of each bundle as around 70 Kgs. Consequently, the weight of the finished goods in bundles had been arrived at, after comparing the physical stock with the stock of finished goods, and as recorded in the RG-1 Register, there was a difference (shortage) of around 48.280 MT. To avoid further litigation, they had paid the duty involved on the said goods found short. In the statement ofFactory Manager of the Appellant-Firm, though the shortage was accepted and duty was agreed to be paid, but nowhere it had been stated that the said quantity was removed from the factory clandestinely without payment of duty. The appellant further submitted that in absence of evidence of clandestine removal of goods from the factory, penalty under Section 11AC of CEA, 1944 is unwarranted and unjustified. In support, he has referred to the judgment of this Tribunal in the case of Commissioner of Central Excise, Chandigarh v. Shree Ganesh Steel Rolling Mills Pvt. Ltd., 2009 (241) E.L.T. 47 (Tri.-Del.) and Galaxy Textiles v. CCE, Vapi, 2011 (263) E.L.T. 604 (Tri.-Ahmd.)

Respondent’s contention:-The respondent reiterated the findings of the ld. Commissioner (Appeals). The respondent submitted that since the appellant could not account for the shortage of goods noticed during the course of visit of the Officers on 10-8-2006 and paid the duty on such shortages, therefore, the shortages of goods were on account of clearance from the factory clandestinely, without payment of duty and hence, the penalty was rightly imposed and confirmed under Section 11AC of the CEA, 44. In support, he has referred to the judgment of this Tribunal in the case of CCE. Allahabad v. Bharat Rolling Mills,2012 (284) E.L.T. 539 (Tri.-Del.) and CCE, Delhi-III v. Mico Glass Industries Pvt. Ltd.,2010 (254) E.L.T. 254 (P & H).

Reasoning of judgment:-Hearing both sides and carefully considered the records, adjudicating authority found that during the course of visit of the Officers on 10-8-2006, shortage of around 48.280 MT in the finished stock was found against the recorded stock of 39,025 MT in the RG-1 Register. They have also seenAnnexure: C to the show cause notice, wherein the result of Joint Stock Verification had been recorded. The total quantity of stock mentioned in the said Stock Verification Report, had been arrived at by multiplying the number of bundles with the factor '70' assuming that each bundle weighed 70 Kgs. The Tribunal finds force in the contention of the Appellant that each bundle of MS Flats, Rounds, Squares, etc. cannot, in any case, uniformly weigh 70 Kgs., but it would be slightly more or less. At the time of clearance of the goods from the factory, the same were weighed at the Weigh-Bridge and in the respective excise invoices, the correct weight had been accordingly mentioned, on which duty was being paid by applying the transaction value per MT. Further the adjudicating authority find from the statement of the employees recorded on 10-8-2006 that no admission of removal of goods clandestinely without payment of duty had been mentioned. The relevant question No. (8) and its answer is reproduced as below :-

"Q.8 In the Joint Stock Verification of finished goods in your factory premises conducted by the visiting Central Excise Officers under our guidance, a shortage of stock of finished products to the extent of 48.280 MT has been ascertained and agreed by you in the Joint Stock Verification Report and Stock Verification Working Steel. The rate/assessable value of such goods as per Invoice No. 51 dated 8-8-2007 is Rs. 17,600/- per MT. So, the Central Excise Duty on the quantity of shortage is Rs. 1,35,957/- and Edn. Cess is Rs. 2,719/- totaling Rs. 1,38,676/, Are you ready to pay this amount right now?

Ans. Yes, the shortage of 48.280 MT has been ascertained. We are ready to pay the applicable Central Excise Duty and E. Cess right now."

It is clear from the said statement that shortage had been admitted and the applicable duty was paid. No question was raised in ascertaining the reason of such shortage. Accordingly, no explanation was also furnished by the said employee. In these circumstances, it is difficult to accept the contention of the respondent that the shortage quantity was removed from the factory clandestinely without payment of duty, when no further investigation had been carried out by the department. They also find force in the contention of the appellant that such shortages could be on account of various factors, including the practice of determining the weight on applying average weight of each bundle. In absence of cogent evidences or admission of removal of goods clandestinely from the factory without payment of duty, in their opinion, the ingredients of Section 11AC of the Central Excise Act, 1944, are not attracted. They find from the impugned notice that penalty has not been proposed under other provisions of Central Excise Act or the Rules made there under, except under Section 11AC of the CEA, 1944. In view of the above discussions, as penalty is not imposable under Section 11AC of CEA, 1944 and in absence of proposal of penalty under any other penal provisions, therefore, no penalty could be imposed on the appellant for the said shortage. In the result, the impugned Order of the ld. Commissioner (Appeals) is set aside to the extent of confirmation of penalty imposed on the Appellant. The appeal is thus partly allowed to the above extent.

Decision:- Appeal partly allowed.

Comment:- The crux of the case is that merely because the assessee had accepted the duty liability on shortage detected during the stock verification by the audit team, it cannot be assumed that there was clandestine clearance unless and until the same is supported by cogent and corroborative evidences. Accordingly, the penalty imposed under section 11AC was set aside in the absence of any evidence to conclude clandestine clearance of goods.

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PJ/Case Law/2014-15/2130

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