2017 (5) TMI 382 - AT - Central Excise

Clandestine removal - shortage of stock - storage loss - whether duty has been rightly demanded on the shortage found in the stock of raw materials and/or finished goods at the time of inspection in the factory of the appellants? - Held that - there have been no actual weighment of the whole stock lying in the factory premises. Only a sample of the stock was weighed and the same was multiplied with the number of bags and Ingots etc, as could be counted or estimated. Thus, the fact of estimation of the stock is evident on the face of the record - in such manner of stock taking, there are bound to be variation and/or discrepancy. The variation in the case of sponge iron is less than 20%, whereas the variation in the stock of MS Ingots is about 55%. The variation in stock of sponge iron is considered as normal variation and the same does not attract any adverse inference. So far stock of MS ingots is concerned, there is a variation about 55%. Considering the variation of 20%, as normal, the demand on the balance shortage of MS ingots, lying in the furnace division as well as rolling mill division, confirmed. Penalty - Held that - in view, the facts on record, there is no instance of any clandestine activity and/or removal of Excisable Goods - it is not a fit case for penalty u/r 25 of CER read with Section 11AC of the Act. Appeal allowed - decided partly in favor of appellant.

Summary

Issues:
1. Duty demand on shortage of stock of raw materials and finished goods during inspection.

Analysis:
1. Avadh Alloys Pvt. Ltd.: The issue in this appeal was regarding the duty demand on the shortage of stock found during inspection. The stock of MS ingots and rolling division, along with sponge iron, showed significant differences between recorded and physically verified quantities. The shortage was suspected to be due to clandestine removal of goods. The appellant deposited the approximate duty amount but a show cause notice was issued demanding duty and proposing penalties. The Tribunal noted that no actual weighment of the entire stock was done, only a sample was weighed and multiplied, indicating an estimation method. Considering the variations normal under such estimation, the demand on sponge iron was not upheld, but the demand on MS ingots was confirmed due to a 55% variation. However, as there was no evidence of clandestine activity, no penalty was imposed.

2. Tehri Girders Ltd.: In this case, shortages were found in various finished goods and raw materials during stock taking. The shortages were suspected to be due to clandestine removal. The demand for duty and penalties was contested, leading to appeals. The Tribunal observed that the stock taking was based on estimation without actual weighment of the entire stock. Variations ranging from 5% to 15% were considered normal under the estimation method. As there was no evidence of clandestine activity and the responsible persons did not object to the stock taking method, the demand on the shortages was not upheld. The appeal was allowed, and the demands were set aside.

In conclusion, the Tribunal allowed the appeal of Tehri Girders Ltd. and partially allowed the appeal of Avadh Alloys Pvt. Ltd. by confirming the demand on MS ingots due to significant variation but not imposing penalties due to lack of evidence of clandestine activity.