2005 (1) TMI 149 - AT - Central Excise

Summary

Issues Involved:
1. Alleged clandestine removal of HR coils.
2. Physical verification of stock by the Department.
3. Accounting discrepancies and software errors.
4. Evidence and burden of proof for clandestine removal.
5. Penalty imposition under Section 11AC and Rule 173Q.
6. Verification with customers and subsequent findings.

Issue-wise Detailed Analysis:

1. Alleged Clandestine Removal of HR Coils:
The appellant was accused of clandestinely clearing 23,736.950 M.T. of HR coils. The Commissioner confirmed the demand and imposed penalties based on this allegation. However, the appellant argued that the Department's investigation revealed HR sheets/plates manufactured from the alleged missing HR coils were received by customers under Central Excise invoices on payment of duty. This contradicted the Commissioner's finding of clandestine removal.

2. Physical Verification of Stock by the Department:
The appellant contended that no physical verification of HR sheets/plates was conducted on 9-11-1997, as the Panchanama recorded only an "inspection" (jayaja) rather than "counting" (ganana). This was supported by differences in language between the Panchanamas dated 8-11-1997 and 9-11-1997. The Tribunal found this argument well-founded, noting the lack of detailed stock-taking in the second Panchanama.

3. Accounting Discrepancies and Software Errors:
The appellant claimed an error in the software program led to discrepancies in stock records. This was corroborated by an affidavit from Mr. Masankar, Senior Manager, EDP, who explained the error. The Tribunal observed that the Department did not refute this claim, and the Commissioner's order did not address the contents of Masankar's affidavit, leaving it unrebutted.

4. Evidence and Burden of Proof for Clandestine Removal:
The Tribunal emphasized that a case of clandestine removal cannot be based on suspicion and presumptive positions. The Department failed to provide evidence of excess raw material purchase, electricity consumption, or other relevant circumstances to prove actual manufacturing or clearance of goods. The Tribunal noted that the show cause notice itself indicated that HR sheets/plates were received by customers under duty-paid invoices, undermining the case for clandestine removal.

5. Penalty Imposition under Section 11AC and Rule 173Q:
The Tribunal set aside the demand for duty and penalties under Section 11AC read with Rule 173Q, finding the Commissioner's order unsustainable. However, a penalty of Rs. 2,000 was imposed under Rule 226 of the Central Excise Rules, 1944 for incorrect maintenance of books of account.

6. Verification with Customers and Subsequent Findings:
The Tribunal criticized the Commissioner for disregarding the investigation's findings, which showed that the HR coils allegedly removed were actually used to manufacture HR sheets/plates cleared on payment of duty. The Tribunal held that the investigation's conclusion that there was no clandestine removal but an accounting glitch should have led to the dropping of the show cause notice.

Conclusion:
The Tribunal set aside the demand for duty and penalties imposed under Section 11AC and Rule 173Q, while imposing a nominal penalty for incorrect maintenance of books. The appeal by the appellant was partly allowed, and the penalty on the General Manager was also set aside.