2010 (7) TMI 1002 - AT - Central Excise

Shortage of goods found during stock verification - the case of the department is made out on the basis of unretracted statement of Shri J.Balaji, Manager of the assessee-company and the mahazar, clearly showing shortage - assessee s case is that no proper physical verification was conducted and therefore the shortage cannot be ascertained - Held that - The evidence on record is sufficient to come to the conclusion that there was shortage which was not accounted in the statutory records viz. RG.1 Register of the assessees thus justifying the duty demand together with interest - penalty imposed is set aside as this is, admittedly, not a case of clandestine removal of goods by the assessees but only a case of shortage detected during physical verification - appeal allowed - decided partly in favor of Revenue.

Summary

Issues: Duty demand, interest under Section 11AB, penalty under Section 11AC, shortage of goods during stock verification.

Analysis:

1. Duty Demand and Interest under Section 11AB:
The adjudicating authority had confirmed a demand of Rs. 4,40,097 under Section 11A, along with interest under Section 11AB, and imposed a penalty of an equal amount under Section 11AC of the Central Excise Act, 1944, due to a shortage of goods found during stock verification. The Commissioner (Appeals) set aside this order, leading to an appeal by the Revenue. The Tribunal found that the department's case was supported by the unretracted statement of the company's Manager and the mahazar, which clearly indicated the shortage. Despite the defense claiming improper physical verification, the Tribunal noted that the mahazar, signed by the Manager, recorded the shortage without any contradiction in cross-examination. The evidence, including statements from Central Excise officials, supported the conclusion that there was a shortage not accounted for in the statutory records, justifying the duty demand and interest.

2. Penalty under Section 11AC:
The Tribunal, however, set aside the penalty imposed under Section 11AC. It distinguished this case from clandestine removal situations, emphasizing that the shortage was detected during physical verification and not due to intentional removal of goods. Citing a precedent (Gaurang Alloys & Iron Ltd Vs CCE Ranchi), the Tribunal held that in the absence of evidence of clandestine removal, no penalty could be imposed under Section 11AC. Therefore, the penalty was overturned, as the case did not involve clandestine removal but rather a shortage discovered during verification.

3. Conclusion:
Ultimately, the Tribunal partly allowed the appeal by upholding the duty demand along with interest, while setting aside the penalty under Section 11AC. This decision was made after considering the evidence presented, the lack of proof of clandestine removal, and the specifics of the case at hand. The judgment was dictated and pronounced in an open court, providing a clear resolution to the issues raised in the appeal.