COMMISSIONER OF CENTRAL EXCISE Vs. UNITED CHEMICAL INDUSTRIES

JUDGEMENT

(1.) THE Respondent are manufacturers of Zinc Oxide for which Zinc Dross is the main input. The Respondent are availing the benefit of CENVAT credit of duty paid on inputs used in the manufacture of final product under the provisions of CENVAT Credit Rules, 2004. On 25 -7 -2006, the factory premises of the Respondent were visited by the Jurisdictional Central Excise Officers and the same were searched in the presence of two panch witnesses, in course of which the stock of the finished goods and raw materials in respect of which CENVAT credit had been taken, was checked on stock checking shortage was found in the stock of both, CENVATed raw material as well as finished goods. The shortage of Zinc Dross in respect of which CENVAT credit has been taken was 17.5 M.T. involving duty of Rs. 1,04,244 and the shortage of finished goods Zinc Oxide was 5 M.T. involving the Central Excise Duty of Rs. 99,552. Thus, the total duty involved on the finished goods and the inputs found short was found Rs. 2,03,796. On being asked about the shortage, Shri Sudhir Kumar Garg, partner of the Respondent unit, in his statement dated 25 -7 -2006 admitting the shortage, stated that the goods found short had been cleared from the factory premises without any invoice and without payment of duty and he promised to pay duty on the same. The duty on the CENVATed inputs and finished goods found short was paid on 5 -8 -2006. Subsequently a show -cause notice was issued for demand of duty on the goods found short and for the appropriation of the amount of Rs. 2,03,796 already paid towards this demand. The show -cause notice also sought imposition of penalty on the Respondent under Rule 25 of Central Excise Rules, 1944 as well as Section 11AC of the Central Excise Act and Rule 15 of Central Excise Rules, 2004 read with Section 11AC of the Central Excise Act.

(2.) HEARD both the sides.

(3.) THE Respondent, however, plead that in view of Hon'ble Delhi High Court's judgment in the case of K.P. Pouches (P.) Ltd. (supra), the Respondent should be given the benefit of first proviso to Section 11AC and accordingly penalty equal to 25 per cent of the duty should be imposed instead of penalty equal to the duty amount confirmed. In this case the shortage has been detected on 25 -7 -2006 and the duty/CENVAT credit involved on the finished goods/inputs found short had been paid on 5 -8 -2006 and show -cause notice had been issued after this. Thus, as such, the entire amount of duty had been paid and since the duty had been paid by the due date, there was no question of interest which has not even been demanded. Since the entire amount of duty had been paid prior to the issue of show -cause notice, in accordance with the ratio of Hon'ble Delhi High Court in the case of K.P. Pouches (P.) Ltd (supra) the adjudicating authority in accordance with the provisions of first proviso to Section 11AC should have extended the option of payment of reduced penalty to the Respondent within the stipulated period. But since this option was not extended, in accordance with the judgment of Hon'ble Delhi High Court, the benefit of the first proviso to Section 11AC cannot be denied and accordingly the penalty imposed on the Respondent is reduced to 25 per cent of the duty demand.