2012 (12) TMI 767 - AT - Central Excise

Clandestine clearances of M.S. Ingots - Duty Evasion - Penalty u/s 11AC Held that - Duty evasion of Rs. 2,49,079/- is based on shortage of 77 M.T. of M.S. scrap vis-a-vis the balance recorded in the RG-23A register. The stock taking had been conducted in presence of Shri S.P. Gupta who accepted the shortage and had even debited an amount of Rs. 1,20,551/- representing the Cenvat credit availed on this quantity. In view of this, the appellant s plea that shortage was not real shortage is difficult to accept. Therefore, the duty demand of Rs. 2,49,079/- based on the presumption that the 77 M.T. of M.S. scrap found short had been used for manufacture of M.S. ingots which were cleared clandestinely without payment of duty appears to be on strong footing. The appellant have not shown the purchase of scrap/sponge iron valued at Rs. 4,43,89,566/- during November 2008 - January 2009 period is their books of account. Therefore, the department justified in presuming that this scrap/sponge iron was used in unaccounted manufacture of M.S. ingots which were cleared without payment of duty and without issue of invoicing. The fact that the appellant had declared an unaccounted income of Rs.85 lakhs for 2007-2008 to Income tax authorities also indicates that they were having substantial unaccounted sales. The presence of a truck fully loaded with scrap, found in the appellant s factory also indicated that they were purchasing M.S. scrap their principal raw material without any invoices - not a case for total waiver - directed to deposit the balance amount of duty demand i.e. Rs. 70,42,769/- alongwith interest and Shri Jiwan Singla, Director of the appellant company an amount of Rs.4,00,000/- within a period of eight weeks from the date of this order.

Summary

Issues:
Allegation of duty evasion based on clandestine clearances of M.S. Ingots, shortage of M.S. scrap, unaccounted purchases of scrap/sponge iron, imposition of penalties.

Analysis:
1. The appellant company was accused of evading excise duty by underreporting production and making clandestine clearances. The investigation revealed unaccounted purchases of scrap and sponge iron, leading to the manufacture and clearance of M.S. Ingots without paying duty. The Commissioner issued a show cause notice for recovery of duty, interest, and penalties based on the findings.

2. The appellant contended that they lacked the capacity to produce the alleged quantity of M.S. Ingots and disputed the basis of the allegations. They argued that certain payments were made through cheques and challenged the conclusion of clandestine clearances. However, the Department highlighted discrepancies found during the search, including unrecorded purchases and voluntary disclosure of unaccounted income to tax authorities in the past.

3. The Tribunal examined the evidence and upheld the duty demand related to the shortage of M.S. scrap and the unaccounted purchases of scrap/sponge iron. The entries in the recovered papers supported the Department's claim of clandestine clearances. The presence of a truck with scrap at the factory further indicated irregularities in procurement. The Tribunal found the duty evasion allegations well-founded.

4. Considering the substantial duty evasion, the Tribunal upheld the penalties imposed on the appellant company and its Director. The Tribunal directed the appellant to deposit the remaining duty demand and the Director to pay the penalty within a specified period to proceed with the appeals. The requirement of pre-deposit was waived for hearing the appeals, with recovery stayed pending appeal disposal.

5. The Tribunal's decision emphasized the seriousness of duty evasion and the need for compliance with the deposit requirements. The case was listed for further proceedings to ensure timely payment and adherence to the directives issued by the Tribunal.