2012 (12) TMI 176 - AT - Central Excise

Demand of Duty and penalty - clandestine removal shortage and excess stock Submission of the appellants that they have now improved their accounting system by adopting computerized accounting and the matter under consideration occurred was just before such computerized accounting was put in place - Held that - Large number of final products the appellants were manufacturing and the difficulty in maintaining proper accounts of such variety of goods both in packed condition and in bulk - errors are on account of errors in accounting rather than due to clandestine removal because of the fact that discrepancies have been noticed involving both excesses and shortages - this is a case of improper accounting rather than a case of clandestine removal of inputs and finished goods - appellants are required to maintain proper accounts of inputs and finished goods available with them as per Central Excise Rules - duty demanded and penalty set aside

Summary

Issues:
1. Excise duty demand on finished goods shortage
2. Reversal of CENVAT credit on inputs and packing materials shortage
3. Penalty imposition under Section 11AC of the Central Excise Act

Analysis:

Issue 1: Excise Duty Demand on Finished Goods Shortage
The appellants, manufacturers of lubricating oils, faced excise duty demand due to a shortage of finished goods during a stock taking exercise by the Central Excise department. The Revenue proposed a demand of Rs. 1,21,109/- for finished goods found short. The Tribunal remanded the matter for de novo consideration, emphasizing that shortages were due to factors beyond the appellants' control and not indicative of clandestine removal. The Commissioner's refusal to accept documentary evidence was criticized, leading to the remand for detailed consideration. The re-adjudication post-remand upheld the original demands, prompting the appellants to contest based on difficulties in stocktaking for multiple products and errors in accounting due to lack of computerization.

Issue 2: Reversal of CENVAT Credit on Inputs and Packing Materials Shortage
The Revenue also demanded Rs. 19,06,004/- for shortages in inputs and packing materials, leading to the reversal of CENVAT credit. The appellants argued that discrepancies arose from wrong accounting rather than clandestine activities. They highlighted excesses in certain items and discrepancies in stock measurement methods, emphasizing that all oils were made from the same lube stock. The Revenue contended that shortages were substantial and accepted by the appellants' signatory during stock taking, indicating accounting lapses and improper maintenance of records.

Issue 3: Penalty Imposition under Section 11AC
A penalty of Rs. 1,21,109/- was imposed under Section 11AC of the Central Excise Act. The Revenue argued that the appellants' casual approach to accounts, as evidenced by excesses and shortages, warranted penalty imposition. However, the Tribunal, after considering arguments from both sides, granted the benefit of doubt to the appellants. It concluded that errors were due to improper accounting rather than clandestine activities, setting aside the duty demand and penalty. The appellants were directed to maintain proper accounts as per Central Excise Rules, emphasizing the need for accurate record-keeping despite the benefit granted in this case.