2008 (9) TMI 663 - AT - Central Excise

Demand - Clandestine removal - Stock taking - Penalty - different methods for accounting - HELD THAT - During the stock verification the method followed is volumetric calculation method. Based on the volume and density the weight is calculated. Thus we find that different criteria are adopted for estimating the pig iron for different purposes. Therefore in the very nature of the accounting there is bound to be difference. Unless it is shown that the appellants had cleared the goods without payment of duty in a clandestine manner or in other words unless there is evidence to show that there is clandestine clearance this type of demand of duty is not sustainable. The Commissioner referred to the C.B.E.C. Circular No. 4/73/70-CX.6 has been reproduced. In any case the longer period is clearly not invocable and since different basis are adopted for estimate the production consumption clearance stock taking etc. the discrepancy between the stock taking figures and the production figures which are accounted should not immediately lead us to the conclusion that the difference has been removed clandestinely. All the case-laws decided earlier by this Bench are clearly applicable. The longer period also is not invocable. Therefore the duty demand cannot be sustained. The penalty imposed is also not justified. Hence we allow the appeal with consequential relief.

Summary

Issues:
Appeal against Order-in-Original regarding duty demand, interest, and penalty on iron and steel products. Discrepancies in stock takings for multiple financial years. Applicability of Proviso to Section 11A of Central Excise Act. Adherence to accounting methods and stock verification procedures. Invocation of longer period for duty demand and penalty imposition.

Analysis:
The appeal challenges the Order-in-Original concerning duty demand, interest, and penalty on iron and steel products due to discrepancies in stock takings for various financial years. The appellants, iron and steel manufacturers, faced duty demands based on excess and shortage of products revealed during stock takings without prior intimation to Central Excise Officers. The Revenue proceeded with a show cause notice demanding duty amounting to Rs. 76,21,639, confirmed by the Commissioner under Proviso to Section 11A of the Central Excise Act, with interest and equal penalty under Section 11AC imposed. The appellants contested, arguing different accounting methods for production, clearance, and stock takings, leading to discrepancies. They emphasized that unless evidence of clandestine clearance exists, such duty demands are not sustainable.

The Commissioner referred to a C.B.E.C. Circular addressing issues faced by the iron and steel industry, allowing certain relaxations for major steel plants. The Circular highlighted concerns related to daily adjustment of duty in the PLA, machine numbering on dispatch-cum-invoices, production account maintenance, annual stock-taking procedures, submissions of R.T. 12 and R.T. 5 returns, and weight of raw materials transferred within the factory. The Circular aimed to streamline procedures and address practical challenges faced by steel plants in maintaining accurate records and conducting stock takings effectively.

In the analysis, the Tribunal noted previous cases where discrepancies in stock takings were attributed to errors in initial balances and physical stock, emphasizing the limitations of estimates in determining actual stock. The Tribunal cited precedents where demands of duty based on discrepancies found during stock takings were not sustainable without evidence of clandestine removal. The Tribunal highlighted practical difficulties in estimating stock accurately due to various factors like production processes, weighment methods, and accounting practices, leading to inherent inaccuracies in stock figures. The Tribunal concluded that the duty demand and penalty imposition were unwarranted, allowing the appeal with consequential relief.

The Tribunal differentiated Single Member Bench decisions relied upon by the Revenue from Division Bench decisions favoring the department, emphasizing that discrepancies in stock figures should not immediately imply clandestine removal. The Tribunal reiterated that the longer period for duty demand was not justifiable, considering the varied estimation methods used for production, consumption, clearance, and stock takings. Based on previous rulings and the specific circumstances of the case, the Tribunal found the duty demand unsustainable and the penalty unjustified, ultimately allowing the appeal with consequential relief.