2018 (10) TMI 1549 - AT - Central Excise

Clandestine removal - shortage of raw material, finished goods and capital goods - appellant allegedly removed raw material and capital goods to their job worker which are their own unit and inputs were also removed to their godown outside the factory - demand also based on LRs. Demand of ₹ 27,466/- on the shortage of finished goods - Held that - This demand is based on the shortage found out during the physical stock verification by the officers in the presence of representative of the appellant - Since the shortage was not disputed at the time of punchnama and thereafter no explanation was made, demand confirmed on shortages of ₹ 27,466/- is sustainable - demand upheld. Demand of ₹ 14,93,495/- on the raw material and capital goods seized on job workers premises as well as godown of the appellant - Held that - If it is established on the basis of documents that the goods which were seized were brought back to the appellant s factory and the same were used in the manufacture of final product which were cleared on payment of duty, then no demand shall exist. Consequently, no penalty will be imposable - this issue needs to be reconsidered on the basis of verification of the documents - matter on remand. Demand of ₹ 13,28,814/- based on LRs - principles of natural justice - Held that - Except the transporters LRs and statement, there is no other evidence. The LRs submitted by the transporters is a 3rd party document which can only be relied upon after cross examine the said transporters - In the present case it is not only a 3rd party evidence but even the appellant also disputed the same and requested for cross examination. In such a situation, it was necessary for the adjudicating authority to grant the cross examination. By not allowing the cross examination, there is a clear violation of principles of natural justice - matter requires reconsideration. Appeal disposed off.

Summary

Issues:
1. Shortage of finished goods leading to a demand of ?27,466.
2. Removal of raw material and capital goods to job worker and godown resulting in a demand of ?14,93,495.
3. Alleged clandestine removal of finished goods based on LR received from transporter, leading to a demand of ?13,82,814.

Analysis:

Issue 1: Shortage of Finished Goods
The appellant contested the demand of ?27,466, arguing that the stock taking was not done properly and was based on eye estimation. However, the Tribunal found the demand sustainable as the shortage was confirmed during physical verification in the presence of the appellant's representative, and no objection was raised at that time or subsequently. The appellant's defense of eye estimation basis was deemed insufficient as no explanation was provided when the shortage was discovered. Therefore, the demand of ?27,466 was upheld.

Issue 2: Removal of Raw Material and Capital Goods
Regarding the demand of ?14,93,495 for the removal of goods to the job worker and godown, the appellant explained that the seized goods were brought back to their factory and used in the manufacture of final products cleared on payment of duty. The Tribunal noted that the documents submitted by the appellant were not considered by the Adjudicating Authority. It directed a reevaluation based on verifying these documents to determine if the seized goods were indeed brought back and used in manufacturing. While acknowledging the contravention of procedural rules, the Tribunal emphasized the need for a thorough review before imposing any penalty.

Issue 3: Alleged Clandestine Removal of Finished Goods
The demand of ?13,82,814 based on LR received from the transporter was challenged by the appellant. They requested cross-examination of the transporter, which was denied by the adjudicating authority. The Tribunal highlighted the requirement under Section 9D of the Central Excise Act for examining witnesses before admitting statements as evidence. Since the LR was a third-party document and the appellant disputed its validity, the denial of cross-examination was deemed a violation of natural justice. Consequently, the Tribunal remanded this issue back to the adjudicating authority for a fresh order, emphasizing the importance of granting a fair hearing and examining evidence properly.

In conclusion, the Tribunal upheld the demand of ?27,466 for shortage of finished goods but remanded the other issues related to the removal of goods and alleged clandestine removal for further review, stressing the necessity of following due process and principles of natural justice in adjudication.