2002 (7) TMI 626 - AT - Central Excise

Summary

Issues: Alleged shortage of raw material leading to duty demand and penalty imposition.

Analysis:
1. The case involves the manufacturing of Denatured Ethyl Alcohol from molasses, with a shortage of 4082.57 Qtls. of molasses discovered during a stock verification by Central Excise authorities. This shortage led to an allegation of manufacturing 81651 bulk liters of denatured ethyl alcohol without paying duty, amounting to Rs. 1,81,511/-. A show cause notice was issued to recover the duty and impose a penalty under relevant Central Excise Act provisions.

2. The party's appeal against the duty demand and penalty imposition was dismissed by the Commissioner (Appeals), Chandigarh, leading to the current appeal. The central issue revolved around the shortage of raw material, i.e., molasses, without any corresponding shortage in the final product, denatured ethyl alcohol, and the allegation of clandestine removal of the end-product without duty payment.

3. During the proceedings, it was noted that while the shortage of molasses was acknowledged, there was no evidence or admission of clandestine removal of the final product without duty payment. The Chief Chemist of the party admitted the shortage but did not provide a reason for it, leading to assumptions by the authorities regarding the unauthorized use of molasses in manufacturing alcohol without duty payment.

4. Both the original authority and the Commissioner (Appeals) concluded that the shortage of molasses could only be explained by its unauthorized use in manufacturing alcohol without paying duty. However, the appellants contested this conclusion, arguing that while they could not explain the shortage adequately, assuming clandestine clearance without evidence was arbitrary and subjective.

5. The appellate tribunal allowed the appeal by setting aside the impugned order, emphasizing that while the shortage of raw material was established, the authorities lacked concrete evidence to prove the clandestine clearance of alcohol without duty payment. The decision highlighted the need for factual evidence and adherence to legal procedures in concluding duty liabilities based on assumptions.

This detailed analysis covers the issues of duty demand and penalty imposition based on an alleged shortage of raw material, the legal proceedings, the arguments presented by both parties, and the final decision of the appellate tribunal setting aside the impugned order.