2004 (7) TMI 455 - AT - Central Excise

Summary

Issues:
Appeal against duty demand upheld by Joint Commissioner based on shortage of physical stock compared to Modvat record, penalty confirmed, appellant's case of maintaining records to show loss in process, volatile nature of inputs, lack of evidence for clandestine removal.

Analysis:
The appeal was directed against the order-in-original confirming a duty demand of Rs. 4,67,125 against the appellants due to a shortage of physical stock of inputs compared to the Modvat record, discovered during annual stock verification. The Joint Commissioner upheld the demand, alleging clandestine removal of the equivalent quantity of inputs found short, imposing a penalty corresponding to the duty demand. The appellant contended that showing the entire quantity of inputs issued for manufacture would negate the denial of credit, as loss in process does not necessitate duty reversal. They argued that the system of maintaining records reveals the physical stock loss and without tangible evidence of removal outside the factory, the demand should not have been issued.

During the proceedings, the appellant listed the volatile nature of the inputs involved, emphasizing that the loss could be attributed to evaporation during manufacturing operations. They highlighted the insignificance of the shortage compared to the overall volume of inputs received and consumed, indicating that the loss due to evaporation is plausible given the nature of the products. The appellant stressed the absence of independent corroborative evidence to support the allegation of clandestine removal, underscoring the need for substantiation in such cases.

After considering the arguments presented, the Tribunal found that the case of clandestine removal of inputs lacked substantial evidence. Given the volatile nature of the inputs and the absence of independent corroboration, the Tribunal concluded that the allegation was not well substantiated. Consequently, the appeal was allowed, and the orders of the lower authorities were set aside, providing relief to the appellant against the duty demand and penalty imposed.