Archana Wadhwa, Member (J)

1. Both the appeals are being disposed off by a common order as they are directed against the same impugned order passed by the authorities below vide which duty of Rs 1,13,331/- has been confirmed against the first appellants along with imposition of personal penalty of identical amount under the provisions of Section 11AC of the. In addition, personal penalty of Rs 15,000/- has been imposed upon the second appellant, the director of M/s. J.K. Pharma under Rule 209A of Central Excise Rules.

2. The said duty has been confirmed on the finding of shortage of modvatable inputs as also clandestine clearances of finished products detected by the officer during the course of visit in the appellants factory on 04.01.1999 Out of above amount, duty of Rs 43,789/- is on account of clandestine clearances of finished products.

3. Shri Prakash Shah, Ld. Advocate appearing for the appellants does not dispute the confirmation of demand of duty. However, he submits that the entire duty having been paid before the issuance of the show cause notice, no penalty could be validly levied on the appellants under Section 11AC in terms of the Larger Benchs decision of the Tribunal in the case of Commissioner of Central Excise, Delhi-III, Gurgaon v. Machino Montell (I) Ltd, reported in . In any case submits the Ld. Advocate that the penal provisions are not attracted when the modvatable inputs are cleared after correctly availing the modvat credit of duty paid on the same. The relevant provision of rule 57-I (4) were applicable only in case of wrong taking of modvat credit. Inasmuch as the credit availed in the present case originally was in accordance with the law, even the said rule cannot be pressed into service. The said rule was subsequently amended in 2002 when even the wrong utilization of the credit was made on offence to be met with penalty. For the above proposition, reliance is placed upon the Tribunals decision in the case of Punjab Communications Ltd. v. Commissioner of Central Excise, Chandigarh, reported in 2002 (145) ELT 301 (Tri.-Del) laying down that modvat credit not taken wrongly at the time of receipt of inputs, penalty and interest is not imposable in terms of the provisions of erstwhile Rule 57-I (4) & (5) of Central Excise Rules, 1944.

4. Ld. Dr appearing for the revenue submits that inasmuch as it is a case of clandestine removal of the goods, the appellant is definitely liable to imposition of penalty and the Tribunals decision in the case of Machino Montel (I) Ltd, will not apply. He referred to another decision of the Tribunal in the case of CC & CE Indore v. S P Tobacco Pvt Ltd, & Naveen Jhanjee, MD, reported in wherein it was observed that imposition of penalty has nothing to do with the timing of show cause notice and the mere fact that after detection of the case by the revenue, the appellants have paid the duty immediately thereafter will not make him free from the charge of removing the goods without payment of duty.

5. After considering the submissions made by both the sides, I find that duty of Rs 39,635/- and Rs 29,912/-, out of the total duty demand of Rs 1,13,331/- is on account of the inputs cleared by the appellants without reflecting their clearance in statutory records and after taking modvat credit of duty paid on the same. The appellants are not contesting the above demands inasmuch as their authorized representative in his on the spot statements has admitted that the inputs were removed after availing the credit. Admittedly, the provisions of Section 11AC are not applicable in such a situation. Rule 57-I (4) prevalent at the revenue point of time provided for imposition of penalty if the modvat credit was taken wrongly at the time of receipt of the goods. It is the appellants case that the credit was taken correctly and it is only thereafter the inputs were removed. The said provisions were amended subsequently and Rule 57 AH (ii) provided for imposition of penalty when the credit was either taken or utilized wrongly. On comparing the two provisions un-amended as well as amended it becomes clear that wrong utilization of credit was not liable to penalty at the relevant time. However, provisions of rule 173Q (bb) provide for imposition of penalty in case the inputs are not utilized in the manner provided for in the rules. Admittedly, the inputs were received for using in the appellants factory but after taking the credit, the same were removed, as such, without reversing the credit. As such, I am of the view that the appellants having contravened the provisions of law with intent to be unduly benefited at the cost of the exchequer, attract penalty. As such, I an of the view that no penalty could be imposed upon the appellants for removal of the inputs.

6. As regards the penalty imposed for clandestine removal of finished goods, the appellants has relied upon the Machino Montel (I) Ltd, judgement. As observed by the Tribunal in the above referred case of S P Tobacco Pvt. Ltd., & Naveen Jhanjee, MD, the mere fact that the assessee paid the entire amount of duty, when the offence of clandestine removal was detected by the revenue would not be sufficient so as to not to impose any penalty upon him. The same may be a mitigating factor for reducing the quantum of penalty. I also note the Honble Allahabad High Courts decision in the case of Pee Aar Steels (P) Ltd. v. Commissioner of Central Excise, Meerut reported in rejected the assessees contention that since the duty was paid prior to issuance of show cause notice penalty should not be imposed. As such. I am of the view that the appellants is liable to penalty for clandestine removal of the final product as also of the modvatable inputs. However, keeping in view the quantum of duty of Rs 43,000/- approximately was deposited immediately, I reduce the penalty to Rs 25,000/- (Rupees twenty five thousand only) and set aside the penalty imposed upon the Director under the provisions of Rule 209A.

7. In a nutshell, the quantum of duty is confirmed against the appellants as not contested. Penalty on the first appellant is reduced to Rs 25,000/- (Rupees twenty five thousand only) and the penalty on the second appellant is set aside.