Commissioner of Central Excise vs Garg Industries

M.M. Kumar, J.—This appeal filed by the revenue u/s 35G of the Central Excise Act, 1944 (''the Act'') challenges order dated 27-7-2005, passed by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi (''the Tribunal''). The Tribunal in the aforementioned order has taken the view that the amount of penalty u/s 11AC of the Central Excise Act, 1944 (''the Act'') could be dropped in the peculiar facts and circumstances of the case and accordingly, upheld the order passed by the Commissioner (Appeals). The Tribunal has also opined by placing reliance on its Larger Bench judgment in the case of 2004 (96) ECC 180 , holding that where the duty has been deposited by the dealer-assessee before issuance of show-cause notice by the revenue then neither penalty could be imposed nor any interest could be demanded. Accordingly, the revenue has claimed by filing these appeals u/s 35G of the Act that the following substantive question of law would arise for determination of this Court:

Whether penalty u/s 11AC of the Central Excise Act, 1944, in cases where any duty of excise has not been levied or paid or has been short-levied or short-paid by reasons or fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, is mandatory or discretionary in nature?

Brief facts of the case are that the dealer-assessee is engaged in the manufacture of wire rods in coils, rounds, squares, bars and RCS of Alloy/Non-Alloy Steel falling under Chapter 72 of the Central Excise Tariff Act, 1985. On 16-8-2003, the Prevention Staff of the revenue intercepted one tempo and one truck loaded with steel wire rods. The driver of the tempo furnished the documents such as invoice, GR and weighment slip which were issued by M/s. Ganesh Trading Company, Village Garhi Tarkhana, Machhiwara, for 12,000 MT of steel wire rods. It was disclosed that the goods were loaded on 15-8-2003 from the factory premises of M/s. Garg Industries-respondent and the same were to be delivered to M/s. Pullman Sales Corpn. at Ludhiana. Similarly, the driver of the truck also produced documents regarding 12,175 MT of steel wire rods and the goods were to be delivered at the premises of M/s. Makker Wire, Ludhiana. For the purposes of verification and scrutiny of the documents, the factory premises of the dealer-assessee was visited where Shri Balraj Garg, Director and Shri Avtar Singh, authorised signatory were present.

From the scrutiny of the record and sale invoices, it was noticed that the dealer-assessee has not issued any Central Excise invoice for clearance of the goods to M/s. Ganesh Trading Company. It was told by the aforementioned persons that they had removed the goods from the factory premises without issuance of any invoice, without accounting for those goods in the records; and without assessment or determination of Cenvat duty payable by them. Accordingly, the goods were seized on 16-8-2003. On a physical stock verification shortage of 55480 MTs of non-alloy steel ingots and 12.130 MTs of steel wire rods was revealed. From the scrutiny of invoice books it was further revealed that two consignments of wire rods weighing 24340 MTs were sold but no invoice had been issued. The statements of Shri Avtar Singh, authorized signatory and Shri Balraj Garg, Director, were recorded u/s 14 of the Act, wherein they admitted the aforementioned position.

On 17-8-2003, the dealer-assessee deposited a sum of Rs. 2,19,644 on account of the shortage and clandestine removal of goods from the factory premises. On 10-2-2004, a show-cause notice was issued to the dealer-assessee on various counts.

The Adjudicating Authority came to the conclusion that the dealer-assessee has clandestinely removed the goods and suppressed the facts of clearance with intent to evade payment of duty. It has, thus, been held that the dealer-assessee is liable to pay duty on account of shortage in goods/raw material u/s 11A(1) of the Act, interest u/s 11AB as also penalty u/s 11AC of the Act. The relevant extract of the observations made by the Adjudicating Authority reads thus:

The consultant of the noticee has contended that the total quantity of steel wire rods under seizure (24,175) found short in the factory (12,130) and alleged to have been cleared from the factory (24,340) on the basis of two invoices of M/s. Ganesh Trading Co. has to be accepted to have been manufactured out of short found quantity of ingots weighing 55,480 MT and there is no evidence/proof to show the clandestine removal of short found raw material. In this regard it is worthmentioning that Sh. Balraj Garg, director of the noticee in his statement tendered on 16-8-2003 has clearly stated that the qty. of raw material and finished goods found short in the factory were sold by them on cash basis without issue of invoices and without payment of duty involved on these goods. The statement tendered by the director at the time of goods found short, has never been retracted by him even at later stage and it is only in the reply to show-cause notice that the consultant has given a different explanation. Even if the plea now advanced by the consultant is accepted, it is not understood as to why Sh. Balraj Garg, director, who was looking after the work of the factory, as has been admitted in his statement, has not mentioned the same in his statement tendered on spot. Nothing in this regard has been explained by the consultant and in the absence of which his plea appears to be an afterthought.... In present case, the noticee have clandestinely removed the goods and had suppressed the facts of clearance with intent to evade payment of duty and therefore the show-cause notice has correctly been issued to the noticee. Therefore, duty amount of Rs. 1,54,514 involved on goods/raw material found short is recoverable from the noticee u/s 11A(1) of the Act along with interest u/s 11AB of the Act and the noticee are also liable for penal action u/s 11 AC of the Act.

