2017 (12) TMI 83 - AT - Central Excise

Clandestine removal - inputs - diversion of stock - physical verification - Held that - the Learned Commissioner have erred in selectively relying on the evidence on record, leading to erroneous conclusion. We find that no discrepancy was found in the stock of raw materials on physical verification. Further, the variation found in the stock of armchair is only 7.3%. Chairs without arm is only 0.8%, PCC crates differences 3.4%, plastic scrap differences 1.74%. Thus, these variations are very small and are attributable to the normal variation in physical stock taking calling for no adverse inference. Further, the variation in respect of baby chairs is 10%. The appellant gave a cogent explanation that during inspection, when the physical verification of stock was done, the same was done at a hurried pace leading to error in counting. That chairs with and without arms in total are about 8% more. Whereas baby chairs are less by 10%. Thus, there being equivalence in the difference, ipso facto explains the error in physical stock taking. Diversion of raw material - shortage of stock - Held that - the appellants have made payment for such inputs through the banking channel. Further, other than bald allegation. There is no evidence of diversion of the raw materials. The reliance placed on the statement of the security guard is also misplaced as he had categorically stated that the Vahan Register was being maintained by them at their sweet will and also there was no proper system of recording. Other security guards during the other shifts may not have always recorded the entry of trucks in the said Vahan Register - Revenue have disputed 84 invoices/transactions and have disputed the vehicle numbers with respect to 3 - 4 vehicles/invoices. We hold that such minor error cannot lead to drawing of adverse inference under the fact that the Learned Commissioner have not disputed the production of finished goods and the clearance on payment of duty. Further we find that there is no allegation in the show cause notice that the appellants have acquired raw material PP granules from some other source. We further find that there is no finding as to flow back of cash to the appellants. The statements recorded in the course of investigation, reliance on which have been placed by the Learned Commissioner, are not reliable in view of non-observation of the condition precedent in Section 9D of the Central Excise Act. We further find that the transporters have also supported delivery of the inputs in question to the factory of the appellants. Further, the supplier of raw material, namely, the proprietor of M/s JK Enterprises have also supported the delivery of the raw material being disputed by Revenue. We further hold that discrepancy, if any found in the records maintained by the transporter cannot lead to adverse inference against the appellant manufacturer. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Discrepancies in stock verification of finished goods.
2. Confiscation of goods found in excess.
3. Demand of duty on goods found short.
4. Disallowance of Cenvat credit on inputs.
5. Penalty on the director.

Detailed Analysis:

1. Discrepancies in Stock Verification of Finished Goods:
The Anti-Evasion Wing inspected the factory premises and found discrepancies in the stock of finished goods as compared to the RG-I register. The discrepancies were as follows: Arms Chair (+7.3%), Chairs without Arm (+0.8%), Crates PCC (+3.4%), Plastic Scrap (+1.74%), and Baby Chairs (-10%). The appellant explained that the discrepancies were due to accounting mistakes and the semi-finished goods being counted during inspection. The Tribunal found that the variations were minor and attributable to normal variation in physical stock taking, calling for no adverse inference.

2. Confiscation of Goods Found in Excess:
The goods found in excess were valued at ?1,76,697/- involving duty of ?28,383/-. These were seized on the belief that they were liable for confiscation. The Commissioner confirmed the confiscation and imposed a redemption fine of ?30,000/- in lieu of confiscation. The Tribunal found that the variations were minor and explained by the appellant, thus calling for no adverse inference.

3. Demand of Duty on Goods Found Short:
The goods found short (Baby Chairs) were valued at ?96,408/- involving duty of ?15,425/-. The Commissioner imposed the duty with interest and appropriated the amount already deposited. The Tribunal found the explanation for the discrepancy to be cogent and attributed it to normal variation in stock taking, thus calling for no adverse inference.

4. Disallowance of Cenvat Credit on Inputs:
The Department alleged that the appellant fraudulently availed Modvat credit amounting to ?61,78,804/- on 810.451MT of plastic granules, which were not received in the factory. The Commissioner disallowed the credit and imposed an equal amount of penalty. The Tribunal found that the appellant made payments through banking channels and maintained proper records of receipt and utilization of inputs. The reliance on the statement of the security guard was found to be misplaced, and no evidence of diversion of raw materials was found. The Tribunal held that minor errors in vehicle registration numbers could not lead to adverse inference, especially when the production and clearance of finished goods on payment of duty were not disputed.

5. Penalty on the Director:
A penalty of ?5 lakhs was imposed on the director under Rule 57 of CER 1944. The Tribunal found that the statements relied upon by the Commissioner were not reliable due to non-observation of the condition precedent in Section 9D of the Central Excise Act. The Tribunal set aside the penalty, finding no evidence of the director's involvement in any fraudulent activity.

Conclusion:
The Tribunal allowed the appeals, set aside the impugned order, and held that the appellant is entitled to consequential benefits in accordance with the law. The Tribunal found that the Commissioner had erred in selectively relying on evidence, leading to erroneous conclusions. The discrepancies in stock were minor and attributable to normal variations, and there was no evidence of fraudulent availing of Modvat credit or diversion of raw materials.

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