2014 (4) TMI 718 - AT - Central Excise

Demand of duty - Clandestine removal of goods - Penalty u/s 11AC - Held that - entire case of the Revenue is that during the period 2000-01 to 25.09.2003, the appellants have issued 1,94,376 Armature Assembly/shafts, but have shown the production of starter motors in their RG-I register only to the extent of 1,76,001. As such, it is their case that the balance quantity of Armature Assembly issued, stands used in the manufacture of starter motors, which were cleared without payment of duty - Apart from the said entry showing issuance of Armature Assembly in work-in-progress register, which is admittedly not a statutory register, the Revenue has neither alleged nor produced any other evidence in respect of other raw-materials which are also required for production of starter motors. It is not the Revenue s case that the appellants were buying unaccounted for cooper wire, yolk, bearings, brakes, slot insulators, laminations and commutators, which are also required for the manufacture of starter motors. In the absence of these raw-materials, it is not possible to manufacture their final product with just Armature Assemblies. Demand cannot be made on the basis of the entries made by the staff in the rough registers maintained by them without their being any corroborative evidences. Further, in the absence of any allegations as regards receipt of other raw-materials, demand cannot be confirmed on the basis of one of the inputs shown to have been received. Further, the quantum of final product calculated mathematically on the basis of receipt of one of the raw-materials and on input-output ratio cannot be held to be just and fair. By applying the above ratio of law declared by various courts in umpteen number of cases, it has to be held that the Department has not been able to establish its allegations and charges made against the appellants, especially, when the appellants have accounted for and have given explanation for each and every Armature Assembly/shaft - Decided in favour of assessee.

Issues Involved:
1. Confirmation of duty demand and imposition of penalties on M/s. Auto Gallon Industries Pvt. Ltd.
2. Allegations of clandestine manufacture and clearance of DC starter motors.
3. Discrepancies found during the stock-taking by Central Excise Preventive officers.
4. Adequacy of evidence for confirming clandestine removal allegations.

Issue-wise Detailed Analysis:

1. Confirmation of Duty Demand and Imposition of Penalties:
The authorities confirmed a duty demand of Rs.47,86,795/- against M/s. Auto Gallon Industries Pvt. Ltd., along with interest and an equivalent penalty under Section 11AC of the Central Excise Act, 1944. Additionally, penalties of Rs.1 lakh each were imposed on the Accounts Manager and General Manager under Rule 26 of Central Excise Rules, 2002.

2. Allegations of Clandestine Manufacture and Clearance:
The Revenue alleged that M/s. Auto Gallon Industries Pvt. Ltd. was involved in the clandestine manufacture and clearance of DC starter motors. The basis for this allegation was the discrepancy between the number of Armature Assemblies/shafts issued (1,94,376) and the number of starter motors recorded in the RG-I register (1,76,001). The Revenue argued that the unaccounted Armature Assemblies were used to manufacture starter motors which were cleared without payment of duty.

3. Discrepancies Found During Stock-taking:
During a visit by Central Excise Preventive officers on 25.09.2003, discrepancies were found in the stock, including 360 unaccounted Armature Assemblies and 115 kgs of copper wire waste. The appellants could not explain these discrepancies, leading to the seizure of the goods. Further scrutiny revealed discrepancies between the production slips and the RG-I register, suggesting suppressed production of starter motors.

4. Adequacy of Evidence for Confirming Clandestine Removal:
The appellants contested the allegations, arguing that not all issued Armature Assemblies resulted in the production of starter motors due to wastage, rejections, and other factors. They provided a detailed chart explaining the consumption and disposal of Armature Assemblies. The adjudicating authority accepted the possibility of rejections but still confirmed the demand based on the issued quantities.

The Tribunal found that the Revenue's case was primarily based on rough private production records and lacked corroborative evidence. The Tribunal noted that the appellants' explanation regarding the consumption of Armature Assemblies was not rebutted by the Revenue. Additionally, there was no evidence of unaccounted procurement of other raw materials required for manufacturing starter motors, nor any evidence of transportation or receipt of consideration for the alleged clandestinely removed goods.

The Tribunal cited various judicial precedents, emphasizing that allegations of clandestine removal must be supported by sufficient and positive evidence. The Tribunal concluded that the Department failed to establish its charges against the appellants, as the evidence was insufficient to confirm the demand.

Conclusion:
The Tribunal set aside the impugned orders and allowed the appeals, providing consequential relief to the appellants. The judgment highlighted the necessity of robust evidence to substantiate allegations of clandestine removal and the inadmissibility of theoretical calculations based on input-output ratios.

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