2010 (3) TMI 527 - HC - Central Excise

Demand- shortage of goods- Tribunal order setting aside demand on the ground of discrepancy only in computerized accounts and not in manual accounting. Electronic accounts maintained in SAP. Physical verification of stock not conducted by revenue. Held that - existence of shortage or excess stock when premises visited by officers, not known. Actual difference between in stock register under SAP system and physical verification not known. Impugned order holding chances of error to the extent of 2% in SAP Method of accounting could not be ruled out. Question of law not arise.

Summary

Issues:
1. Challenge to the legality and correctness of the CESTAT order.
2. Discrepancy between SAP accounting and manual accounting.
3. Prevailing importance of manual accounts over electronic accounts.
4. Treatment of shortages in annual accounts.
5. Duty payment on finished goods shortage.
6. Maintenance of accounts under SAP system.
7. Justification of issuing a show cause notice.
8. Adjudication based on physical verification of stock.
9. Error possibility in electronic accounting.
10. Relief granted by the Commissioner.
11. Tribunal's decision on the appeal.
12. Dismissal of the present appeal by the High Court.

Analysis:

1. The Revenue challenged the CESTAT order, questioning the legality and correctness of setting aside the impugned order due to a discrepancy between SAP and manual accounting. The High Court examined the issues raised by the Revenue.

2. The case involved a company engaged in manufacturing tools, facing a duty payment issue on finished goods shortage. The company maintained accounts under SAP system, where discrepancies arose, leading to a show cause notice for non-payment of excise duty.

3. The Revenue argued that discrepancies in accounting systems should be explained by the assessee, emphasizing the importance of maintaining accounts as per Central Excise Act and Rules. The Commissioner partially granted relief, which was upheld by the Tribunal, prompting the Revenue's appeal.

4. The assessee explained the discrepancies as potential errors in electronic accounting, with differences not exceeding 2%. The Tribunal justified granting relief based on the error margin and factual disputes, leading to the current appeal.

5. The High Court noted the absence of physical stock verification by the Revenue during the interception, highlighting the uncertainty regarding actual shortages or excess stock. The Court emphasized the potential for errors in electronic accounting and the necessity of physical verification for accurate assessment.

6. Considering the Commissioner's acknowledgment of possible errors in SAP accounting and the lack of physical verification, the High Court concluded that the questions of law raised by the Revenue did not hold as the error margin could not be disregarded without physical verification.

7. Ultimately, the High Court dismissed the Revenue's appeal, emphasizing the importance of physical verification to ascertain discrepancies accurately and ruling out the raised questions of law due to the inherent error possibilities in electronic accounting systems.