2019 (8) TMI 671 - AT - Central Excise

Clandestine manufacture and removal - validity of stock verification proceedings - shortage of goods - vires of Rule 223A of CER - HELD THAT - Proceedings under Rule 223A for shortage of goods is to be based on stock taking in the factory in the presence of the proper officer . The said rule makes it explicit that the involvement of the proper officer for applicability of the said provision and for initiation of any proceeding for recovery of any duty short paid found on the basis of the said stock taking carried out in the presence of the proper officer is an absolute requirement. The materials on record herein undisputedly evidence that there was no involvement of the proper officer in the subject annual stock taking carried out on its own by the appellant - There is thus no stock taking under Rule 223A of the said Rules. Hence, the impugned order and the duty demand confirmed thereby under Rule 223A are also sustainable since the stock taking cannot be held to be under Rule 223A of the said Rules. It is also found that there is no denial of the fact that the stocks were ascertained by the appellant on the basis of sectional measurement basis and not on actual weighment basis, but, however, the clearances were effected upon actual weighment basis. In such cases there is bound to be difference in weighments. A case of shortage or excess of stock and/or clandestine removal thereof without payment of duty is not established in such a situation. In the case of ROURKELA STEEL PLANT SAIL VERSUS COMMISSIONER OF C. EX., BHUBANESWAR 2000 (7) TMI 726 - CEGAT, KOLKATA this Bench of the Tribunal, in the case of another sister unit of the appellant, has also held that based upon the difference shown in the figures in the annual financial accounts entered according to sectional weight and RGI register showing dispatch figurers on Railway Receipt weighment basis, a case of clandestine manufacture and removal cannot be sustained. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Jurisdiction and applicability of Rule 223A of the Central Excise Rules, 1944.
2. Validity of stock verification process.
3. Basis of stock shortage determination.
4. Allegation of clandestine removal of goods.
5. Compliance with CBEC Circular No. 52/79-CX-6 dated October 26, 1979.

Issue-wise Detailed Analysis:

1. Jurisdiction and Applicability of Rule 223A:
The appellant contended that the stock verification was not carried out by or in the presence of the Proper Officer, thus failing to meet the requirements of Rule 223A of the Central Excise Rules, 1944. The Tribunal agreed, stating, "the involvement of the 'proper officer' for applicability of the said provision and for initiation of any proceeding for recovery of any duty short paid found on the basis of the said stock taking carried out in the presence of the 'proper officer' is an absolute requirement." As the stock verification was conducted solely by the appellant without the involvement of the proper officer, the Tribunal held that the proceedings initiated under Rule 223A were without jurisdiction and thus unsustainable.

2. Validity of Stock Verification Process:
The appellant argued that the stock shortage was determined on a notional basis, using sectional measurement for production figures and actual weighment for discharge figures, resulting in inevitable discrepancies. The Tribunal found that "there is no denial of the fact that the stocks were ascertained by the appellant on the basis of sectional measurement basis and not on actual weighment basis," leading to differences in weighments. The Tribunal concluded that such a method does not establish a case of shortage or excess of stock and/or clandestine removal thereof without payment of duty.

3. Basis of Stock Shortage Determination:
The Tribunal noted that the shortage/excess in the Annual Shortage and Surplus Report was based on estimates and not actual weighment. The appellant's method of recording production on an estimated basis and clearances on actual weighment led to inherent inaccuracies. The Tribunal cited the case of Steel Authority of India Limited Vs. CCE, Mysore, where similar facts were presented, and it was held that "the shortage arrived at is based on estimates. The estimate cannot be said to be very accurate as it has got its own limitations."

4. Allegation of Clandestine Removal of Goods:
The Tribunal found no evidence or allegation of clandestine removal of goods by the appellant. It referenced the Bangalore Bench's decision in Appeal No. E/55/2003, which stated, "There is no allegation that the appellants have removed goods in a clandestine manner." The Tribunal reiterated that discrepancies based on estimated figures do not substantiate claims of clandestine removal.

5. Compliance with CBEC Circular No. 52/79-CX-6:
The appellant contended that the percentage of shortage found during stock verification was within the limits prescribed by CBEC Circular No. 52/79-CX-6, except for a marginal excess in one instance. The Tribunal reviewed the reconciliation statements and found that the shortages were within permissible limits. It stated, "we are satisfied with the reasoning given by the Ld. Sr. Advocate with regard to the shortage in stock, which clearly shows that the same is well within the permissible limit prescribed by the CBEC."

Conclusion:
The Tribunal concluded that the issues raised were fully covered by previous decisions of the Tribunal, which had attained finality. It held that the impugned order could not be sustained and accordingly set it aside. The appeal filed by the appellant was allowed. The judgment was pronounced in open court on August 13, 2019.