2018 (1) TMI 1261 - AT - Central Excise

Clandestine removal - shortage of inputs - evidences - Held that - apart from the shortages there is no other evidence on record to show that the appellant had cleared their final product or cenvatable inputs in a clandestine manner. The entire case of the Revenue is based upon the shortages detected by the appellant himself and reflected in their audit report. The appellant have already explained that such shortages are only to the tune of around 0.29%, in which case the value of the shortages of the inputs, keeping in view the voluminous operations of the assesee, cannot be of much importance - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Discrepancy in inventory
- Denial of Cenvat credit
- Shortages in raw materials and finished goods
- Legal obligations regarding duty payment
- Interpretation of small shortages in relation to denial of credit

Discrepancy in inventory:
The appellant, engaged in manufacturing motor vehicle parts, reported discrepancies in their inventories during an internal audit. The Revenue raised demands for shortages in finished goods and proposed denial of Cenvat credit on inputs, which were confirmed along with interest and penalties by the authorities. The appellant argued that the discrepancies were due to the accounting procedure, as tiny parts were received in numbers and accounted for in kilograms based on average weights. They contended that these shortages did not result from illicit removal of goods and were minimal, representing only 0.29% of total consumption.

Denial of Cenvat credit:
The Commissioner (Appeals) considered the value of shortages significant, exceeding ?1.00 Crore, and held the appellant liable to pay duty on the goods found short. The Commissioner relied on a Tribunal decision for this proposition. In contrast, the appellant cited a Supreme Court decision and a recent Tribunal ruling to argue that small shortages should not lead to denial of credit or demand confirmation. The appellant highlighted the Supreme Court case where shortages were 0.24% of inputs valued at ?25.67 Crores, emphasizing the allowance of benefits in similar cases.

Shortages in raw materials and finished goods:
The appellant clarified that the shortages were due to the accounting method based on weight, and not indicative of actual removal of goods. Despite the voluminous operations, the appellant stressed that there was no evidence of clandestine activities beyond the reported shortages. The Tribunal found that without proof of illicit actions, demands based solely on shortages were unjustified. Consequently, the Tribunal set aside the demands and allowed the appeals, providing relief to the appellants.

Legal obligations regarding duty payment:
The Commissioner emphasized the legal duty of the appellant to pay duty on goods found short, considering the value of shortages. However, the appellant argued that the shortages were minimal and did not warrant denial of credit or imposition of duties. The Tribunal, in line with the appellant's arguments, ruled that without evidence of clandestine activities, demands solely based on shortages could not be upheld, leading to the allowance of the appeals with consequential relief for the appellants.