2023 (6) TMI 1394 - AT - Central Excise

Clandestine removal - physical stock of finished / semi-finished goods shown in the Annual Stock Statement varied when compared with the opening balance of Stock of production and clearance as per ER 1 returns - corroborative evidences or not - HELD THAT - In the impugned orders, the demand has been confirmed on the ground that Rule 10(1) of the Central Excise Rules, 2002 about maintenance of records has not been followed by the appellants and the shortages have been noticed annually which clearly proves that the goods have been clandestinely removed without payment of duty. They also claimed that the shortages are much beyond the condonation of losses as laid down by the Board Circular. However, these shortages itself cannot be a ground for evidence of clandestine removal. Further, the impugned orders invoke proviso to Section 11A on the ground that the department had come to know all the facts only in 2009 after Annual Stock taking statement was filed by the appellant. The fact that clandestine removal of any goods has not been proved with any evidences except to state that the statements of shortages itself proves the offence of clandestine removal is too farfetched. Moreover, regular notices were issued for different units of the appellant at Mangalore, Bhadravati and Mysuru and these notices confirmed by the Commissioners were set aside by this Tribunal. Hence, the present appeals based on similar facts do not sustain. The appellant s in their own case STEEL AUTHORITY OF INDIA LTD. VERSUS COMMISSIONER OF C. EX., MYSORE 2005 (10) TMI 181 - CESTAT, BANGALORE , the Tribunal has held that the discrepancy between the RG1 stock and the physical stock are based on the estimated production and not on actual weighment. Comparison between two estimations is inherently inaccurate. Because of these shortages, if any, is inflated due to errors in taking opening balance and physical stock. Considering the practical difficulties in estimating the actual stock and in view of the submissions made by the appellant, the Tribunal had set aside the impugned order. The demands are set aside and accordingly, penalty is also set aside - Appeal allowed.

Summary

Issues:
- Differential duty demand based on discrepancies in stock statements
- Invocation of proviso to Section 11A of Central Excise Act, 1944
- Admissibility of excess clearances based on audited books of accounts
- Comparison of estimated production in ER1 returns with physical stock
- Applicability of circulars for condonation of losses
- Previous judgments setting aside similar demands
- Allegations of clandestine removal without payment of duty
- Compliance with Rule 10(1) of Central Excise Rules, 2002
- Evidence required for proving clandestine removal
- Inconsistencies in stock taking and actual weighment
- Setting aside the demands and penalties based on previous judgments

Analysis:
The judgment by the Appellate Tribunal CESTAT Bangalore involved five appeals concerning a common issue of differential duty demand on discrepancies in stock statements. The appellants, a manufacturer of iron and steel products, faced show-cause notices for variations in physical stock compared to ER-1 returns. The Commissioner confirmed the demand, invoking the proviso to Section 11A of the Central Excise Act, 1944, along with interest and penalties under Section 11AC.

The appellant's counsel argued that excess clearances were based on estimates, and discrepancies arose due to the different methods of recording production and stock. They referenced circulars and previous judgments to support their case, emphasizing the inaccuracies in comparing estimated production with physical stock. The Tribunal noted previous instances where similar demands were set aside, indicating a lack of evidence for clandestine removal.

The Tribunal found that shortages alone couldn't prove clandestine removal and questioned the invocation of proviso to Section 11A without allegations of suppression or fraud. It highlighted practical difficulties in estimating actual stock and errors in stock statements. Citing previous judgments, the Tribunal set aside the demands and penalties, aligning with the principles established in earlier cases.

In conclusion, the Tribunal allowed the appeals, setting aside the impugned orders and penalties based on the observations and precedents discussed in the judgment. The decision was made following the established legal principles and interpretations of relevant statutes and circulars, emphasizing the importance of evidence and consistency in determining duty liabilities.