2015 (11) TMI 608 - AT - Central Excise

Duty demand - Clandestine clearance of goods - Shortage of goods - Held that - Department could not produce any evidence regarding clandestine removal of input said to have been found short and respondent subsequently submitted photograph which shows that heap of rejected material lying in the factory which was ignored by the department. When this discrepancy was pointed out, the department could have taken sample from said heap and ascertain what was the material this fact was intimated to the officers during the statement at least at that stage samples could have been taken. Respondent got factory surveyed by chartered engineer who had certified 8500 MT steel material mix with slag etc is lying with the factory. This vital fact was ignored by the adjudicating authority that has all the opportunity to check this fact as the material was lying as it is in the factory. The respondent got rejected material tested at chemical laboratories which has confirmed that samples contains 46.35% iron. - No infirmity in the order passed by Ld. Commissioner(Appeals) and I am with the fully agreement with his findings therefore impugned order is sustained. - Decided against Revenue.

Summary

Issues:
1. Shortage of inputs found during stock verification
2. Discrepancies in quantification of physical stock
3. Allegations of clandestine removal of raw material
4. Consideration of rejected material in stock verification
5. Adjudication based on estimation basis

Analysis:
1. The appeal was against the dropping of duty and penalty demand by the Commissioner (Appeals) in a case where a shortage of inputs was found during stock verification. The appellant, engaged in manufacturing Alloy Steel, disputed the confirmation of duty and penalty by the original authority. The physical stock verification revealed a significant shortage compared to the booked stock, leading to the issuance of a show cause notice and subsequent adjudication order confirming duty, interest, and penalties.

2. The Revenue contended that the shortage of inputs was confirmed based on physical verification, chemical tests, and the acceptance of the shortage by the Managing Director during the stock verification. However, the appellant argued that the quantification of physical stock was incorrect, emphasizing discrepancies in the calculation methodology and the consideration of sponge iron stock based on a chemical examination report.

3. The appellant further challenged the allegations of clandestine removal of raw material, presenting explanations regarding the consumption of inputs, re-melting processes, and the presence of rejected material in the factory. The appellant highlighted that the department failed to provide concrete evidence supporting the removal of the identified short raw material, and emphasized the importance of re-examining the stock and explanations provided during adjudication.

4. The consideration of rejected material in stock verification was a crucial point of contention, with the appellant arguing that certain heaps of material, despite containing iron, were not accounted for due to perceived lower iron content. The appellant's submissions, supported by a survey report from a chartered engineer and chemical analysis of rejected material, aimed to demonstrate the inaccuracies in the stock verification process.

5. The adjudication process was criticized for being based on estimation rather than actual physical weighment of goods, leading to discrepancies in the booked and physical stock. The appellant's explanations, including the reliance on production records for input consumption and the presence of rejected material affecting stock calculations, were considered valid by the Commissioner (Appeals), who detailed the findings and reasoning in support of dropping the demand. The Tribunal upheld the Commissioner's decision, dismissing the Revenue's appeal.

Overall, the judgment emphasized the importance of thorough stock verification, consideration of all relevant factors, and the need for concrete evidence to support duty and penalty demands in excise cases.