2016 (2) TMI 450 - AT - Central Excise

Shortage of inputs as well as finished goods - Demand of duty along with interest - Penalty imposed - Held that - Weighment of stock has been done on the basis of averages of the stocks found in the factory during the course of investigation. In appellant s own statement although the duty has been paid but reasons for shortages has been explained by the appellant that shortage might be the reason that the weighment has been done on average basis. Therefore, the facts of the case of Bajrang Petro Chemicals (P) Ltd. (2014 (12) TMI 738 - ALLAHABAD HIGH COURT ) are distinguishable from the facts of the case in hand. In fact, in that case explanation of shortages were not offered by the appellant but in this case appellant has explained the reason of shortages for average base method for weighment. Further, the Hon ble High Court of Allahabad itself in the case of Minakshi Castings (2011 (8) TMI 896 - ALLAHABAD HIGH COURT ) has held that the shortage without any evidence of clandestine removal cannot lead to inference to evasion of duty. Therefore, as in this case Revenue has not come with any evidence which can lead the goods have been cleared clandestinely. Merely on the basis of stock taking on average basis the allegation of clandestine removal of goods is not sustainable. With these observations, hold that stock taking done on average basis is not a correct method. Consequently, the allegation of shortage of input/finished goods due to clandestine removal is not sustainable. - Decided in favour of assessee

Summary

Issues:
Appeal against confirmed duty demand, interest, and penalty due to shortage of inputs and finished goods.

Analysis:
1. The appellant, a manufacturer of MS Ingots, appealed against an order confirming duty demand, interest, and penalty due to shortages of inputs and finished goods found during stock weighing.

2. The appellant's factory was visited by Revenue officers who found shortages of MS Ingots, runners and risers, and sponge iron. The appellant paid duty on the shortages but failed to provide a plausible explanation. Subsequently, a show cause notice was issued leading to the confirmed duty demand, interest, and penalty.

3. The appellant argued that the shortages were due to the weighment being done on an average basis, causing variations. The appellant cited previous cases to support the contention that without evidence of clandestine removal, the demand was not sustainable.

4. The Revenue opposed, referring to a case where the High Court held that if shortages are admitted without explanation, Revenue need not prove clandestine removal. The Revenue contended that the impugned order should be affirmed.

5. After hearing both parties, the Tribunal noted that the weighment was indeed based on averages, and the appellant had explained the shortages were due to this method. The Tribunal distinguished this case from previous ones where no explanations were offered for shortages.

6. The Tribunal held that without evidence of clandestine removal, shortages alone cannot lead to duty evasion. As Revenue failed to provide such evidence, the allegation of clandestine removal was deemed unsustainable. The Tribunal concluded that stock weighing on an average basis was incorrect, and the shortage allegation was not valid.

7. Consequently, the Tribunal found no merit in the impugned order, setting it aside and allowing the appeal.

This detailed analysis of the judgment showcases the arguments presented by both parties, the legal principles applied, and the reasoning behind the Tribunal's decision to set aside the confirmed duty demand, interest, and penalty due to shortages of inputs and finished goods.