2013 (5) TMI 572 - AT - Central Excise

Demand of cenvat credit/interest/penalty - physical verification of the appellant s stock Shortage was found by the department As per appellant shortages were due to the burning or handling losses - Held that - In normal accounting principles the quantity of raw material cleared from the stock is only reflected/debited in the statutory records and is not based on the end product manufactured without any record that how much quantity of raw material is consumed. Therefore shortages of raw material demanding cenvat credit and interest are required to be confirmed. So far imposition of penalty u/s 11AC is concerned it is observed that this Section was introduced in the Act w.e.f. 28.09.96 which is after the offence being committed in 1995. Thus, penalty is not attracted in this case for the period when penal provision.

Summary

Issues involved:
1. Shortage of raw materials during physical verification
2. Appellant's argument of notional shortage due to processing losses
3. Imposition of penalty under Section 11AC of the Central Excise Act

Analysis:

Issue 1: Shortage of raw materials during physical verification
The case involved a dispute regarding the shortage of raw materials found during a physical verification of the appellant's stock. The officers discovered a shortage in stock of raw materials during the verification on 16.11.95. This discrepancy led to the issuance of a show cause notice, which was confirmed by the adjudicating authority. The appeal filed by the appellants was remanded by the Commissioner (Appeals) multiple times, with subsequent confirmations by the adjudicating authority and the Commissioner (Appeals). The Tribunal had also remanded the case for a decision on the point of limitations. The main contention was that the shortages were due to processing losses, specifically a burning loss of 5% and a handling loss of 2% during the manufacturing process.

Issue 2: Appellant's argument of notional shortage due to processing losses
The appellants argued that the shortage of raw material detected by the department was not actual but rather notional. They claimed that the raw material was issued to produce a specific quantity of end products, and the recorded shortage was due to processing losses. The appellants emphasized that they had discharged their initial burden and that the department should have conducted further investigations to verify the losses claimed. They also contended that penalties under Section 11AC of the Central Excise Act could not be imposed for the period in question when the provisions were not in operation.

Issue 3: Imposition of penalty under Section 11AC of the Central Excise Act
Regarding the imposition of penalties under Section 11AC of the Central Excise Act, it was observed that this section was introduced in the Act after the offense was committed in 1995. Therefore, it was held that penalties under Section 11AC were not applicable for the period when the penal provisions were not in existence. The Tribunal partially allowed the appeal based on these findings, confirming the shortages of raw materials but rejecting the imposition of penalties under Section 11AC.

In conclusion, the judgment addressed the issues of shortages of raw materials during physical verification, the appellant's argument of notional shortage due to processing losses, and the imposition of penalties under Section 11AC of the Central Excise Act. The decision provided detailed reasoning for upholding the shortages of raw materials while rejecting the penalties under Section 11AC due to the timing of the offense in question.