2016 (9) TMI 1176 - AT - Central Excise

Whether stock-taking of goods manufactured by the Appellant has been correctly done by the officers of DGCEI and the Income Tax authorities to determine shortages and clandestine removal of goods - Imposition of penalty - Held that - there is no other positive evidence on record that any finished goods have been cleared without payment of duty. Adjudicating authority has gone by the presumption that shortages of 1147.110 MT of Silico Manganese and 492 MT of Ferro Manganese calculated by the departmental/Income Tax authorities must have been clandestinely removed. It is now a well settled legal proposition that no case of clandestine removal can be held to be proved on the basis of presumptions, assumptions and surmises. Secondly, it has already been observed by us that stock taking done by the department is hypothetical and full of flaws. In the case of clandestine removals there should be positive evidence to indicate clandestine activity like seizure of finished goods in transit, purchase of extra raw materials, excess consumption of power etc. In this present case before us even the Appellant has not admitted to have made any clearances clandestinely. The finished goods are cleared by the Appellant on actual weighment basis in containers/trucks and it is not the case of the Revenue that any less quantity is cleared by comparing final goods quantities shown in the clearance documents and the DSA quantity. In view of the observations and settled proposition of law, case of the department regarding clandestine removal is not sustainable against the Appellants, except shortage of 6.750 MT of Silicon Manganese admitted by the Appellants. So far as imposition of penalties upon the Appellants are concerned, it is observed that once clandestine removal case booked against the Appellants does not sustain then there is no point in imposing penalties upon the Appellants. Accordingly Appeals filed by the Appellants are required to be allowed, except to the extent contained in the next paragraph. So far as shortage of 6.750 MT of Silico Manganese, in packed condition is concerned, Appellants in Appeal accepted this shortage. Further in their reply to the show cause notice, before the Adjudicating authority, also Appellant accepted this shortage. Order-in-Original, passed by the Adjudicating authority, is required to be upheld. This shortage of 6.750 MT of Silico Manganese is required to be accounted for in the DSA and liable to duty if not already accounted for. - Decided partly in favour of appellant

Summary

Issues Involved:
1. Method of stock-taking by Income Tax and Central Excise authorities.
2. Allegation of clandestine manufacture and clearance.
3. Evidentiary value of stock-taking methods.
4. Admissibility of expert opinion and cross-examination requests.
5. Legal precedents on stock-taking and clandestine removal.
6. Imposition of penalties.

Issue-wise Detailed Analysis:

1. Method of Stock-Taking by Income Tax and Central Excise Authorities:
The Appellant contested the method of stock-taking by both Income Tax and Central Excise authorities, arguing that the methods were hypothetical and not disclosed. The Income Tax authorities included unsorted materials not entered in the Daily Stock Account (DSA), while Central Excise officers used a weigh-volume ratio for sorted materials without actual weighment. The Appellant's method involved actual weighment using baskets of known capacities, which they argued was more accurate.

2. Allegation of Clandestine Manufacture and Clearance:
The Appellant argued that no clandestine manufacture or clearance was established. They highlighted that the final sale was based on actual weighment, and there was no evidence of any finished goods being cleared without payment of duty. The Central Excise authorities' reliance on estimated stock shortages was deemed insufficient to prove clandestine activity.

3. Evidentiary Value of Stock-Taking Methods:
The Tribunal noted discrepancies in the stock-taking methods of Income Tax and Central Excise authorities. The Income Tax inventory included both sorted and unsorted materials, while the Central Excise inventory only considered sorted materials. The Tribunal emphasized that accurate stock-taking should involve multiple samples from different portions of heaps due to their irregular shapes and heterogeneous nature.

4. Admissibility of Expert Opinion and Cross-Examination Requests:
The Appellant provided an expert opinion from a Chartered Engineer, stating that weight cannot be accurately determined by weight-volume ratio. The Tribunal criticized the Adjudicating authority for not addressing this expert opinion and for denying the Appellant's request for cross-examination of the Income Tax officers who conducted the stock verification. The Tribunal held that the absence of cross-examination diminished the evidentiary value of the stock-taking records.

5. Legal Precedents on Stock-Taking and Clandestine Removal:
The Tribunal referred to several case laws, such as J.K. Corporation Ltd. v. Commissioner of C.Ex. & Cus., Bhubaneswar, and Steel Authority of India Ltd. v. Commissioner of C.Ex., Mysore, which established that stock-taking based on estimation cannot substantiate allegations of clandestine removal. The Tribunal reiterated that assumptions and presumptions cannot form the basis for such allegations without concrete evidence.

6. Imposition of Penalties:
Given the flawed stock-taking methods and lack of concrete evidence, the Tribunal found no justification for imposing penalties on the Appellants. The only exception was the admitted shortage of 6.750 MT of Silico Manganese, which the Appellant acknowledged as an accounting error. The Tribunal upheld the duty liability for this shortage but dismissed the rest of the penalties.

Conclusion:
The Tribunal concluded that the stock-taking methods used by the authorities were not reliable for confirming the demand against the Appellants. The case of clandestine removal was not sustainable due to the lack of positive evidence. The Tribunal allowed the Appeals, except for the admitted shortage of 6.750 MT of Silico Manganese, for which the duty liability was upheld. The penalties imposed by the Adjudicating authority were set aside.