2018 (3) TMI 763 - AT - Central Excise

Clandestine removal - shortages of raw material and finished goods - Held that - The shortages of the raw material and finished goods appeared either due to reconciliation of accounts as well as descrepancies detected during quarterly checking of stocks. This reconciliation was also informed to the department periodically. No instance has been pointed out by the Revenue to show that the raw materials alleged to have been short found were not received by the Respondent in their factory or the alleged short found raw materials and finished goods were clandestinely removed by the Respondent out of their unit. In absence of any instance or evidence of clandestine removal, no duty can be demanded on the un-reconciled stocks - appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Demand of duty on shortages arising from stock reconciliation.
2. Demand of duty on alleged undervaluation of goods sent to job workers/refillers.
3. Demand of duty based on input-output ratio for Mono Ethylene Glycol (MEG).

Detailed Analysis:

1. Demand of Duty on Shortages Arising from Stock Reconciliation:
The core issue here was whether the shortages detected during stock reconciliation warranted a duty demand. The Respondents argued that the discrepancies were due to the use of two different software systems for excise and accounting purposes, leading to minor differences during quarterly stock checks. They maintained that these shortages were reconciled and reported to the revenue authorities, and no goods were clandestinely removed. The adjudicating authority found that the shortages were minuscule and justified as part of normal reconciliation processes. There was no evidence of clandestine removal of goods, and the shortages were charged to consumption. The Tribunal upheld this view, citing the Maruti Udyog Ltd. case, which established that minor discrepancies in large-scale operations are commercially acceptable and do not justify duty demands without evidence of improper disposal.

2. Demand of Duty on Alleged Undervaluation of Goods Sent to Job Workers/Refillers:
The revenue contended that the abatements claimed by the Respondent for goods sent to job workers/refillers were not permissible under Section 4 of the Central Excise Act, 1944, as these transactions did not constitute a sale. The adjudicating authority, however, held that the issue was revenue neutral since any duty paid by the Respondent would be available as Modvat credit to the job workers/refillers. The Tribunal agreed with this reasoning, noting that the duty demands were not sustainable in such a revenue-neutral scenario.

3. Demand of Duty Based on Input-Output Ratio for Mono Ethylene Glycol (MEG):
The revenue's demand was based on the assertion that the consumption of MEG was in excess of what was required for the recorded production, suggesting a shortage of this input. The Respondent challenged the manner of verification and argued that the shortages were due to reconciliation processes and not due to removal of goods. The adjudicating authority found that the shortages were justified and there was no evidence of goods being removed without duty payment. The Tribunal upheld this finding, emphasizing that without evidence of removal, the demand based on input-output ratio discrepancies was not sustainable.

Conclusion:
The Tribunal concluded that the demands raised by the revenue were not sustainable due to the lack of evidence of clandestine removal of goods and the revenue-neutral nature of the transactions with job workers/refillers. The appeal of the revenue was rejected, and the cross-objection was disposed of accordingly. The judgment was pronounced in court on 22/02/2018.