2020 (4) TMI 376 - AT - Central Excise

Clandestine removal - Shortage in stock - Abnormal loss or normal loss on stock verification - the demand has been raised on account of alleged shortage in the quantity of copper metal of 1.290 MT, sulphuric acid of 1.075 MT and also alleged shortage of 54.411 MT of copper in the smelter plant - Extended period of limitation - HELD THAT - The discrepancy (shortage) is a normal loss arising due to various factors like handling loss, evaporation loss (moisture content), calculation error (as admittedly ore is estimated as regards the quantum of production and quantum received in the concentrate plant). The cogent explanation given by the appellant has not been found to be untrue by the Court below. Accordingly, the SCN is misconceived and further the Court below has erred in not considering the normal loss, that the same requires no treatment in the books of accounts. Further, there is no single instance of clandestine removal on the part of the appellant. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Determination of normal loss on stock verification versus abnormal loss.

Analysis:
The appeal in this case revolves around the question of whether a loss identified during stock verification is a normal loss or an abnormal loss. The appellant, a Public Sector Undertaking engaged in mining and processing copper ore, faced a discrepancy in the quantity of ore due to errors in the weighing system, breakdowns of weightometers, and other factors. The appellant argued that the loss of 21873 MT of ore, equivalent to 377.488 MT of metal content, fell within permissible limits as a handling loss. The Revenue, however, demanded excise duty for the alleged shortage, treating it as clandestine removal. The demand was based on alleged shortages in copper metal, sulphuric acid, and copper in the smelter plant.

The discrepancy in the quantity of metal content led to a demand for excise duty. The demand was itemized based on the metal content found short, with corresponding rates and total values. The appellant contested the show cause notice, attributing the discrepancies to normal handling losses and errors in calculation due to weather conditions. The discrepancy, amounting to less than 4.1% in most cases, was argued to be within acceptable limits for handling losses.

The matter was adjudicated, and the demand along with penalties was confirmed in the order-in-original. The appellant then appealed to the Commissioner (Appeals), who upheld the findings of the Addl. Commissioner. Dissatisfied with the decision, the appellant approached the Tribunal for redress.

After considering the contentions of both parties, the Tribunal found that the discrepancy identified was a normal loss arising from various factors such as handling loss, evaporation loss, and calculation errors. The appellant's explanation for the discrepancies was deemed credible, and no evidence of clandestine removal was found. Consequently, the Tribunal allowed the appeal, set aside the impugned order, and granted the appellant consequential benefits in accordance with the law.