2018 (6) TMI 324 - AT - Central Excise

Clandestine removal - excesses of stock - the allegation of clandestine removal is based on difference in weight recorded in the weighment slips and those in the corresponding invoices - existence of unaccounted stock of final product - whether the seizure and confiscation of alleged excess stock is legally sustainable? - whether the appellant company is guilty of removing excisable goods clandestinely without payment of duty? - whether penalty is imposable on the appellants in these proceedings. Held that - In absence of any corroborative tangible evidence of clandestine removal, it appears to be improper to hold the appellant guilty of clandestine removal of goods solely on the basis of difference in weight recorded in the excise invoices. There is nothing on record to justify rejection of the cogent explanation offered by the appellant assessee before the lower authorities as regards difference in weight found in the weighment slip and a few corresponding excise invoices - It will not be proper to treat payment of duty as admission of guilt and the department cannot be allowed to rely on the irregularity committed by them. It is settled law that one cannot take benefit of its own wrong. Existence of unaccounted stock of final product, believed to be kept for clearance without entering in books - Held that - It is found that the manner of stock verification is not in conformity with the normal accounting of such goods. There is no dispute to the fact that the goods in question is accounted for by weight and not in numbers. Therefore, physical verification of such goods by counting the number of pipes cannot be appreciated. Moreover, the conversion from numbers into Kg (weight) has been made by using formula prescribed for pipes of BIS specifications and admittedly, the assessee -appellant is manufacturing both ISI and Non ISI Pipes - the quantity of goods found in excess of the recorded stock of goods as calculated by the department in Annexure-I to the Panchnama is unverifiable and hence appears to be incorrect - seizure and subsequent confiscation of incorrectly calculated stock of finished goods is unsustainable in law. It has been consistently held in the judicial pronouncements that charge of clandestine removal is a serious charge which has to be proved by way of tangible evidence and it cannot be held on the basis of suppositions and inferences - In the present case, no investigation has been conducted by the department with the buyers or with transporters. There is absolutely no evidence of removal of goods without payment of duty by the appellant company save and except presumptions. In fact the buyers have given certificate to the effect that they had received goods as per invoice only. There is nothing on record to discard the explanation given by the appellant company as regards difference in the weight recorded in the weighment slips with the weight shown in the invoices. There is no evidence on record to even suggest that the differential quantity had been removed clandestinely - the allegation of clandestine removal of goods on the appellant company is not proved. Seizure and confiscation of goods alleged to be found in excess of the recorded stock - Held that - The manner of physical verification of the stock adopted by the officers was improper and calculation chart showing the quantity of goods found in stock is not worthy - the allegation of existence of unrecorded final product in the stock of the appellant company is not proved - confiscation of goods as well as penalty set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:

1. Legality of seizure and confiscation of alleged excess stock.
2. Allegation of clandestine removal of excisable goods without payment of duty.
3. Imposition of penalty on the appellants.

Issue-wise Detailed Analysis:

1. Legality of Seizure and Confiscation of Alleged Excess Stock:

The appellant company, engaged in manufacturing PVC Pipes, was visited by the Anti Evasion Wing of Central Excise Department. During the search, officers discovered an excess quantity of finished goods (52,095 Kg) not recorded in the statutory stock account. This led to the seizure of goods under Section 110 of the Customs Act, 1962, applicable to Central Excise matters. The Adjudicating Authority ordered confiscation of the seized goods under Rule 25 of Central Excise Rules, 2002, read with Section 110 of the Customs Act, 1962, with an option to redeem on payment of a fine. However, the Tribunal found that the method of stock verification was flawed. The goods were accounted for by weight, not numbers, and the conversion from numbers to weight used a formula for BIS specifications, which was not applicable to all pipes. The calculation chart annexed to the Panchnama was deemed unreliable, making the seizure and subsequent confiscation unsustainable in law.

2. Allegation of Clandestine Removal of Excisable Goods Without Payment of Duty:

The Department alleged that the appellant company clandestinely removed 509.08 MT of PVC Pipes without paying duty, based on discrepancies between weighment slips and corresponding invoices. The appellant explained that differences arose due to changes in buyer orders and that remaining quantities were cleared as gate sales against cash payment. The Tribunal noted that the appellant did not have weighment facilities inside the factory and was permitted to weigh goods outside. The discrepancy was found in only a few invoices compared to the total supplies, and no corroborative evidence of clandestine removal was presented. The Tribunal held that the charge of clandestine removal, a serious allegation, must be supported by tangible evidence, which was lacking in this case. Thus, the allegation was not proved.

3. Imposition of Penalty on the Appellants:

Penalties were imposed on the appellant company and its officials under Rule 25 and Rule 26 of Central Excise Rules, 2002. The Tribunal found that the penalties were imposed without specifying the clause of the penal provision and without sufficient evidence of clandestine removal. The Tribunal referenced case laws, including the Hon’ble Supreme Court's judgment in Amrit Foods vs. CCE, which held that penalties are not imposable if duty is paid before issuing a show cause notice. The Tribunal concluded that the imposition of penalties was unsustainable due to the lack of evidence and incorrect application of penal provisions.

Conclusion:

The Tribunal set aside the impugned orders, finding the allegations of clandestine removal and existence of unrecorded final products unproven. The method of stock verification was flawed, and there was no corroborative evidence of clandestine removal. Consequently, the seizure, confiscation, and penalties were deemed unsustainable. The appeals filed by the appellants were allowed with consequential relief/benefits.