2017 (3) TMI 596 - AT - Central Excise

Inter unit transfer - clandestine removal or not - demand on the ground that the goods manufactured and stored without proper accounting in the stock register for being removed surreptitiously without payment of duty thereon - Held that - The learned Commissioner have accepted the unified nature of the two units and have granted common registration number. Further, the plausible explanation given by the appellant at the time of inspection that the goods though recorded in the RG-I register of unit I were found in unit II due to shortage of space in unit I and due to the monsoon season, have not been found to be untrue. These facts have also been stated at the first instance by the responsible officers of the appellant - there is no clandestine activity found by the Revenue calling for punitive measures - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Duty demand on finished goods found short in unit I.
2. Alleged clandestine manufacture and storage of goods in unit II without proper accounting.
3. Appropriateness of the redemption fine.
4. Correctness of the penalties imposed.

Issue-wise Detailed Analysis:

1. Duty Demand on Finished Goods Found Short in Unit I:
The appellant, a manufacturer of pesticides and chemicals, had two units (unit I and unit II) with separate registrations initially. A preventive operation on 17/06/2011 revealed a shortage of finished goods worth ?1,96,40,154/- in unit I, leading to a proposed duty demand of ?20,22,936/-. The appellant argued that the shortage in unit I matched the excess found in unit II due to clerical errors and space constraints. The Commissioner (Appeals) upheld the demand, rejecting the clerical error explanation due to the significant quantity involved, suggesting deliberate action to evade duty. However, the Tribunal found the explanation plausible, noting the commonality and interdependence of the two units, and set aside the duty demand.

2. Alleged Clandestine Manufacture and Storage of Goods in Unit II:
During the inspection, finished goods worth ?1,88,48,910/- were found in excess in unit II. The Revenue proposed confiscation, alleging clandestine manufacture and storage without RG-I register entries. The appellant explained that the goods were recorded in unit I's RG-I register but stored in unit II due to space limitations and monsoon conditions. The Tribunal accepted this explanation, noting the common registration granted by the Commissioner and the unified nature of the two units. It concluded that no clandestine activity was proven, thus setting aside the confiscation order.

3. Appropriateness of the Redemption Fine:
The Commissioner (Appeals) had reduced the redemption fine from ?47,12,228/- to ?20,22,936/-. The appellant contended that the fine was excessive and unwarranted as the goods were found within the factory premises with no evidence of attempted removal. The Tribunal agreed, noting the lack of clandestine intent and the interdependent operations of the two units, thus nullifying the redemption fine.

4. Correctness of the Penalties Imposed:
Penalties were imposed under Section 11AC of the Act and Rule 25 of CER, 2002. The appellant argued that the penalties were unjustified given the clerical errors and space constraints. The Tribunal found that the explanation for the discrepancies was plausible and there was no evidence of deliberate evasion of duty. Consequently, the penalties were set aside.

Conclusion:
The Tribunal allowed the appeals, setting aside the impugned orders, including the duty demand, confiscation of goods, redemption fine, and penalties. The appellant's explanations regarding clerical errors and space constraints were accepted, emphasizing the unified nature of the two units and the lack of evidence for clandestine activities. The appellant was entitled to consequential benefits in accordance with the law.