2016 (11) TMI 474 - AT - Central Excise

100% EOU - clandestine removal - shortage of materials - goods found short in their premises were transferred to the present appellant s premises on account of same being moth infected, the excess found in the present appellants case, cannot be held as liable to confiscation - Held that - The shortages found during the relevant period are in respect of yarn and polywool etc. which are to the tune of small fractional percentage of the total stock. It stand held in number of decisions that shortages in the raw material itself cannot lead to inevitable conclusion of clandestine removal of the final product, in the absence of any further evidence on record. In the present case, I find that apart from the shortages, there is no evidence to show that clandestine production and removal of final product. It is only a marginal small percentage shortage in the stock of raw material, I find no justifiable reason to upheld the impugned orders confirming the demand of duty on the finding of clandestine removal. Accordingly, the impugned order is set aside and appeal allowed with consequential relief to the appellant.

Summary

Issues:
1. Duty demand and penalty imposition due to shortages detected in the appellant's factory.
2. Confiscation of excess found goods in the appellant's factory.
3. Comparison with a similar case involving another company, M/s. Uniworth Ltd., and the decision by the Tribunal in that case.
4. Confirmation of Central Excise duty on shortages in the appellant's factory.
5. Lack of evidence supporting clandestine removal of final products due to shortages in raw materials.
6. Applicability of legal precedents in cases of shortages in stock and allegations of clandestine removal.

Analysis:

1. The appellant, a 100% Export Oriented Unit engaged in fabric manufacture, faced duty demand and penalty imposition due to shortages detected during a visit by officers. The lower authorities demanded duty and imposed penalties, leading to the present proceedings.

2. Confiscation of excess found goods in the appellant's factory was ordered, with an option for redemption on payment of a fine. However, a simultaneous search at another unit of the same appellant revealed similar shortages, which were later linked to excess found in another company's premises.

3. The Tribunal's decision in a related case involving M/s. Uniworth Ltd. highlighted discrepancies in shortage detection and the subsequent transfer of goods between units. The Tribunal concluded that the shortages were not genuine, leading to the setting aside of duty demands and penalties.

4. Central Excise duty on shortages in the appellant's factory, mainly related to yarn and wool wastage, was confirmed. The appellant argued that the shortages were minimal and attributed to conditioned weight variations, especially in hygroscopic wool.

5. Despite the confirmed shortages, the lack of evidence linking the raw material shortages to the clandestine removal of final products without duty payment led to the rejection of duty demands. Legal precedents were cited to support this argument, emphasizing the need for substantial evidence beyond stock shortages to prove evasion.

6. Legal precedents, including decisions from Punjab and Haryana, Allahabad High Court, and various Tribunal cases, were referenced to support the appellant's stance. These cases highlighted that shortages in raw materials alone do not necessarily indicate clandestine removal of final products without proper evidence. The Tribunal found the small percentage shortages insufficient to uphold duty demands based on allegations of clandestine removal, ultimately allowing the appeal with consequential relief to the appellant.