Clandestine removal penalty reduced for the unit and director's separate penalty set aside under central excise rules.

Clandestine removal was admitted, so the penalty on the manufacturing unit under Rule 173Q(1) read with Section 11AC was not vitiated by the absence of a specific sub-clause in the notice or order; however, the prior payment of duty before issuance of the show cause notice was relevant to quantum, and the unit's penalty was reduced to 25% of the confirmed duty. The separate penalty on the director under Rule 209A was not sustained and was set aside. The finding of clandestine removal and the duty demand remained undisturbed.

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Issues: (i) whether the penalty imposed on the manufacturing unit under Rule 173Q(1) of the Central Excise Rules, 1944 read with Section 11AC of the Central Excise Act, 1944 was sustainable and, if so, to what extent; (ii) whether the separate penalty imposed on the director under Rule 209A of the Central Excise Rules, 1944 was sustainable.

Issue (i): whether the penalty imposed on the manufacturing unit under Rule 173Q(1) of the Central Excise Rules, 1944 read with Section 11AC of the Central Excise Act, 1944 was sustainable and, if so, to what extent

Analysis: The show cause notice and the adjudication order specifically set out the allegations, the evidence relied upon, and the proposal for penalty. The appellant admitted clandestine removal, so the contravention was not in dispute. In that situation, the absence of a specific sub-clause in Rule 173Q(1) did not vitiate the penalty, and the challenge based on the cited Supreme Court decision was held inapplicable. At the same time, the fact that the duty was paid before issuance of the show cause notice was taken into account for the quantum of penalty.

Conclusion: The penalty on the manufacturing unit was upheld in principle, but it was reduced to 25% of the confirmed duty amount.

Issue (ii): whether the separate penalty imposed on the director under Rule 209A of the Central Excise Rules, 1944 was sustainable

Analysis: The order did not sustain the individual penalty in the same manner as the unit penalty and considered the overall circumstances, including the admitted removal and prior payment of duty, while dealing with the director's liability.

Conclusion: The separate penalty imposed on the director was set aside.

Final Conclusion: The appeals succeeded only to a limited extent: the unit's penalty was substantially reduced and the director's penalty was annulled, while the finding of clandestine removal and the duty demand remained undisturbed.

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