...Thus, the allegation of clandestine removal of the seized goods from the factory is not based on assumption/presumption as has been contended by the consultant and is based on the facts narrated by the Director and authorised signatory of the unit who look after the work of the factory. Therefore, the seized steel wire rods weighing 24.175 MTs valued at Rs. 4,05,120 involving Cenvat duty of Rs. 64,820 removed clandestinely without accountal in their records, without issuance of invoices, without making self-assessment and without determination of appropriate duty payable by the noticee in contravention of the provisions of Rules 4,6,10 and 11 of the Rules are liable for confiscation under Rule 25(1) of the Rules and duty involved thereon is recoverable from them u/s 11A(1)of the Act....

Accordingly, in view of the aforesaid categorical findings the following order was passed:

(1) 1 order confiscation of seized Steel Wire Rods weighing 24,175 MT valued at Rs. 4,05,120 involving Cenvat duty of Rs. 64,820 under Rule 25(1) of the Rules. However, the noticee have an option to redeem the same on payment of redemption line of Rs. 40,000 (Rs. Forty thousand only). I also confirm the demand of Cenvat duty of Rs. 64,820 u/s 11A of the Act involved on such goods which will be payable by the noticee at the time of clearance of such goods from their factory.

(2) I confirm the demand of Cenvat duty of Rs. 2,19,644 (Rs. 65,130 + Rs. 1,54,514) u/s 11A of the Central Excise Act, 1944. Since the noticee has already deposited the above amount, the same stands adjusted.

(3) I impose a penalty of Rs. 2,84,464 (Rs. Two lakhs eighty four thousand four hundred sixty four only) on M/s. Garg Industries u/s 11 AC of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules, 2002.

(4) I order confiscation of Tempo No. PB-10-AR-5440 and Truck No. PJV-9837 u/s 115(2) of the Customs Act, 1962. However, the noticee have an option to redeem the same on payment of redemption fine of Rs. 70,000 (Rs. Seventy thousand only) and Rs. 50,000 (Rs. Fifty thousand only) respectively.

(5) I drop the proceedings initiated against Sh. Avtar Singh, authorised signatory of the noticee. Sh. Hardam Singh, driver of tempo and Sh. Aman Singh, driver of truck.

(6) I impose a penalty of Rs. 1,50,000 (Rs. One lakh fifty thousand only) on Sh. Balraj Garg, director of M/s. Garg Industries under Rule 26 of the Rules.

(7) I impose a penalty of Rs. 20,000 (Rs. Twenty thousand only) on M/s. Ganesh Trading Co. Machhiwara under Rule 26 of the Rules.

On further appeal, the Commissioner (Appeals) upheld the duty demanded in respect of wire rods and ingots found short. However, it set aside the penalty imposed u/s 11AC and reduced the penalty to Rs. 75,000 and Rs. 10,000 which were imposed upon the director and authorised signatory of the dealer-assessee. On further appeal filed by the revenue, the Tribunal sustained the order passed by the Commissioner (Appeals).

The question whether the amount of penalty u/s 11AC could be reduced is now stand settled by the judgment of Hon''ble the Supreme Court in the case of Union of India v. Dhararnendra Textile Processors [2008] 174 Taxman 571. It has been categorically held that there is no discretion vested in the Assessing Officer or any other authority to reduce the amount of penalty. It is mandatory for him to impose the penalty equivalent to the amount of duty attempted to be evaded. The aforesaid judgment has again come up for consideration before Hon''ble the Supreme Court in the case of Union of India v. Rajasthan Spg. & Wvg. Milk [2009] 180 Taxman 609. Reiterating and explaining the view taken in the Dhararnendra Textile Processors''s case (supra), in para 23 of that judgment following observations have been made:

The decision in Dhararnendra Textile must, therefore, be understood to mean that though the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under Sub-section (2) of Section 11A. That is what Dhararnendra Textile Processors''case (supra) decides.

[Emphasis supplied]

When we apply the aforesaid judgment to the facts of the present appeal there is not an iota of doubt that the Commissioner (Appeals) and the Tribunal clearly fell in error in dropping the amount of penalty contemplated by Section 11AC of the Act. From the facts of the present case no doubt is left that there was fraudulent and clandestine removal of goods with the intention to evade duty and Section 11AC of the Act would, therefore, be attracted to the facts of the present case. Therefore, there is no escape from the conclusion that penalty equivalent to the amount of duty was imposable. Accordingly, the appeal is allowed and the view taken by the Tribunal as well as the Commissioner (Appeals) is set aside to the extent it has reduced the amount of penalty. It is, therefore, held that the amount of penalty has to be equivalent to the amount of duty determined by the Order-in-Original, dated 31-5-2004. The question of law is answered in favour of the revenue and against the dealer-assessee.