2015 (1) TMI 1128 - AT - Central Excise

Clandestine removal of goods - Penalty u/s 11AC - Held that - The allegation of excess unaccounted production of sugar is purely based on the alleged excess production of molasses reported by the appellant themselves vide under letter dated 30-6-2009. There is no dispute that the quantity of molasses stored in the tank had been determined by dip reading. In my view, determining the quantity of molasses by dip reading is not a foolproof method as the volume of molasses may undergo change due to temperature during the summer season. As such, on the basis of excess molasses reported during stock taking, it cannot be alleged that there was excess production of sugar. The Supreme Court in the case of Oudh Sugar Mills Ltd. v. Union of India (1962 (3) TMI 75 - SUPREME COURT OF INDIA) has clearly held that allegation of clandestine production and clearance based upon calculations of raw material fed into the process are vitiated by error of law, being based only on inferences involving unwarranted assumptions apart from the fact of excess quantity of molasses, there is virtually no other evidence indicating any clandestine removal of the sugar. - Decided in favour of assessee.

Summary

Issues: Alleged clandestine removal of excess sugar without payment of duty based on excess production of molasses reported by the appellant.

Analysis:
1. The appellant reported an excess quantity of molasses to the Department, which was verified and entered in the RG-I register. The Department alleged that this excess molasses indicated excess production of sugar cleared clandestinely without duty payment, leading to a show cause notice for recovery of duty, interest, and penalty.

2. The Joint Commissioner confirmed the duty demand and imposed penalties. On appeal, the Commissioner (Appeals) upheld this decision. The appellant then filed an appeal against the Commissioner (Appeals) order.

3. The appellant argued that the excess molasses reported was due to changes in volume caused by temperature variations during the summer season. They contended that the alleged excess sugar production was not intentional clandestine activity but within permissible limits, citing the precedent of Oudh Sugar Mills Ltd. v. Union of India.

4. The Department opposed the appellant's argument, stating that the excess molasses reported by the appellant indicated unaccounted sugar production.

5. The Tribunal considered the submissions and found that determining molasses quantity by dip reading is not foolproof, especially considering volume changes due to temperature. Relying on the Oudh Sugar Mills Ltd. case, the Tribunal emphasized that allegations of clandestine production based solely on excess molasses reported by the assessee are legally insufficient.

6. The Tribunal concluded that the Department's claim of excess unaccounted sugar production solely based on reported excess molasses was not supported by sufficient evidence. Citing the Oudh Sugar Mills Ltd. case, the Tribunal set aside the impugned order, allowing the appeal with consequential relief.