2005 (2) TMI 422 - AT - Central Excise

Demand and Penalty - Clandestine removal - Alleged shortage of tyres and tyre cord fabric on the basis of standard input output ratio - HELD THAT - It is not disputed by the Revenue that the shortage of nylon tyre cord fabric has been arrived at on the basis of consumption vis-a-vis standard input output ratio. There is no material or evidence, which has been brought on record, to show that the said raw-material was cleared from the factory without payment of duty or reversing the Modvat credit already availed of by them. There is substantial force in the submissions of the learned Advocate that the standard input output norms can be applied only in perfect conditions and not otherwise. In a similar situation in the case of Magnum Papers Ltd. (supra), the Tribunal did not agree with the Department that Modvat credit is deniable on the basis of comparison of the consumption of the raw-material during the current year and the preceding year. In the present matter also, the shortage of nylon tyre cord fabric has been only presumed on the basis of applying input output ratio and not on the basis of actual consumption. We, therefore, set aside the demand in respect of nylon tyre cord fabric. The penalty is imposable on the appellants on account of shortage of tyre which has been upheld against them. However, the penalty cannot be imposed on account of the shortage of nylon tyre cord fabric. We, therefore, reduce the penalty to Rs. 25,000/-. The appeal is thus partly allowed.

Summary

Issues:
Appeal against demand of duty and penalty due to shortage of tyres and tyre cord fabric.

Analysis:
The appellant, a tyre manufacturer, contested the shortage of 602 tyres and 8.159 MT of nylon tyre cord fabric found during a visit by Central Excise Officers. The appellant argued that the entries in the R.G. I register were made only upon receipt of finished goods in the packing section, where the alleged shortage was actually present. The appellant highlighted discrepancies in the consumption norms and actual usage of nylon tyre cord fabric due to various factors like moisture content and fabric weight variations. The appellant challenged the imposition of duty based on standard input output ratio without considering actual consumption. The Tribunal observed the shortage of tyres was admitted by the appellant's authorized signatory, rejecting the defense of delayed entry in the register as an afterthought without supporting evidence. Consequently, the duty demand for tyre shortage was upheld.

Regarding the shortage of nylon tyre cord fabric, the Tribunal noted the absence of evidence showing removal without payment of duty or reversing Modvat credit. The Tribunal agreed with the appellant's argument that input output norms should apply in perfect conditions only. Citing a precedent, the Tribunal emphasized that the comparison of raw material consumption between years does not justify denying Modvat credit. As the shortage of nylon tyre cord fabric was presumed based on input output ratio, not actual consumption, the Tribunal set aside the demand for fabric shortage. The penalty was upheld for tyre shortage but reduced to Rs. 25,000, excluding penalty for the fabric shortage. The appeal was partly allowed, with the operative part of the order pronounced on 14-2-2005.