2016 (5) TMI 606 - AT - Central Excise

Clandestine removal of goods - Levy of duty alongwith interest - deposited tax on the stock found short - Appellant contended that valuation of stock was on estimation basis and there is bound to be a variation - Held that - the method of valuation adopted being in the nature of estimation/approximation, there is bound to be some variation. Further, it is found that the balance difference in the weight of ingots is approximately 10%, which I consider normal variation and no adverse inference can be drawn. So far as the difference in the stock of MS TMT Bars is concerned, it is found that the difference is more than 10%. Accordingly, 10% variation as normal is allowed, but over and above 10%, in absence of cogent explanation, I hold that the assessee is liable to duty on the same. Period of limitation - Held that - in view of the difference of more than 10% in the stock of MS TMT Bars and for want of cogent explanation, the extended period of limitation is applicable and invokable. Imposition of penalty - Rules 25,27 of CER, 2004 read with Section11AC of the Act - Held that - so far as the penalty is concerned under Rule 26, in absence of any confiscation of goods and in absence of any evidence of clandestine removal except a strong presumption, penalty is set aside. Penalty under Rule 27 is confirmed. - Decided partly in favour of appellant with consequential relief

Issues:
Levy of duty, penalty under Central Excise Rules, stock verification methodology, discrepancy in stock records, show-cause notice, clandestine removal, extended period of limitation, appeal against Commissioner's decision, method of stock valuation, penalty imposition, variation in stock records, applicability of penalty rules.

Detailed Analysis:

1. Levy of Duty and Penalty:
The appellant, a manufacturer of various steel products, appealed against the levy of duty, penalty, and interest on alleged clandestine removal of goods found short during a stock verification inspection. The duty amount, penalty under Rule 25 of Central Excise Rules, and penalty under Rule 27 were contested by the appellant.

2. Stock Verification Methodology and Discrepancy:
During the inspection, the stock of different steel products was verified, with discrepancies found in the stock records for M.S.TMT Bars, M.S.Angles, M.S.Channel, and M.S.Ingot. The appellant contested the show-cause notice, arguing that the stock valuation was based on estimation, leading to variations. The appellant explained discrepancies in stock records due to the method of estimation and differences in stock counting.

3. Clandestine Removal Allegation and Extended Period of Limitation:
The Revenue alleged clandestine removal of finished products based on unexplained shortages in stock. The extended period of limitation was invoked as the show-cause notice was issued more than a year after the inspection. The Commissioner upheld the demand, citing the presumption of clandestine removal due to stock shortages.

4. Appeal Against Commissioner's Decision:
The appellant appealed to the Tribunal, arguing that variations in stock records were normal due to estimation methods. The appellant relied on previous tribunal rulings to support the contention that stock discrepancies do not necessarily indicate clandestine removal. The appellant also cited a Supreme Court case regarding the limitation period for duty demands.

5. Penalty Imposition and Tribunal Decision:
The Tribunal considered the method of stock valuation and discrepancies in stock records. A 10% normal variation was allowed, but duty liability was imposed for discrepancies exceeding 10% without a satisfactory explanation. The extended period of limitation was deemed applicable. The penalty under Rule 26 was set aside due to lack of evidence, while the penalty under Rule 27 was confirmed.

6. Conclusion:
The Tribunal partially allowed the appeal, granting relief to the appellant based on the variation in stock records and the method of valuation. The appellant was entitled to consequential benefits as per the law. The Tribunal's decision addressed the issues of duty liability, penalty imposition, stock verification discrepancies, and the applicability of the extended period of limitation.

This detailed analysis covers the key legal aspects and arguments presented in the judgment, providing a comprehensive understanding of the case and its implications.

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