2013 (9) TMI 210 - AT - Central Excise

Shortage of Inputs - CENVAT credit - The appellants were engaged in the manufacture of parts and components of various engineering goods falling under Chapter 85 of the First Schedule to the Central Excise Tariff Act, 1985 - Held that - The Revenue s case was without any substance and made by its own mistakes of numerous types and without an effort to understand the issues involved - this was a case made without the minimum diligence required, sending such matter for de-novo consideration will be another round of harassment for the appellants and most likely another round for wasting the time of the Tribunal also in a further litigation in second round - the similar notice issued to Unit-II of the Appellant in the same jurisdiction had been dropped The situation could be on account of clandestine removal of inputs on which Cenvat credit was taken - The situation could also arise due to bogus credits on the basis of documents without receiving goods covered by such invoices. It could also be due to clandestine manufacture of final products using the impugned inputs and clearing such final products without payment duty - But revenue had not found any evidence of instances of any such activity - The Show Cause Notice mentioned only the first type of possibility and not the second and third type of possibilities. On the whole the entire calculation gives the impression of a very raw method was adopted by interpreting figures in the balance sheet and account books of appellants without taking the help of the appellants or an accounting professional, muddling through making even totaling mistakes on the way. This type of case made by Revenue deserves to be dropped without further examination. The whole case was made in a very casual manner - During stock taking or immediately thereafter the Revenue did not discuss with the appellants what their doubts were and seek clarification from the appellants - Thereafter they issued Show Cause Notice making a case of shortage of inputs based on the stock statements given by the appellants to the banks - Order set aside Decided in favour of Assessee.

Issues Involved:

1. Methodology of calculating shortage of raw materials.
2. Validity of demand based on stock statements given to banks.
3. Errors in calculation and inclusion of all customers' supplies.
4. Inclusion of work-in-progress and material with job workers.
5. Determination of cost of input material.
6. Reasonableness of allegations regarding clandestine removal of inputs.
7. Comparison with similar show cause notice issued to another unit.

Issue-wise Detailed Analysis:

1. Methodology of calculating shortage of raw materials:
The appellants were found to have a shortage of 52,26,797 kgs of raw materials based on stock verification by Central Excise officers. The show cause notice (SCN) also provided an alternative calculation indicating a shortage of 29,37,295 kgs. The adjudicating authority confirmed a duty demand of Rs. 95,26,238/- based on the latter calculation. The appellants argued that this approach was beyond the scope of the SCN and fundamentally incorrect due to various errors, including totaling mistakes and not accounting for all customers' supplies.

2. Validity of demand based on stock statements given to banks:
The appellants contended that the stock statements given to banks included cumulative stock figures, leading to an inflated shortage calculation by the Department. They argued that the Department counted the same stock multiple times, resulting in an alleged shortage that was not accurate. The adjudicating authority found this demand based on bank statements not maintainable and instead relied on the alternative calculation method.

3. Errors in calculation and inclusion of all customers' supplies:
The appellants highlighted numerous errors in the SCN, such as incorrect totaling in Annexures E-1 and E-3, and incomplete lists of supplies to customers like BHEL. They also pointed out that supplies to other customers like CGELIN, Central Railways, and N.E Railways were not considered, leading to an incorrect determination of shortages. The Tribunal noted these inaccuracies and found the methodology adopted by the adjudicating authority faulty.

4. Inclusion of work-in-progress and material with job workers:
The appellants argued that the Panchnama did not account for work-in-progress (WIP), off cuts, and material sent for job work, which significantly affected the calculation of shortages. The Tribunal agreed that the omission of these factors led to an incorrect determination of shortages and rejected the Department's objection that these points were raised later.

5. Determination of cost of input material:
The appellants contended that the demand was inflated due to incorrect average pricing of input materials. The SCN used an average price based on a mix of invoices, including high-cost materials supplied by BHEL, which distorted the average cost. The Tribunal found merit in this argument, noting that the computed average price was highly distorted and incorrect.

6. Reasonableness of allegations regarding clandestine removal of inputs:
The appellants argued that the allegations of clandestine removal of inputs were unreasonable and lacked common sense. They pointed out that such transactions would not be feasible in the organized sector and would require unaccounted cash payments, which did not align with their financial operations. The Tribunal found these arguments convincing, noting that the Department's case suggested an implausible conversion of accounted money into unaccounted money.

7. Comparison with similar show cause notice issued to another unit:
The appellants pointed out that a similar show cause notice issued to their Unit No. II was dropped by the adjudicating officer. The Tribunal took this into consideration, further supporting the decision to set aside the impugned order.

Conclusion:
The Tribunal found that the case made by the Revenue was based on numerous errors and lacked the necessary diligence. The demand was based on incorrect calculations, incomplete data, and unreasonable assumptions. The Tribunal set aside the impugned order and allowed the appeal, noting that sending the matter for de-novo consideration would be another round of harassment for the appellants and a waste of the Tribunal's time. The appeal was allowed, and the impugned order was set aside.

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