2017 (1) TMI 595 - AT - Central Excise

Clandestine removal - shortage of stock of yarn in the factory - Held that - the lack of authentication of opening stock in the computation of stock of yarn was described as a glaring defect in arriving at the conclusion that grey fabric had been clandestinely removed. Likewise, the input-output ratio of yarn to fabric is also asserted to be an unsubstantiated assumption. Nowhere in the records do I find any evidence to support these assumptions. Further, it was pointed out that there was an absolute absence of motive for clandestine clearance because M/s Golden Silk Mills having registered under CENVAT Credit Rules, 2002 though the manufacture of grey fabric is exempt for excise duty owing to the special measure of the option to manufacturers to pay duty on clearance of grey fabric if CENVAT credit on yarn was intended to be availed, it is contended that it would be foolish of them to contemplate clandestine removal of grey fabric which is liable to duty of 10% when duty on yarn was 24%. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Duty liability on clandestinely removed grey fabric
- Imposition of penalty under Central Excise Act, 1944
- Lack of evidence connecting individual with the manufacture
- Lack of proposal for goods to be held liable for confiscation
- Lack of authentication of opening stock in stock computation
- Absence of motive for clandestine clearance
- Legality and logic of duty and interest findings

Analysis:
The appeals involved a dispute regarding duty liability and penalties imposed on appellants against the order of the Commissioner of Central Excise. The main issue revolved around the clandestine removal of grey fabric valued at a specific amount from M/s Golden Silk Mills, leading to duty liability and penalties. The investigations highlighted a shortage of yarn stock in the factory, calculated based on production figures and consumption ratios provided by one of the appellants. The penalty was imposed on the appellant responsible for the unit's day-to-day functioning.

The Tribunal observed a lack of evidence connecting one of the appellants to the manufacture of grey fabric at M/s Golden Silk Mills. It was noted that the show cause notice did not propose goods to be liable for confiscation, a prerequisite for imposing penalties. The absence of a formal finding of liability for confiscation rendered the penalty imposition legally improper.

Additionally, the lack of authentication of opening stock and unsubstantiated assumptions regarding input-output ratios were highlighted as flaws in the computation of stock of yarn. The absence of a motive for clandestine clearance was emphasized, especially considering M/s Golden Silk Mills' registration under CENVAT Credit Rules, 2002. The logic behind evading duty when excess credit was available was questioned, casting doubt on the legality of duty and interest findings.

Ultimately, the Tribunal allowed the appeals, setting aside the impugned order based on the lack of evidence, flawed assumptions, and absence of a motive for clandestine clearance. The judgment emphasized the importance of proper findings and evidence to support duty liability and penalty impositions under the Central Excise Act, 1944.