2017 (3) TMI 779 - AT - Central Excise

Investigation - short stock during stock taking - Clandestine removal - Penalty - Held that - To establish a case of clandestine manufacture there must be some positive evidence in the form of unaccounted procurement of raw materials, excess consumption of electricity, identification of buyers of clandestinely manufactured goods, identification of transporters transporting such goods to buyers, receipt of unaccounted cash against sales of such goods etc. I find that apart from the said shortages there is no other evidence on record indicating that the short found goods stands removed by the assessee in the clandestine manner. As rightly contested by the Ld. Advocate such loose computer sheets cannot be formed the basis for arriving at the findings of the clandestine removal in the absence of the fulfillment of conditions of section 36 B(4) of the CEA - Appeal disposed off.

Issues Involved:
1. Shortage of TMT bars during stock taking.
2. Discrepancy between computer printouts and RG-1 records for MS Billets.
3. Discrepancy between dispatch records and RG-1 register for TMT Bars.
4. Use of TMT bars in factory civil works.
5. Alleged clandestine clearance of sponge iron.

Issue-wise Detailed Analysis:

1. Shortage of TMT Bars During Stock Taking:
The appellants admitted a shortage of 21.530 MTs of TMT bars, which was 1.66% of the recorded stock. They attributed this to different methods of stock recording and actual weighment. The annual production was 80,000 MTs, making the shortage a mere 0.32% of the monthly quantity, within the permissible tolerance of 1% as per the Standards of Weight and Measures (Packaged Commodities) Rules, 1997. The Tribunal found no evidence of clandestine removal and set aside the demand of ?59,175/-.

2. Discrepancy Between Computer Printouts and RG-1 Records for MS Billets:
The demand of ?11,30,541/- was based on the difference between quantities recorded on seized computer printouts and RG-1 records. The appellants argued that the printouts lacked corroboration and did not meet the conditions of Section 36B of the Central Excise Act, 1944. The Tribunal agreed, noting the absence of a certificate required under Section 36B(4) and set aside the demand.

3. Discrepancy Between Dispatch Records and RG-1 Register for TMT Bars:
The demand of ?7,14,661/- was based on differences between dispatches shown in Record No: 61 and the RG-1 Register. The appellants maintained separate heads in the RG-1 register and argued that the discrepancies were due to incorrect recording in the show cause notice. The Tribunal found the appellants' explanation satisfactory and noted the lack of evidence for clandestine removal, setting aside the demand.

4. Use of TMT Bars in Factory Civil Works:
The demand of ?1,15,657/- related to TMT bars used in the factory for civil works. The appellants claimed these were capital goods, eligible for Cenvat Credit. The Tribunal referred to relevant case laws and remanded the matter to the lower authorities for factual clarification.

5. Alleged Clandestine Clearance of Sponge Iron:
The demand of ?24,70,960/- was based on an assumed 55% recovery rate of sponge iron from iron ore. The appellants argued that production could not be presumed based on mathematical calculations alone. The Tribunal cited the Supreme Court's decision in Oudh Sugar Mills Ltd. and other relevant case laws, noting the lack of positive evidence for clandestine manufacture and clearance. The demand was set aside.

Conclusion:
The Tribunal set aside the demands related to shortages, discrepancies in records, and alleged clandestine clearances, along with associated penalties. The matter concerning the use of TMT bars in civil works was remanded for further clarification. The appeal was disposed of in these terms.

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