2014 (6) TMI 620 - AT - Central Excise

Demand of duty - Incomplete RG-1 Register - shortage of physical stock of final product - Seizure of goods - Held that - red diary seized has not been challenged; its recovery has not been challenged; the original adjudicating authority had made specific observations about parallel invoices and at least in the case of one customer viz. M/s. Prakash Tyre Works, Kolhapur, there is no challenge to the observation that there were parallel invoices; other specific instances brought out by the original adjudicating authority have also not been challenged. The above facts brought out would show that neither side has been able to show as to what exactly is the quantum of clandestine removal. The assessee should have submitted a statement showing the exact quantity in the red diary which was shown as cleared as per statutory records and arrived at the quantum of differential duty which they have not done. Department also in spite of the statement of Shri Mustafa Khan that certain portion of the red diary have been cleared on payment of duty and further he was not admitting the entire clearances in red diary as clandestine removal, no efforts have been made to quantify the exact quantum of tread rubber cleared without payment of duty. In such a situation, both sides have failed to make out a case in their favour in accordance with their submissions - It will be unfair on my part to either uphold the entire demand or to adjourn the matter for further quantification in view of the fact that the case relates to the year 1995-96 and the matter is coming before this Tribunal for second time. Under these circumstances, keeping the total amount involved for consideration and the facts as discussed above, in my opinion, it would be appropriate if the assessee is required to pay the duty on the quantity found short at the time of visit of the officers - Decided partly against assessee.

Summary

Issues involved:
1. Alleged shortage of physical stock of final product.
2. Allegations of clandestine removal and suppression of production and clearance of tread rubber.
3. Limitation period for issuing show cause notice.
4. Demand of duty based on assumption and presumption.
5. Verification of red diary entries and statements of customers.
6. Confirmation of duty demand and final decision.

Analysis:

1. Alleged shortage of physical stock of final product:
The Department visited the factory premises and found a significant discrepancy between the physical stock available and the balance stock as per the RG1 register. Various statements were taken from parties/customers regarding purchases of tread rubber, highlighting inconsistencies in invoices and quantities received. The Manager of the Appellant denied any shortage and explained discrepancies in the RG1 register, stating that the remaining quantity was in a semi-finished stage. The Department issued a show cause notice alleging a shortage of stock and possible clandestine removal.

2. Allegations of clandestine removal and suppression:
The Department alleged suppression of production and clearance of tread rubber based on discrepancies in the red diary recovered from the factory. The Appellant's counsel argued that the demand was based on assumptions without proper verification or admission of duty evasion. The Manager expressed willingness to pay duty on quantities from the red diary not reflected in statutory records. Both sides failed to quantify the exact quantum of clandestine removal, leading to a lack of clarity on the actual amount involved.

3. Limitation period for issuing show cause notice:
The Appellant claimed the show cause notice was time-barred, citing the completion of investigation before the notice was issued. However, the Tribunal rejected this argument, emphasizing that the relevant factor is the suppression of facts, not the completion of the investigation, based on a previous High Court decision.

4. Demand of duty based on assumption and presumption:
The Appellant's counsel challenged the demand of duty, arguing that it was based on assumptions without concrete evidence of evasion. The lack of verification with statutory records and absence of admissions regarding duty payment for quantities in the red diary raised doubts about the validity of the demand.

5. Verification of red diary entries and statements of customers:
The red diary entries and statements from customers were crucial in determining the alleged clandestine removal. The Department highlighted observations of parallel invoices and unchallenged instances of irregularities, while the Appellant's failure to provide a clear statement on the red diary quantities added to the ambiguity. Both sides lacked sufficient evidence to support their claims.

6. Confirmation of duty demand and final decision:
Considering the complexity of the case and the lack of definitive evidence on either side, the Tribunal decided to confirm a duty demand of Rs.13,487 for the quantity found short during the visit. The decision aimed to provide a fair resolution given the prolonged nature of the case and the uncertainties surrounding the alleged clandestine removal.

This detailed analysis covers the key issues raised in the legal judgment, outlining the arguments presented by both parties and the Tribunal's decision based on the available evidence and legal precedents.