2004 (12) TMI 222 - AT - Central Excise

Issues Involved
1. Duty on excess scrap found during truck interception.
2. Duty on unaccounted scrap due to alleged high invisible loss.
3. Duty on alleged under-valuation of scrap.
4. Duty on removal of bearing rings under the guise of scrap.
5. Denial of Modvat credit due to high invisible loss.

Detailed Analysis

1. Duty on Excess Scrap Found During Truck Interception:
The appellant explained that the truck was initially sent for weighment with a reduced quantity of scrap and was later reloaded with additional scrap for a full truckload, as per the buyer's request. The Board's circular allows such a procedure. The Commissioner did not dispute this procedure. The duty involved was Rs. 1350/-, and the appellants argued there was no intent to evade duty as they had sufficient balance in their RG-23 Part-II and the goods were subsequently cleared on payment of duty. The Tribunal found merit in the appellant's explanation and noted the small amount involved, thus setting aside the demand.

2. Duty on Unaccounted Scrap Due to Alleged High Invisible Loss:
The Commissioner confirmed a duty demand of Rs. 6.75 lakhs based on an invisible loss of 8%, which he reduced to 5.5%. The Tribunal found no justification for confirming the demand solely on the basis of excess loss claimed by the appellants. The appellants provided a table showing varying losses from 1993-98 and argued that the charge of clandestine removal requires tangible evidence, which was lacking. The Tribunal set aside the demand, emphasizing the need for concrete evidence to support allegations of clandestine removal.

3. Duty on Alleged Under-Valuation of Scrap:
The Commissioner's adverse findings were based on market prices being higher than the appellant's invoiced price. However, there was no evidence showing that the scrap was actually sold at a higher price. The Tribunal extended the benefit of doubt to the appellants and dropped the demand, noting the lack of concrete evidence.

4. Duty on Removal of Bearing Rings Under the Guise of Scrap:
The appellants explained that defective bearing rings were returned by customers and sold as scrap after failed repairs. The Commissioner inferred additional hand cash payments from a letter by M/s. Jay Engineering, but the Tribunal found no justification for this assumption. The Tribunal noted that the appellants had filed D-3 intimations and cleared goods as scrap when repairs were not possible. The Tribunal set aside the demand due to the lack of evidence supporting the Commissioner's interpretation.

5. Denial of Modvat Credit Due to High Invisible Loss:
The Commissioner denied Modvat credit of Rs. 97.47 lakhs, arguing that the consumption of raw material did not match the production and scrap generated, indicating possible clandestine activities. The appellants contended that the loss percentages varied due to multiple factors and provided detailed explanations of their manufacturing process. The Tribunal found no evidence of inputs being cleared as such or converted into final products without duty payment. The Tribunal emphasized that loss variations depend on several factors and cannot conclusively indicate clandestine activities. The Tribunal found no justification for reversing the Modvat credit and set aside the demand.

Conclusion:
The Tribunal found no justification for the imposition of penalties or confiscation of goods. The appeal was allowed with consequential relief to the appellants, setting aside all the demands and penalties imposed by the Commissioner.

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