Court Upholds Duty Demand under Central Excise Act, Penalty Overturned

COMMISSIONER OF C. EX., INDORE Versus KAPIL STEEL LTD.

COMMISSIONER OF C. EX., INDORE Versus KAPIL STEEL LTD. - 2008 (226) E.L.T. 627 (Tri. - Del.) Issues:
- Appeal against order-in-appeal No. IND-I/668/2003
- Detection of shortage of finished goods and raw materials
- Imposition of duty and penalty under Central Excise Rules
- Contestation of duty payment based on stock verification method
- Appropriation of duty and penalty under Section 11AC of the Central Excise Act, 1944

Analysis:
The appeal was filed against order-in-appeal No. IND-I/668/2003, where the Revenue contested the shortage of finished goods and raw materials detected during a visit to the factory of the respondents. The Central Excise Officers found a shortage on 7-9-2001, which was admitted by the respondent's representative. The respondents agreed to pay the duty on the shortage and deposited the amount. A show cause notice was issued in 2002 proposing the demand of duty and penalty under Rule 25 of the Central Excise Rules, 2001 read with Section 11AC of the Central Excise Act. The adjudicating authority confirmed the duty demand, appropriated the deposited amount, and imposed a penalty equal to the duty amount. However, the Commissioner (Appeals) set aside the adjudication order, leading to the Revenue's appeal.

The Revenue argued that the shortage was admitted by the respondent, indicating a case of clandestine removal. They contended that the respondent's failure to explain the shortage supported the imposition of a mandatory penalty. On the other hand, the respondent's advocate highlighted discrepancies in the stock verification process, emphasizing that there was no evidence of clandestine removal. The advocate referred to a Tribunal decision to support their case and reiterated the Commissioner (Appeals)' findings.

After reviewing the arguments and records, the judge noted that the shortage was detected in 2001, and the duty was paid without dispute. The respondent only contested the duty payment after the show cause notice was issued in 2002, claiming the stock verification was based on eye estimation. The judge found that the respondent did not challenge the stock-taking method or duty payment before the notice, rendering the later contestation invalid. Therefore, the appropriation of duty by the adjudicating authority was deemed legal and upheld.

Regarding the imposition of a mandatory penalty under Section 11AC of the Central Excise Act, 1944, the judge agreed with the respondent's advocate. The penalty under Section 11AC is applicable in cases of fraud, collusion, wilful misstatement, or contravention with intent to evade duty payment. As no evidence was presented by the Revenue to prove these elements, the penalty imposed by the adjudicating authority was set aside. The judge upheld the duty demand while overturning the penalty imposition, resolving the cross-objections in the case.