S.S. Garg ORDER
S.S. Garg, Member (J)
1. The present appeals are directed against the impugned order dated 11.9.2012 vide which the learned Commissioner (A) has upheld the Order-in-Original. Briefly the facts of the present case are that the appellant is a dealer for dealing in plastic granules and also as have manufacturing unit for manufacturing PP bags. During the course of audit, it was noted that there were some discrepancies in the stock account with the actual quantity of granules stored. Thereafter physical stock of material was taken and during the stock taking there were certain grades of materials for which the stock book had no balance and for certain grades, there were stocks in stock book but no material. On questioning the same, the appellant's officials informed that they were not maintaining the stock on the basis of grades, since all the material were plastic granules and for all the materials removed, they were issuing the invoices and in regard to the shortage, it was mentioned that sometimes one grade got substituted to another grade. As such, it was contended that there were no shortage and in future they would try to keep one to one correlation. The officers verified the books and came to the conclusion that the appellant had passed on fraudulent credit of Rs. 10,08,094/-. It was also contended that further a sum of Rs. 9,27,909/- prior to 10.1.2008 were passed as CENVAT credit without physical supply of materials. On these allegations, a show-cause notice was issued as to show why the penalty should not be imposed to the extent of CENVAT credit under provisions of Section 11AC read with Rule 25. Apart from that a show-cause notice was also issued to the Director asking him to show-cause as to why penalty should not be imposed on him under Rule 26. The appellant refuted the allegation in the show-cause notice and submitted that there was no investigation conducted to prove that they had passed any duty credit fraudulently and there was no investigation as to the beneficiaries who have received the same. The Additional Commissioner vide Order-in-Original imposed the penalty of Rs. 4/- lakh under Rule 25 read with Section 11AC. Further a penalty of Rs. 40,000/- was imposed on the appellant-Director, Shri A.P. Venkateshwaran. Being aggrieved by the Order-in-Original, the appellant preferred an appeal before the Commissioner and the Commissioner (A) upheld the Order-in-Original and rejected the appeal of the appellant.
2. I have heard both parties and perused the material on record.
3. The learned counsel for the appellant submitted that the impugned order is not sustainable in law as the same has been passed without following the mandatory provisions of the Central Excise Act. He further submitted that with regard to the allegations in the show-cause notice, no investigation was conducted by the Department to prove that the appellant had passed CENVAT credit fraudulently. He further submitted that there is no iota of evidence as to who were the beneficiaries of the fraudulent CENVAT credit alleged to have been passed on by the appellant. He further submitted that the impugned order is based on assumptions and conjectures and surmises without having concrete evidence to prove the allegations against the appellant. He also submitted that the imposition of penalty under Rule 25 read with Section 11AC is not maintainable in law without the determination of demand of duty against the appellant. He further submitted that unless and until Section 11AC is proved, no action can be taken under Rule 25 and in the present case there is no order of confiscation or there is no order demanding duty. Accordingly, the imposition of penalty is totally unwarranted under the facts and circumstances of the case. In support of his submissions, he relied upon the decision of Jaiswal Steel Processing v. CCE: MANU/CG/0180/2011 : 2011 (9) LCX 378 wherein the Hon'ble High Court relying upon the decision of Commissioner of Central Excise, Chandigarh v. Pepsi Food Ltd. reported in MANU/SC/1049/2010 : 2010 (260) E.L.T. 0481 (S.C) wherein the Hon'ble Supreme Court has observed as under:
"21. From a perusal of the aforesaid section, especially the underlined portion, it is clear that in order to attract the penalty provision under Section 11AC, criminal intent or mens rea is a necessary constituent. In the reply to the show cause notice the stand which has been taken by the respondent is that it has been paying the duty and there is no mala fide intention on its part to evade the payment of duty. The further stand is that the goods were cleared from the factory only on payment of duty. This stand which has been taken in the reply to the show cause notices was not found to be incorrect in the order-in-original. As such the imposition of penalty of the equal amount of duty under the order-in-original cannot be sustained.
22. It is well settled that when the statutes create an offence and an ingredient of the offence is a deliberate attempt to evade duty either by fraud or misrepresentation, the statute requires mens rea as a necessary constituent of such an offence. But when factually no fraud or suppression or misstatement is alleged by the revenue against the respondent in the show cause notice the imposition of penalty under Section 11AC is wholly impermissible."
Further, the Hon'ble High Court in Para 29 has held:
"29. Thus, the law on this issue is well settled, as laid down by the Supreme Court in the above referred cases, that necessary ingredients for penalty under Section 11AC of the Act, 1944 is intention of the assessee to evade payment of duty. In the case on hand, as no determination in respect of the intention to evade payment of duty or on mens rea was done, penalty cannot be imposed. The question (b) is answered accordingly."
4. On the other hand, the learned AR defended the impugned order and submitted that the Director and other officials whose statements were recorded have categorically admitted the inter mixing of grades and also admitted the shortage of stock. He further submitted that the same has been done in violation of CENVAT Credit Rules for which the appellants are liable to be penalised. In support of his submission, he relied upon the decision of CCE, Kanpur v. Concrete Udyog Ltd.: MANU/CE/0830/2010 : 2012 (280) E.L.T. 296 wherein penalty was imposed on the Director under Rule 26 of Central Excise Rules, 2002 as the Director failed to maintain statutory records properly.
5. I have considered the submissions made by both the parties. I find that in the impugned order, the penalty has been imposed under Rule 25 read with Section 11AC without determination of duty which is not permissible in law. As in this case no duty was determined as per the provisions of Section 11A(10) which is required to be determined if penalty under Section 11AC is to be imposed. Further, I also find that the Revenue has not investigated the case properly and no evidence has been brought on record which can prove the allegation that the appellant was issuing cenvatable invoices without the supply of material. The present case is not a case of non-payment, short-payment or non-levy or short-levy of duty, therefore the imposition of penalty under Rule 25 read with Section 11AC of Central Excise Act is not warranted. No doubt Shri A.P. Venkateshwaran who is the Director of Finance and Accounts has admitted in his statement that there is mixing of various grades and also admitted the shortage of quantity but has stated that the same was not with intent to evade payment of duty. Therefore, keeping in view the facts, I am of the opinion that the imposition of penalty under Rule 25 read with Section 11AC is not imposable in the absence of determination of duty. Therefore I set aside the penalty under Rule 25. Since the Director has admitted that they have not maintained the record properly and there is inter mixing of material of one grade with another grade and they have not been able to establish one to one correlation of the invoices and this shows that they have not maintained proper statutory records and therefore they are liable to be penalised under Rule 27 instead of Rule 25 & 26. Therefore, I impose penalty of Rs. 5,000/- each on both the appellant under Rule 27 and set aside the penalty imposed under Rule 25 on the appellant No. 1 i.e. Tulsyan NEC Ltd. and under Rule 26 on A.P. Venkateshwaran, Director, therefore both the appeals are disposed of accordingly.
(Order was pronounced in Open Court on 04/11/2016.)
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