Flex Industries Ltd. vs Commissioner of Central Excise

The factory of M/s. Flex Industries at Noida (the Assessee) was inspected by the Central Excise Department (the Department) on 19-1-1998.

In the inspection, certain quantity of inputs were found short as well as certain finished goods were found in excess of the recorded stock.

The Department issued a notice to the assessee for confiscation as well as penalty.

The adjudicating officer by his order dated 24-5-1999 imposed a redemption fine of Rs. 3,08,000/- and the penalty of Rs. 4,00,000/- under Rule 173Q of the Central Excise Rules.

The Assessee filed an appeal before the Customs Excise & Gold (Control) Appellate Tribunal (the Tribunal). It was dismissed by the Tribunal on 7-2-2002. However the redemption fine as well as penalty was reduced to

Rs. 1,50,000/- and Rs. 1,00,000/-.

The High Court by its order dated 1-5-2002 directed the Tribunal to refer the following questions for its opinion.

� Whether the Hon''ble Tribunal was correct in drawing an adverse inference that the applicant had an intention to evade excise duty from the fact that inputs duly recorded in the prescribed records were found short on 19-1-1998 by the Central Excise Officer on physical verification?

� Whether the Hon''ble Tribunal was justified ignoring the fact that there was no intention to evade duty when the only conclusion which could have been drawn under the circumstances as the inputs found short or physical verification were found duly accounted for and the applicant deposited the duty of their own immediately on detention of shortage?

� Whether the Hon''ble Tribunal was justified in observing that the excess stock of the finished goods found lying inside the factory premises which was admittedly not the day''s production; was evident of the fact that the applicant had the clear intention to evade duty?

� Whether the Hon''ble Tribunal was justified in observing that the excess stock of finished goods would have been removed or finding proper time and opportunity ignoring the fact that anything duly recorded in the raw material account is bound to be recorded in other prescribed records also cannot be removed surreptitiously?

We have heard Shri A.P. Mathur, counsel for the Assessee and Shri S.P. Kesarwani for the Department.

It is not disputed that there was shortage in inputs as well as excess of finished goods. So far as shortage of the inputs was concerned, the Assessee by its own volition reversed the input credit excise duty to the tune of Rs. 29,780.22. The remaining dispute was in regard to the redemption fine and penalty in respect of goods found in excess.

Rule 173Q provides confiscation and penalty on existence of the conditions mentioned in the different clauses (a) to (d) of sub-rule (1).

The conditions mentioned in Rule 173Q(1)(b) is that the dealer or the registered owner had not maintained account for any excisable goods manufactured, produced or stored by him.

In the present case, admittedly finished goods were found in excess of the quantity mentioned in the books. There was violation of Rule 173Q(1)(b). In view of this, there is no illegality in imposing the penalty or the redemption fine.

It may not be possible to infer that there was any intention on the part of the assessee to evade the payment duty merely from the fact that goods were found in excess. However in the present case, the Tribunal noted down that it was accompanied by the other factors namely there was a shortage of inputs as well as excess finished goods were not of a day. It was not the case where the registers were not updated merely because of clerical or any other reasonable explanation. It is in view of this, the authorities below have rightly held that there was violation of Rule 173Q.

There is no illegality in the finding. In view of above, all the questions are decided against the Assessee and in favour of the Department.

Let our opinion be sent to the Tribunal to pass consequential order.