2015 (9) TMI 1530 - CGOVT - Central Excise

Shortage in stock of molasses - storage loss - demand of duty - whether shortage detected during stock taking was actual shortage and whether applicant can claim shortage detected to be storage loss due to natural causes? - Held that - The shortage due to storage loss if any is not reflected in returns. If there was a storage loss at all the applicant as per general industry practice should have approached the jurisdictional Central Excise Authorities for remission of duty. Government here finds that it is an undisputed fact that the applicant has not informed about the shortage of molasses to the jurisdictional Superintendent and has neither filed an application under Rule 21 of the Central Excise Rules, 2002 with the jurisdictional authorities nor made any claim for such remission. If it were a case of storage loss the applicant should have approached the jurisdictional Central Excise Authorities and it would have also reflected in their records and returns. The matter is that pertaining to the non-payment of duty on the quantity of molasses found short and not a case of loss of goods due to storage loss. Hence the instant case does not fall with the purview of ambit and scope of provisions contained for Section 35EE read with proviso to Section 35B(1) of the Central Excise Act, 1944 under which the instant revision application has been made. The revision application filed before Central Government in terms of Section 35EE of Central Excise Act, 1944 is beyond jurisdiction - revision application dismissed for being non-maintainable.

Issues Involved:
1. Demand of Central Excise duty on shortage of molasses.
2. Imposition of penalty under Rule 25 of Central Excise Rules, 2002 read with Section 11AC of Central Excise Act, 1944.
3. Legitimacy of storage loss due to natural causes.
4. Jurisdiction of the revision application under Section 35EE of Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Demand of Central Excise duty on shortage of molasses:
The applicant, engaged in the manufacture of sugar and molasses, was found to have a shortage of 119.962 MT of molasses during a preventive check by Central Excise officers on 27-9-2009. The shortage involved Central Excise duty amounting to Rs. 92,671/-. The applicant's Deputy Manager (Commercial) could not provide satisfactory reasons for the shortage but agreed to it and voluntarily deposited the duty. A Show Cause Notice was issued for violating multiple rules of the Central Excise Rules, 2002, and demanding the duty amount.

2. Imposition of penalty under Rule 25 of Central Excise Rules, 2002 read with Section 11AC of Central Excise Act, 1944:
The Assistant Commissioner confirmed the demand of Rs. 92,671/- and imposed an equivalent penalty. However, the Commissioner (Appeals) set aside the penalty while upholding the duty demand. The Commissioner (Appeals) found no evidence of clandestine removal of goods, thus negating the applicability of Section 11AC and the associated penalty.

3. Legitimacy of storage loss due to natural causes:
The applicant argued that the shortage was due to natural causes such as evaporation, which is supported by the C.B.E. & C. Circular allowing up to 2% storage loss in steel tanks. The storage loss in this case was 0.39%, well below the permissible limit. The applicant cited several judgments supporting the remission of duty for storage losses due to natural causes. Despite these arguments, the Commissioner (Appeals) confirmed the duty demand, relying on a distinguishable judgment from the Allahabad High Court.

4. Jurisdiction of the revision application under Section 35EE of Central Excise Act, 1944:
The revision application was filed under Section 35EE, which allows the Central Government to annul or modify orders of the Commissioner (Appeals) if they pertain to specific cases such as loss of goods during transit or storage. The Government observed that this case involved non-payment of duty on goods found short, not a loss during storage. The applicant did not inform the jurisdictional authorities about the shortage or file for remission under Rule 21. Consequently, the Government found the revision application beyond its jurisdiction and dismissed it as non-maintainable. The applicant was advised to file an appeal before the appropriate authority under Section 35B.

Conclusion:
The Government dismissed the revision application for being non-maintainable under Section 35EE, as the case did not pertain to a loss of goods during storage but rather to non-payment of duty on goods found short. The applicant was directed to seek recourse under Section 35B of the Central Excise Act, 1944.

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