T.K. Jayaraman, Member (T)
1. These appeals have been filed against the Order-in-Original No. 08/2006-Commr. dated 06.07.2006 passed by the Commissioner of Customs & Central Excise, Hyderabad-I Commissionerate.
2. The impugned order is the de novo order passed consequent to Final Order Nos. 513 & 514/2006 dated 22.02.2006 passed by this Bench. Initially, Tribunal remanded the matter on grounds of violation of Principles of Natural Justice. In the impugned order, the Commissioner has demanded an amount of duty of Rs. 81,48,576/-on the value of the alleged clearances of Socks without payment of duty under proviso to Sub-section (1) of Section 11A of the Central Excise Act, 1944. Equal penalty under Section 11AC has been imposed. A penalty of Rs. 5,00,000/- has been imposed on Shri Prabhat Kumar Sethia, Managing Director, under Rule 209A of the Central Excise Rules, 1944. Interest under Section 11AB has been demanded. The appellants strongly challenge the impugned order. Hence, they have come before this Tribunal, for relief.
3. Shri G. Shiva Dass, the learned Advocate, appeared for the appellants and Sri K. Sambi Reddy, the learned JDR, for the Revenue.
4. The learned advocate urged the following points:
(i) The appellant, a 100% EOU, manufacture Socks which are completely exempted from payment of Central Excise Duty. The Central Excise officers verified the stock of finished goods on 10th April, 2002 and found a shortage of 25,315 dozen pairs of socks as compared to the Stock Register. On 12.04.2002, the appellants informed the Department that the stock verification conducted on 10.04.2002 had not taken into account about 14,000 dozen pairs of stock lying in their other godown.
(ii) In the impugned order, duty has been demanded in the following manner:
Demand of duty on 25,315 dozen pairs of finished goods found short.
Duty on a quantity of 2,28,373 dozen pairs allegedly cleared through
a trading company.
(iii) Since the stock taking had not been conducted properly, there is actually no shortage at all. Even though the correct position was brought to the notice of the Department in the letter dated 12.04.2002, the Department did not verify the stock.
(iv) The appellants had exported 5100 dozen pairs vide Shipping Bill No. 01089 dated 12.02.2003 and 8000 dozen pairs vide Shipping Bill No. 001 dated 01.12.2004. If these facts are taken into account, there is no substance in the allegation of shortage. The following case-laws are relied on:
a. Tata Chemicals Ltd. v. CCE, Rajkot
b. Pacific Granites v. CCE .
(v) The presumption of removal that would arise on account of a statutory stock taking under Rule 233A of the erstwhile Central Excise Rules, 1944 would not apply in this case.
(vi) It was further urged that in respect of the goods cleared into the DTA without any permission from the Development Commissioner, Visakhapatnam, Revenue has demanded duty in terms of proviso to Section 3 of the Central Excise Act. But, during the relevant period, when the goods were cleared into DTA without permission from the Development Commissioner, such clearances would fall under the category of “Goods not allowed to be sold in India” and consequently, the proviso to Section 3(1) of the Act would not apply to such cases. The following case-laws were relied on:
(a) Siv Industries ltd. v. CCE
(b) CCE, Jaipur-II v. Pratap Singh [Affirmed by the Supreme Court as reported in 2003 (158) ELT A382 (SC)]
(c) Sam Spintex Ltd. v. CCE, Indore
(d) NCC Blue Water Products Ltd. v. CCE, Visakhapatnam .
(vii) The proviso to Section 3(1) was amended w.e.f. 14.05.2001, in terms of which the expression “allowed to be sold in India” was substituted with the expression “brought into any place in India”. In terms of the annexure to the Show Cause Notice, after 14.05.2001, the total quantity of socks cleared to DTA under the invoice of the Associate firm is 22,286 dozen pairs. After taking into account the invoice price as cum duty price as held by Tribunal in the case of Nagareeka Exports Ltd. v. CCE , the duty payable will be only Rs. 1,76,728/-.
5. The learned JDR reiterated the impugned order of the Commissioner.
6. We have gone through the records of the case very carefully. The duty demand arises mainly on account of (i) Shortage found during stock verification on 10.04.2002; (ii) clearances to Domestic Tariff Area without payment of duty in respect of 2,28,376 dozen pairs. Penalty equal to duty evaded has been imposed on the main appellant unit. Penalty of Rs. 5,00,000/- has also been imposed on the Managing Director of the unit under Rule 209A of the Central Excise Rules.
6.1 With regard to the shortage, the Commissioner has stated in his findings that the shortage of 25,315 dozen pairs of socks was not refuted by the assessee at any point of time. This, actually on the face of it, is incorrect, as the Commissioner himself has recorded that on 12.04.2002, the appellants had informed the department that during stock verification, only one godown was verified and there was finished goods stock in another godown also. Having stated this, we do not understand how the Commissioner gives a finding that the shortage was never disputed by the appellants. This actually shows non application of mind. The appellants have stated that 14000 dozens of socks were lying in the other godown. They had also exported 5100 dozen pairs on 12.02.2003 and 8000 dozen pairs on 01.12.2004. The Commissioner has not accepted the export figures on the ground that the export had been made after the issue of Show Cause Notice. Since the appellant unit had not manufactured goods after the stock taking date, one cannot allege that what was exported was the quantity manufactured after the stock verification. If the quantity in the other godown and the exports were taken into account, the net result would be a balance of 6862 dozen pairs of socks. In such circumstances, there cannot be any shortage. When the appellant furnished a letter immediately after the stock taking, the departmental officers could have verified the position. Having failed to verify, the department cannot allege clandestine removals without any corroborative evidence. Therefore, we accept the contention of the appellant that there was no shortage. The duty demand on account of the shortage is set aside.
6.2. Out of the total demand of Rs. 81,48,576/-, an amount of Rs. 33,32,330/- pertains to the duty on account of clearances of 2,28,376 dozen pairs of socks cleared by the appellant through a trading company M/s. BDS Associates. The appellants are not seriously challenging the clearances themselves. Their contention is that the quantification of duty is incorrect as Revenue has invoked the proviso to Section 3 for calculating the duty liability. During the relevant period, in respect of the goods cleared to DTA without any permission from the Development Commissioner, the correct provision would be the main Section 3(1) and not the proviso. In other words, the duty payable would be Central Excise Duty. The proviso to Section 3(1) was amended only w.e.f. 14.05.2001. Therefore, the clearances of the appellant upto 13.05.2001 would be governed by the main section. Since the Central Excise duty on socks was NIL, a major quantity would not suffer any duty. However, we find that after 14.05.2001, as per annexure to the Show Cause Notice, 22,286 dozen pairs had been cleared and in view of the amendment, these would suffer duty under proviso to Section 3(1). If the cum-duty benefit is given, the total duty liability on the above clearances would be only Rs. 1,76,728/-. As the appellants cleared the goods without payment of the correct duty, they are liable for penalty. However, the penalty under Section 11AC would be limited to Rs. 1,76,728/-. We also uphold the penalty on Shri Prabhat Kumar Sethia, Managing Director, under Rule 209A of the Central Excise Rules. But, having regard to the quantum of duty evaded, we reduce the penalty on Shri Prabhat Kumar Sethia to Rs. 20,000/- only under Rule 209A. Thus, the appeals are disposed of in the above manner.
(Pronounced in open Court on 11.06.2007)