2016 (6) TMI 1014 - AT - Central Excise

Clandestine removal of goods - figures of stock reported in their financial accounts (3 CD Returns) filed with the Income Tax authorities were different from stocks reported in their RG-1 register. - no stock verification has been done nor any evidence of clandestine clearance has been recorded. - Held that - The entire case has been booked on the mismatch between the figures reported in 3CD returns filed with Income Tax authorities and the RG-1 register and there has been no physical verification of stock. There is no evidence of any clandestine clearance being made. Moreover the criteria for recording stocks as per the standards of ICAI and Income Tax are different from the criteria for recording stocks under Central Excise law. - Revenue failed to prove its case - Demand set aside - Decided in favor of assessee.

Summary

Issues: Allegation of clandestine clearance based on stock discrepancies between financial accounts and RG-1 register. Interpretation of stock reporting criteria under accounting principles and Central Excise law. Application of Rule 49(1) and Rule 3 for duty demand. Lack of physical stock verification by Revenue.

Analysis:
1. The case involved M/s Lubrizol India Pvt. Ltd., a manufacturer of chemicals, facing duty demands for alleged clandestine clearance due to discrepancies in stock figures between their financial accounts and RG-1 register. The Revenue issued show-cause notices for multiple financial years, leading to an appeal before the Tribunal.

2. The appellant's argument emphasized the distinction in stock recording criteria between accounting principles and Central Excise law. They explained the differences in stock quantities for each year, highlighting that rejected and scrapped quantities were included in the excess inventory, leading to incorrect duty demands. The appellant also stressed the lack of physical stock verification by Revenue and the absence of evidence supporting clandestine clearance allegations.

3. The Revenue, represented by the Learned AR, relied on Rule 49(1) and Rule 3 to justify the duty demand, asserting that no proof of clandestine clearance was necessary under Rule 49(1). The requirement for maintaining proper daily stock accounts under Rule 3 was also cited to support the demand.

4. The Tribunal noted the absence of stock verification or evidence of clandestine clearance, with the Revenue's case solely based on discrepancies between 3CD returns and the RG-1 register. Citing a previous case, the Tribunal emphasized the need to consider all types of stock and the differences in stock reporting standards under different laws. The Tribunal concluded that without physical verification and evidence, the duty demand based on stock discrepancies was unjustified.

5. Relying on the precedent set by the Tribunal and affirmed by the Supreme Court in a similar case, the Tribunal set aside the impugned order and allowed the appeal. The decision highlighted the importance of considering the different criteria for stock reporting under various laws and the necessity of physical verification before alleging clandestine clearance based on stock differences.