2019 (12) TMI 713 - AT - Central Excise

Clandestine removal - shortage of finished goods as well as raw material - Can duty be demanded on the raw material found short during the course of investigation or not? - HELD THAT - Admittedly duty has been demanded from the appellant on shortage of raw material, the said raw material is not manufactured by the appellant and in terms of Section 3 of Central Excise Act, 1944, duty is payable on the goods manufactured by the assessee. Admittedly these goods have not been manufactured by the appellant, therefore, no duty can be demanded from the appellant on shortage of raw material. At the most, the Cenvat credit can be asked to reverse which is not the case of Revenue. The said mistake done by the Revenue cannot be rectified at this stage - the demand of duty in shortage of raw material is set aside. Merely shortage recorded during the course of investigation finished goods, can duty be demanded without further investigation or not? - HELD THAT - As the value adopted for the clandestine removal of finished goods no explanation has been given by the Revenue as how they have calculated the price of the finished goods @ ₹ 50,000 /MT for hex nut and ₹ 50, 000/ MT for hex bolt. In the absence of any evidence placed on record with regard to that, the duty paid by the appellant of ₹ 1,04,500 is taken to be corrected as the issuance of these invoices have not been disputed by the Revenue before issuance of the show cause notice. Penalty - HELD THAT - In the case of Anand Founders Engineers 2015 (11) TMI 1166 - PUNJAB HARYANA HIGH COURT , the jurisdictional Hon ble High Court has taken a contrary view holding that without further investigation, the penalty cannot be imposed, therefore, relying on the decision of the jurisdictional Hon ble High Court - the penalty cannot be imposed on the appellant. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Can duty be demanded on the raw material found short during the course of investigation?
2. Can duty be demanded on shortage of finished goods found during the course of investigation without further investigation?

Analysis:

Issue No. (i):
The appellant contested the demand of duty on shortage of raw material, arguing that as per Section 3 of the Central Excise Act, duty is payable only on goods manufactured by the assessee. Since the raw material was not manufactured by the appellant, no duty can be demanded on its shortage. The Tribunal supported this argument, citing a similar case where it was held that duty cannot be demanded on raw material that is not manufactured goods. Therefore, the demand of duty on the shortage of raw material was set aside.

Issue No. (ii):
Regarding the shortage of finished goods, the appellant explained that the shortage was due to the issuance of invoices on the same day as duty payment. However, no further investigation was conducted by the Revenue. The Revenue failed to provide evidence on how they calculated the price of the finished goods, and the appellant's explanation was not disputed before the show cause notice. Considering these factors, the Tribunal found that the duty paid by the appellant was correct. Additionally, the Tribunal emphasized that without further investigation, penalty cannot be imposed, citing a decision by the jurisdictional High Court. Consequently, the penalty imposed on the appellant was set aside, and the impugned order was overturned, allowing the appeal with consequential relief.

In conclusion, the Tribunal ruled in favor of the appellant on both issues, setting aside the demand of duty on raw material shortage and overturning the penalty imposed on the shortage of finished goods due to lack of further investigation.