Judgment:
Officers of Central Excise visited the appellant's factory on 27-8-97 and found 24193 Mtrs. of copper signalling cables in excess of the recorded balance in the RG-I Register. The officers seized the goods, believing that the same were intended for clandestine removal and hence liable to confiscation under Rule, 173Q and 226 of the Central Excise Rules, 1944. Statements of Directors of the appellant-company were also recorded by the officers under Section 14 of the Central Excise Act. On the basis of the investigative results, the department framed a case for confiscating the seized goods and imposing penalty on the party. Accordingly, they issued a show cause notice to the appellants proposing confiscation of the seized goods under Rules, 173Q and 226 and imposition of penalty on the party. The proposals were contested. In adjudication of the dispute, the jurisdictional Dy. Commissioner confiscated the goods under Rule 173Q read with Rule 226 but gave an option to the party to redeem the goods on payment of a fine of Rs. 5,00,000/-. The adjudicating authority also imposed a penalty of Rs. 10,00,000/- on the party under Rule 173Q read with Rule 226. The aggrieved party preferred appeal to the Commissioner (Appeals). The appellate authority upheld the confiscation but reduced the quantum of redemption fine and penalty amounts to Rs. 2,00,000/- and Rs. 1,00,000/- respectively. The present appeal is against the order of the Commissioner (Appeals).
3. It appears from the record that there is no dispute of the fact that the aforesaid quantity of finished goods was found in excess of the balance recorded in the RG-I Register as on 27-8-97. It further appears that the said quantity was kept for inspection by M/s. Instrumentation Ltd. on behalf of the Railways. The inspection was performed in the third week of September, 1997 as evidenced by the Inspection Certificate dated 17-10-97. This certificate was also examined by the lower appellate authority and it was found that the seized goods corresponded in all respects to the goods covered by the Inspection certificate. On the basis of this finding, the lower appellate authority accepted the appellant's plea that they have no intention to remove the goods without payment of duty. However, that authority recorded a finding that the appellants had contravened clauses other than Clause (d) of Rule 173Q(1) by not accounting for the goods in the RG-I Register. The Commissioner (Appeals), further, found that the appellants had not given a satisfactory explanation as to why they did not account for the goods in the statutory records. On the basis of such finding, the Commissioner (Appeals) upheld the confiscation and penalty.
4. Ld. Counsel, Shri Naveen Mullick for the appellants submits that the lower appellate authority has specifically found that the appellants had no intent to evade payment of duty on the goods. The contravention of law alleged in the show cause notice was that of Rules 53 and 173G of Central Excise Rules, 1944. Any contravention of Rules 53 and 173G has been held to be a contravention of Clause (d) of Rule 173Q(1) by this Tribunal in a line of decisions, submits ld. Counsel. With reference to the case law, ld. Counsel further submits that, for invoking Clause (d) ibid against an assessee, mens rea is a necessary requisite. In this connection, he has cited the Tribunal's decisions in Bhillai Conductors (P) Ltd. v. CCE, Raipur [2000 (125) E.L.T. 781 (Tribunal)] and Vinitech Electronics (P) Ltd. v. CCE, Delhi [2002 (139) E.L.T. 74 (Tribunal-Delhi). Counsel further submits that, apparently, the penalty proposed by the department under Rule 226 has been dropped by the Commissioner (Appeals) and, therefore, what survives for consideration is only the penalty under Rule 173Q. Under the latter Rule, Counsel submits, the only applicable clause in the facts and circumstances of this case is Clause (d), for invoking of which there must be a finding of metis rea against the assessee. In the instant case, there is a clear finding to the effect that there was no metis rea on the part of the appellants in the non-accountal of the goods in question. Therefore, ld. Counsel prays for setting aside the penalty and allowing the appeal.
5. Ld. JDR, Shri V.K. Verma vehemently opposes the above argument. He submits that a non-accountal of finished goods even without any intent to evade payment of duty is covered by Clause (d) of Rule 173Q(1) and that the element of metis rea is not a requirement for invoking that Clause against an assessee indulging in such non-accountal. Ld. DR submits that both Rules 173Q and 226 were invoked by the original authority as proposed in the show cause notice. He also reiterates the other findings of the authorities and prays for rejecting the appeal.
6. I have examined the submissions. It is rioted that the department, in the show cause notice, had alleged against the appellant's contravention of three specific Rules viz. Rules, 53,173G and 226. The adjudicating authority appears to have found such contravention against the party. But when the matter came to the first appellate stage, Rule 226 receded from reckoning and only the alleged contravention of Rules 53 and 173Q survived. The lower appellate authority has upheld the confiscation of the seized goods and imposition of penalty under Rule 173Q. The question which now arises for consideration is whether, in the facts and circumstances of this case, the confiscation and penalty can be sustained under the Rule. Non-accountal of the seized goods is an admitted fact. That such non-accountal was without any intent to evade payment of duty on the goods is a fact accepted by the lower appellate authority. In other words, the element of mens rea has been ruled out by that authority. It has been held by this Tribunal in the cited case of Bhillai Conductors that a contravention of Rules 53 and 173G would attract the penal provisions of Clause (d) of Rule 173Q(1) and no other clause of that sub-rule. The present case is not a case of contravention of Rule 53 simpliciter, it is a case of cumulative contravention of Rules 53 and 173G as alleged in the show cause notice.
Such a case will be covered by Bhillai Conductors (supra). As per the decision in that case, mens rea is a sine qua non for confiscation and imposition of penalty under Clause (d) of Rule 173Q(1). That element having been ruled out by the lower appellate authority, it was not open to that authority to sustain the confiscation and penalty. That authority ought to have set aside both confiscation and penalty and allowed the assessee's appeal.
7. In view of the above findings, the orders of the lower authorities cannot be sustained. The appeal is allowed.