2016 (5) TMI 1196 - AT - Central Excise

Clandestine removal of goods - Shortage of quantity of MS ingots and MS bar - Demand of duty and imposition of penalty - Section 11 AC of the Act - Contravention of provisions of rules 4 6 8 10 and 11 of the CER 2002 - Held that - it is found that there is discrepancy in the manner of stock taking. Such manner of stocktaking can give only an estimation and an approximate result. Based on such an approximate calculation which is in the nature of eye estimation no adverse inference can be drawn against the appellant. It is further evident that the statement recorded of the director on 19/6/08 was recorded in the dead of the night and as such no reliance can be placed on any admissions made in such a statement which can not be said to be freely given. It also indicates the high handedness adopted by the inspection team during the course of inspection and recording of statement. I further hold that deposit of tax does not amount to admission on the part of the appellant. The appellant have neither shown or admitted clearance in the subsequent returns and nor have admitted any clandestine removal categorically. On being questioned pointedly for the alleged shortage it was stated by the Director the production figures are reported by the person who is not much educated and as such there are discrepancies due to inadvertence. It further found that revenue have not brought any incidence or corroboration as to clandestine removal of the finished goods. Therefore the impugned order is set aside. - Decided in favour of appellant with consequential relief

Summary

Issues:
1. Discrepancy in stocktaking process
2. Allegation of clandestine removal of goods
3. Admissibility of statements recorded during inspection
4. Imposition of duty and penalty

Analysis:

Discrepancy in stocktaking process:
The case involved an appeal against the order passed by the Commissioner of Central Excise appeals, Allahabad, regarding a discrepancy found during an inspection at the appellant's factory. The stock of finished goods of MS ingots and MS bars was estimated due to the impracticality of actual weighment. The appellant contested the manner of stocktaking, arguing that the estimation method was prone to errors and discrepancies. The appellant highlighted the variations in the weight of MS ingots and bars due to their shapes and sizes, emphasizing that less than 1% of the stock was actually weighed. The Tribunal acknowledged the deficiencies in the stocktaking process and concluded that no adverse inference could be drawn based on such approximate calculations.

Allegation of clandestine removal of goods:
The Revenue alleged that the appellant surreptitiously cleared final products without paying appropriate duty, leading to the discrepancy in stock. However, the appellant denied any clandestine removal and argued that the deposit of tax was made under pressure from the inspection team. The Tribunal noted the absence of evidence supporting the allegation of clandestine removal and emphasized that no actual shortage was proven. Relying on legal precedents, the Tribunal held that shortage of finished goods alone cannot establish clandestine removal without concrete proof.

Admissibility of statements recorded during inspection:
The statements recorded from the appellant's director during the inspection were crucial in the case. The appellant raised concerns about the reliability of the statements recorded late at night, suggesting coercion and undue influence. The Tribunal agreed that statements made under such circumstances could not be considered freely given. It highlighted the director's explanation regarding discrepancies in production figures due to the lack of education of the reporting personnel, indicating inadvertent errors rather than intentional wrongdoing.

Imposition of duty and penalty:
The appellant contested the imposition of duty and penalty under section 11 AC for contravention of certain provisions. The Tribunal found that the appellant had not admitted to any clandestine removal or clearance of goods in subsequent returns. It concluded that the deposit of tax did not amount to an admission of guilt. Considering the lack of concrete evidence supporting the Revenue's claims and the deficiencies in the stocktaking process, the Tribunal allowed the appeal, setting aside the impugned order and granting consequential relief to the appellant.

In conclusion, the Tribunal ruled in favor of the appellant, emphasizing the importance of proper evidence and procedures in determining duty liabilities and penalties in excise matters.