2001 (10) TMI 165 - AT - Central Excise

Tribunal upholds duty demand, remands penalty imposition, sets aside individual penalty.

The Tribunal upheld the demand of duty and the service of the show-cause notice on the appellant company. They remanded the matter for the imposition of ... Service of show cause notice - evidentiary value of company correspondence in proving service - clandestine removal of excisable goods - upholding demand of duty based on statements and admissions - penalty under Section 11AC for post-insertion period - personal liability of company director under Rule 209AService of show cause notice - evidentiary value of company correspondence in proving service - Validity of service of the show cause notice on the appellant company - HELD THAT: - The Tribunal held that the show cause notice was duly served on the appellant company. The finding rests on three letters emanating from the company: (i) a letter dated 15-1-98 signed by the Managing Director seeking extension of time to file a reply to the show cause notice; (ii) a letter dated 17-12-97 from the Production Manager requesting copies of relied-upon documents, sent on behalf of the company; and (iii) a letter from the Production Manager acknowledging receipt of the relied-upon documents. In view of these company communications the appellants could not later claim non-receipt of the show cause notice; affidavits filed subsequently did not satisfactorily explain the origin of those letters and the Production Manager, who authored two of them, was the appropriate deponent. The Tribunal therefore rejected the appellants' contention that absence of acknowledgement due or postal receipts precluded service. [Paras 9]Show cause notice held to be duly served on the appellant company.Clandestine removal of excisable goods - upholding demand of duty based on statements and admissions - Sustainability of the demand of duty for clandestine removal of excisable goods - HELD THAT: - The Tribunal upheld the Commissioner's finding of clandestine removal and sustained the demand of duty. The Commissioner's conclusion was supported by various statements recorded from company personnel including the Production Manager, the Managing Director and other supervisors; the Managing Director had admitted that certain bags contained lime/sand contrary to RG-1 entries. The appellants failed to produce material to rebut these findings. The Tribunal also rejected the contention that a substantial balance in RG23A Part II precluded clandestine removals, noting that presence of credit does not rule out clandestine clearance for purposes other than evasion of excise duty. [Paras 9]Demand of duty as confirmed in the impugned Order upheld.Penalty under Section 11AC for post-insertion period - Imposability of penalty under Section 11AC for periods before and after the Section came into force and remand for imposition for the post-insertion period - HELD THAT: - The Tribunal held that penalty under Section 11AC could not be imposed for clearances effected prior to the insertion of that provision (which came into effect from 28-9-1996), but is imposable for clearances effected on or after that date. The Tribunal distinguished precedents relied upon by the appellants and noted that earlier decisions do not establish a rule that a major portion of demand being pre-insertion precludes penalty for the post-insertion period. Because penalty under Section 11AC is sustainable only for the period after the provision came into force, the Tribunal remanded the matter to the Commissioner for imposition of penalty under Section 11AC simpliciter for the period on or after insertion of the Section. [Paras 9]Penalty under Section 11AC not imposable for pre-insertion clearances; remanded to the Commissioner to impose penalty under Section 11AC for the period on or after 28-9-1996.Personal liability of company director under Rule 209A - Liability of Shri A.K. Bansal under Rule 209A for penalty - HELD THAT: - The Tribunal found that penalty on Shri A.K. Bansal under Rule 209A could be imposed only if it was shown that he had dealt with the goods with conscious knowledge that they were liable for confiscation. The impugned adjudication did not discuss or demonstrate the role played by the Managing Director in the alleged removals nor did it establish that he knew or had reasons to believe the goods were liable to confiscation. Relying on the principle that the department must show how and to what extent a particular director is liable, the Tribunal concluded that the record was insufficient to sustain personal liability. [Paras 10]Penalty imposed on Shri A.K. Bansal under Rule 209A set aside.Final Conclusion: The Tribunal holds that the show cause notice was duly served; it upholds the confirmed demand of duty for clandestine removals; it rules that penalty under Section 11AC cannot be imposed for pre-insertion clearances but is imposable for clearances on or after 28-9-1996 and remands the matter to the Commissioner to impose penalty for that post-insertion period; and it sets aside the penalty imposed on Shri A.K. Bansal under Rule 209A. Issues Involved:1. Service of Show Cause Notice2. Clandestine Removal of Goods3. Imposition of Penalty under Section 11AC of the Central Excise Act4. Imposition of Penalty under Rule 209A of Central Excise RulesIssue-Wise Analysis:1. Service of Show Cause Notice:The appellants contended that the show-cause notice dated 20-11-97 was never served on the appellant company but only on Shri Arun Kumar Bansal in his capacity as Managing Director. They argued that the reply submitted by Shri Bansal was on his own behalf and not on behalf of the company. The appellants claimed they only became aware of the show-cause notice from a notice of hearing dated 9-3-2000 and immediately informed the Commissioner that they had not received any show-cause notice. They relied on several judicial precedents to argue that proper service of the show-cause notice is mandatory.The Tribunal, however, found that the show-cause notice was duly served on the appellant company, as evidenced by letters from the company's Managing Director and Production Manager requesting extensions and documents. The Tribunal held that the affidavits provided by the appellants did not sufficiently counter the evidence of service and thus upheld that the show-cause notice was duly served.2. Clandestine Removal of Goods:The appellants argued that there was no cause for evasion of duty as they had a substantial balance in their RG23A Part-II account, and the demand of duty was barred by limitation due to lack of intent to evade. They cited the Supreme Court's decision in Cosmic Dyes Chemicals v. CCE, Bombay, which requires proof of intent to evade duty for invoking the proviso to Section 11A(1) of the Central Excise Act.The Tribunal found that the Commissioner had adequately dealt with the issue of clandestine removal based on various statements from company officials, including admissions by Shri Bansal and others. The Tribunal upheld the demand of duty, noting that the mere balance in the RG23A register was not sufficient to conclude that goods could not be removed without payment of duty.3. Imposition of Penalty under Section 11AC of the Central Excise Act:The appellants argued that no penalty under Section 11AC could be imposed for periods before the section's introduction on 28-9-1996. They cited several cases, including Kota Oxygen Pvt. Ltd. v. CCE, Jaipur, to support their argument.The Tribunal agreed that penalties under Section 11AC could not be imposed for periods before the section's introduction but could be imposed for the period after its introduction. They remanded the matter to the Commissioner for the imposition of penalties under Section 11AC for the relevant period.4. Imposition of Penalty under Rule 209A of Central Excise Rules:The appellants contended that no penalty should be imposed on Shri A.K. Bansal under Rule 209A as there was no evidence of his active involvement or knowledge of the goods' liability for confiscation. They cited the Tribunal's decisions in Kitply Industries Ltd. v. CCE, Shillong, and Garware Synthetics v. CCE.The Tribunal found that there was no discussion in the adjudication order about Shri Bansal's role in the removal of excisable goods without payment of duty. They concluded that it could not be established that Shri Bansal knew or had reasons to believe that the goods were liable for confiscation. Therefore, the Tribunal set aside the penalty imposed on Shri Bansal.Conclusion:The Tribunal upheld the demand of duty and the service of the show-cause notice on the appellant company. They remanded the matter for the imposition of penalties under Section 11AC for the period after its introduction and set aside the penalty on Shri A.K. Bansal under Rule 209A. Both appeals were disposed of accordingly.