2016 (2) TMI 945 - AT - Central Excise

Shortage in stock of finished goods - MS Ingots - clandestine removal - Held that - I hold that in the facts and circumstances and the valuation method adopted by the inspection team there is bound to be variation of the stocks value determined with the book records. Further the contention of the appellant that they record production on estimated weight basis and actual weighment of the ingots is done only at the time of removal have not been found to be untrue. In the case of MS Ingots the variation in the physical quantity of MS Ingots and book records is about 15% and in the case of sponge iron is about 11%. Such variation is considered to be normal in the facts and circumstances. Accordingly I hold that no case of clandestine removal of finished goods and raw material is made out. CENVAT credit - Held that - it is evident from the statement recorded on the date of inspection that there is no element of mala fide in taking of credit. Accordingly no penalty is imposable for the same. Levy of interest - Held that - following the ruling of Hon ble Karnataka High Court in the case of CCE Bangalore v. Bill Forge Pvt. Ltd. 2011 (4) TMI 969 - KARNATAKA HIGH COURT I hold that interest is not payable on the amount of credit so reversed which was not utilized before reversal. Accordingly I remand to the Adjudicating Authority on this. If it is found that the appellant have utilized any part of Cenvat credit during the period the credit was lying available interest for such user will be payable. Appeal disposed off - decided partly in favor of appellant.

Summary

Issues involved:
1. Shortage of stock of finished goods and raw materials.
2. Alleged clandestine removal of goods.
3. Admissibility of Cenvat credit and reversal of the same.
4. Imposition of penalties under relevant rules.

Detailed Analysis:

1. The appellant contested a show cause notice regarding shortages in the stock of finished goods and raw materials. The appellant argued that the method of valuation based on estimated weight at production and actual weighment at sale resulted in normal variations of about 15% for MS Ingots and 11% for sponge iron. The appellant denied any clandestine removal and attributed discrepancies to normal operational processes. The show cause notice was adjudicated, confirming the demand and imposing penalties under relevant provisions.

2. The appellant appealed to the Commissioner (Appeals), who upheld the order. The appellant then appealed to the Tribunal, citing precedents where valuation based on approximate methods was deemed prone to error and not indicative of clandestine removal. The appellant argued that discrepancies were due to operational practices and not intentional misconduct. The appellant also contended that penalties were unwarranted as no actual clandestine removal was proven.

3. The Revenue, represented by the Authorized Representative, supported the impugned order, asserting that the appellant failed to provide plausible explanations for the shortages during the inspection. The Revenue highlighted the appellant's deposit of the tax differentials as an admission of liability.

4. Upon considering the arguments, the Tribunal found that the valuation method used by the inspection team naturally led to variations with book records. The Tribunal accepted the appellant's explanation regarding the normal variations in stock quantities for MS Ingots and sponge iron. It concluded that no evidence supported the allegation of clandestine removal. Regarding Cenvat credit, the Tribunal noted the absence of malice in its initial taking and reversed immediately upon discovery of error. The Tribunal held that no penalty was warranted for the Cenvat credit issue. The Tribunal also addressed the interest on the reversed Cenvat credit, remanding the matter for verification and potential payment if the credit was utilized before reversal.

In conclusion, the Tribunal allowed the appeal, setting aside the impugned order except for the interest payable on the reversed Cenvat credit, which was to be verified and demanded accordingly. The Tribunal's decision was pronounced on 11-2-2016.