^^ 1 c<f •^ IN THE HIGH COURT OF CHHATTISGARH AT BILASPUR -Tpi'ft Lft&g. -^feENTRAL EXCIBE APPEAb)No.4 4 OF 2010 Qjyj; '.fff^ ..'ii''" APPELLANT: .^- ^ :A.? ..-y L•;'.^ \l^-'y. •^>? RESPONDENTS: 7~ -M/s. Jaiswal Steel Processing (P) Ltd.,178B, Light Industrial Area, Bhilai, District Durg (Chhattisgarh) VERSUS Commissioner of Central Excise (Appeals-I), Central Excise Building, Tikrapara, Dhamtari Road, Raipur (Chhattisgarh). 2. Additional Commissioner, Central Excise, Raipur (C.G) 3. Customs, Excise 8s Service Tax Appellate Tribunal, Principal Bench, Excise Appeal Branch, West Block No.2, R. K. Puram, New Delhi-110066 through its Registrar. CENTRA.L EXCISE APPEAL UNDER SECTION 35-G OF THE CENTRAL EXCISE ACT, 1944 AFf{ HIGH COURT OF CHHATTISGARH AT BILASPUR TAX CASE N0.44 OF 2010 APPELLANT M/s Jaiswal Steel Processing RESPONDENTS VERSUS Commissioner of Central Excise (Appeals - I) & Others Judgment for consideration Sd/- Satish K. Agnihotri Judge »?3-9-2011 Hon'ble Shri Justice Radhe Shvam Sharma 3 CA^-»T-<-< Sd/- Radhe Shyam Sharma Judge ^, Post for pronouncement ofjudgment on the S( day of September, 201 1 Sd/- Satish K. Agnihotri Judge ^w-'v'-'—"-'': ^•f^" '»'-JUT^WM»»BB'UU^l~l-U ^:'.^-;^ i^ s •:;-<-ys/ ^ RESPONDENTS HIGH COURT OF CHHATTISGARH AT BILASPUR TAXCASE N0.44 OF 20W M/s Jaiswal Steel Processing VERSUS Commissioner of Central Excise (Appeals - I) & Others CENTRAL EXCISE APPEAL UNDER SECTION 35-G OF THE CENTRAL EXCISE ACT, 1944 Coram : Hon'ble Shri Satish K. Agnihotri & Hon'ble Shri Radhe Shyam Sharma, JJ. Present: Shri Ashish Shrivastava, Advocate for the appellant. Shri Bhisma Kinger, Advocate for the respondents. .-^ (Delivered on .-^.fe.day ofSeptember, 2011) Per SATISH K. AGNIHOTRI, J. 1. The instant appeal arises from the order No.917-919/2009 SM (Br) dated 6' April, 2009 (Annexure - A/1) passed by the Customs, Excise & Service Tax Appellate Tribunal (forshort "the CESTAT'). 2. The appeal was admitted on 15 July, 2011 on the following substantial questions of law : "(a) Whether the learned Appellate Tribunal was justified in holding vide para 4.2 of the impugned order with regard to the duty demand of 12.12 MT Pig Iron and 153.36 MT of Cl scull whereas there is no notice for demand of duty for 12.12 MT of Pig Iron in the show cause notice dt. 15.02.2001 and the same is also observed by the Commissioner (Appeals) Raipur in his order in appeal dt. 29.01.2007 vide paragraph 9 and therefore held that no duty is payable under the present proceedings. (b) Whether the imposition of penalty under Section 11-AC of the Central Excise Act, 1944 is -X-'!' automatic when it has been held by the Supreme Court in Commissioner of Central Excise, Chandigarh v. Pepsi Foods Ltd. reported in (2001) 1 SCC 601 that criminal intent or "mens rea" is a necessary constituent in order to attract the penalty provision under Section 11-AC." 3. The facts, in brief, are that the appellant is a business concern and engaged in the manufacture of C.l. Socket B, C.l. Socket C, C.l. Sole Plate and C.l. Brake Block falling under Chapter Heading No.7307 and 8607 of the Schedule to the Central Excise Tariff, 1985. Theofficers of the Central Excise visited the factory premises of the appellant on 25 June, 1999. On visit they found that the finished goods were in excess as against its recorded balance in RG-1 register maintained by the appellant. The details are as under: Raw Materials ssvsssiessassSXX!''