2012 (2) TMI 431 - AT - Central Excise

Duty demand - Shortage in stock - Clandestine removal of manufactured goods - Held that - before coming to a firm conclusion about the shortage detected during the stock taking the nature of commodity and the method of stock taking done has to be taken into account. We find that the commodity involved in this case is accounted in RG-I register in MTs and the stock verification is done by measuring the length of the pipes and the number of the pipes by segregating the pipes into three broad categories of light medium and heavy. Thereafter weight per meter for each of the three categories are assumed and total weight of all pipes is arrived at. The basis of the standard linear density adopted is not explained. There is nothing in Panchnama to show that correctness of linear density has been verified by weighing at least sample pipes from the three categories. It is very obvious that the weight per meter depend upon the thickness. Thickness of sheets used is not recorded in Panchnama. In the absence of these critical parameters the ascertained stock as per the Panchnama is not reliable. Revenue has not been able to adduce any collateral of clandestine removal. Therefore we are of the view that the quantity ascertained in the stock taking is not accurate enough to come to the conclusion that there was manufacture of goods without accounting and clearance of such goods. We also noticed that the internal record dated 29-5-2005 shows goods cleared for despatch as on that date. It is difficult to conclude that the document indicated the physical stock of goods on that day - Decided in favour of assessee.

Summary

Issues:
1. Shortage of black steel tubes leading to demand of excise duty.
2. Method of stock taking and calculation of weight per meter.
3. Reliability of stock verification process.
4. Admissibility of evidence in proving clandestine removal.
5. Comparison with previous court decisions on similar cases.

Issue 1: Shortage of black steel tubes leading to demand of excise duty

The case involves the Appellants, manufacturers of black steel tubes, facing a demand for excise duty due to a shortage of 314.016 MTs of black steel tubes found during a stock taking exercise. The Revenue alleged clandestine removal of goods based on this shortage, leading to the duty demand and penalties under Section 11AC. The Appellants contested this demand, leading to the current Appeal.

Issue 2: Method of stock taking and calculation of weight per meter

The Counsel for the Appellants argued that the stock verification process lacked accuracy as the weight per meter for different categories of pipes was assumed without considering the thickness of the tubes. The Appellants contended that the method of calculating weight per meter was flawed as the basis for adopting standard linear density was not explained. They highlighted discrepancies in the stock verification process, including the identification of pieces without considering thickness and the absence of critical parameters like thickness of sheets used.

Issue 3: Reliability of stock verification process

The Tribunal noted that the stock verification method involved measuring the length and categorizing pipes into light, medium, and heavy, with weight per meter assumptions. However, critical parameters like thickness were not recorded, and the correctness of linear density was not verified. The Tribunal found the stock ascertained during the stock taking to be unreliable due to these deficiencies, especially as the statement from the company's representative did not conclusively explain the shortage.

Issue 4: Admissibility of evidence in proving clandestine removal

The Revenue relied on the shortage recorded during stock taking, the statement of the company's representative, and internal records indicating goods cleared for dispatch to support the allegation of clandestine removal. However, the Tribunal found that the evidence presented was insufficient to prove clandestine manufacture and removal, as there was a lack of collateral evidence supporting these claims.

Issue 5: Comparison with previous court decisions on similar cases

The Revenue cited previous court decisions where shortages led to demands for duty, but the Tribunal distinguished those cases based on critical flaws in the stock taking methods and the presence of corroborating evidence of clandestine removal. The Tribunal concluded that the benefit of doubt should go to the Appellants in this case, setting aside the duty demand and penalties imposed.

This detailed analysis of the judgment highlights the key issues, arguments presented by both parties, and the Tribunal's reasoning in reaching its decision.