2011 (9) TMI 930 - AT - Central Excise

Clandestine removal - stock of copper pipes to the extent of 1567.25 kgs. in ready to dispatch condition was found in excess than the recorded balance in RG-1 register - whether the copper pipes found in excess than the recorded balance at the time of visit of the officers are to be confiscated and penalty imposed? Whether the Modvat credit availed by the appellant in respect of copper foils was in accordance with the law or not?

Summary

Issues Involved:
1. Confiscation of excess found copper pipes and imposition of penalty.
2. Denial of Modvat credit on copper foils and related penalties.

Issue-Wise Detailed Analysis:

1. Confiscation of Excess Found Copper Pipes and Imposition of Penalty:

The appellants did not dispute the fact that the copper pipes found in excess were not recorded in the RG-1 register. The Managing Director explained that the entry could not be made due to the clerk's absence. The adjudicating authority did not accept this explanation, noting that the excess production was around 7 days, while the clerk was on leave for only 2-3 days. The adjudicating authority concluded that the unaccounted production indicated an intent to remove the goods clandestinely.

However, the appellants argued that if the goods were meant for clandestine removal, they would have been removed within that period instead of being kept in the factory. The Tribunal, in several cases, has held that mere non-entry of production in the RG-1 register is not proof of intent for clandestine removal unless there is evidence reflecting such intent. The Tribunal cited cases like C.C.E., Rajkot v. M/s. Amrut Ceramics and M/s. Shree Precoated Steel v. C.C.E., Pune, which supported the appellants' stance that non-entry alone does not justify confiscation without additional evidence of intent to remove goods clandestinely.

The Tribunal concluded that the confiscation of goods was not justified and set aside the redemption fine of Rs. 1 lakh and the penalty of Rs. 36,360/-. However, it was made clear that the appellant is liable to pay duty on the goods when cleared after making the necessary entry in the RG-1 record.

2. Denial of Modvat Credit on Copper Foils:

The adjudicating authority denied the Modvat credit on copper foils on two grounds: the high cost of copper foils making their use in manufacturing copper pipes commercially unviable, and the Managing Director's admission that credit was taken based on invoices without actually receiving the foils. The adjudicating authority compared the purchase price of copper foils with the sale price of copper pipes and concluded that using copper foils for manufacturing copper pipes was economically unfeasible.

The appellants countered that they used other raw materials like copper waste and scrap along with copper foils. They provided a chart showing the cost of final products, including labor charges, and argued that they made some profits on the sale of copper pipes. They also highlighted that payments to suppliers and transporters were made by cheque, and the copper foils were duly entered in their records and sent to job workers for processing.

The Tribunal agreed with the appellants, noting that the adjudicating authority failed to consider that the pipes were not made exclusively from copper foils. The Tribunal emphasized the lack of investigation from the supplier's end, transporters, and job workers. The Tribunal found that the documentary evidence provided by the appellants, including statutory records, job work challans, and payment records, outweighed the sole statement of the Managing Director. The Tribunal concluded that the denial of credit was based on assumptions and presumptions without substantial evidence and set aside the order denying the Modvat credit and imposing penalties.

Separate Judgments Delivered:

The majority decision, as per Member (Judicial) and the Third Member, set aside the demand of Rs. 20,74,449/- and related penalties, allowing the credit of copper foils. The excess found copper pipes were deemed liable for confiscation, but the redemption fine was reduced to Rs. 25,000/-. The penalties on the Director were also set aside.

The dissenting opinion by Member (Technical) upheld the denial of Modvat credit and related penalties, emphasizing the Managing Director's admission and the economic unfeasibility of using copper foils for manufacturing pipes.

Conclusion:

The Tribunal, by majority decision, allowed the appeals, setting aside the demand and penalties related to Modvat credit on copper foils, while upholding the confiscation of excess found copper pipes with a reduced redemption fine.