2007 (6) TMI 359 - AT - Central Excise

Demand - Shortage of inputs - Held that - there is no evidence on record corroborating the Revenue s stand that the modvatable input has either been utilized by them in clandestine manufacture of the final product or the same has been cleared from the factory. The Revenue is relying upon the statement of director which is only to the fact that the visiting officers have found shortage in the stock and nowhere admits that the said scrap stands cleared by them after availing the Modvat credit - Commissioner (Appeals) has rightly concluded that the shortages are psudo and not real - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Detection of shortage of M.S. scrap during physical verification.
2. Denial of Modvat credit and imposition of penalty.
3. Appeal against the order passed by the Commissioner (Appeals).

Issue 1: Detection of shortage of M.S. scrap during physical verification
The visiting officers detected a shortage of 500 MT of M.S. scrap during a physical verification at the factory. The assessee initially deposited a partial amount and later paid the balance. The director admitted the shortages but attributed them to burning loss and discrepancies in weighing procedures. Statements of relevant personnel were recorded. Subsequently, a show cause notice was issued proposing denial of Modvat credit for the shortages found.

Issue 2: Denial of Modvat credit and imposition of penalty
Proceedings were initiated based on the show cause notice, resulting in the confirmation of demand, interest, and penalty on the respondent and its director. The Commissioner (Appeals) set aside the order, accepting the respondent's explanation that the short duration of officers' visit was inadequate for weighing the large quantity of scrap. He concluded that shortages determined visually could not be considered real, especially after scrutinizing the statutory records maintained by the respondent.

Issue 3: Appeal against the order passed by the Commissioner (Appeals)
The appellate tribunal reviewed the Commissioner (Appeals)'s detailed findings and noted the absence of evidence supporting the Revenue's claim that the Modvat input was misused or cleared without proper accounting. The tribunal agreed with the Commissioner (Appeals) that the shortages were not genuine, emphasizing the lack of corroboration for Revenue's assertions. The tribunal rejected the Revenue's appeal, highlighting the Commissioner (Appeals)'s correct assessment that the shortages were not substantiated and were deemed pseudo rather than real.

This judgment revolves around the detection of a shortage of M.S. scrap during physical verification, leading to proceedings for the denial of Modvat credit and imposition of penalties. The Commissioner (Appeals) overturned the initial order, emphasizing the inadequacy of the verification process to accurately determine shortages. The tribunal upheld the Commissioner (Appeals)'s decision, noting the lack of evidence supporting Revenue's claims and affirming that the shortages were not genuine. The judgment underscores the importance of proper record-keeping and the need for substantial evidence to establish claims in excise matters.