Whether shortage of inputs and clearance without payment of duty is invoked the provisions of sec 11AC.

PJ/Case law/2014-15/2245

Case:- COMMISSIONER OF C. EX., PUNE-II Vs. MAHALAXMI STEEL INDUSTRIES LTD.

Citation:- 2014(304) E.L.T. 136 (Tri. –Mumbai)

Brief facts:- The brief facts of the case are that during the course of investigation in the factory of the respondent, there was a shortage of 29.72 MT of MS ingots and 209 liters of furnace oil. It was also found that the appellant has cleared 36.18 MT of MS bar without issuance of invoice/ without payment of duty. It was also found that 1114 nos. of MS ingots were received by the respondents under delivery challans but the same had not been entered in their books of account. Therefore, proceedings were initiated against the respondents. As the respondents paid the duty on shortages of the inputs and also paid the duty on the clearances which were alleged without issuance of invoice/ without payment of duty, therefore the adjudicating authority demanded the interest and imposed equivalent amount of penalty on the respondent for violating the provisions of sections 11AC and 11AB of the act. The Commissioner (Appeals) dropped the demand of interest and penalty. Aggrieved by the said order, the revenue is before Tribunal.

Appellant’s contentions:- The Learned AR submits that as the respondent has admitted their liability and during the course of investigation, shortages of inputs were found and the goods were cleared by them without payment of duty, therefore the intention of the respondent is very clear that they have suppressed the fact with intent to evade payment of duty. Therefore, mandatory penalty and interest are payable by the respondent.

Respondent’s contentions:- The Learned counsel appearing on behalf of the respondent strongly opposes the contentions of the learned AR and submits that the goods have been cleared under invoices during the month of September, 2004 and invoices could not be issued as the person concerned to issue the invoice was not available, but these goods were cleared through delivery challans and weighment slips were also found in their factory, which were duly recorded by them. Therefore, the allegation of clandestine removal of goods is not sustainable, as duty was to be paid by the respondent by the end of the month. It is further submitted that during the period April, 2004 to September, 2004, the respondent had purchased more than 11000 MT of MS ingots and there was a shortage of only 29.73 MT which is a negligible quantity and that may occur due to the weighment on various weighment machines and without going in the dispute, the respondent has paid the duty on these shortages. Therefore, in these circumstances, penalty is not leviable on the respondent. For the demand of interest, it is submitted that the goods have been cleared in the month of September, 2004 and they have paid the duty in the month of September, therefore interest is not payable.

Reasoning of judgment:- In the impugned order, although interest and penalty have been waived by the Commissioner (Appeals) relying on the Larger Bench decision of the tribunal in the case of CCE, Delhi-III v. Machino Montell (I) Ltd. reported in 2004 (168) E.L.T. 466 and the decision in the case of Rashtriya Ispat Nigam Ltd. v. CCE reported in 2003 (161) E.L.T. 285, holding that as duty has been paid before issuance of show cause notice, therefore penalty and interest are not leviable, but the Hon’ble Supreme Court in the case of UOI v. Rajasthan Spinning and Weaving Mills reported in 2009 (238) E.L.T. 3(S.C.) held that if the ingredients of section 11AC of the act are invoked, mandatory penalty is leviable. Therefore, in the facts and circumstances of the case, they have to look whether the provisions of section 11AC can be invoked in the present case or not. Admittedly, in this case goods had been cleared in the month of September, 2004 and duty liability arose by the end of September, 2004. Moreover, the goods had been cleared through delivery challans and the weighment slips were duly recorded in their records, therefore the provisions of section 11AC of the act, i.e. fraud, collusion, willful misstatement, suppression of the facts and contravention of the provisions of the Act/Rules with intent to evade payment of duty, are not attracted. Therefore, mandatory penalty for these acts is not leviable. Further, they find that a penalty is proposed to be imposed on shortages of inputs. They find that the respondent had purchased 11004 MT in a period of six months and there is a negligible shortage of 29 MT in their inputs and that may occur due to the weighment of inputs on various weighment machines. In these circumstances, it cannot be held that the respondent had cleared the inputs clandestinely and no evidence has been produced by the revenue to this effect. In these circumstances, the provisions of section 11AC of the act are not attracted. Therefore mandatory penalty is not leviable.
As the respondent has paid the duty within the same month, therefore interest is not leviable. In these circumstances, although the reasons for in the impugned order for dropping the interest and penalty are different but conclusion is confirmed, accordingly the appeal filed by the revenue is dismissed.

Decision:- Appeal was dismissed.

Comment:- The analogy of the case is that duty liability for goods cleared in September discharged by the end of the month, so interest is not leviable. Moreover, any fraud, collusion, willful misstatement, suppression of the facts and contravention of the provisions of the Act/Rules with intent to evade payment of duty is not established and goods were cleared through delivery challans and weighment slips duly recorded. Further, shortages of inputs may also occur due to weighment of inputs on different weighing machines. Therefore, in these circumstances, it was concluded that the penalty is not leviable.

Prepared by: Monika Tak

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PJ/Case law/2014-15/2245

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