2016 (1) TMI 478 - HC - Central Excise

Clandestine removal of goods - physical shortage of finished products - reliance on statements made by the officers of the appellant company - Held that - the Tribunal had arrived at its conclusions, without properly appreciating the evidence available on record relating to the shortages and excesses found in the records of the appellant, including the internal audit. The actual audit practice of the appellant had not been considered by the appellant. The explanation submitted by the appellant, with regard to the manufacturing process and the stock taking procedure had not been appreciated by the Tribunal in its proper perspective, as there are no clear findings on the said issue. Further, there is no finding by the Tribunal, with regard to the removal of the goods, from the premises of the appellant, for the imposition of the excise duty. The conclusion arrived at by the Tribunal, relying on the statements made by the officers of the appellant company, cannot be sustained. - Matter remanded back.

Issues Involved:
1. Demand of Central Excise duty on shortages/excesses recorded by the appellant's internal audit.
2. Reversal of the Commissioner of Central Excise's order regarding excess stock correction.
3. Imposition of penalty under Section 11AC of the Central Excise Act, 1944.

Detailed Analysis:

1. Demand of Central Excise Duty on Shortages/Excesses:
The appellant, a company engaged in manufacturing Iron and Aluminium Castings, faced scrutiny during an audit by the Special Audit Department of Central Excise. The audit revealed discrepancies in the production quantities recorded, leading to a notice demanding Rs. 58,09,503.64 for shortages and Rs. 12,82,825/- for excesses. The appellant argued that the discrepancies were due to process losses and internal usage of the term "shortages" to denote differences between theoretical and actual production. The Tribunal, however, upheld the duty demand, citing a lack of convincing explanation for the shortages and excesses, and dismissing the appellant's explanation as an afterthought.

2. Reversal of the Commissioner of Central Excise's Order:
The Commissioner of Central Excise originally imposed a duty of Rs. 45,26,680/- after adjusting for excess castings. The Tribunal reversed this, stating that the Commissioner was incorrect in demanding a lesser amount than proposed in the show cause notice. The Tribunal remanded the matter for a definitive finding on whether the excess goods were cleared on payment of duty. The appellant contended that the internal audit pertained to work-in-progress, not finished goods, and that the discrepancies were negligible and related to the initial production stage.

3. Imposition of Penalty under Section 11AC:
The Tribunal confirmed the penalty imposed under Section 11AC, despite the appellant's argument that the proceedings are quasi-criminal and there was no evidence of clandestine removal. The appellant highlighted that the Commissioner of Central Excise did not allege clandestine removal in the show cause notice, and the Tribunal failed to provide cogent reasons for the penalty. The appellant also referenced Supreme Court decisions to argue that the mere affirmation of duty demand does not necessitate penalty imposition.

Conclusion:
The High Court found that the Tribunal did not properly appreciate the evidence and explanations provided by the appellant regarding the manufacturing process and stock-taking procedures. The Tribunal's conclusions lacked clear findings on the removal of goods and the reasons for imposing penalties. Consequently, the High Court set aside the Tribunal's order and remanded the matter back for a fresh hearing, directing the Tribunal to consider the records and provide an opportunity for both parties to present their cases. The appeals were allowed, and the Tribunal was instructed to expedite the proceedings.

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