^^-^ -—^*^ ^Fcjas.SEA.u >.,'•-• S.No. Item AS per RG1 Register As per Panchnama Weight Difference 1. Cl Socket B 860 3640 30 Kg 2780 Nos. (83.400) 2. Cl Socket C 57 692 48 Kg 635 Nos. (30.480) 3. Cl Brake Block6158 548 Nos. 2377 14 Kg 1829 (25.605) 4. Cl Brake Block 97022 Nil 50 Nos. 14.2 Kg 50 Nos. (0.710) 5. Cl Brake TPL 202 Nil 37 Nos. 14 Kg 37 Nos. (0.520) 6. Cl Brake Block 289 3541 5250 14.2 Kg 1709 (24.780) 165.495 MT 7. Cl Sole Plate 10258 3945 5.5 Kg 6313 8. Cl Brake Block 605 1100 444 12.8 Kg 656 Nos. 1. Pig Iron 93 MT 65 MT 28 MT 2 Cl Scull Scrap 513.580MT 385 MT 128.580 MT 3. Runner & Riser a. In Form-iv b.ln RG1 31 MT 11.570 31 MT 25.000 Nil (-)13.430 .i'.r°^";^ fite^ 1 @ ' 'WB^ ~-^<^^ W>' A '<t~6lB«i<S \'-- \^ 4. Statement of Director of the appellant company namely; Shri Vinod Kumar Jaiswal was recorded on 12 November, 1999 (Annexure - A/3). The officers again visited the factory on 18 August, 2000 and on physical verification, the materials were found as under: First show cause notice was issued on 24 December, 1999. Thereafter, sinother show cause notice was issued on 15 February, 2001 (Annexure - A/4) stating the reconciliation as under: 6. It was found that there was excessof Pig Iron and shortage of C.l. Scull Scrap. The Deputy Commissioner, Customs & Central Excise, Division-11, Bhilai, by order dated 31st August, 2006 (Annexure - A/6) held that the following finished goods were found in excess on 25 June, 1999 and were accordingly seized by the officers under panchnama dated 25 June,1999: 4. Block Plate & Clips 21416 Nos. 21000 Nos. 416Nos. Material As per Records Physical Verification Remarks Pig Iron 65.120MT 63 12.120 (-) Cl Scull Scrap 245.995 MT 92.635 153.360 (-) Material As per Record Shortage tobe adjusted Position After adjustment Stock as per physical verification Remarks Pig Iron 65.120 28 37.120 53 15.880 (+) Cl Scull 245.995 128.580 117.415 92.635 24.780 (-) Description Excess Value Duty(@16%) (a) C.I.Sockets'B' (+)2780 Nos. 7,25,580/- 1,16,093/- (b) C.l. Sockets 'C' (+)635 Nos. 2,64,636/- 42,3427- (c) C.l. Brake Blocks (+)1829 Nos. 2,05,305/- 32,849/- (d) C.l. Brake Blocks (97022) (+)50 Nos. 5,900/- 944/- (e) C.l. Brake Blocks (TPL202) (+)37 Nos. 3,552/- 568/- (f) C.]. Brake Blocks (289) (+)1709 Nos. 1,94,826/- 31,172/- (9) C.l. Runners Risers (+)13.430 MT 94,010/- 15,042/- Total: 14,93,809/- 2,39,010/- e-b 7. In respect of shortage of 1203 Nos. of Anchor Plate (finished goods) valued at Rs.68,571/- involving duty of Rs.10,971/-, in addition to duty, a mandatory penalty of Rs.10,971/- under Section 11AC of the Central Excise Act, 1944 (for short "the Act, 1944"} was imposed. 8. In respect of Pig Iron :- Pig Iron 28.000 MT valued at Rs.1,86,900/- involving duty of Rs.29,904/- was found short of book balance. Satisfactory explanation did not come forward. Thus, the demand of duty of Rs.29,904/- was confirmed and in addition, penalty equal to the amount of duty was also imposed. Pig Iron 15.880 MT fond above book balance was confiscated being redeemed on payment of redemption fine. 9. In respect of C.l. Skull Scrap it was held that the appellant cleared 128.580 MT of C.l. Skull Scrap without payment of Central Excise Duty of Rs.1,20,865/-. Thus, the demand of duty was confirmed under Section 11A read with Rules 9 (2) & 57-1 of the Central Excise Rules, 1944 (for short "the Rules, 1944") and penalty equal to the amount of duty was also imposed. However, on account of non-payment of Excise Duty on 153.360 MT of C.l. Skull Scrap, a duty to the tune of Rs.1,22.688/- and penalty to the same extent was imposed. 10. In respect of Back Plates & Clips :- Shortage of416 Nos. of Back Plates & Clips valued at Rs.3,744/- involving duty of Rs.599/- was also found. Thus, a duty and penalty to the same extent was imposed. 