1998 (9) TMI 576 - AT - Central Excise

Issues Involved:
1. Whether duty should be demanded on the alleged shortage of 126 vehicles.
2. Whether Modvat credit is available on spot welding electrodes.
3. Whether the demand is barred by limitation.
4. Whether the penalty imposed is justified.

Detailed Analysis:

1. Whether duty should be demanded on the alleged shortage of 126 vehicles:

The Appellants argued that the impugned order violated the principles of natural justice as they were not allowed to cross-examine the Superintendent of Central Excise responsible for stocktaking. They asserted that their operations were computerized, and discrepancies between the RG 1 Register and physical stock were due to manual entry errors, not actual shortages. They explained that computer-generated data, which includes chassis and engine numbers, was reliable and showed no discrepancies with physical stock. The Appellants also highlighted that vehicles internally damaged and repaired were entered twice in the RG 1 Register, causing apparent discrepancies.

The Department, however, maintained that the shortage was found based on physical verification against RG 1 Register entries, and it was the Appellants' responsibility to reconcile these discrepancies. The Department emphasized that the RG 1 Register is a statutory record and any discrepancies found therein must be explained by the Appellants.

Upon review, the Tribunal noted that computer-generated data, which includes identifying numbers, is more reliable than manually entered RG 1 Register data. Since no discrepancies were found between the computer data and physical stock, the Tribunal accepted the Appellants' argument that manual entry errors could account for the discrepancies. The Tribunal decided to set off the excess of 56 vehicles against the shortage of 126 vehicles, resulting in a net shortage of 70 vehicles. Consequently, the Tribunal upheld the demand for duty on these 70 vehicles.

2. Whether Modvat credit is available on spot welding electrodes:

The Appellants contended that spot welding electrodes should be eligible for Modvat credit, citing a Tribunal decision in the case of M/s. TELCO Ltd., which allowed such credit. They also referenced several other Tribunal decisions supporting their claim.

The Department, however, referred to a different Tribunal decision in the case of M/s. Bajaj Tempo Limited, which denied Modvat credit for spot welding electrodes.

The Tribunal, upon consideration, favored the Division Bench decision in the M/s. TELCO case over the Single Member Bench decision in the M/s. Bajaj Tempo case. The Tribunal held that Modvat credit is available on spot welding electrodes, following the precedent set by the Division Bench.

3. Whether the demand is barred by limitation:

The Appellants argued that the demand was time-barred as the discrepancies related to the period prior to 31-3-1992, and no fresh discrepancies were generated after April 1992.

The Tribunal, however, held that the limitation aspect was not applicable since the shortage was detected during physical verification. The Tribunal reasoned that there could be no explanation for the shortage occurring before the date of detection, thus rejecting the Appellants' argument on limitation.

4. Whether the penalty imposed is justified:

The Appellants argued that no penalty should be imposed as there was no case for demand of duty.

The Tribunal, after reviewing the submissions and findings, concluded that the penalty imposed was disproportionate. Consequently, the Tribunal reduced the penalty from Rs. 67,53,262/- to Rs. 5.00 Lakh.

Conclusion:

The Tribunal upheld the impugned order with modifications. The duty demand on 70 vehicles was confirmed, Modvat credit on spot welding electrodes was allowed, the limitation argument was rejected, and the penalty was reduced to Rs. 5.00 Lakh. The appeals were disposed of accordingly.

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