2017 (3) TMI 1087 - AT - Central Excise

Shortage of stock - penalty u/r 25 of CER, 2002 - whether for variation found at the time of inspection in the stock of finished products being M.G. Kraft paper and the stock of raw material being HMS scrap, found short, whether penalties are exigible u/r 25 of CER, 2002 and Rule 15 of CCR 2004 read with Section 11AC of the CEA? - Held that - there is no instance of any malafide or any clandestine removal pointed out by the Revenue. Further, the contention of the assessee that the stock-taking was by way of estimation and there is bound to variation, which have not been controverted by the Revenue, in the impugned orders. Under such facts and circumstances, I hold that the appellant is entitled to the benefit of the provisions of sub-section 23 of Section 11 A of the CEA and under such facts and circumstances, no SCN was required to be issued - appeal allowed - decided in favor of appellant.

Issues:
Penalties under Rule 25 of CER 2002 and Rule 15 of CCR 2004 read with Section 11AC of the Central Excise Act for discrepancies in stock of finished products and raw materials.

Detailed Analysis:

1. Issue of Penalties for Stock Discrepancies:
The appeal raised the question of whether penalties are applicable for discrepancies in the stock of finished products and raw materials found during an inspection by the Revenue. The appellant, a manufacturer of MS ingots and Kraft paper, faced penalties under Rule 25 of CER 2002 and Rule 15 of CCR 2004 read with Section 11AC of the Central Excise Act due to variations in stock quantities discovered during an inspection. The discrepancies included a shortage of M.G. Kraft paper and HMS scrap, leading to duty calculations and subsequent deposits by the appellant.

2. Adjudication and Appeal:
After the inspection, a show cause notice (SCN) was issued to the appellant, alleging shortages in finished products and raw materials. The authorized signatory admitted the discrepancies but could not provide a satisfactory explanation. The Revenue raised concerns about clandestine removal or improper invoicing. The SCN was contested by the appellant, arguing against allegations of clandestine activities and highlighting the challenges of accurate stock-taking within a short time frame. Despite the contentions, the SCN was adjudicated, confirming the demand, and imposing penalties under the relevant provisions.

3. Appellate Proceedings:
Both the appellant and the Revenue appealed before the Commissioner (Appeals). The appellant challenged the penalty imposition, while the Revenue sought an enhancement. The Commissioner dismissed the appellant's appeal and increased the penalty, citing non-payment of the full duty before the SCN issuance. The appellant, dissatisfied with the decision, approached the Tribunal seeking relief from the penalties imposed.

4. Tribunal's Decision:
The Tribunal considered the arguments presented by both parties. It noted the absence of evidence supporting clandestine activities or malpractice by the appellant. Acknowledging the challenges of stock estimation and variations, the Tribunal held that the appellant had promptly paid the calculated duty upon detection of discrepancies. Relying on the provisions of Section 11A and 11AB of the Central Excise Act, the Tribunal concluded that no show cause notice was necessary in such circumstances. Consequently, the Tribunal set aside the penalties imposed, granting the appellant the benefit of the statutory provisions and ordering a refund of the pre-deposit made during the appeal process.

In conclusion, the Tribunal's decision favored the appellant, emphasizing the importance of prompt duty payment upon discrepancy detection and highlighting the absence of evidence supporting allegations of clandestine activities. The judgment provided relief to the appellant by setting aside the penalties and ordering a refund of the pre-deposit, based on the provisions of the Central Excise Act.

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