2005 (10) TMI 181 - AT - Central Excise

Demand duty - Stock of finished/semi-finished goods - Shortage - Limitation - HELD THAT - There is no allegation that the appellants have removed goods in clandestine manner. Moreover, the stock taking was done by the appellants themselves. The departmental officers only associated with the same. Hence, the stock taking cannot be said to have been conducted in terms of Rule 223A of the C.E. Rules. In any case, the shortage arrived at is based on estimates. The estimate cannot be said to be very accurate, as it has got its own limitations. It should also be appreciated that there are practical problems in steel plants in the matter of accounting of their production. The CBEC Circular No. 52/79 Cx.6, dated 26-10-1979 has also laid down certain guidelines with regard to condonation of losses observed during annual stock taking. The appellants' submission that the excess/shortage noticed was only marginal should have been given its due consideration. The Tribunal in the case of M/s. Micro Forge (I) Pvt. Ltd. v. CCE, 2004 (2) TMI 180 - CESTAT, MUMBAI has held that when the stock position is arrived at on the basis of estimation, the allegation of shortage of stock and consequent illicit removal of finished goods cannot be sustained. A plethora of case laws hold that provisions of Section 11A would apply in making demands of duty on deficiencies found during stock taking. The appellants based many reasons for discrepancies between the RG-1 and the physical stock. Considering the practical difficulties, in estimating the actual stock and in view of the submissions made by the appellants, we find that the demand of duty made by the adjudicating authority cannot be sustained. Therefore, we allow the appeal with consequential relief.

Issues:
1. Challenge to demand of duty under Rule 223A of the Central Excise Rules based on stock verification.
2. Applicability of Section 11A for demands made under Rule 223A.
3. Allegations of clandestine removal of goods and stock verification process.
4. Accuracy of stock estimation and practical difficulties in accounting for production in steel plants.
5. Consideration of discrepancies between RG-1 and physical stock for demand of duty.

Detailed Analysis:
1. The appeal challenged a demand of duty under Rule 223A of the Central Excise Rules based on stock verification conducted by the appellants for their steel and steel products. The Department initiated proceedings for a significant demand, which the appellants contested, arguing that Rule 223A could not be invoked as the stock verification was conducted by them, not the departmental officers. The appellants emphasized that the demand was based on estimation without actual weighment, making it inaccurate and unsustainable. They cited precedents to support their argument that demands based on estimated quantities without evidence of clandestine clearances are not valid.

2. The issue of the applicability of Section 11A for demands made under Rule 223A was raised during the proceedings. The Revenue believed that Section 11A did not apply to demands under Rule 223A, but the appellants disagreed, citing judicial pronouncements. They argued that Section 11A should apply for demands based on deficiencies found during stock taking, especially when there were no allegations of clandestine removal of goods or suppression of facts to warrant a longer period for demand.

3. The judgment addressed the allegations of clandestine removal of goods and the stock verification process. It was noted that the stock taking was conducted by the appellants themselves, with departmental officers only associating with the process. The Tribunal found that the stock taking did not align with Rule 223A requirements, as it was based on estimates and practical difficulties in steel plant accounting. The Tribunal considered the CBEC Circular and previous case laws to conclude that the demand could not be sustained without concrete evidence of irregularities.

4. The accuracy of stock estimation and practical difficulties in accounting for production in steel plants were extensively discussed. The judgment highlighted various reasons for discrepancies between RG-1 and physical stock, such as estimation methods, unrecorded losses during production processes, and errors in balance calculations. The Tribunal acknowledged the challenges in estimating actual stock in steel plants and the limitations of comparing estimated figures, ultimately concluding that the demand of duty was not justified given the practical complexities involved.

5. The judgment carefully considered the discrepancies between RG-1 and physical stock to evaluate the demand of duty. The appellants provided detailed explanations for the differences, including inaccuracies in estimation methods and unrecorded losses during production stages. The Tribunal analyzed the submissions made by the appellants and found that the demand of duty by the adjudicating authority could not be sustained due to the practical difficulties and discrepancies identified. As a result, the appeal was allowed with consequential relief granted to the appellants.

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