2011 (1) TMI 1011 - AT - Central Excise

Shortages of inputs and finished goods - SCN issued alleging that the shortages occurred are due to the fact that the noticee failed to adopt the prescribed procedure in such manner, as he is required to do and also failed to offer any plausible explanation for the discrepancies noticed by the officers proposing the demand of duty and on shortages of raw material and finished goods - Demand, interest and penalties - Held that - In the absence of proper explanation and without corroborative evidence of removal of the goods from the factory premises of the appellants, the demand is not sustainable. Moreover, the show-cause notice also alleged that the appellants are not maintaining the statutory records in the manner prescribed under the law. In that event, the clandestine removal cannot be alleged. As it is an admitted fact that the appellants are not maintaining their records as prescribed under the law, they are liable to be penalized under Rule 27 of the Central Excise Rules, 2002 confirmed to the tune of Rs.5,000/-, otherwise the appeals of the appellants are allowed as discussed here-in-above.

Summary

Issues:
Appeal against demand, interest, and penalties on shortages of inputs and finished goods.

Analysis:
The appellants challenged orders confirming demand, interest, and penalties on shortages of inputs and finished goods. A stock taking revealed shortages, leading to a show-cause notice alleging failure to follow prescribed procedures. The appellants argued they tailored goods per purchaser's requirements, embossing the purchaser's name on finished goods. They admitted accounting lapses due to holidays, but denied clandestine removal, providing explanations for shortages. They were not allowed to cross-examine panchas during stock taking. The appellants cited case laws to support their defense.

The Department argued shortages were found during stock taking, and the appellants failed to explain them. The show-cause notice was issued after the stock taking, and the appellants denied shortages in their replies. The Department relied on case laws to support its position.

Upon examination, the Tribunal found discrepancies in the stock taking process. Inputs in the manufacturing process were not considered, and clearances made against unrecorded invoices were ignored. The appellants provided explanations and reconciliation statements, which were disregarded by lower authorities. The Tribunal distinguished cited case laws, finding them irrelevant to the present case. Lack of proper explanation and corroborative evidence rendered the demand unsustainable. The appellants were penalized for not maintaining statutory records properly.

In conclusion, the Tribunal allowed the appeals, except for confirming a penalty for inadequate maintenance of statutory accounts.