2007 (9) TMI 158 - AT - Central Excise

Trading goods were entered in RG-1 register No any computerized records produced to prove that no any debit entry has been made in RG-1 register Duty is demandable on such clandestinely removed goods by adopting average price valuation method Interest not chargeable but penalty chargeable.

Summary

Issues Involved:
1. Shortage of spares and components.
2. Alleged clandestine removal of goods.
3. Valuation of the goods.
4. Applicability of interest under Section 11AB.
5. Imposition of penalties.
6. Violation of principles of natural justice.
7. Limitation period for demand.

Detailed Analysis:

1. Shortage of Spares and Components:
The appellants were found to have an excess of 153 pneumatic tools, a shortage of 1920 cutting tools, and a shortage of 52701 spares during an inspection by Central Excise officers. The appellants claimed that the shortage of 52701 spares was due to bought out items being mistakenly entered in the RG-1 register and later removed without corresponding debit entries. They provided detailed records, including 'C' challans, purchase invoices, and stock code numbers, to support their claim.

2. Alleged Clandestine Removal of Goods:
The department issued a show cause notice demanding duty for the shortages, alleging clandestine removal. The appellants argued that there was no evidence of clandestine removal and cited case laws stating that mere shortages do not prove clandestine removal. The Tribunal noted that the appellants failed to produce documentary evidence to support their claim that the bought out items were still reflected in the RG-1 register after June 1988. The Tribunal held that the shortage was in respect of manufactured items and considered them to have been removed clandestinely.

3. Valuation of the Goods:
The Commissioner had taken an average price of Rs. 512.70 for the manufactured spares to calculate the duty. The appellants argued that the average price should be based on bought out spares, which was significantly lower. The Tribunal upheld the Commissioner's valuation method, stating that the goods were considered manufactured items, and thus, the average price of manufactured items was appropriate.

4. Applicability of Interest under Section 11AB:
The appellants contended that Section 11AB, introduced on 28-9-1996, could not be applied retrospectively to demand interest for shortages found in 1993. The Tribunal agreed with this contention and set aside the demand for interest under Section 11AB.

5. Imposition of Penalties:
The Commissioner had imposed a penalty of Rs. 50 Lakhs under Rule 173Q. The appellants argued that there was no intention to evade duty. The Tribunal, however, upheld the charge of intention to evade duty due to the clandestine removal of goods but found the penalty excessive. The penalty was reduced from Rs. 50 Lakhs to Rs. 10 Lakhs.

6. Violation of Principles of Natural Justice:
The appellants alleged a violation of natural justice as they were not allowed to cross-examine certain Central Excise officers. The Tribunal noted that the advice from the Superintendent of Central Excise was oral and not documented. Since the Superintendent was not a relied-upon witness, his cross-examination was not necessary.

7. Limitation Period for Demand:
The appellants argued that the department was aware of their practices and could not invoke the extended period of limitation. The Tribunal did not find merit in this argument, as the appellants failed to provide sufficient evidence to support their claim.

Conclusion:
The Tribunal upheld the demand for duty on the shortage of spares, confirmed the valuation method used by the Commissioner, and set aside the interest demand under Section 11AB. The penalty was reduced to Rs. 10 Lakhs, and the confiscation of 153 pneumatic tools and the redemption fine imposed were upheld. The appeal was disposed of in these terms.