2017 (2) TMI 426 - AT - Central Excise

Storage loss - Time limitation - whether the period of limitation prescribed u/s 11A is not applicable to a situation contemplated u/r 223A? - Held that - The issue is no more res-integra in view of the decision of the larger bench of the Tribunal in the case of Rourkela Steel Plant vs. Commissioner of Central Excise, Bhubaneswar 2008 (5) TMI 47 - CESTAT, KOLKATA . In that case the larger bench held that Section 11A and Rule 223A deal with different situations and that the period of limitation prescribed under section 11A is not applicable to a situation contemplated under Rule 223A. Therefore, the limitation under section 11A of the Central Excise Act, 1944 would not be applicable under Rule 223A of the erstwhile Central Excise Rules, 1944 - matter is remanded to the Commissioner (Appeals) to decide on merits after observing the principles of natural justice - appeal allowed by way of remand.

Summary

Issues:
1. Appeal against impugned order on limitation.
2. Application of Rule 223A for stock verification.
3. Shortage of finished and semi-finished products.
4. Estimation-based stock verification.
5. Interpretation of Section 11A and Rule 223A.
6. Decision based on merits.

Analysis:

1. Appeal Against Impugned Order on Limitation:
The Revenue appealed against the lower appellate authority's order, which allowed the assessee's appeal based on the show cause notice being issued after the prescribed six-month period. The Commissioner (Appeals) set aside the impugned order on limitation.

2. Application of Rule 223A for Stock Verification:
The respondent argued that Rule 223A cannot be invoked as stock verification was conducted by the respondents themselves, and the departmental officers only associated with it. The demand based on estimated quantity without actual weighment was contested. Citing precedent, it was emphasized that demand under Rule 223A should not be made without evidence of clandestine clearance.

3. Shortage of Finished and Semi-Finished Products:
Regarding the shortage of finished and semi-finished products, the advocate highlighted that the weight of semi-finished materials is based on theoretical weight due to the hot condition and processing stages. Shortages in saleable materials were explained within acceptable norms, attributing variations to production methods and inherent yield percentile ratios.

4. Estimation-Based Stock Verification:
The respondent contended that discrepancies between physical stock and RG-1 were due to estimation practices followed by SAIL units, where actual weighment was not conducted. Comparing two estimations was deemed inherently inaccurate.

5. Interpretation of Section 11A and Rule 223A:
The Commissioner (Appeals) referred to the relevant date for limitation under Section 11A, emphasizing that duty becomes payable on the date of stock taking under Rule 223A. The Tribunal's decision clarified that the limitation under Section 11A does not apply to situations under Rule 223A.

6. Decision Based on Merits:
The Tribunal set aside the Commissioner (Appeals)'s order on limitation, stating that Section 11A's limitation does not apply to Rule 223A situations. The matter was remanded to the Commissioner (Appeals) for a decision on merits after observing principles of natural justice, disposing of the Revenue's appeal accordingly.

This judgment clarifies the application of rules for stock verification, limitations under Section 11A, and the necessity to decide cases on both procedural and substantive grounds, ensuring adherence to legal principles and due process.