2014 (2) TMI 695 - AT - Central Excise

Penalty u/s 11AC - Demand on the basis of shortages of raw material and the hypothetical calculations of production of final product and clandestine clearances of the same - Held that - Investigation team did not find any stock during investigation. Inextricable link of clandestine removal of finished goods was established from incriminating documents and evidence including private recorded found in the course of investigation. Unaccounted sale was admitted by buyer. Shortage of scrap of 175.608 MT of scrap, 3.92 M.T. of Ferro Manganese and 50 Kg. of Ferro silicon was well evident from statement of Shri P.S. Gehlot. These goods were used in manufacture of steel castings on the basis of clear admission of assessee. Evasion of duty of ₹ 6,65,309/- was established. Therefore, nothing was presumed nor assumed by investigation when that remained un-rebutted in adjudication. Accordingly decision of the learned technical member cannot be said to have been based on no evidence or inadequate evidence - impugned order of Commissioner (Appeals) is set aside and Revenue s appeal is allowed by restoring the order of original adjudicating authority - Decided in favour of Revenue.

Issues Involved:

1. Shortage of raw materials.
2. Recovery of loose papers indicating unrecorded clearances.
3. Statements from company personnel and third parties.
4. Hypothetical calculations of production and clandestine clearances.
5. Presumption of facts based on evidence.
6. Confirmation of demand and imposition of penalties.

Issue-wise Detailed Analysis:

1. Shortage of Raw Materials:
The factory was inspected by Preventive Central Excise officers, and shortages of raw materials like scrap, ferro manganese, and ferri silicon were noted. The respondents argued that these shortages were due to non-verification of stock from time to time. The Commissioner (Appeals) dropped the demand based on these shortages, citing that the calculations were hypothetical and lacked clear evidence of conversion into final products.

2. Recovery of Loose Papers Indicating Unrecorded Clearances:
During the inspection, two loose papers were found in a red register, showing disposal of final products that were not recorded in the RG I register. Statements were taken from Shri D.S. Trivedi, Accountant, and Shri P.S. Gehlot, Production Supervisor, who admitted the existence of these unrecorded clearances. The Commissioner (Appeals) confirmed a partial demand based on these papers but reduced the penalty, noting that the period was prior to the introduction of section 11AC of the Central Excise Act.

3. Statements from Company Personnel and Third Parties:
Shri D.S. Trivedi admitted the shortages and pointed to Shri P.S. Gehlot for the loose papers. Shri Gehlot and Shri Suresh Sharma, Director of the company, later admitted to the clandestine clearances. Additionally, Shri Bupender Kumar of M/s. Sneh Sales Corporation confirmed receiving goods without invoices and paying in cash, further supporting the case of unrecorded clearances.

4. Hypothetical Calculations of Production and Clandestine Clearances:
Revenue calculated that 170.592 MT of castings could have been produced from the short raw materials, leading to a demand of Rs. 6,65,309/- in excise duty. The Commissioner (Appeals) dropped this demand, stating that it was based on presumptions without concrete evidence of production and clearance.

5. Presumption of Facts Based on Evidence:
The Tribunal noted that the case of clandestine removal could not be established solely on presumptions. Clear evidence was required to prove the conversion of raw materials into final products and their clandestine clearance. The Technical Member, however, argued that the evidence of unaccounted clearances and the shortage of raw materials, combined with the statements and private records, established a strong case of evasion.

6. Confirmation of Demand and Imposition of Penalties:
The Commissioner (Appeals) confirmed a demand of Rs. 38,143/- for clearances to M/s. Sneh Sales Corporation and imposed reduced penalties. The Tribunal, after considering the evidence, concluded that the entire demand of Rs. 6,65,309/- should be upheld, and penalties should be imposed accordingly. The Technical Member's view was supported by the third member, leading to the final order restoring the original adjudicating authority's decision.

Final Judgment:
The majority order set aside the Commissioner (Appeals)'s decision, allowing Revenue's appeal and restoring the original adjudicating authority's order, confirming the duty demand of Rs. 6,65,309/- and imposing penalties accordingly.

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