2012 (5) TMI 325 - AT - Central Excise

Shortage in manufactured goods - clandestine removal - held that - apart from the shortages, which are also contested by the assessee, inasmuch as there was no proper stock taking, there is no evidence showing the manufacture of the goods and their clearances without payment of duty. The clandestine removal being a positive act, the burden of proving the same is on the Revenue and cannot be discharged on the basis of conjectures and assumptions. - Decided in favor of assessee.

Summary

Issues:
- Discrepancy in physical stock of M.S. Ingots
- Duty demand and penalty imposition
- Commissioner (Appeals) order setting aside duty demand and penalty
- Allegations of clandestine removal

Discrepancy in physical stock of M.S. Ingots:
The case involved a discrepancy in the physical stock of M.S. Ingots found during a stock checking conducted by Central Excise Officers at the factory premises of the respondents. The recorded balance did not match the physical stock, resulting in a shortage of 43.197 MT, leading to a duty demand of Rs.117461/-. The Authorised Signatory of the company could not provide a satisfactory explanation for the shortage, attributing it to staff carelessness. The Commissioner (Appeals) accepted the respondent's contention that the alleged shortage was not real, as the stock verification was based on eye estimation without proper physical weighment. The absence of precise verification methods raised doubts about the accuracy of the shortage claim.

Duty demand and penalty imposition:
Following the discrepancy in stock, a show cause notice was issued, leading to the confirmation of duty demand, interest imposition, and penalty under Section 11AC by the Deputy Commissioner. However, on appeal by the respondent, the Commissioner (Appeals) set aside the duty demand and penalty, emphasizing the lack of concrete evidence to support the allegations. The Commissioner highlighted that the charges of clandestine removal required substantial proof beyond mere shortages, and the burden of proving such allegations rested with the Revenue.

Commissioner (Appeals) order setting aside duty demand and penalty:
The Commissioner (Appeals) ruled in favor of the respondent, emphasizing the need for precise verification of stock shortages and dismissing eye estimation as a reliable method. The order stressed that the mere admission of shortages did not equate to actual discrepancies without proper physical weighment. Citing previous tribunal decisions, the Commissioner rejected the Revenue's claims based on conjectures and assumptions, asserting that clandestine removal allegations required concrete evidence, which was lacking in this case.

Allegations of clandestine removal:
The judgment highlighted the seriousness of allegations regarding clandestine removal and the necessity for substantial evidence to substantiate such claims. The absence of evidence linking shortages to unauthorized removal of goods led to the rejection of the Revenue's appeal. The judgment emphasized that the burden of proof for clandestine removal rested on the Revenue, and the discrepancies in stock alone could not establish the occurrence of such actions without concrete substantiation. The respondent's denial of involvement in clandestine activities further weakened the Revenue's case.

In conclusion, the judgment upheld the Commissioner (Appeals) decision, rejecting the Revenue's appeal due to the lack of substantial evidence supporting the duty demand and penalty imposition based on the discrepancies in physical stock. The judgment emphasized the importance of precise stock verification methods and the necessity for concrete proof to establish allegations of clandestine removal.