2016 (7) TMI 1029 - AT - Central Excise

Clandestine removal of goods - shortage of goods - Central Excise conducted stock verification of raw materials and finished goods - Held that - apart from the allegation of shortage based on estimation, no other corroborative evidence is presented to show that possible clandestine manufacture, clearance, transport or buyers of such goods. - Demand set aside - Decided in favor of assessee.

Summary

Issues:
- Duty demand based on stock verification of goods
- Allegation of clandestine removal
- Admissibility of shortage by the appellant
- Legal sustainability of duty demand

Analysis:
The judgment revolves around an appeal against a Commissioner (Appeals) order confirming a duty demand and penalty imposed on the appellant for shortages of H.B. wires during stock verification. The appellant contested the demand on various grounds. Firstly, they argued that the stock verification was based on estimation, not actual weighment, and hence, no duty should be demanded on rough estimations. Secondly, the appellant's Director did not admit to any shortage or unaccounted clearance of goods during questioning. Thirdly, the appellant maintained records for over a decade without irregularities, and the officers did not verify semi-finished goods during the stock check. Additionally, the appellant highlighted the lack of evidence supporting the alleged unaccounted clearance of goods. They also relied on precedents to emphasize that a mere shortage of raw materials does not prove clandestine removal.

The respondent supported the lower authorities' findings, stating that stock taking was witnessed and agreed upon by the appellant's Director, making it their responsibility to explain the shortages. The main issue for decision was the correctness of the duty demand based on stock verification. The tribunal noted that the stock taking was done by averaging the weight of wire bundles, leading to a rough estimation due to weight variations. The tribunal also observed that the appellant did not admit to the shortages during questioning. Referring to legal precedents, the tribunal concluded that without corroborative evidence of clandestine activities such as manufacture, clearance, transport, or buyers, the demand based on estimation alone could not be sustained. Citing relevant case laws, the tribunal held that the demand lacked the necessary collaboration to prove clandestine removal. Consequently, the impugned order was set aside, and the appeal was allowed.