2017 (10) TMI 612 - AT - Central Excise

Clandestine removal - shortage of inputs in comparison to the book balance as detected during the stock verification - case of Revenue is that the labor payment vouchers would be relied upon to establish the charge of clandestine removal - it is contended by the Revenue that the evidentiary value of loose sheets and the writing pads is beyond any doubt to establish charge of clandestine removal. Held that - It is clear that the assessee complained to the Commissioner of Central Excise against the visiting officers and apparently, no steps had been taken - There is no tangible evidence to indicate manufacture and clandestine removal of the goods. The preponderance of probabilities in the context of the evidences vis-a-vis, the statement does not lead to conclusion of charge of clandestine removal. Therefore, the Commissioner (Appeals) rightly set aside the demand of duty partly. The amount of ₹ 43,533.59 was confirmed for shortage of raw materials ascertained during the stock verification. There is no material available on record of removal of the shortage materials clandestinely without payment of duty and the imposition of penalty of equal amount of duty is not justified. Regarding the confiscation of the excess finished goods and the imposition of fine and penalty, the excess quantity of finished goods was ascertained during stock verification. A feeble attempt was made by the ld.Counsel of the assessee that the stock verification was not conducted in proper manner - The adjudicating authority observed that he customer of the assessee stated that in earlier occasion, he received the goods without invoice. It is already stated that the customers retracted the statements immediately. In any event, the finding of the adjudicating authority on the basis of the customers is not tenable unless there is material available on record in relation to the seized goods - the confiscation of the excess finished goods is justified for contravention of the Rules and the amounts of imposition of fine and penalty are excessive. The imposition of redemption fine and penalty of ₹ 1,00,000/- and ₹ 85,000/- respectively are reduced to ₹ 50,000/- and ₹ 35,000/- respectively - decided partly in favor of appellant.

Summary

Issues Involved:
1. Classification and eligibility of Cenvat/Modvat credit on inputs.
2. Alleged clandestine removal of finished goods and inputs.
3. Imposition of penalties and fines.
4. Adequacy of evidence supporting the allegations.

Issue-wise Detailed Analysis:

1. Classification and Eligibility of Cenvat/Modvat Credit on Inputs:
The assessee, engaged in manufacturing decorative and industrial laminates, availed Cenvat/Modvat credit on various inputs like kraft paper, phenol paper, formaldehyde, B.O.P.P. films, and Melamine under the Central Excise Rules, 1944. A show-cause notice dated 01.12.1999 proposed the disallowance and recovery of Modvat credit amounting to ?3,05,029/- with interest, alleging a shortage of inputs compared to book balance detected during stock verification. The Commissioner (Appeals) upheld the denial of Cenvat Credit of ?43,533.59 for the shortage of raw materials in stock taking but set aside the differential amount of ?2,61,495.48 based on loose sheets, written pads, and labor payment vouchers.

2. Alleged Clandestine Removal of Finished Goods and Inputs:
The show-cause notice dated 01.12.1999 also demanded duty of ?34,75,865/- for the alleged clandestine removal of finished goods from September 1997 to December 1998. The charge was based on incriminating documents like loose sheets and written pads recovered from the factory premises. The Commissioner (Appeals) found the evidence insufficient to support the allegations, noting that the incriminating documents were not adequately explained, and the investigation lacked corroborative evidence such as extra consumption of electricity or market inquiries to identify buyers. Statements from customers were retracted, and the labor payment vouchers used to calculate the alleged clandestine manufacture were deemed unreliable.

3. Imposition of Penalties and Fines:
The adjudicating authority confirmed the demand of duty and imposed penalties, including a penalty equal to the duty amount and disallowed Modvat Credit with interest. The Commissioner (Appeals) modified these orders, reducing the penalties and fines. The confiscation of finished goods and raw materials was upheld, but the redemption fine and penalties were reduced. The Tribunal further reduced the penalties and fines, finding them excessive in light of the evidence.

4. Adequacy of Evidence Supporting the Allegations:
The Tribunal emphasized the need for tangible evidence to substantiate charges of clandestine removal. The reliance on theoretical calculations and retracted statements was insufficient. The Tribunal cited various case laws underscoring the necessity of corroborative evidence to prove such serious charges. The statements recorded under duress and the lack of thorough investigation into the seized documents weakened the Revenue's case.

Conclusion:
The Tribunal upheld the Commissioner (Appeals)'s decision to set aside most of the demand and penalties, except for the confirmed amount of ?43,533.59 for the shortage of raw materials. The penalties and fines were further reduced, emphasizing the need for substantial evidence in cases of alleged clandestine removal. The appeals and cross-objections were disposed of accordingly.