2015 (12) TMI 255 - AT - Central Excise

Clandestine removal of goods - Shortage of goods found - Held that - Records attached to the Panchnama and statements of the factory manager, clearly indicate that the weighment and shortage of raw materials as ascertained was based upon eye estimation. The statement of factory manager clearly indicates that said weighment done by the officers of 1242 Metric Tunes of MS scrap, will be time consuming and the entire exercise is based on eye estimation. I also find that there is nothing on the record to show that weighment was done by the officers systematically. - show cause notice indicates that the demand of the duty is on the presumptive manufacturing of Ms ingots out of the shortage of MS scrap noticed by the officers during the course of panchnama on 17.03.2007, both the lower authorities have not recorded any evidence to come to such a conclusion that the appellant had manufactured such ingots and cleared the same clandestinely. - Decision in the case of Aum Aluminium P. Ltd. (2012 (4) TMI 557 - CESTAT AHMEDABAD) followed - Decided in favour of assessee.

Issues Involved:
1. Shortage of MS scrap and demand of Central Excise duty.
2. Methodology of stock verification by eye estimation.
3. Allegation of clandestine manufacture and clearance of MS ingots.
4. Applicability of Rule 25 of the Central Excise Rules, 2002.
5. Acceptance of shortage and payment of duty by the appellant.

Detailed Analysis:

1. Shortage of MS Scrap and Demand of Central Excise Duty:
The appellant, a manufacturer of MS Ingots, faced a show cause notice demanding Central Excise duty of Rs. 93,736/-, interest, and penalties due to a detected shortage of 30.85 Metric Tonnes of MS scrap. The adjudicating authority confirmed these demands based on available records, imposing penalties and interest. The appellant did not initially respond to the show cause notice or attend the personal hearing, leading to the confirmation of demands and penalties amounting to Rs. 4,35,000/-.

2. Methodology of Stock Verification by Eye Estimation:
The appellant contested the stock verification method, arguing that the shortage was determined through eye estimation rather than actual weighment. The factory manager's statement corroborated this, indicating that the officers estimated the stock visually due to the time-consuming nature of weighing 1242 Metric Tonnes of MS scrap. The tribunal found no systematic weighment records, deeming the shortage determination method unreliable.

3. Allegation of Clandestine Manufacture and Clearance of MS Ingots:
The show cause notice alleged that the appellant manufactured and clandestinely cleared MS ingots using the short-found MS scrap. However, both lower authorities failed to provide evidence supporting this claim. The tribunal referenced a similar case, Aum Aluminium P. Ltd. Vs. CCE Vadodara, where assumptions and presumptions without concrete evidence were deemed insufficient to establish clandestine manufacturing and clearance.

4. Applicability of Rule 25 of the Central Excise Rules, 2002:
The appellant argued that Rule 25 could not be invoked as the demand was on raw materials, not the finished product. The tribunal agreed, noting that the rule's application was inappropriate given the lack of evidence for clandestine manufacturing.

5. Acceptance of Shortage and Payment of Duty by the Appellant:
The respondent highlighted that the appellant accepted the shortage and paid the duty, interest, and 25% penalty under Section 11AC of the Central Excise Act, 1944. However, the tribunal found that this acceptance was based on the flawed eye estimation method, rendering the acceptance and subsequent payments questionable.

Conclusion:
The tribunal concluded that the lower authorities' confirmation of demands was incorrect due to the unreliable method of stock verification and lack of evidence for clandestine manufacturing. The impugned order was set aside, and the appeal was allowed with consequential reliefs.

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