2016 (3) TMI 993 - AT - Central Excise

Demand of excise duty on account of reversal of credit on duty paid finished goods at the depot - demand of excise duty on account of shortages of raw material at the factory both for the period 1999-2000 and 2000-01 - demand time barred - Held that - The base oil being a petroleum product, its weight and volume is dependant upon temperature and density. At the time of receipt in the factory, base oil is emptied in tank and the procedure for determining the weighment is by deducting the gross amount of weight of tanker including the oil and reducing therefrom the weight of the tanker after discharging the oil considering the density and temperature. This method sometimes results into shortage or excess quantity of base oil to the extent of 1 to 2% and this is well recognized within the petroleum industry for petroleum products whereas in this case, the shortage as reported in annexure A to form 3CD during the period 2000-01 has only been to the extent of 0.6% of the total consumption which can arise on account of variation in temperature, variation in viscosity while dip reading, temperature and density at the time of measurement of stock. In this regard, the appellant referred to circular No. 55/89-CX.8 dated 15.12.1989 which provides for condonation of shortage and handling losses of petroleum products in a refinery and in the method of determining the quantities of petroleum products for the purpose of accountal in statutory excise records. Shortage of finished goods at the factory and depots is concerned, the appellant has debited the duty on its own and informed the department vide various letters dated 9.1.2000, 12.6.2000 and 13.2.2001. The goods sold from depot are excisable goods on which excise duty has already been paid and this fact has not been rebutted by the department either in the show cause notice or even in the order-in-original. Therefore, keeping in view the facts and circumstances and the evidence on record, I am of the considered opinion that the shortages found are very minor in nature, i.e. 0.6% which is well accepted in petroleum products as observed in the judgments cited above. Also find that in the show cause notice also, there is no allegation that there is clandestine removal of goods by the appellant. Further, as far as limitation is concerned, the entire demand appears to be time barred as it relates to financial year 1999-2000 and 2000-01 whereas the show cause notice was served on 26.3.2004 on the basis of shortages of raw material and finished goods as shown in form 3CD i.e. the report under the Income Tax Act, which is a statutory report and the appellant has produced the same before the audit party. - Decided in favour of assessee

Summary

Issues Involved:
1. Demand of excise duty on account of reversal of credit on duty-paid finished goods at the depot.
2. Demand of excise duty on account of shortages of raw material at the factory.
3. Allegation of suppression of facts and invocation of extended period for demand.
4. Imposition of penalty under Section 11AC of the Central Excise Act.
5. Time-barred nature of the demand.

Detailed Analysis:

1. Demand of excise duty on account of reversal of credit on duty-paid finished goods at the depot:

The appellant, engaged in manufacturing lubricating oil, regularly verified their stock of finished goods and raw materials, and debited the credit of duty on noticing shortages without department intervention. The Commissioner confirmed a demand of Rs. 37,44,287/- along with an equal penalty. The appellant argued that they cleared goods to their depot on payment of duty, and the goods stored at the depot were duty-paid. They regularly conducted stock verification at the depots and addressed any discrepancies. The Tribunal found that the goods sold from the depot were excisable and duty-paid, and this fact was not rebutted by the department. Therefore, the shortages found were minor (0.6%), which is acceptable for petroleum products, and there was no evidence of clandestine removal of goods.

2. Demand of excise duty on account of shortages of raw material at the factory:

The appellant explained that the shortages in raw materials, particularly base oil, were due to variations in weighbridge calibration, temperature, flow meter defects, and viscosity. The Tribunal acknowledged that base oil, being a petroleum product, is subject to weight and volume changes based on temperature and density. The reported shortage of 0.6% was within the acceptable range of 1-2% for petroleum products. The Tribunal referred to Circular No. 55/89-CX.8 and relevant case laws, including Bombay Dyeing & Mfg. Co. Ltd. and Tata Motors Ltd., which supported the appellant's argument that minor shortages due to handling losses and measurement variations are acceptable and do not warrant denial of credit or imposition of duty.

3. Allegation of suppression of facts and invocation of extended period for demand:

The appellant contended that there was no suppression of facts with intent to evade duty. They regularly informed the department about shortages and debited the excise duty accordingly. The Tribunal found that the appellant had been transparent in their dealings, regularly conducting stock verifications and informing the department of any discrepancies. Therefore, the extended period for demand could not be invoked as there was no evidence of suppression or intent to evade duty.

4. Imposition of penalty under Section 11AC of the Central Excise Act:

Given the findings that the shortages were minor and acceptable within the industry standards, and there was no evidence of clandestine removal or suppression of facts, the imposition of penalty under Section 11AC was deemed unwarranted. The Tribunal noted that the appellant had already paid the duty on observed shortages and had been proactive in informing the department, thus negating the basis for penalty imposition.

5. Time-barred nature of the demand:

The demand related to the financial years 1999-2000 and 2000-01, while the show cause notice was issued on 26.3.2004, beyond the one-year period from the relevant date. The Tribunal held that the demand was time-barred as the appellant had been regularly conducting stock verifications, informing the department, and debiting excise duty on shortages. The appellant's actions were transparent, and there was no suppression of material facts, thus the extended period for demand was not applicable.

Conclusion:

The Tribunal set aside the impugned order on both merits and limitation grounds, allowing the appellant's appeal with consequential relief. The shortages were minor and acceptable within industry standards, there was no evidence of clandestine removal or suppression of facts, and the demand was time-barred. The penalty under Section 11AC was also deemed unwarranted.