2011 (6) TMI 323 - AT - Central Excise

Penalty - whether the respondent company and its Director are liable to penalties - shortage of stock - Director of the respondents company admitted the shortage and stated that the goods found short were sold by them to the various buyers in the open market on cash basis at the factory gate without issuing the invoices and without payment of duty - shortage of more than 60% of inputs on which credit has been taken - Held that - penalty imposed on the respondent company in terms of proviso to section 11AC penalty imposed on Director in terms of Rule 26 of the Central Excise Rules 2002.

Summary

Issues: Liability of the respondent company and its Director for penalties in a case involving shortage of goods and clandestine removal without payment of duty.

Analysis:
1. The main issue in this case is whether the respondent company and its Director are liable for penalties in a situation where there was a significant shortage of goods without payment of duty. The facts reveal that there was a shortage of 56.500 MT of goods, and the Director admitted to selling the goods in the open market without issuing invoices or paying duty. Despite the Director's admission and the payment of the duty involved, the tribunal found that the penalty under section 11AC read with Rule 13 of the Cenvat Credit Rules, 2002, was applicable. The tribunal relied on the decision of the Hon'ble Supreme Court in a similar case to support this conclusion.

2. Additionally, the Director of the respondent company was found to be knowingly involved in the clandestine removal of goods, as evidenced by his statement. As a result, he was held liable for penalties under Rule 26 of the Central Excise Rules. The tribunal emphasized the Director's active participation in the wrongful act, leading to the imposition of a penalty on him.

3. The respondent's advocate argued for a concessional penalty due to the payment of the entire duty amount before the issuance of a show cause notice. Citing a previous decision of the Hon'ble High Court of Delhi, the advocate contended that the respondent should benefit from a reduced penalty. The tribunal considered this argument but ultimately imposed penalties on both the company and the Director, albeit at reduced rates due to the early payment of duty.

4. In conclusion, the tribunal decided to impose a penalty of Rs. 25,425 on the respondent company and Rs. 10,000 on the Director. The company was given 30 days to pay the penalty, failing which a higher penalty amount would be applicable. This judgment underscores the importance of compliance with duty payment regulations and the consequences of non-compliance, even if the duty is subsequently paid.