2012 (6) TMI 279 - AT - Central Excise

Clandestine removal of goods - confirmation of demand on the basis of shortages of raw material and the hypothetical calculations of production of final product and clandestine clearances of the same - demand dropped by Commissioner(Appeals) on ground that charges of clandestine removal cannot be established on the basis of presumptions - Held that - In view of difference in opinion of the members regarding whether the case of clandestine removal made out by Revenue is to be upheld or dropped, matter referred to Larger bench.

Issues Involved:
1. Shortage of raw materials.
2. Recovery of loose papers indicating unrecorded clearances.
3. Statements of company officials and buyers.
4. Confirmation of demand based on hypothetical calculations.
5. Imposition of penalties.

Issue-wise Detailed Analysis:

1. Shortage of Raw Materials:
The respondents' factory was inspected by Preventive Central Excise officers on 25.7.96, revealing shortages in raw materials including scrap, ferro manganese, and ferri silicon. The stock of final products tallied with the RG I register, but raw materials were short by 166.758 MT, 3.920 MT, and 0.050 kg respectively. A panchnama was drawn, and the shortage was attributed to non-verification of stock from time to time as per the statement of the Accountant, Shri D.S. Trivedi.

2. Recovery of Loose Papers Indicating Unrecorded Clearances:
During scrutiny of private records, two loose papers were found showing disposal of final products not recorded in the RG I register. These papers indicated clandestine clearances, which were later admitted by Shri P.S. Gehlot, Production Supervisor, and confirmed by Shri Suresh Sharma, Director of the company.

3. Statements of Company Officials and Buyers:
Shri Bupender Kumar of M/s. Sneh Sales Corporation admitted receiving goods over and above the invoiced quantity and paying in cash. This was corroborated by Shri Gehlot and Shri Sharma, who admitted to clandestine clearances. However, Shri Gehlot initially refused to cooperate with the investigation.

4. Confirmation of Demand Based on Hypothetical Calculations:
The Revenue calculated the final product that could be manufactured from the short raw materials, estimating 170.592 MT of casting valued at Rs.44.35 lakh, involving a Central Excise duty of Rs.6,65,309/-. The Commissioner (Appeals) confirmed a duty of Rs.38,143/- for clearances to M/s. Sneh Sales Corporation but dropped the demand based on hypothetical calculations, citing lack of concrete evidence.

5. Imposition of Penalties:
The Commissioner (Appeals) reduced the penalty on the respondents to Rs.10,000/- and imposed an additional penalty of Rs.5,000/- on Shri Suresh Sharma, noting that Section 11AC of the Central Excise Act was not applicable for the period in question.

Separate Judgment by Member (Technical):
The Member (Technical) disagreed with the Member (Judicial), highlighting additional evidence from a letter by the Chief Manager of State Bank of India indicating no stocks of raw materials and finished goods during a visit on 5th July 1996. The Member (Technical) emphasized that the shortage of raw materials and private records indicated unaccounted manufacture and clearances. The Member (Technical) argued that the case should be decided on the basis of evidence and not on the wording used in the appeal memorandum. Citing various legal precedents, the Member (Technical) concluded that the entire demand of Rs.6,65,309/- should be upheld, and penalties imposed accordingly.

Conclusion:
The Tribunal, after considering all evidence and arguments, found no justification in the Revenue's appeal regarding the hypothetical calculations and rejected it, disposing of the cross-objection filed by the respondents. However, the Member (Technical) recorded a separate order, upholding the entire demand and penalties based on the preponderance of evidence. The points of difference were noted, and the case was pronounced on 15/5/2012.

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