2015 (2) TMI 791 - AT - Central Excise

CENVAT Credit - differential quantity of scrap - shortage has been found on eye estimation basis - statements were recorded under threat - during the course of adjudication, the appellants sought cross-examination of Panchas witnesses which was denied - violation of principles of natural justice - Held that - In this case an investigation was done in the factory on 31.07.2002. It is an admitted fact that physical verification of raw material was not done and the stock was taken on eye estimation basis. It was found that there was shortage of 2042.405 M.T. Therefore, the CENVAT credit was attributed to the shortage which was worked out to ₹ 17,97,316/-. The weighment of raw material was disputed by the appellants on the very next day and lodged their protest before the Addl. Commissioner concerned and request for weightment on physical basis of raw material but the said request has been turned down by the adjudicating authority on the premise that the letter dated 01.08.2002 is an after-thought. I have gone through the statement of Director recorded subsequently also but these statements do not confirm the acceptance of the shortage of raw material by the Director. Further, I find that the case has been made out on the basis of Panchnama drawn during the course of investigation and the permission for cross-examination of panchas was not given to the appellants. Therefore, I hold that there is a violation of principles of natural justice. In these circumstances, I set aside the impugned order and remand the matter back to the adjudicating authority - Decided in favour of assessee.

Summary

Issues: Appeal against demand of duty, interest, and penalty on main appellant and penalties on co-appellants based on shortage of raw material and CENVAT credit.

Analysis:
1. The main appellant, a manufacturer of M.S. Ingots, faced a demand of duty, interest, and penalty due to a shortage of M.S. Scrap found during a departmental visit. The physical stock was verified on an eye estimation basis, leading to allegations of inadmissible CENVAT credit. The initial demand was confirmed against the main appellant and penalties imposed on co-appellants.

2. The appellants contested the shortage findings, highlighting the lack of physical verification and denial of cross-examination of witnesses during adjudication. They argued that the shortage determination based on eye estimation lacked credibility and violated principles of natural justice. The appellants cited relevant case laws supporting their position.

3. The opposing party argued that the admissions made by the Director and Production Manager during stock verification indicated acknowledgment of the shortage. They disputed the appellants' claims of procedural violations and emphasized the substantial nature of the shortage compared to cases cited by the appellants.

4. After considering both sides, the judge noted the absence of physical verification, the disputed shortage, and the denial of cross-examination as violations of natural justice. The judge found the case built on a Panchnama without granting the appellants the opportunity to question the witnesses. Consequently, the judge set aside the initial order and remanded the matter for proper cross-examination and a fresh decision by the adjudicating authority.

5. The judgment allowed the appeals by way of remand, emphasizing the importance of upholding principles of natural justice and ensuring a fair adjudication process for the appellants.