Hon. K.N. Pandey, J.
We have heard Shri Suyash Agarwal, learned counsel for the appellant. Shri S.P. Kesarwani, Sr. Standing Counsel, Central Excise and Service, Government of India, High Court, Allahabad appears for the respondents.
This Central Excise Appeal under Section 35G of the Central Excise Act, 1944 is directed against the order of the Customs, Excise and Service Tax Appellate Tribunal, (the Tribunal) New Delhi in Appeal No.E/2489/07-SM by which the appeal was allowed on 12.8.2009 holding that the appellant company is liable to penalty and the excess stock was liable for confiscation.
M/s Usha Martin Construction Steel Ltd.-the appellant, manufactures HSD Bars of iron and steel chargeable to central excise duty under sub heading 72142090 of the Central Excise Tariff. The factory was visited by the jurisdictional central excise officers on 24.12.2005. They carried out physical verification of raw material and finished material (HSD Bars). They found that the R.G.I. Register was showing total stock of 148.30 MT of 12 MM HSD Bars, whereas the actual stock was found to be 175.950 M.T., (an excess stock of 27.560 M.T.) in respect of HSD Bars of 12 M.M. In respect of HSD Bars of 16 M.M. as against RGI register balance of 49.115 MT the actual stock was found to be 94.115 M.T., (an excess stock of 45 M.T.). The total of excess quantity of 72.560 M.T. was found over and above the recorded balance in RGI. The value of this excess stock was about Rs.14.49 Lakhs.
The Central Excise Officers did not find the explanation for the excess stock of the company to be satisfactory and consequently they seized the goods. A show cause notice was issued on which after considering the reply of the party the Asstt. Commissioner passed an order on 29.9.2006 by which the excess stock of 72.560 M.T. of HSD Bars valued at Rs.14,79,910/- was placed under seizure and was ordered to be confiscated under Rule 25 (1) of the Central Excise Rules, 2002. Since the goods had already been released, the bank guarantee on which they were released was appropriated. A penalty of Rs.24,150/- was imposed under Section 11AC of the Act read with Rule 25 (1) of the Central Excise Rules, 2002.
The Commissioner (Appeals) by his order dated 30.5.2007 relying upon Board Circular dated 23.9.1999 and Bhilai conductors (P) Ltd. v. Commissioner, 2000 (125) ELT 781 held that the confiscation was not sustainable in the absence of any substantial evidence of clandestine clearance, or any evidence of intention that the goods were kept for clandestine removal.
The Tribunal held that the variation in the stock of finished goods in the bonded store to the extent noticed in respect of 12 MM and 16MM bar was not possible, in as much as in respect of 12 MM bars the excess stock was 20%, and in respect of 16 MM the excess stock was to the extent of 100%. If the explanation given by the respondent was to be believed, a similar variation should have been uniformly found in respect of the other verities of bars. The Board's Circular dated 23.9.1999 regarding the excess stock was applicable to integrated steel plants and not to the units run by the company.
The Tribunal also found that the ratio of Bhilai Conductors (P) Ltd. (Supra), would not be attracted for mere non-accountal of the finished goods in RG I Register, when there is no evidence that such non-accountal of goods still in the factory, was with intent to evade the payment of duty.
Shri Suyash Agrawal submits that the Tribunal failed to appreciate that there was no evidence of any intention on the part of company to remove goods clandestinely. The penalty can be levied only when the conditions imperative of imposition of penalty under Section 11AC are present. The liability of confiscation of goods arise only when there is contravention of Rules. Since the appellant had diligently kept statutory records, in the absence of any contravention of Rule 10, the provisions of Rule 25 will not come into play. He further submits that Circular dated 23.9.1999 does not say that it will not apply to the manufactures like the appellant company. The excess/ shortage arising due to technical reasons such as burning loss and mill tolerance is applicable to the process of manufacture of iron and steel.
Shri Suyash Agrawal further submits that it was held in Union of India v. Rajasthan Spinning and Weaving Mills, 2009 (238) E.L.T. 3 (S.C.) that the penalty under Section 11AC is not attracted to every case of non-payment, or short-payment of duty. The decision in Dharmendra Textile must be understood to mean that though the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the Section, once the Section is applicable in a case, the concerned authority would have no discretion in quantifying the amount. The penalty must be imposed equal to the duty determined under sub-section (2) of Section 11A. The mandatory penalty is the punishment for an action of deliberate deception by the assessee with the intention to evade duty, by adopting any of the means mentioned in the Section. The elements of Section 11AC, namely the non-payment, short levy or short payment or erroneous refund by reasons of fraud, collision or any willful mis-statement or suppression of facts or contravention of any of the provisions of the Act or Rules should be established before a person is liable to pay the duty. Both the proviso to sub-section (1) of Section 11A and Section 11AC use the same expression i.e. by reasons of fraud, collusion or any willful misstatement or suppression of facts, or contravention of any of the provisions of the Acts or Rules with intent to evade payment of duty. In the absence of any allegation in the notice, and the findings to that effect the penalty cannot be levied.
