2017 (6) TMI 716 - AT - Central Excise

100% EOU - shortage in stock - benefit of N/N. 1/95-CE or 53/97-Cus. - raw materials not used for the purposes they were imported duty free - Held that - the fact that both shortages and excesses have been noticed in stock taking as well as the fact that the discrepancy is worked out to only 0.36% of the total materials consumed leads us to conclude that the duty demand is not justified - there is no allegation of any clandestine removal or diversion of either inputs or finished products. Similar issue decided in the case of CCE Vs Maruti Suzuki India Ltd. 2015 (8) TMI 493 - SUPREME COURT , where it was held that duty demand cannot be sustained in the absence of any allegation of clandestine removal. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against demand of excise duty on indigenous materials and customs duty on imported materials due to discrepancies in physical inventory compared to books of accounts.

Analysis:
The appellant, a 100% EOU manufacturing gas lighters, faced a demand for excise duty and customs duty after discrepancies were found during the annual stock taking. The discrepancies led to a show cause notice proposing duty demands, interest, and penalties. The original authority confirmed the duty demands, but the Commissioner (Appeals) set aside the demands related to excesses. The appellant argued that the discrepancies were due to accounting errors and the differences did not indicate actual physical shortages, emphasizing the small size of some inputs and the minimal value of shortages compared to total consumption. The appellant also cited relevant case laws to support their arguments.

The Department countered by stating that duty demands were justified as the imported goods found short were not used in manufacturing goods for export, as required by the relevant Customs Notification. The Department sought to distinguish the case laws cited by the appellant, arguing that the shortages were not similar to those in the referenced cases.

After considering both sides and examining the records, the Tribunal noted the challenges in accounting for extremely tiny inputs and the disproportionate value of discrepancies compared to total consumption. The Tribunal found that the shortages amounted to only 0.36% of total materials consumed, with no evidence of clandestine clearance. Referring to a Supreme Court decision in a similar case, the Tribunal concluded that the duty demand was not justified in the absence of allegations of clandestine removal or diversion of inputs or finished products.

Based on the discussions and the similarities to the Supreme Court decision, the Tribunal set aside the impugned order, allowing the appeal with any consequential relief as per law.

In conclusion, the Tribunal ruled in favor of the appellant, highlighting the negligible discrepancies in physical inventory, lack of evidence for duty evasion, and the absence of clandestine activities regarding inputs or finished products.