2004 (7) TMI 188 - AT - Central Excise

Summary

Issues:
Appeal against duty confirmation, penalty imposition, and interest recovery under Rule 571 of Central Excise Rules, 1944 based on shortage in physical stock compared to book balance.

Analysis:
The appeal challenged an order confirming duty of Rs. 5,06,650/- against the appellants under Rule 571 of the Central Excise Rules, 1944, along with a penalty of equivalent amount and recovery of appropriate interest. The appellants had availed Modvat credit of Central Excise duty paid on various inputs. The shortage in physical stock compared to the book balance was noted by statutory auditors in the relevant balance sheets for the years 1998-99 and 1999-2000. The appellants argued that the shortages were minimal percentages of total sales during the respective years and could be due to book adjustments, calibration errors, or lack of coordination between departments.

The appellants contended that weighments with machinery like weighbridges could yield different results, citing the Weights and Measures (Packaged Commodities) Rules 1977 which allow a tolerance of 1% for goods weighing more than 15,000 gms. The Tribunal observed that stocktaking was not conducted by departmental authorities, and reliance was solely on the statutory auditor's note. Given that the shortages were below the permissible tolerance of 1% under the Weights & Measures Act, the appellants argued that calibration errors in weighing machines at different locations could explain the shortages. The Tribunal noted that the absence of independent corroborative evidence indicating clandestine removal meant the conclusion of clandestine removal could not be sustained.

Consequently, the Tribunal set aside the orders of the lower authorities and allowed the appeal with any consequential relief as per the law. The judgment emphasized the importance of considering factors like calibration errors and permissible tolerances in cases involving shortages in physical stock compared to book balance, highlighting the need for independent corroborative evidence to establish claims of clandestine removal.