Shri Suyash Agrawal has relied upon the judgments in CCE Vapi v. Kisan Mouldings Ltd., 2010 (260) ELT 167 (SC); CCE Calcutta-II v. India Aluminium Co. Ltd., 2010 (259) ELT 12 (SC), and Oudh Sugar Mills Ltd. v. UOI, 1978 (2) ELT (J 172) (SC) to support his submissions. In CCE, Vapi v. Kisan Mouldings Ltd. (Supra) the Supreme Court held that penalty under Section 11AC, as the word suggests, is punishment for an act of deliberate deception by the assessee with the intent to evade duty for adopting any of the means mentioned in the Section. Where there is no intention to evade tax, the penalty cannot be levied. In CCE, Calcutta-II v. India Aluminium Co. Ltd. (Supra) the Supreme Court following Union of India v. Rajasthan Spinning and Weaving Mills (Supra) observed that penalty under Section 11AC can be levied as punishment for an act of deliberate deception with an intention to evade duty. In case of bonafide mistake, the penalty cannot be levied. Similarly in Oudh Sugar Mills Ltd. v. Union of India (Supra) the Constitution Bench of the Supreme Court held that where allegations are based only on calculation of raw material fed into the process, or on working of the machinery as noticed during test inspection, the finding of non-accountal without any tangible evidence on record is vitiated by error of law as it was based only on inferences involving unwarranted assumptions.
Shri S.P. Kesarwani appearing for the Central Excise Department submits that in the present case on the findings that the excess stock of 12 MM Bars was 20% and that of 16MM Bars was to the extent of 100% for which no satisfactory explanations were given, is not a case of non-accountal of finished goods in the RGI register but a case of deliberate deception in avoiding payment of excise duty. The orders of confiscation and penalty were thus rightly affirmed by the Tribunal. He submits that in Kirloskar Brothers v. Union of India & Ors., 1988 (34) ELT 30 (Bombay) it was held that the intention to evade payment of duty is a question of fact, which does not warrant interference in appeal. The liability for non-accountal, and removal in contravention of Rules does not depend upon the mens-rea. Where RG I Register did not show 20% manufacture of 12 MM bards and 100% manufacture of 16 MM bards, there was sufficient evidence of deliberate deception, in which even if goods were not removed, the findings, that the party could not give satisfactory explanation of suppression of facts with intention to evade payment of duty, does not required interference in appeal under Section 35 F of the Act.
Shri S.P. Kesarwani submits that initially a plea was advanced of shortage on account of technical parameters like burning loss and mill tolerance applicable to the process of manufacture of iron and steel products. There cannot be a selective burning loss and mill tolerance in the process of manufacture of a particular quality of goods. In the present case 100% variation of 16 MM Bards could not be explained on account of burning loss and mill tolerance applicable to the process of manufacture. He submits that the process of manufacture in the case of integrated steel plant for which the Circular dated 23.9.1999 was issued is from the stage of melting of the iron ore, to the manufacture of the finished products. The appellant company is not an integrated steel plant. It is manufacturing finished material i.e. HSD Bars from the steel ingots. The company is required to keep the records of manufacture of each of its products. Even if the production of 12 MM and 16 MM bars is very small as compared to the total production, the manufacturing account of each finished item has to be kept separately. In the present case non-accountal was not on account of any manufacturing loss but was a deliberate act with an intent to evade payment of excise duty.
In Gujarat Travancore Agency v. Commissioner of Income Tax, 1989 (42) ELT 350 SC the Supreme Court held that in the absence of any indication in the language of statute of the need to establish mensrea, the default in completing with the statute is sufficient for levy of penalty, which is a civil obligation and coercive remedy for loss of revenue. No doubt an element of coercion is present in the penalty, the terms in which penalty falls to be measured under Section 271 (1) (a) of the Income Tax Act is significant.
In Rajasthan Spinning and Weaving Mills (Supra) the Supreme Court held that penalty under Section 11AC, as the words suggest is punishment for an act of deliberate deception of the asssessee, with the intent to evade duty by adopting any of the means mentioned in the Section. In every case of non-payment or short-payment of duty, the penalty clause would not get attracted automatically. The discretion of the authority is not taken away. The judgment in Dharmendra Textile did not decide that Section 11AC would apply to every case of non-payment or short-payment of duty regarding the condition expressly mentioned in the Section for its application. Though the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the Section, once the Section is applicable in a case, the concerned authority would have no discretion in quantifying the amount in penalty. Para 23 and 24 of the judgment is quoted as below:-