Judgment:
1. In this appeal filed by the Revenue, the short question arising for consideration is whether, under Section 11AC of the Act, any penalty is liable to be imposed on the respondent on the facts of this case. On 25.8.2004, officers of the department had visited the respondent’s factory and found shortage of finished goods to the extent of 61,685 kg valued at Rs 28,99,195/- on the basis of quantity of raw material consumed from April 2004 to the date of their visit (25.8.04). In the absence of records relating to the final products, officers ascertained the input-output ratio from the respondent and used it for arriving at the total quantity of finished goods manufactured during the said period. The aforesaid quantity of 61,685 kg was arrived at on this basis. These particulars were stated in a panchnama dated 25.8.2004, in the presence of independent witnesses. Statements of three functionaries of the company were also recorded under Section 14 of the Central Excise Act. In these statements, the supervisor, the excise officer and the Director of the company, accepted the shortage of 61,685 kg of finished goods found by the department. They also agreed with the other contents of the panchnama. They also agreed to pay central excise duty of Rs 2,83,889/- on the goods found short. This duty was accordingly paid also. Subsequently, however, a show-cause notice was issued by the department invoking the proviso to Section 11A (1) of the Act on the ground of suppression of facts with intention to evade Central Excise duty by the respondent. This notice proposed to appropriate the above payment of Rs 2,83,889/- towards payment of duty on the aforesaid quantity of 61,685 kg of finished goods. It also proposed a penalty on the respondent under Section 11AC of the Act. It demanded interest on duty under Section 11AB of the Act also. In adjudication of this show-cause notice, the original authority imposed a penalty of Rs 2,83,889/- on the respondent under Section 11AC, apart from appropriation of the amount paid by the party towards demand of duty on the goods found short. In appeal filed by the assessee, the Commissioner (Appeals) set aside the above penalty on the ground that the assessee had paid the duty amount prior to issue of the show-cause notice. The appellate authority, in this connection, relied on the Tribunal’s decision in Rashtriya Ispat Nigam Ltd vs Commissioner 2003 (161) ELT 285 (Tri-Bang). The department is presently in appeal against the dropping of the penalty.
2. The learned JDR submits that suppression of production of the aforesaid quantity of finished goods during the period of dispute with intent to evade payment of duty was established in this case and, therefore, a penalty equal to duty under Section 11AC of the Act is unavoidable. In this connection, it is also submitted that the penal liability is not altered by the factum of duty having been paid prior to issue of the show-cause notice. The JDR relies on the apex court’s decision in union of India vs Rajasthan Spinning and Weaving Mills 2009 (238) ELT 3 (SC).
3. On the other hand, the learned Consultant for the respondent submits that the burden was on the department to prove the charge of clandestine removal of finished goods, against the respondent. According to the Consultant, the department failed to establish their case of clandestine removal of excisable goods against the respondent and, therefore, there is no question of invoking the penal provisions of Section 11AC of the Act. It is further submitted that proper stock verification was not conducted in this case. The figures mentioned in the panchnama are only approximate. The consultant means to say that the correct amount of duty was not worked out by the department. In this connection, he has referred to the Supreme Court’s judgment in Oudh Sugar Mills Ltd vs Union of India (judgment dated 28.3.1962 in Civil Appeal No 596 of 1960). In the said case, it had been held, inter alia, by the apex court that some erroneous accounting by the department could not be conclusive to hold that there was a deliberate attempt on the part of the assessee to evade payment of duty. The learned Consultant has also claimed support from the following decisions of the Tribunal:
(i) Commissioner vs Prism Pigments and Colours Pvt Ltd 2007 (217) ELT 100 (Tri-Ahd);
(ii) Commissioner vs Peejay International 2007 (213) ELKT 709 (Tri-Del);
(iii) Commissioner vs Shree Ganesh Steel Rolling Mills 2009 (241) ELT 47 (Tri-Del).
4. After giving careful consideration to the submissions, I note that the show-cause notice had invoked the proviso to Section 11A (1) of the Central Excise Act on the ground that the respondent had suppressed actual production of goods during the period of dispute with intention to evade payment of duty. On this basis, the notice, inter alia, proposed a penalty on the party under Section 11AC of the Act. This proposal was contested. The original authority imposed a penalty equal to duty on the respondent under the above provision of law. The appellate authority set aside this penalty after noting that the party had paid the duty amount before issue of the show-cause notice and that there was no evidence of any mala fides on their part. The learned Consultant has argued in support of this decision of the lower appellate authority. He has submitted that the burden of proof is on the department in a case of alleged clandestine removal of excisable goods. According to him, this burden was not discharged by the Revenue in this case. I find that all the three functionaries of the company, from whom statements were recorded under Section 14 of the Central Excise Act, admitted the shortage of goods found by the departmental officers. They also agreed with other particulars stated in the panchnama. They expressed their willingness to pay the differential amount of duty worked out therein. Accordingly, the duty was paid also. In this scenario, I find that the duty liability of the respondent was never disputed. In the absence of a dispute, there was no need of any proof. Therefore, the submission of the learned Consultant regarding burden of proof does not appear to be relevant to this case. By affirming the demand of duty raised on the respondent by the original authority under the proviso to Section 11A (1) of the Act, the lower appellate authority was virtually upholding the finding of suppression of production of excisable goods with intent to evade payment of duty against the respondent. However, the lower appellate authority chose to set aside the penalty on the ground that the duty had been paid prior to issue of the show-cause notice and the respondent had no mala fides. In a case where the finding of suppression of facts with intention to evade payment of duty is upheld, the contrary finding that the respondent had no mala fides is unsustainable. Further, where the ground for a penalty under Section 11AC (suppression of facts with intent to evade payment of duty) was established against the respondent, it was not open to the appellate authority to set aside the penalty on the ground that the duty had been paid prior to the issue of the show-cause notice. In this connection, the ruling of the apex court in Rajasthan Spinning and Weaving Mills’s case (supra) supports the Revenue. In that case, it was held that, where the condition for penalty under Section 11AC was established, a penalty on the assessee was mandatory and such penal liability was not affected by considerations like payment of duty before or after the show-cause notice was issued. The decision of the lower appellate authority, on this aspect, cannot be sustained. That authority has relied on the Tribunal’s decision in Rashtriya Ispat Nigam Ltd (supra) but that decision stands impliedly overruled by the apex court in Rajasthan Spinning and Weaving Mills Ltd’s case (supra). The learned Consultant has referred to certain decisions of this Tribunal. These decisions also do not hold good after the apex court’s decision in Rajasthan Spinning and Weaving Mills (supra) insofar as penal liability under Section 11AC is concerned.
5. In the result, this appeal of the department succeeds and the same is allowed. Consequently, the penalty imposed on the respondent by the original authority gets restored.