11. It was further found that the appellant has contravened the provisions of Rules 9 (1), 52-A, 53, 173-F, 173-G of the Rules, 1944. Thus, the appellant was liable to pay penalty under Rule •tf.atitKtLffAA^&^'^^djy^fi,-^^ W-,1-^LL^^, J^^n'gEP,, 173-Q of the Rules, 1944. Accordingly, the following order was passed: "1 (a) The goods Cl Sockets 'B' - 2780 Nos.; Cl Sockets 'C' - 635 Nos.; Cl Brake Blocks 1829 Nos.; Cl Brake Blocks (97022) - .50 Nos.; Cl Brake Block (TPL202) - 37 Nos.; and Cl Brake Blocks (289) -1709 Nos. and Cl Runner risers - valued at Rs.14,93,809/- involving Central Excise duty of Rs.2,22,687/- which was seized under panchnama on 25.6.99 at the factory premises of Noticee No. 1 is confiscated under Rule 173 Q of the erstwhile Central Excise Rules, 1944. However, 1 give an option to notice No.1 to redeem the said seized goods on payment of redemption fine of Rs 3,50,0007- 2 (a) The demand of Rs.58,980/- in respect of shortages of 6313 Nos. of 'CI sole plates' and 656 Nos. of 'CI Brake Blocks'(605) on 25.6.99, is hereby confirmed and is ordered to be recovered from Noticee No 1 under Rule 9(2) of the Central Excise Rules, 1944 read with section 11A of the Central Excise Act, 1944. (b) Mandatory penalty eqyal to amount of duty of Rs.58,980/- confirmed as above is imposed against Noticee No .1 under section 11AC of the Central ExciseAct, 1944. 3(a) Duty of Rs.10,971/- on shortages of 1203 Nos. of Anchor plates valued at Rs.68,571/- as per panchama dated 18.8.2000 ahd show cause notice dated 15.2.2001 is confirmed and is ordered to be recovered from Noticee No. 1 under section 11A of the Central ExciseAct, 1944. (b) Mandatory penalty equal to the amount of duty of / '^\' ^ 1 Ss'^-1 j \.~^/ Rs. 10.971/- as above is also imposed against Noticee No. 1 under Section 11AC of the Central ExciseAct, 1944. 4(a) 28 MTs of pig iron valued at Rs 1,86.900/- have been removed clandestinely resulting in the shortage of the sameas per Panchnama dated 25.6.99. Thus the Central Excise Duty amounting to Rs.29,904/- is hereby confirmed against Noticee No.1 and the same is ordered to be recovered from them under section 11 A of the Central ExciseAct, 1944. 4 (b) Mandatory penalty equivalent to the aforesaid amount of duty confirmed viz. Rs.29,904/- as (a) above is imposed upon Noticee No.1 under Section 11AC of the Central ExciseAct, 1944. (c) 15.880 MT of Pig Iron found excess than that of recorded stock as on 18.8.2000 value at Rs. 1,15,9247- is ordered to be confiscated. However, 1 give an option to the noticee to redeem the same on payment of redemptjon fine of Rs.30,000/- (Rupees Thirty thousand only) 5(a) The demand of duty against Noticee no.1 on 128.580 MT of Cl skull scrap involving Central Excise duty of Rs.1,20.865/- is confirmed and ordered to be recovered from Noticee no. under section 11 A of the Central Excise Act, 1 944 read with Rule 9(2) and 57 1 of the Central Excise Rules 1944. 5(b) Mandatory penalty equivalent to the aforesaid amount i.e. Rs.1,20.865/-is also imposed against Noticee no.1, under Section 11AC of the Central excise Act, 1944. 6(a) The demand of duty against Noticee no.1 on 153.360 MT of Cl Skull Scrap valued at Rs.7,66,800/- found short as V.S ^;., \.'1'. tl I" ';' '•^. \^° detailed in the Panchnama dated 18.8.2000 amounting to Rs.1,22.688/- is confirmed and is ordered to be recovered from Noticee no.1 under section 11 A ofthe Central ExciseAct, 1944, 6(b) Mandatory penalty equal to the amount of duty confirmed above i.e. Rs. 1,22.688/- is imposed against Noticee no. 1 under section 11 AC of the Central Excise Act. 7(a) The demand of duty amQunting to Rs.599/- on Back plates and clips valued at Rs. 3744/- as per panchanama dated 25.6.99 which was found short during physical verification is confirmed against Noticee no.1 and ordered to be recovered from them under Section 11 A of the Central Excise Act, 1944. (b) Mandatory penalty equal to the amount of duty confirmed as (a) above i.e. Rs 599/- is also imposed against Noticee no. 1 under section 11 AC of the Central Excise Act, 1944. 8. I impose a penalty of Rs 50,000/-, against Noticee no. 1 under Rule 173Q& 226 of the Central Excise Rules 1944 for contravention of various Rules as discussed above. 