Clandestine removal by employees defeats remission, limitation, and penalty objections under excise rules.

A new factual plea that goods were unsorted tea and non-excisable could not be raised for the first time in appeal because it required factual inquiry not made before the adjudicating authority. Remission of duty was unavailable where the alleged loss was in substance misappropriation and clandestine removal by employees, not accidental loss or theft, leaving the manufacturer responsible under the excise rules. The demand was treated as within limitation because the shortage reflected clandestine removal with intent to evade duty. Penalty under Rule 173Q(1)(a) was therefore justified, though the quantum could be moderated on the facts.

---

---

Issues: (i) Whether the plea that the goods were unsorted tea and hence not excisable could be raised for the first time at the appellate stage; (ii) Whether remission of duty was available under Rule 147 of the Central Excise Rules, 1944 on the ground of alleged loss or theft; (iii) Whether the demand was barred by limitation; (iv) Whether penalty under Rule 173Q(1)(a) of the Central Excise Rules, 1944 was justified and, if so, to what extent.

Issue (i): Whether the plea that the goods were unsorted tea and hence not excisable could be raised for the first time at the appellate stage.

Analysis: The plea was not taken in the reply to the show cause notice or before the adjudicating authority and required factual investigation into the process of manufacture and the nature of the goods. A new factual contention that enlarges the scope of the appeal cannot be entertained for the first time at the appellate stage.

Conclusion: The plea was not entertained and the assessee failed on this issue.

Issue (ii): Whether remission of duty was available under Rule 147 of the Central Excise Rules, 1944 on the ground of alleged loss or theft.

Analysis: Rule 147 applies where goods lodged in a warehouse are lost or destroyed by unavoidable accident. The materials on record showed misappropriation and clandestine removal by employees acting in possession of the goods, rather than theft or accidental loss. In such circumstances, the manufacturer remained responsible for the removal by virtue of Rule 225 of the Central Excise Rules, 1944, and the case did not fall within the scope of remission.

Conclusion: Remission under Rule 147 was not available and the issue was decided against the assessee.

Issue (iii): Whether the demand was barred by limitation.

Analysis: The assessee had itself noticed the shortage and lodged the police report before the departmental verification. The goods were treated as clandestinely removed prior to detection by the officers, and the demand was founded on removal with intent to evade duty.

Conclusion: The demand was not barred by limitation and the issue was decided against the assessee.

Issue (iv): Whether penalty under Rule 173Q(1)(a) of the Central Excise Rules, 1944 was justified and, if so, to what extent.

Analysis: Once clandestine removal by employees was established, the manufacturer was liable for contravention under Rule 225 of the Central Excise Rules, 1944 and penalty under Rule 173Q(1)(a) followed. The absence of personal mens rea did not absolve the company of liability in the statutory scheme, though the quantum of penalty could be moderated on the facts.

Conclusion: Penalty was justified, but the amount was reduced to Rs. 10,000.

Final Conclusion: The duty demand was upheld, the plea for remission and the limitation objection failed, and the penalty survived only in reduced form.

Ratio Decidendi: A manufacturer is liable for clandestine removal by its employees under the excise rules, remission is unavailable where the loss is really misappropriation rather than accidental loss or theft, and a new factual plea not raised below cannot be entertained for the first time in appeal.

---