2017 (3) TMI 1082 - AT - Central Excise

Shortage of stock - 75 pairs of domestic leather sandals - the officers compared the figures given in the sandal stock report with the recorded balance of RG-1 (RUD No.5) and asked the appellant why the quantity shown in RG-1 on 28.05.2005 as 11490, on 04.06.2005 as 9252, on 08.06.2005 as 9570 and on 13.06.2005 as 9386 as the closing balance of RG-1 was not tallying with the Sandal stock report - Held that - the stock records found in the four slips of different dates at the time of inspection also include incomplete and/or projected production of the appellant - the appellant s industry is doing the work in the nature of job work for one particular buyer (Mirza Tanners). Under the agreement with the sole buyer, they manufactured the goods under the brand name Red Tape , that belongs to the buyer, and they cannot normally clear the goods to anybody else for home consumption without the purchase order and/or directions of the buyers subject to pre-delivery inspection. Even the goods rejected by the buyer have either to be dismantled or retained and the same have to be cleared as per directions and discretion of the buyers namely Mirza Tanners - Further, no instance of any excess stock of raw material have been found nor any instance of any goods cleared without proper documents and/or without payment of duty have been detected - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Discrepancy in stock records.
2. Allegation of clandestine manufacture and clearance.
3. Denial of cross-examination.
4. Violation of principles of natural justice.
5. Validity of the show-cause notice and subsequent orders.

Detailed Analysis:

1. Discrepancy in Stock Records:
The case began with a surprise inspection by preventive officers of the Revenue at the appellant's factory on 24.06.2005. During the inspection, a physical stock verification revealed a shortage of 75 pairs of domestic leather sandals. The appellant accepted the shortage and deposited the Central Excise duty amounting to ?11,346/- on the spot. However, further scrutiny of records revealed discrepancies between the sandal stock report faxed to Mirza Tanners and the RG-1 register. The stock report showed higher quantities than those recorded in the RG-1 register on several dates, leading to an alleged discrepancy of 11,827 pairs of sandals.

2. Allegation of Clandestine Manufacture and Clearance:
The Revenue alleged that the appellant had clandestinely manufactured and cleared 11,827 pairs of leather sandals valued at ?1,82,72,715/- without payment of duty amounting to ?17,89,264/-. This allegation was based on the discrepancies found in the sandal stock report and the RG-1 register. The Joint Commissioner confirmed the demand and imposed an equal amount of penalty under Section 11AC of the Act, along with interest. The duty amount of ?11,346/- on 75 pairs found short was also confirmed.

3. Denial of Cross-Examination:
The appellant contended that the show-cause notice was issued without providing the relied-upon documents and without allowing cross-examination of the persons whose statements were used against them. Although the documents and statements were later provided, the cross-examination was denied, which the appellant argued was a violation of the principles of natural justice. The Tribunal noted that the denial of cross-examination vitiated the proceedings, making the demand unsustainable.

4. Violation of Principles of Natural Justice:
The appellant argued that the impugned order was passed in violation of the principles of natural justice as their pleas were rejected without proper examination. They cited binding decisions and pointed out contradictions in the statements of different persons, which were ignored by the lower authorities. The Tribunal agreed with the appellant, noting that the Revenue failed to provide tangible evidence of clandestine manufacture and clearance, relying instead on assumptions and presumptions.

5. Validity of the Show-Cause Notice and Subsequent Orders:
The Tribunal found that the show-cause notice and subsequent orders were unsustainable. The Tribunal noted that the appellant was a job worker for Mirza Tanners and manufactured goods under the brand name 'Red Tape' exclusively for them. The stock records found in the four slips included incomplete and/or projected production, as stated by Mr. Satyendar Singh. The Tribunal also noted that no excess stock of raw material or instances of goods cleared without proper documents and payment of duty were found. The Tribunal held that the show-cause notice was unsustainable and set aside the impugned order, entitling the appellant to consequential benefits in accordance with the law.

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