9. Personal Penalty of Rs 50,000/- is imposed on Shri Vinod Kumar Jaiswal, (Noticee no.2) and Director M/s Jaiswal Steel Processing Pvt. Ltd., Bhilai under Rule 209 A of the erstwhile Central Excise Rules, 1944 as discussed above. 10. The Noticee No.1 is also liable to pay interest at applicable rates on the duty adjudged and payable & confirmed under Section 11 A in para (1) to (7) above payable in terms of section 11 AB of the Central Excise Act, 1944." / \^ 8 12. In appeal, before the Commissioner, Central Excise & Customs (Appeals)-ll, Raipur (for short "the Commissioner (Appeals)"), the Commissioner (Appeals), by order dated 29 January, 2007 (Annexure - A/7) observed that the authorized representative was present at the time of physical verification and he expressed satisfaction about the method of determination of quantity of the goods in the factory and never protested. The Commissioner (Appeals) further observed as under : "9....the shortages found on 18.8.2000 cannot be adjusted against the shortages of pig iron found short on 25.6.99. The shortages of pig iron as on 18.8.2000 is to be taken as 12.120 MT. But, l observe that there is no notice for demand of duty for such shortage of 12.120 MT. Therefore no duty is payable under the present proceedings. For the erroneous excess quantity of 15.880 MT determined by the lower authority, there is no question of confiscation of this quantity of pig iron. This confiscation is therefore, liable to be set aside. 10..... l uphold the demand of duty of Rs.58,980/- on shortages of 6313 Nos. of C.l. sole plates and 656 Nos. of C.l. brake blocks, Rs.10,971/- on 1203 Nos. of anchor plates found short, duty of Rs.29,904/-, on 28 MT of pig iron found short, duty of Rs.1,20,865/- on 128.580 MT of C.l. skull scrap found short, duty of Rs.1,22.688/- on 153.360 C.l. skull scrap found short and duty of Rs.599/- on back plates and clips found short. The appellants are liable to pay this amount alongwith interest. It is also seen that penalties are also imposed on the appellants under section 11 AC of the Central Excise Act as the appellants could not satisfactorily account for these shortages. Therefore, 1 uphold the penalties imposed under 7 ""•'^c-/' ^y—*';^ St ^•"''^ 1 litefiA-"-^ H <^s 13. 14. 15. section 11AC. However, considering the facts and circumstances of the case the penalties are reduced to Rs 20.000/- from Rs 58.980/-, to Rs 4,000/- from Rs.10,971/-, to Rs 12,000/- from Rs.29,904/-, to Rs50,000/- from Rs,1,20.865/-, to Rs50,000/- from Rs1,22,688/-, to Rs.200/- from Rs.599/-. The penalty imposed under rule 173Q for excess quantities foundand penalty for non-accountal of records under rule 226 is upheld but the penalty is reduced to Rs20,000/-. Further the redemption fine is reduced Rs3,50,000/- to Rs 50,000/-. Apart from this, the confiscation of 15.880 MT of pig iron is set aside. As regards the penalty of Rs. 50,0007- imposed on the second appellant, it is observed that the second appellant has not acted independent of the appellants in this case. When that is the case, there is no question of imposition of separate penalty under rule 209A. This penalty of Rs.50,000/- on the second appellant is set aside." The CESTAT after having considered all the aspects of the matter re-examined the entire issue and came to the conclusion that in respect of shortage of goods there was no satisfactory explanation. Thus, upheld the finding recorded by the appellate authority for payment of duty along with interest in respect of shortage. In regard to shortage of 12.12 MT of cenvated Pig Iron and 153.36 MT of cenvated C.t. Skull scrap discovered on 18 August, 2000, the duty demand made by the authorities below was also upheld. ]n respect of duty demand of 28 MT of Pig Iron and 128.58 MT of C.l. scull discovered on 25th June, 1999, the CESTAT held as under: "5....the finished goods found excess have been manufactured out of the raw- materials — Pig Iron & C.l. scull •—»1/ —•<—» i' I" --•i?'