2015 (10) TMI 1555 - AT - Central Excise

Denial of CENVAT Credit - whether or not the accounting errors as claimed by the assessee resulted in certain short payment of duty on finished goods and availment of irregular credit on certain inputs. - held that - While the whole discrepancy in physical stock has come to light only as per the stock taking conducted by the assessee, there is no allegation or evidence to the effect that the shortages/excesses are not attributable to accounting errors or complexities but are due to unaccounted clearances finished goods and consumption of raw material. In the absence of any such corroboration the assessee s plea on the non-sustainability of order reversing credit or demanding duty has strong force and is to be admitted. Accordingly, we find the reversal of credit on the raw material and the demand of duty on the finished goods solely on the ground of physical stock taking done by the assessee is not sustainable in the facts and circumstances of the present case. - physical inventory was in fact done by the assessee and the Revenue came into the picture much later. In any case, the nature and possibility of accounting error not being denied the adjustment as ordered by the Commissioner on the clear reasoning cannot be faulted. We find that remand of the case on this ground will not serve any purpose. - Decided in favour of assessee.

Summary

Issues:
- Appeal against the impugned order of Commissioner dated 06/09/2011 regarding Central Excise duty liability on Bali Bearings and Axle Boxes.
- Assessment of shortages and excesses in raw materials and finished goods.
- Adjustment of shortages against excesses.
- Reversal of Cenvat credit on inputs found short and demand for excise duty on finished goods found excess.
- Validity of accounting errors leading to duty payment discrepancies.
- Allegations of clandestine clearance and evasion of duty.
- Admissibility of adjustments made by the Commissioner.
- Verification of physical stock by officers.
- Reconciliation of inventory discrepancies.
- Compliance with Central Excise law regarding stock discrepancies.

Analysis:

1. The case involves an appeal by both the assessee and the Revenue against the Commissioner's order regarding Central Excise duty liability on Bali Bearings and Axle Boxes. The assessee claimed that the small shortages and excesses in raw materials and finished goods, amounting to less than 0.5% of the total value, were due to the complexity of operations and accounting errors inherent in large-scale manufacturing processes. They argued that such discrepancies did not indicate any clandestine clearance or intentional evasion of duty.

2. The Revenue contested the Commissioner's decision to allow the adjustment of shortages against excesses without independent verification by officers. They also criticized the failure to confiscate excess finished goods and impose redemption fines. The key issue was whether the accounting errors claimed by the assessee resulted in underpayment of duty on finished goods and irregular credit on inputs.

3. The Tribunal acknowledged the complexities of the assessee's operations, involving a wide range of raw materials and finished products. The computerized accounting system, coupled with annual stock verifications, led to minor discrepancies during reconciliation, which were within acceptable tolerance limits. The Tribunal cited precedents where similar inventory variations were deemed reasonable. Importantly, there was no evidence of unaccounted clearances or intentional wrongdoing, strengthening the assessee's argument against duty reversal and credit demand based solely on physical stock discrepancies.

4. The Tribunal upheld the Commissioner's decision to allow adjustments based on the reasoning provided in the order, dismissing the Revenue's plea for further verification by officers. The Tribunal concluded that remanding the case would serve no purpose, especially since the assessee's appeal was allowed. Consequently, the assessee's appeal was allowed, providing consequential relief, while the Revenue's appeal was dismissed. The miscellaneous application was also disposed of, concluding the judgment.