2017 (4) TMI 1122 - AT - Central Excise

Shortage of raw materials - shortage of 200.278 MTs of raw materials were found as compared to the books stock - case of appellant is that the stock taking was conducted on the eye estimation basis without ascertaining the actual stock, therefore the quantum of shortage found is questionable - Held that - the appellants had ample opportunity to give the same explanation immediately after the panchnama but they have not chosen not to give any explanation till the filing of the reply to the show-cause notice. Therefore, the explanation given by the appellants is after thought and do not carry any weight - the demand is sustainable on the shortage found during the visit of the officers - appeal dismissed - decided against appellant.

Summary

Issues:
- Shortage of raw materials found during stock taking in the factory
- Challenge to the method of stock taking and quantum of shortage
- Admissibility of explanations provided by the appellants
- Sustainment of demand for cenvat credit on shortage

Analysis:

1. Shortage of Raw Materials: The central excise officers conducted a physical stock taking in the factory of the appellants, revealing a shortage of 200.278 MTs of raw materials compared to the books stock. The shortage was acknowledged by the partner and factory manager of the appellant firm during the panchnama and statements recorded under Section 14 of the Central Excise Act, 1944. The appellants paid the cenvat credit on the shortage after three days.

2. Challenge to Stock Taking Method: The main defense raised by the appellants was that the stock taking was done based on eye estimation without physically weighing the entire stock, leading to a questionable quantum of shortage. They argued that 100% physical weighment was necessary for corroborative evidence. The appellants cited several decisions to support their contention, emphasizing the importance of proper stock verification methods.

3. Admissibility of Explanations: The revenue representative contended that the appellants accepted the shortage during the statement recording and promptly debited the cenvat credit, indicating that any subsequent explanations questioning the shortage were an afterthought. The revenue relied on various judicial precedents to support their argument that explanations provided later cannot alter the established facts recorded during the visit of the officers.

4. Sustainment of Demand: The Tribunal considered the submissions from both parties and found that the shortage was detected during the officers' visit, acknowledged in the panchnama and statements, and promptly acted upon by the appellants. The Tribunal noted that the appellants did not provide any explanation immediately after the panchnama, casting doubt on the credibility of their later explanations. The Tribunal upheld the lower authorities' decision, concluding that the demand for cenvat credit on the shortage was sustainable based on the established facts and legal principles.

In conclusion, the Tribunal upheld the impugned order, dismissing the appeals and affirming the sustainment of the demand for cenvat credit on the shortage of raw materials found during the stock taking in the factory. The judgment emphasized the importance of proper stock verification methods and timely responses to discrepancies identified during such inspections.