<s!''>, '.< 16. 17. 18. 10 scrap found short and therefore, when the duty has demanded in respect of finished products, there is no justification for demanding duty in respect of the shortage of the raw-materials. Accordingly, the duty demand amounting to Rs.1,50,7697- in respect of shortages of Pig Iron & C.l. scull is set aside. hlowever since there is no explanation in respect of the shortage of 416 back plate and clips, the duty demand in respect of the same is upheld. Keeping in view the circumstances of the case, the penalty on Appellant company under Section 11AC is upheld. 6. As regards the confiscation of the finished goods and cenvated inputs found excess, since no satisfactory explanation for the same is given, the same is upheld." Thus, the appeal was modified to the above extent. We have heard learned counsel appearing for the parties, perused the pleadings and the documents appended thereto. In respect of question (a), .contention of Shri Shrivastava, learned counsel appearing for the appe!!ant that the Commissioner (Appeals) has clearly found that no notice for payment of duty for shortage of 12.12 MT was issued and as such no duty was payable, is contrary to facts and ths Commissioner (Appeals) had also not recorded the fact correctly. A show cause notice dated 15 February, 2001 was issued to the appellant. Additional Commissioner considered the facts and held that the stock of 56.424 MT of Pig Iron and 58.575 MT of C.l. Scull valued at Rs.3,55,471/- and Rs.2,92,375/-, respectively, was held to be in excess of the adjusted recorded stock in form IV/RG.23 Part-1, was ordered to be confiscated under Rule 173Q (1) ofthe >^ / -r 11 \^ 19. 20. Rules, 1944 with option to be redeemed on redemption was passed. It is evident from perusal of para 1.5 of the order dated 6 April, 2009 that on the basis of shortage of 12.12 MT vis-a-vis excess stock of Pig Iron and C.l. Skull Scrap a notice was issued on 15 February, 2001 for confiscation of alleged excess stock under Rule 173-Q (1) of Rules, 1944 and for imposition of penalty on them under the same Rule. The show cause notice dated 15 February, 2001 is a part of the record. In the said notice it is observed as under : "7. Now, therefore, M/s Jaiswal Steel Processing Pvt. Ltd., 178B, Light Industrial Area, Bhilai (noticee) are hereby called upon to show cause to the Additional Commissioner, Customs & Central Excise, Civil Lines, Raipur, Chhattisgarh, as to why : (a) 15.880MTof Pig Ircn (input) seized under panchnama dtd. 15.1.2001 should not be confiscated under rule 173Q of the Central Excise Rules, 1944. XXX XXX XXX xxx xxx xxx XXX XXX XXX (c) The Central Excise Duty of Rs.1,22,688/- (Rupees One Lac Twenty Two Thousand Six Hundred Eighty Eight Only) equal to the amount of cenvat credit availed on 153.36 MT C.l. Skull (input), found short during physical verification of stock on 18.8.2000 and appeared to have been removed without payment of duty in contravention of provision of Rule 57AB of Central Excise Rules, 1944 should not be confirmed and ^ 12 recovered under Rule 57AH of Central Excise Rules, 1944 read with Section 11A of Central Excise Act, 1944. (d) Penalty should not be imposed on them under Rule 173Q of Central Excise Rules, 1944, for the violation of provisions of Rule 9 (1), 53, 57AE and 173G of Central Excise Rules, 1944." 21. The show cause notice includes the demand of notice and, as such, finding of the Commissioner (Appeals) was rightly not upheld by the CESTAT and the CESTAT was justified in holding that the payment in respect of shortage of 12.12 MT of cenvated Pig Iron and 153.36 MT of cenvated C.l. Skull Scrap must be re-determined after adjusting the shortage detected in respect of this item on 25 June, 1999. Thus, the question (a) is answered affirmatively. 