2012 (11) TMI 826 - AT - Central Excise

Cenvat credit on the duty paid on PVC resin - denial of claim on clandestine removal - Held that - The entire case of the Revenue is based upon the shortages detected at the time of visit of officers, and statement of Shri M K Jain, their authorized representative who was a new employee to the appellant and as such, was not aware of the Central Excise procedures. He in his statement has accepted the shortages only and has nowhere admitted any clandestine activity on the part of the appellant & was not aware of the reasons for such shortages. As Revenue has not further conducted any investigation so as to find out the alleged buyers of the said raw material or final product & no questions were put to Shri Jain as to what has happened to material found short. Thus admission on the part of assessee about the short found raw material by itself is no ground for arriving at an adverse finding against the assessee. As decided in Commissioner of Central Excise Kanpur vs. Minakshi Castings 2011 (8) TMI 896 - ALLAHABAD HIGH COURT shortages of finished stock without evidence of clandestine removal cannot lead to inference of evasion of duty - in favour of assessee.

Issues involved:
Alleged shortage of PVC resin, Cenvat credit availed by appellants, confirmation of demand, imposition of penalty, retraction of statement by authorised signatory, evidence of clandestine activity, sufficiency of evidence, legal precedents on shortages of raw material, necessity of further investigation.

Analysis:

1. Alleged shortage of PVC resin and Cenvat credit availed:
The appellants, engaged in PVC pipe manufacturing, faced allegations of a shortage of 52,000 Kgs of PVC resin during a visit by officers, involving Cenvat credit of duty amounting to Rs.2,50,900. The original adjudicating authority confirmed the demand and imposed penalties, which were upheld by the Commissioner (Appeals), leading to the present appeal.

2. Retraction of statement by authorised signatory:
The appellants highlighted the retraction of the statement by the authorised signatory, explaining that the raw material in the store room was considered, while material in other parts of the factory was not accounted for. They requested verification of the entire stock, emphasizing the lack of evidence beyond shortages to prove removal or utilization of PVC resin in final products not recorded in statutory records.

3. Evidence of clandestine activity and sufficiency of evidence:
The Revenue's case relied on the shortages detected and the statement of the authorised representative, Shri M K Jain. However, Shri Jain, a new employee, only acknowledged shortages without admitting any clandestine activity. The Tribunal emphasized that mere shortages do not conclusively indicate clandestine removal, citing previous decisions. The absence of further investigation to identify buyers or missing material raised doubts about the sufficiency of evidence.

4. Legal precedents on shortages of raw material:
The Tribunal referenced past cases where shortages alone were deemed insufficient to prove evasion of duty or clandestine activities. Decisions such as Commissioner of Central Excise, Surat vs. Finornic Chemicals and Galaxy Textiles vs. CCE Vapi emphasized that admissions of shortages do not automatically lead to adverse findings against the assessee. The Allahabad High Court ruling in Commissioner of Central Excise Kanpur vs. Minakshi Castings further supported the stance that shortages without evidence of clandestine removal do not imply duty evasion.

5. Necessity of further investigation:
The Tribunal concluded that the Revenue's case lacked substantial evidence beyond shortages and the statement of the authorised representative. The absence of a comprehensive investigation to trace missing material or potential buyers weakened the Revenue's argument. Notably, the visiting officers did not conduct a thorough search of the entire factory, raising questions about the validity of the allegations.

In light of the above analysis, the Tribunal set aside the impugned orders, allowing the appeal with consequential relief to the appellant, highlighting the importance of substantial evidence and thorough investigations in cases involving alleged shortages of raw materials and duty implications.

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