2014 (3) TMI 202 - AT - Central Excise

Shortage in the stock of Cenvat credit availed of raw materials - physical verification of stock - clandestine clearance - Held that - In case of Cenvat credit availed inputs, if there is huge unexplained shortage, vis- -vis the balance recorded in RG-23A register, the same can be either due to clandestine removal of cenvated inputs without payment of duty or due to fraudulent availment of Cenvat credit on the basis of bogus invoices without actual receipt of the goods covered under those invoices. In both the case the burden of proving that such shortage of finished goods or of cenvated inputs is due to bonafide reasons would shift to the assessee. The respondent while accepting the fact of these shortage have not given any explanation for the same other than stating that the same may be due to improper stock keeping. In my view, the explanation given by the respondent for these shortages is not satisfactory and therefore the same are to be treated as due to clandestine removal of cenvated inputs and accordingly penalty under Rule 15 (2) of Cenvat Credit Rules, 2004, readwith Section 11AC of the Act would be attracted. Levy of penalty u/s 11AC confirmed - penalty under Section 11AC would be 25% of the duty demand if the same is deposited by them within a period of 30 days from the date of receipt of this order. - Decided in favor of revenue.

Summary

Issues:
1. Shortage of raw materials and finished goods during stock taking.
2. Imposition of penalty under Rule 15 (2) of Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944.

Analysis:
1. The judgment addresses the issue of shortage of raw materials and finished goods during stock taking at the appellant's factory. The Central Excise officers found a shortage of various raw materials, including CR sheets, HR sheets, Brass Sheets, Channels, and C.R. Tubes, resulting in a duty demand of Rs. 2,00,344/-. The appellant accepted the shortage, attributing it to improper maintenance of records. The Commissioner (Appeals) upheld the shortage but did not impose a penalty as the duty had been paid before the show cause notice. The Revenue filed an appeal seeking imposition of a penalty.

2. The main contention revolved around whether the shortage of raw materials should be considered as clandestine removal warranting a penalty under Rule 15 (2) of Cenvat Credit Rules, 2004 read with Section 11AC. The Revenue argued that the shortage, admitted by the appellant, without a satisfactory explanation, indicated possible clandestine removal. They cited a Supreme Court judgment to support the imposition of a penalty under Section 11AC. On the other hand, the appellant contended that mere shortages did not prove clandestine removal and referenced tribunal and high court judgments supporting their position.

3. The Tribunal analyzed the evidence and legal precedents to determine whether the shortage of raw materials was due to clandestine removal or other reasons. It noted the significant shortages of CR sheets, HR sheets, Channels, and C.R. Tubes, with the appellant providing an unsatisfactory explanation for the discrepancies. The Tribunal held that the shortages were likely due to clandestine removal of cenvated inputs or fraudulent availment of Cenvat credit. Consequently, the imposition of a penalty under Rule 15 (2) of Cenvat Credit Rules, 2004 read with Section 11AC was deemed appropriate.

4. The Tribunal set aside the impugned order waiving the penalty and directed that a penalty equal to 25% of the duty demand would apply if deposited within 30 days. Failure to comply within the specified timeframe would result in the imposition of the normal penalty equal to the duty demand. The Revenue's appeal was thus disposed of, upholding the imposition of a penalty for the shortage of raw materials deemed as potentially resulting from clandestine removal.