1. These appeals arose out of the order of the Commissioner of Central Excise Mumbai who in the impugned order demanded/confirmed the duties as mentioned in his order on the company, imposed penalties under Section 11AC, interest under Section 11AB and also imposed a penalty on the factory manager of the company under Rule 209A of the Central Excise Rules.
2. Briefly stated the officers of Central Excise visited the factory on 27.9.1996 and took the physical stock of the finished goods. Certain finished goods where the Central Excise duty involved is Rs. 3,467/- were found short compared to the balance in the RG1. Subsequent investigation revealed that the appellants availed credit of Rs. 9,24,602/- under Rule 57Q and simultaneously claimed depreciation on the capital goods involved under Section 32 of the Income-tax Act, 1961. It was also revealed that the appellant was manufacturing a product by name S.R. 500 in the form of granules. This product was packed in 20 kilo bag. Upon weighment these bags were containing 500 gms. more than the declared weight. It was alleged that the appellants were removing excisable goods to the extent of 400 gms. in each bag without payment of duty. The duty thus foregone was calculated to be Rs. 2,81,863/-. It was also noticed by the Central Excise officers that the appellants were manufacturing excisable goods such as M.S.structures, vessels, reactors, pipe fittings, cable trays etc. inside the factory and was using them in their own factory claiming exemption under notification 67/95 dated 16.3.1995. In the impugned order, the Commissioner confirmed a duty of Rs. 17,145/-, being the duty on cable trays which were manufactured inside the factory and were captively used prior to the issuance of the above said notification.
3. The appellants did not seriously contest the demand of duty on the shortages found to the extent of 288 kilos and the duty confirmed amounting to Rs. 3,467/-. Their only plea is that when the officers pointed out the shortage, they immediately paid the same. Their contention however is that the shortage when compared to the total stock of 440,794 kilos is negligible and therefore no penalty should have been imposed on them. Their further plea is that penalty under Section 11AC is not imposable as the event of short payment related to a period prior to 28.9.1996 when the provision of 11AC was brought in.
The appellant pleads that a duty of Rs. 2,81,863/- confirmed by the Commissioner is bad in law as the department at no time alleged that they recovered any extra amounts from their buyers on account of the excess quantity found in a 20 kilo bag. It is a normal trade practice to pack a little more than the declared net weight as a measure of abundant precaution. They have also filed affidavits to say that the goods are hygroscopic and in all probability the weight would remain to be 20 kilos only at the time of delivery of the goods. Insofar as the modvat credit of Rs. 9,24,612/- taken on the capital goods and simultaneously claiming depreciation under the Income-tax Act, the appellants contend that the department is wrong in keeping reliance on the depreciation shown in the balance sheet. They should have relied on the income-tax return rather than on the balance sheet. The appellants filed their income-tax return only on 26.11.1996 whereas the inspection of their premises was done on 11.10.1996. It is their contention that at the time when the allegation of simultaneous availment of credit on capital goods and depreciation in the balance sheet was made, they had not even filed the income-tax return. In any case they had reversed the credit even before the issuance of show cause notice. On the issue of non-payment of duty to the extent of Rs. 17,145/- pertaining to the "cable tray" manufactured by them and used in their own factory, the appellants while not seriously objecting to the confirmation of the above amount pleaded that no penalty under Section 11AC should have been imposed on them for the same reason cited elsewhere in this order.
5. We observe that the duty demanded on the shortages was not seriously contested by the appellants. We note that as soon as the shortage was pointed out, the appellants had made good the deficiency even before the issue of show cause notice. We agree with the contention that penalty under Section 11AC cannot be imposed as this event occurred prior to 28.9.1996. In regard to the excess quantity found in the 20 kilo bag, we observe that the appellants have rightly contended that this marginal excess did not make any difference to the price declared.
The department had also not alleged that the appellant received extra consideration for this excess. We set aside the demand for Rs. 2,81,863/-. In regard to the modvat credit Rs. 9,24,612/- taken on the capital goods, we observe that the appellants contention that they had not filed the income-tax return at the time of inspection and therefore the question of claiming depreciation did not arise. In any case when the department objected to the availment of credit on the ground that depreciation was shown in their balance sheet, the appellants reversed the credit. No penalty therefore is imposable on them on this count.
Further the provisions of Section 11AC are not attracted in their case.
In regard to the penalty imposed on account of evasion of duty of Rs. 17,145/- the appellants plead that penalty under Section 11AC is not imposable.
6. This is a case where the appellants came forward to pay the duties short levied immediately even before the issue of show cause notice.
The Commissioner only confirmed the duties as paid by the appellants.
The penalties imposed under Section 11AC are not imposable in this case for the reason that whatever short levy that occurred, it was before the provisions of Section 11AC was brought on the statute. The duty demand for Rs. 2,81,863/- is set aside. Penalties imposed on the company as well as on the factory manager are set aside. In effect, the duty confirmed to the tune of Rs. 3,467/- is confirmed along with appropriation of credit amounting to Rs. 9,24,612/- voluntarily reversed by the appellants. The appeal is thus partly allowed.