Manufacturer wins appeal over missing stamps, not liable for theft from department custody

The Tribunal allowed the appeal in favor of the appellant, a manufacturer of matches, in a case concerning the removal of damaged C.E. stamps without proper accounts or payment of duty. The Tribunal held that the appellant was not responsible for the missing stamps as they were in the custody of the department awaiting destruction orders. It was found that theft had occurred from the department's custody, absolving the appellant of liability. The impugned order demanding payment and penalty was set aside, providing consequential relief to the appellant.

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Issues:
Violation of Central Excise Rules - Removal of damaged C.E. stamps without proper accounts or payment of duty.
Disputed shortage of C.E. stamps and imposition of penalty under Rule 209.
Applicability of Rule 66 to damaged stamps in custody of the department.
Discrepancy in counting method for damaged stamps.
Responsibility for missing stamps and liability for payment.

Analysis:
The case involves a show cause notice issued to the appellant, a manufacturer of matches, for removing damaged C.E. stamps clandestinely without proper accounts or payment of duty, leading to a demand of Rs. 3,37,915.00 and a penalty under Rule 209. The appellant challenged the demand and penalty, leading to an appeal before the Tribunal.

The appellant argued that the damaged stamps were in the custody of the department and not their responsibility if theft occurred from the department's custody. They contended that the stamps were unfit for use and awaiting destruction orders, so no value could be recovered from them. The appellant also challenged the counting method for the damaged stamps, questioning the accuracy of the weighment method used.

The respondent reiterated that Rule 66 applies to all stamps in the appellant's custody, regardless of their condition, and the appellant is legally bound to account for any shortage and pay the full value. They maintained that the impugned order was correct in law and fact, urging dismissal of the appeal.

The Tribunal found merit in the appellant's arguments, noting the doubtful shortage of stamps due to long storage and different counting methods used. It agreed that theft occurred from the department's custody, absolving the appellant of responsibility. The Tribunal held that Rule 66 did not apply to damaged stamps in the department's custody awaiting destruction, as the liability to pay for missing stamps only arises when they are the manufacturer's and unaccounted for, which was not the case here. Consequently, the impugned order was set aside, and the appeal was allowed in favor of the appellant with consequential relief.

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