2006 (12) TMI 341 - AT - Central Excise

Summary

Issues Involved:
1. Demand of duty on castings found short on stock verification.
2. Imposition of penalties u/s 11AC and Rule 173Q.
3. Appeal by the assessee against the impugned order.
4. Appeal by the Revenue against partial confirmation of duty and penalties.

Summary:

1. Demand of Duty on Shortages:
The Commissioner of Central Excise, Chennai I Commissionerate, demanded duty on castings found short during stock verification by M/s. Ennore Foundries Ltd. (EFL). The shortages were identified during a special audit from December 1997 to February 1998, revealing discrepancies in the finished goods for the years 1993-94 to 1996-97. The internal audit branch of EFL had noted these shortages, and the Director had remarked on the accountability for a loss of Rs. 90 lakhs. The adjudicating authority confirmed a duty of Rs. 45,26,860/- after setting off an amount of Rs. 12,82,825/- for excess goods found in stock.

2. Imposition of Penalties:
Penalties were imposed u/s 11AC and Rule 173Q. The Commissioner imposed a penalty of Rs. 8,80,756/- u/s 11AC for the period from 28-9-96 and a further penalty of Rs. One lakh u/s 173Q. The Revenue appealed against the impugned order for not confirming the full duty amounts proposed in the Show Cause Notice and for not imposing penalties for the period prior to 28-9-96.

3. Appeal by the Assessee:
EFL appealed to vacate the impugned order, arguing that the shortages were due to errors in accounting at the moulding stage and not due to clandestine removal. They contended that the process involved multiple stages, and the discrepancies were due to human negligence and the incentive system for workmen. They cited various case laws to support their argument that duty was not demandable for shortages in stock.

4. Appeal by the Revenue:
The Revenue argued that the duty due on shortages should not be offset by the duty on excess goods and that both amounts proposed in the Show Cause Notice should be confirmed. They also contended that penalties could be imposed for offenses prior to the enactment of Section 11AC, citing relevant case law.

Judgment:
The Tribunal examined the statements of various personnel and found no convincing explanation for the shortages. The explanation offered in reply to the Show Cause Notice was considered an afterthought. The Tribunal dismissed the assessee's appeal, finding it devoid of merit. The Revenue's appeal was partly allowed, confirming the duty amount of Rs. 58,09,503.64 as proposed in the Show Cause Notice. The matter regarding the duty on excess goods amounting to Rs. 12,82,825/- was remanded for verification to determine if the excess goods were cleared on payment of duty.

Conclusion:
The Revenue's appeal was partly allowed, and the assessee's appeal was dismissed. The matter was remanded for limited verification regarding the clearance of excess goods on payment of duty. The order was pronounced in open Court on 11-12-2006.