Whether the penalty can be reduced where the director admitted clandestine removal and voluntarily deposited the duty?

PJ/ Case Laws/2012-13/1270

Case: -KHARKIA ALLOYS (P) LTD; SHRI KAILASH NATH GUPTA V/S COMMISSIONER OF CENTRAL EXCISE, DELHI-I

Citation: - 2012-TIOL-1316-CESTAT-DEL

Brief Facts: - The factory premise of the party was searched on 2.7.2007 in the presence of two independent witnesses and in the presence of Shri Kailash Nath Gupta, Director of the party. During the search, physical stock of inputs and finished goods were taken. The physical stock of Raw Material Zinc was not found tallied with the recorded balance in their Stock Register. The stock of Zinc was found short by 10,500 kgs as against the last recorded balance in RG 23A Part-I Register. The stock of finished goods i.e. Flattened Wire was found short by 10,000 kgs and the stock of CA. Wire was found short by 15,000 kgs as against the recorded balance in the RG-1 Register. Thus in all raw material and finished goods collectively valued at Rs. 28,20,250/- involving Central Excise Duty of Rs. 4,64,777/-. Inventory was taken under Panchnama dated 2.7.2007. When investigation found discrepancies as above, they recorded statement from Shri Kailash Nath Gupta, Director of the appellant company on 2.7.2007 and 13.3.2008 to know the reason of discrepancies. On 2.7.2007 it was admitted in the course of deposition that galvanised wire and flattened wire were sold clandestinely without invoices and without payment of duty. Similarly, Zinc shortage was found. So also, it was clandestinely removed without payment of duty and without invoices. The appellant voluntarily deposited duty element involved. It is also admitted that the buyers of clandestinely removed goods came to the factory for purchase. Accordingly, there were cash sales. Investigation further examined Shri Vikas Bansal, who was Director of the appellant company, and who confirmed the contents of statement recorded on 2.7.2007 from Shri Kailash Nath Gupta.
On the basis of these evidence, Revenue, in adjudication demanded duty of Rs. 4,64,777/- and deposited amount on 5.7.2007 was appropriated. Penalty of similar amount was imposed under Rule 25 of Central Excise Rules, 2002 read with Section 11AC of Central Excise Act, 1944, for contravention of Rule 4,6,8,10,11 & 12 of Central Excise Rules, 2002. Further, penalty of Rs. 1 lakh was imposed on Shri Kailash Nath Gupta under Rule 26 of Central Excise Rules, 2002. Adjudication was confirmed by first appellate authority.

Appellant’s Contention: - The appellant contended that the manner of recording deposition was bad since a dictated statement was recorded. The manner of taking inventory was also erroneous. It was further submitted that use of Zinc in the Final product being established there cannot be levy of duty on the finished goods not found and Zinc not found. Penalty was not leviable.

Respondent’s Contention: - The respondent reiterates the order passed by the adjudicating authority.

Reasoning of Judgment: - The CESTAT held that Search conducted on 2.7.2007 admittedly resulted in discrepancies of the goods without providing any reconciliation thereof not leading any cogent evidence to rebut the scope of allegation of clandestine removal. The excisable goods failed to exist in the registered premises that gave rise to inference that such goods went out of the registered place without being recorded in the excise record. Considering such preponderance of probability in the case of Alagappa Cement (P) Ltd. vs. CCE, Chennai, reported in 2010 (260) ELT 511 (Mad.) =(2010-TIOL-770-HC-MAD-CX) it was inferred that the goods not found in the course of physical inventory were clandestinely removed without payment of duty. So also Hon'ble High Court of Himachal Pradesh in the case of CCE vs. International Cylinders Pvt. Ltd., reported in 2010 (255) ELT 68 (H.P.) is in that direction. Shri Kailash Nath, Director of the company when admitted shortage that shows his conscious knowledge of arise of discrepancy for the reason best known to the assessee. This is proved from fact of deposit of duty within 3 days of search conducted. However, the appellant prays that concession in penalty may be granted and that may be reduced to 25% of the duty element. In so far as penalty levied on the company is concerned, it may be stated that the appellant company discharged the duty liability within 3 days of search without any foul game played against Revenue. Therefore, penalty in that case is reduced to 25% of duty element which shall be payable within a month on receipt of this order. Otherwise, entire penalty shall become payable.

Decision: - Appeal allowed.

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PJ/ Case Laws/2012-13/1270

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