2017 (3) TMI 1611 - AT - Central Excise

Clandestine removal - variation in stock - method of stock taking - Held that - the stock valuation has been done by weighment of only a sample and thereafter eye estimation is made for the whole lot of the stock. In this view of the manner of stock taking, there is bound to be variation and no adverse inference could be drawn on the basis of such variation - the weighment have been done by way of eye estimation and if the proper stock taking was done and tallied with the computer records, there shall be hardly any discrepancy. The stock taking by the Revenue is defective and it has been rightly held so by the ld. Commissioner (Appeals). On such defect in stock taking, there cannot be any adverse inference is drawn against the respondent - appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Whether the goods alleged to be in excess are really in excess.
2. Whether the goods alleged to be in excess were meant for clandestine clearance and therefore liable for confiscation.
3. Whether the penalties under Rule 25 and Rule 26 of the Central Excise Rules, 2002, are imposable.

Detailed Analysis:

Issue 1: Whether the goods alleged to be in excess are really in excess.
The inspection by Preventive Officers on 22nd February 2007 revealed discrepancies in the stock of Brass Ingots, Zinc Ingots, and Brass Scrap. The method of stock taking was questioned as it was based on eye estimation and average weight, lacking precision. The Panchnama did not provide a clear method for stock taking, nor did it include an inventory sheet or unit of quantity. The Commissioner (Appeals) noted that the method used could lead to suspicion but not proof of excess stock. The Tribunal upheld this view, citing precedents that eye estimation or average weight basis is not acceptable for proving excess stock.

Issue 2: Whether the goods alleged to be in excess were meant for clandestine clearance and therefore liable for confiscation.
The appellants maintained that all goods were recorded in their computer inventories. During interrogation, the authorized signatory stated that the stock records were on the computer, but the officers did not allow them to retrieve the data. The Commissioner (Appeals) found that the appellants were not given an opportunity to explain the stock position based on computer records. Minor variations in stock were attributed to the method of stock taking. The Tribunal agreed that without precise stock taking and evidence of preparations for clandestine removal, the charge of clandestine clearance could not be sustained. The goods found within the factory were not liable for confiscation.

Issue 3: Whether the penalties under Rule 25 and Rule 26 of the Central Excise Rules, 2002, are imposable.
Since the charge of confiscation failed, the penalties on the appellants under Rule 25 were deemed unwarranted. The penalty on the General Power of Attorney Holder under Rule 26 was also found to be unjustified as the charges against the appellants were not sustainable. The Tribunal upheld the Commissioner (Appeals)'s decision to set aside the penalties.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the Commissioner (Appeals)'s order that the stock taking was defective, and the goods were not liable for confiscation. Consequently, the penalties imposed were also set aside, and the respondents were entitled to consequential benefits in accordance with the law.