2014 (4) TMI 796 - AT - Central Excise

Duty demand - Penalty - Clandestine removal of goods - Shortage of stock - Cancellation of order - Held that - apart from shortages detected by the officers at the time of their visit to the appellant s factory, there was no other evidence available on record indicating clandestine clearances of such shortages. The appellant s representative in his statement had clearly deposed that they take sponge iron to furnace by estimation only and the shortages can be on account of faulty accounting procedure. If that be so, the allegation of clandestine clearances of the produce cannot be upheld against the appellant. It is well settled that charges of clandestine removal are required to be substantiated with production of tangible and positive evidence. As regards confirmation of demand of duty of Rs.36,916/-, I find that the same is based on recovery of a parallel invoice No.70, dtd. 07.07.05 showing clearances of the goods to M/s Amba Steels. The said invoice was admittedly not entered in RG-1 register. The appellant s plea that their customer M/s Amba Steels cancelled the order and as such another invoice was issued on the subsequent date, i.e., 08.07.05, cannot be accepted in the absence of any evidence to show cancellation of the order. Even if the order was cancelled, it was obligatory on the part of the appellant to cancel invoice subsequently and intimate the deptt. accordingly. Having not done that, I am of the view that confirmation of demand in respect of clearances made to M/s Amba Steels vide invoice dtd. 07.07.05 is justified - Decided partly in favour of assessee.

Summary

Issues:
1. Duty paid scrap and sponge iron shortages
2. Clandestine clearances via parallel invoices
3. Clearances not reflected in RG-1 register
4. Confirmation of demand, interest, and penalty
5. Imposition of penalties on appellants

Analysis:

Issue 1: Duty paid scrap and sponge iron shortages
The appellant, engaged in manufacturing MS ingots and girders, faced shortages of duty paid scrap and sponge iron during a visit by Central Excise officers. The officers suspected that final products were cleared without duty payment due to the shortages. The appellant deposited the duty amount on the shortages. The Chief Accountant explained the shortages as possibly due to faulty accounting procedures, but the Revenue confirmed the duty demand based on the shortages. The Tribunal found no evidence of clandestine clearances beyond the shortages detected during the visit, emphasizing the need for tangible proof to substantiate such charges.

Issue 2: Clandestine clearances via parallel invoices
The officers discovered a parallel invoice not entered in the RG-1 register, indicating clearances to a customer. The appellant's explanation of order cancellation by the customer lacked supporting evidence. The absence of invoice cancellation and department intimation led to the confirmation of duty demand related to these clearances. The Tribunal upheld this confirmation along with interest and penalty, emphasizing the appellant's obligation to follow proper procedures even in case of order cancellations.

Issue 3: Clearances not reflected in RG-1 register
Another instance involved clearances not reflected in the RG-1 register, leading to suspicions of clandestine clearances. The Tribunal upheld the duty demand related to these clearances, as documentary evidence supported the Revenue's claims. The appellant's excuse of a new excise person's invoicing practice was deemed unsubstantiated without evidence, resulting in the confirmation of demand, interest, and penalty.

Issue 4: Confirmation of demand, interest, and penalty
The proceedings initiated against the appellants proposed confirmation of duty demands for various discrepancies, including shortages and unregistered clearances. The Addl. Commissioner's order confirmed the duty demands and imposed penalties, which were upheld in part by the Commissioner (Appeals). The Tribunal set aside the demand related to shortages but confirmed demands linked to unregistered clearances, imposing penalties accordingly. The appellants were given an option to reduce penalties by timely payment.

Issue 5: Imposition of penalties on appellants
Penalties were imposed on the appellants responsible for the day-to-day operations of the manufacturing unit. However, the penalties lacked specific allegations with evidence of their involvement in clandestine clearances. Since a significant portion of the demand against the main appellant was set aside, penalties on the other appellants were deemed unjustified and were consequently set aside. The appeals of these appellants were allowed based on this reasoning.

In conclusion, the Tribunal's judgment addressed various issues concerning duty shortages, unregistered clearances, and penalties, emphasizing the importance of concrete evidence in substantiating charges of clandestine activities and proper adherence to excise procedures.