2017 (7) TMI 982 - AT - Central Excise

Clandestine manufacture and removal - shortage of cenvat inputs - M.S. Ingots - Held that - the revenue had neither disclosed any material nor described the method of stock taking to counter the case. The only contention is that the small quantity was lying in the factory premises and therefore, the weighment was done easily. I am unable to accept the contention of the revenue without any basis, such as, the details of the weighment etc - The Tribunal consistently observed in various decisions that stock verification cannot be conducted by a rough estimation - reliance placed in the case of M/s. Raika Ispat Udyog Pvt. Ltd. Versus CCE, Raipur 2016 (7) TMI 1029 - CESTAT NEW DELHI , where it was held that apart from the allegation of shortage based on estimation, no other corroborative evidence is presented to show that possible clandestine manufacture, clearance, transport or buyers of such goods. The judicial view is that the stock taking would be conducted in a proper manner, which is obviously supported by some material such as, weighment slip, counting slip etc, as the case may be. It cannot be on the basis of eye estimation or otherwise - The assessee claimed that the said materials were lying at their factory and informed the department subsequently and no enquiry was conducted thereon. That the allegations in the instant case are clandestine removal of the goods and revenue had not disputed the major portion of the demand dropped by the Adjudicating Authority. Appeal dismissed - decided against Revenue.

Issues Involved:
1. Amount of duty demanded.
2. Stock verification and shortage of goods.
3. Methodology of stock taking.
4. Allegations of clandestine removal of goods.
5. Admissibility of evidence and confessional statements.

Issue-wise Detailed Analysis:

1. Amount of Duty Demanded:
The Revenue filed an appeal against the order of the Commissioner Haldia Commissionerate, initially demanding ?1,17,40,607/-. However, a letter dated 29.03.2017 from the A.C. (T & R) Central Excise & S. Tax, Haldia Commissionerate, informed the Tribunal that the duty involved was actually ?45,29,162/-.

2. Stock Verification and Shortage of Goods:
The respondents have two manufacturing units: a steel melting shop and a rolling mill division, both registered separately with the Central Excise authorities. On 30.07.2001, Central Excise Officers conducted a stock verification at the appellant's factory, leading to a show cause notice dated 30.03.2003, proposing a demand of ?1,17,40,607/- due to alleged clandestine removal of finished goods and shortage of CENVAT inputs. The Adjudicating Authority confirmed a demand of ?80,323/- along with interest and imposed a penalty for unaccounted M.S. Ingots removed from the steel melting shop division. The Revenue appealed against the reduction in demand to ?45,29,162/- for goods found short during stock taking.

3. Methodology of Stock Taking:
The Revenue contended that the Adjudicating Authority erroneously assumed a large quantity of stock, arguing that the small quantity could be weighed using a 40 MT weighbridge. The respondent countered that the stock verification was not conducted properly and requested details of the stock-taking report, including weighment slips.

4. Allegations of Clandestine Removal of Goods:
The Adjudicating Authority found that the case was built on apparent shortages detected in the factory premises. However, there was no evidence in the show cause notice or stock verification reports detailing the procedure adopted by the department to arrive at the shortages. The Authority noted the necessity for transparent and concrete methods for such serious charges, especially for goods like iron and steel, where judicial pronouncements require physical weighment to substantiate shortages.

5. Admissibility of Evidence and Confessional Statements:
The Tribunal consistently observed that stock verification cannot be conducted by rough estimation. Several cases were cited, including Raika Ispat Udyog Pvt. Ltd. vs. Commissioner of Central Excise, where it was held that allegations of shortages are untenable without proper physical weighment. In Mahendra Steel Industries vs. Commissioner of Central Excise & S. Tax, it was noted that the methodology of weighment was questionable, and no corroborative evidence supported the allegations of clandestine removal. The Gujarat High Court in Commissioner of Central Excise vs. Omkar Textile Mills Pvt. Ltd. and Commissioner of Central Excise, Customs & S. Tax, Daman vs. Nissan Thermoware Pvt. Ltd. emphasized that mere statements during stock verification, especially if retracted, are insufficient without corroborative evidence.

Conclusion:
The Tribunal found that the Revenue did not provide material or describe the stock-taking method to counter the case. The Tribunal held that stock verification must be supported by material evidence like weighment slips and cannot be based on rough estimation. The appeal filed by the Revenue was dismissed, agreeing with the findings of the Adjudicating Authority that the allegations of clandestine removal were not substantiated by concrete evidence.

Judgment:
The appeal filed by the Revenue is dismissed. (Pronounced in the open court on 18.07.2017)

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