2018 (1) TMI 628 - AT - Central Excise

Clandestine removal - shortage of stock - case of appellant is that difference in stock is only due to accounting system - extended period of limitation - whether the difference in stock of finished goods between theoretical accounting in the books of account and actual accounting based on actual weighment in the Central Excise records at the time of clearance can be considered as shortage of goods clandestinely removed and whether the extended period is invocable, in a case where all the facts were disclosed in the audited financial statements which is a public document and in a case where earlier show-cause notice was dropped involving the same facts? Held that - the appellant have maintained a stand that the books of account is on the basis of theoretical calculation of production, whereas the quantity of clearance is taken on the basis of actual weighment. This method of accounting in books of account vis-a-vis on actual weighment basis is the reason for difference in the stock shown between both of the records. It is also considered that there is no iota of evidence that any quantity of alleged shortage or even small part of it clandestinely removed by the appellant - the discussion in the finding is based on his personal assumption and presumption without any rebuttal to the findings given by the adjudication order. It is also observed that the total difference is only to the tune of 0.24% as compare to the total production. This also goes on to show that such a meagre difference is obvious when accounting of production is made on theoretical basis and clearance of goods are made on actual weighment basis. Time limitation - Held that - the appellant have been declaring adjustment of finished stock i.e. written of quantity in their books of account which was audited. Moreover, the similar practice was earlier noticed by the Department and show-cause notice was dropped by the Commissioner and the order of the Commissioner was accepted by the Revenue. In this scenario, it cannot be said the appellant have malafidely suppressed the fact, therefore the demand is clearly hit by limitation also. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Difference in stock between books of account and excise records, whether shortage of goods clandestinely removed, invocability of extended period, suppression of fact, demand hit by limitation.

Analysis:
The case involved a discrepancy in the stock of finished goods between the theoretical accounting in the books of account and the actual accounting based on weighment in the Central Excise records. The main issue was whether this difference could be considered as a shortage of goods clandestinely removed and if the extended period could be invoked. The appellant argued that the difference was due to the method of accounting, where production was recorded theoretically in books of account and based on actual weighment in the Central Excise records. The Adjudicating Authority dropped the proceedings, finding no evidence of physical shortage or clandestine removal.

The appellant maintained that the discrepancy was due to the accounting system and not suppression of fact. The appellant declared the details of production clearance quantity in the Balance Sheet, arguing that there was no suppression of fact, thus invoking the limitation on the demand. The appellant cited relevant judgments to support their arguments.

On the other hand, the Revenue contended that the appellant failed to provide evidence regarding the shortage of finished goods, leading to a sustainable demand based on the alleged shortage. The Revenue relied on specific judgments to support their position.

Upon careful consideration, the tribunal found that the difference in stock was due to the method of accounting and not due to clandestine removal. The tribunal noted that there was no evidence of any quantity being clandestinely removed. The tribunal also observed that the total difference was minimal compared to the total production, indicating that such discrepancies were expected given the accounting practices. The tribunal further found that the appellant had disclosed all relevant facts in audited financial statements, and the demand was hit by limitation as the appellant had been declaring adjustments in their books of account, which were audited.

The tribunal concluded that the impugned order was not sustainable, set it aside, and allowed the appeal in favor of the appellant. The tribunal highlighted that the Commissioner's findings were based on personal assumptions without rebuttal to the adjudication order. The tribunal also distinguished the present case from the judgments cited by the Revenue, as the appellant had provided a plausible explanation for the discrepancies in the records. The tribunal emphasized that the demand was clearly hit by limitation due to the appellant's disclosure in audited financial statements and past practices accepted by the Revenue.