22. In respect of question (b), on perusal of the orders passed by the authorities below and CESTAT, it appears that there was no discussion, as no plea with regard to intention or mens rea was raised by the appellants. 23. Section 11AC ofthe Act, 1944 reads as under: "11AC.—Penalty for short-levy or non-levy of duty in certain cases.—Whereany duty of excise has not been levied or paid or has been short- levied or short-paid or erroneously refunded by reasons of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person who is !iable to pay duty as determined under sub-section (2) of Section 11-A, shall also be liable to pay a penalty equal to the duty so determined: r ve, 13 ^i Provided that where such duty as determined under sub- section (2) of Section 11 -A, and the interest payable thereon under Section 11-AB, is paid within thirty days from the date of communication of the order of the Central Excise Officer determining such duty, the amount of penalty liable to be paid by such person under this section shall be twenty-five per cent ofthe duty so determined: Provided further that the benefit of reduced penalty under the first proviso shall be available if the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso: Provided also that where- the duty determined to be payable is reduced or increased by the Commissioner (Appeal), the Appellate Tribunal or, as the case may be, the court, then, for the purposes of this section, the duty as reduced or increased, as the case may be, shall be taken into account: Provided also that in case where the duty determined to be payable is increased by the Commissioner (Appeal), the Appellate Tribunal or, as the case may be, the court, then, the benefit of reduced penalty under the first proviso shall be available, if the amount of duty so increased, the interest payable thereon and twenty-five per cent of the consequential increase of penalty have also been paid within thirty days of the communication of the order by which such increase in the duty takes effect. Explanation.— For the removal of doubts, it is hereby declared that— (1) the provisions of this section shall also apply to cases in which the order determining the duty ~\"^ S t? 8§>. '^f"./ ^k^ 'i<i .'•y' \^ 14 under sub-section (2) of Section 11-A relates to notices issued prior to the date on which the Finance Act, 2000 receives the assent of the President; (2) any amount paid to the credit of the Central Government prior to the date of communication of the order referred to in the first proviso or the fourth proviso shall be adjusted against the total amount due from such person." 24. On bare reading of Section 11AC of the Act, 1944, it is crystal clear that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reasons of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act pr of the rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under sub-section (2) of Section 11-A, shall also be liable to pay a penalty equal to the duty so determined. 25. Thus, it is necessary to examineand hold that the short-levy or short-payment are willful misstatement or contravention of provisions of the Act or the rules was done with intention to evade payment of duty and for this there has to be pleadings and issues raised by the appellant or the department before the assessing authority or the appellate authority. No finding has been recorded at any stage. 26. The Supreme Court in Union of India and Others v. Dhannendra Textile Processors and Others , observed as under: "18. The Explanations appended to Section 271(1)(c) of the IT Act entirely indicates the element of strict liability on the 1 (2008)133cc 369 §'&-.-?;»!.,S j %?3?sil B 99 ^:-^' ^ ''<sr ,ff 15 \^. assessee for