2016 (2) TMI 200 - AT - Central Excise

Clandestine removal - whether shortages suggested by the statutory auditors of the Respondent, based on test check, can be made the basis for clandestine removal? - Held that - There is no evidence with the Revenue that the re-conciliation done by the Respondent is incorrect. There is force in the argument of the Respondent that finished goods can not be both short & excess and that such a situation can be only due to wrong recording of code numbers. There is also no evidence with the department that goods have been cleared clandestinely which is based only on presumptions & assumption. Secondly no duty can be demanded on semi finished goods. It is also not the case of the Revenue that shortages of finished goods suggested by the auditors was finally accepted by the Respondent in their balance sheet for the relevant financial year. A case of clandestine removal can not be considered to be established based only upon the statutory auditors of the Respondent made on test check basis. Accordingly, appeal filed by the Revenue is rejected - Decided in favour of assessee

Summary

Issues Involved:
Whether shortages suggested by statutory auditors can be the basis for clandestine removal, duty liability on semi-finished goods, and the applicability of case laws in the given circumstances.

Analysis:

1. Shortages Suggested by Auditors:
The appeal involved a dispute regarding shortages in finished goods detected by the Respondent's statutory auditors. The Revenue argued that these shortages indicated clandestine removal, while the Respondent contended that the discrepancies were due to wrong recording of codes and were reconciled without any actual shortages. The Adjudicating authority noted that the shortages were based on a test check and included both excess and shortages. The Respondent's argument that finished goods cannot be both short and excess due to wrong code recording was considered valid.

2. Duty Liability on Semi-Finished Goods:
The Respondent argued that no duty should be payable on semi-finished goods demanded in the show cause notice. The bench observed that no evidence existed to support the claim of excess raw material procurement or clandestine removal. The case laws cited emphasized the need for concrete evidence to establish duty liability, and the Respondent's reliance on these cases was found to be appropriate.

3. Applicability of Case Laws:
The Revenue relied on specific case laws to support their claim of clandestine removal based on shortages detected by auditors. However, the bench found that these laws were not directly applicable due to various reasons. The Respondent's argument that even if shortages were true, they represented only a minimal percentage of total production and should be ignored, was accepted based on precedent.

4. Legal Precedents and Conclusion:
The judgment referred to previous decisions emphasizing the requirement for tangible evidence to establish charges of clandestine removal. The CESTAT Delhi case highlighted that such charges must be based on concrete proof, not assumptions. The judgment ultimately rejected the Revenue's appeal, upholding the Adjudicating authority's decision that clandestine removal could not be established solely on the basis of the auditors' test check. The order in original was upheld based on settled legal principles.

In conclusion, the judgment delved into the complexities of proving clandestine removal based on audit findings, the duty liability on goods, and the relevance of case laws in the context of specific factual circumstances. The decision provided a detailed analysis of the arguments presented by both parties and applied established legal principles to reach a reasoned conclusion.