2016 (3) TMI 661 - AT - Central Excise

Duty demand for alleged shortage in stock - penalty imposed under Section 11 AC - Held that - Panchanama is silent as to the manner of stock taking. Thus at best, it is a matter of eye estimation made by the inspection team. Thus hold that on the basis of such eye estimation, no conclusion of shortage can be drawn against the appellant. In this view of the matter, the whole proceeding is vitiated. Thus, set aside the impugned order and allow the appeal in favour of assessee

Summary

Issues:
1. Duty for alleged shortage in stock confirmed.
2. Penalty imposed under Section 11 AC of the Central Excise Act, 1944.
3. Appeal against order in appeal dated 23/02/2010.

Analysis:
1. The appellant, a manufacturer of M.S. Ingots and M.S. Bars & TMT bar, appealed against an order confirming duty for an alleged shortage in stock amounting to Rs. 17,05,019, with penalties imposed under relevant sections. The inspection revealed a shortage in stock, and the appellant's Director accepted the manner of stocktaking but attributed the variation to oversight or clerical error. The duty on the shortage was deposited subsequently. The show cause notice was issued based on the inspection, alleging clandestine removal of goods without duty payment. The appellant contended that the stock verification was unreliable due to the large area and high stock volume, leading to only eye estimation. The appellant argued against the charge of clandestine removal, stating it was based on presumptions without substantial evidence.

2. The appellant challenged the order before the Tribunal, highlighting the lack of proper stock verification and reliance on eye estimation. The appellant referenced a High Court ruling supporting the need for substantial evidence to prove clandestine removal. It was argued that the shortage of finished goods did not automatically imply evasion of excise duty, especially without evidence of clandestine removal. The appellant also noted the regular duty payments despite the alleged shortage, suggesting potential double duty payment. The revenue, however, maintained its stance based on the appellant's admission and duty payment, asserting the clandestine removal conclusion.

3. Upon considering the arguments, the Tribunal found the stock verification lacking proper methodology, being based on eye estimation. Consequently, the Tribunal ruled that no conclusion of shortage could be drawn against the appellant. The entire proceeding was deemed flawed due to the unreliable stock verification. As a result, the impugned order was set aside, and the appeal was allowed, entitling the appellant to consequential relief as per the law.