Full Judgment
2. The respondents were engaged in the manufacture of plywood and allied products. Officers of Central Excise visited their factory on 22.12.98 and conducted search of the premises, wherein documents were seized under a Panchnama in the presence of witnesses. On 23.12.98, the officers conducted physical stock verification in the factory and found an excess stock of 8175.05 sq.mtrs. of plywood of different brands valued at over Rs. 19 Lakhs and involving central excise duty to the tune of Rs. 3,57,922.53. A statement of Dy. Manager (Production) of the Company was recorded on 23.12.98. The goods found in excess were seized but released to the party on execution of bond. A show-cause notice dated 2.6.99 was issued by the department to the respondents for confiscating the seized goods and imposing penalty on the party. The party denied the allegations contained in the show-cause notice. The adjudicating authority ordered confiscation of the seized goods with option for redemption thereof on payment of a fine of Rs. 4,98,000. The authority appropriated the redemption fine from the bank guarantee furnished by the party against the provisional release of the goods.
The original authority also imposed a penalty of Rs. 3.5 Lakhs on the party under Rules 173Q and 226 of the Central Excise Rules, 1944 for contravention of Rules 53, 173G and 226 of the said Rules. Aggrieved by the decision of the original authority, the party preferred appeal to the Commissioner (Appeals) and the latter disposed of the appeal setting aside confiscation and penalty under Rule 173Q but sustaining penalty to the extent of Rs. 2,000 under Rule 226. The Revenue in the present appeal is aggrieved by the decision of the Commissioner (Appeals).
4. JDR reiterates the grounds of the appeal and submits that the order of the Commissioner (Appeals) setting aside the confiscation and penalty under Rule 173 Q by following the Tribunal's decision in Bhillai Conductors (P) Ltd. v. CCE, 2000 (125) ELT 781 (Tri) is not sustainable in view of Bombay High Court's decision in Kirloskar Brothers Ltd. v. Union of India and Ors. 2002 (83) ECC 497. Ld. DR also relies on the following decisions of the Tribunal:-NATCO Pharma Ltd. v. CCE, Hyd.
The DR submits that the present case is purely a case of non-accountal of finished excisable goods in RG-1 Register which, according to him, attracts the confiscation and penalty provisions of Clause (b) of Rule 173Q(1), which do not require any mens rea. He submits that the finished nature of the goods found in excess of the RG-1 balance is not in dispute and, therefore, non-accountal of such goods in RG-1, should be visited with the penalty under Clause (b) of Rule 173Q (1).
5. Ld. Counsel for the respondents, on the other hand, gives an account of modus operandi of the respondents and submits that the goods found in excess were kept in the finishing room near to the Bonded Store Room (BSR) and the same were about to be removed to the BSR for being duly accounted in RG-1. He submits that the factory was a 24 hours-running unit and, as a matter of practice, the respondents used to make entries in RG-1 at 11 a.m. in respect of all finished goods entering the BSR upto the previous night. Because of the continuous presence of the CE officers in their factory on 22nd and 23 December 1998, it so happened that the finished goods kept in the finishingroom could not be entered in RG-1 on 23.12.98. In any case, Counsel submits, the goods were kept in the finishing room only for the purpose of removing the same to the BSR and not for any clandestine removal. Ld. Counsel produces the copy of a letter dated 28.1.98 submitted by the respondents to the Superintendent of Central Excise, wherein it was intimated to the department that the factory was working round the clock and that the production was accounted in RG-1 at 11.00 a.m. of the succeeding day.
Counsel submits that no officer of the department has, at any stage, objected to the modus operandi of the respondents as intimated in the said letter. Ld. Counsel submits that there was no proof of mens rea in this case and, therefore, Clause (d) of Rule 173Q (1) was not attracted for the purpose of confiscation and penalty. He seeks to justify the impugned order by placing reliance on the Tribunal's decision in Bhillal Conductors, which, counsel points out, has been consistently followed by this Tribunal in similar cases.
7. It is not in dispute that the finished goods which had entered the RG-1 stage were found in the finishing room of the respondents' factory. According to the assessee, the goods were about to be removed to the BSR for being accounted for in RG-1. According to the appellant, the goods were kept in the finishing room with intent to remove the same clandestinely without payment of duty. The allegation in the show-cause notice is as under: "Thus, from the foregoing facts, it appears that the party manufactured and stored seized excisable goods with an intent to remove the same clandestinely without payment of duty, contravening the provisions of Central Excise Rules 53, 173-G and 226 of Central Excise Rules, 1944." The above allegation was denied by the assessee, who maintained that they had kept the goods in the finishing room for removal thereof to the BSR for proper accountal in RG-1. It was for the department, which raised the above allegation, to prove it. The adjudicating authority has not recorded any finding to the effect that the goods were kept in the finishing room with intent to remove the same clandestinely without payment of duty. In other words, there is no finding of mens rea in this case. Clause (b) of Rule 173Q(1) provides for confiscation and penalty for non-accountal of finished excisable goods under Rule 53 read with Rule 173G, for which no mens rea is required as held by the High Court in Kirloskar Brothers Ltd. (supra). It would follow that it was Clause (d) of Rule 173Q(1) that was sought to be invoked by the department in this case. Where that provision was sought to be invoked, mens rea required to be proved. In this case, such proof is not forthcoming.
8. Therefore, following the ratio of Bhillai Conductors (supra), I hold that the order of confiscation and penalty under Rule 173Q(1)(d) passed by the adjudicating authority is unsustainable for want of proof of the sine qua non of mens rea. The decision of the lower appellate authority is, therefore, in order. Insofar as the penalty of Rs. 2,000 imposed by the lower appellate authority is concerned, the same is quite in keeping with the ratio of Bhillai Conductors (supra) wherein the Tribunal had sustained the applicability of Rule 226 for confiscation of finished excisable goods and imposition of penalty on the manufacturer in terms of Clause (b) of Rule 173Q(1).