2012 (9) TMI 739 - CGOVT - Central Excise

Demand of duty and penalty shortage of various grades of lubricating oils manufactured by assessee and packed in unit containers Held that - Argument that the conversion loss was noticed only at the time of annual stock taking is a fallacy and therefore it cannot be accepted. The applicants did not produce any scientific literature or authentic evidence from authorized agency to prove that vagaries of weather or viscosity can induce/cause loss or shortages on lubricating oil - assessable value which is based on the packing quantities of each grades varies for packing quantities of different grades and even varies for different packing quantities under the same grade and as such the shortages found in packed lubricating oil of different grades and packing quantities cannot be adjusted with the excess found in another set of different grades and packed quantities especially when all these were packed goods which were entered in the statutory daily stock register as manufactured excisable goods, on which duty is chargeable demand of duty and penalty upheld

Summary

Issues Involved:
1. Shortage of excisable goods and duty liability.
2. Condonation of losses due to natural causes.
3. Applicability of previous judgments and circulars.
4. Adjustment of excess quantities against shortages.

Detailed Analysis:

1. Shortage of Excisable Goods and Duty Liability:
The applicants, holding Central Excise Registration, reported a shortage of 10,562.774 liters of lubricating oils during annual stock checking. They declared these shortages in their ER-1 returns but did not provide reasons or discharge the duty liability. The adjudicating authority construed that the goods were removed without payment of Central Excise duty, violating Rule 4 and Rule 8 of Central Excise Rules, 2002. Consequently, a duty amounting to Rs. 1,20,954/- was deemed recoverable, and a show cause notice was issued.

2. Condonation of Losses Due to Natural Causes:
The applicants argued that the shortages were due to natural causes such as storage and handling losses, which should be condoned per the C.B.E. & C. Circular dated 30-4-1971. However, the Government observed that the lubricating oil was packed in unit containers and entered in the RGI register, making natural loss claims implausible. The records did not indicate day-to-day losses, and the losses detected during annual stock taking could be attributed to clandestine removal. Furthermore, the conversion from one grade to another without Central Excise permission was deemed baseless.

3. Applicability of Previous Judgments and Circulars:
The applicants cited various judgments and circulars to support their case. However, the Government found these references inapplicable:
- The C.B.E. & C. Circular dated 30-4-1971 pertains to base oil in bulk, not unit containers.
- Judgments like Jenson & Nicholson (I) Ltd., Amitabh Textile Mills, and Bajaj Oil Industries were not applicable as they dealt with different contexts such as input shortages, processing losses, and production losses, respectively. The applicant's reliance on an order-in-original from their own case was also dismissed as it pertained to bulk quantities, not unit containers.

4. Adjustment of Excess Quantities Against Shortages:
The applicants claimed that excess quantities observed during stock taking should be adjusted against the shortages. They argued that various grades of lubricating oils are compatible and can be re-branded or re-processed to meet market requirements. However, the Government noted that the excess quantities were not reflected in the stock register or ER-1 returns. The Commissioner of Central Excise had previously allowed condonation of 0.1% net shortages after adjusting excess quantities, but this rationale was not accepted in the current case due to the specific context of unit containers.

Conclusion:
The Government found no infirmity in the impugned order-in-appeal and upheld the duty demand and penalty imposed by the adjudicating authority. The revision application was rejected as devoid of merit, affirming the decision that the shortages could not be condoned and the duty liability was valid.