2010 (10) TMI 316 - AT - Central Excise

Penalty under Section 11AC - Clandestine removal of the goods - The lower appellate authority finds that there is no evidence on records that the appellants engaged in the activity of clandestine removal of the goods - The shortages during the course of visit of the preventive officers have been explained by the appellant as per their entries in the records - find that the ingredients of Section 11AC have not been invoked and in the absence of ingredients-fraud collusion wilful mis-statement or suppression of facts or contravention of provisions of the Act or the Rules no penalty can be attracted under Section 11AC - Hence the impugned order confirming the penalty is set aside.

Summary

Issues:
Challenge to imposition of penalty under Section 11AC of Central Excise Act, 1944.

Analysis:
The appellant contested the penalty imposed under Section 11AC of the Central Excise Act, 1944. The case involved shortages of finished goods and inputs detected during a visit by preventive officers to the factory premises. The appellant paid duty on the identified shortages. A show cause notice was issued for duty demand appropriation and penalty imposition under Rule 25 read with Section 11AC. The adjudicating authority confirmed the duty demand and penalty. The Commissioner (Appeals) upheld the penalty under Section 11AC but reduced it to 25% without evidence of clandestine goods removal. The appellant, dissatisfied with this decision, appealed.

The appellant, a manufacturer of HR Plates and Patra of MS steel, operated based on a set formula for input processing and product output. They debited inputs and accounted for finished goods according to this formula without weighment during input issuance or entry in records. Despite paying duty upon departmental pointing out of shortages, no evidence suggested the appellant's involvement in clandestine goods removal. The absence of fraud, collusion, wilful misstatement, suppression of facts, or contravention of Act provisions precluded penalty imposition under Section 11AC.

During the hearing, both parties presented their arguments, following which the records were examined. The appellate authority's finding revealed no evidence of the appellant engaging in clandestine goods removal. The shortages were explained based on the appellant's record entries. As the requirements for invoking Section 11AC were not met-specifically, the absence of fraud, collusion, wilful misstatement, suppression of facts, or contravention of Act provisions-the penalty under Section 11AC was deemed unwarranted. Consequently, the penalty confirmation was set aside, and the demand was upheld, leading to the partial disposal of the appeal with relief for the appellant.