2017 (12) TMI 597 - AT - Central Excise

Clandestine removal - Whether for some discrepancy found in the quantity of stock of raw material and finished goods, than the recorded balance in the register, whether duty and penalty are being rightly imposed along with confiscation of the goods found in excess, and further order for release of goods on payment of redemption fine is tenable in the facts and circumstances of the case? Held that - no actual weighment of the stock of raw materials and finished goods was made. Thus, the whole exercise was done by way of eye estimation as is evident from. Under such circumstances and method of stock verification, there is bound to be discrepancies - So far as stock of finished HR strips is concerned, the difference is of 33 MT against the recorded balance of 126.440 MT. Thus, there is difference of little more than 20%. I hold that in the case of eye estimation, which is admittedly the case, such variation and/or excess quantity computed does not lead to any adverse inference against the assessee. Further, as per the facts on record, there is no attempt by the appellant-assessee to remove the goods clandestinely. Admittedly, the finished goods were lying inside the factory. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Imposition of duty, penalty, and confiscation of excess stock of raw material and finished goods
- Order for release of goods on payment of redemption fine

Analysis:
1. Imposition of Duty, Penalty, and Confiscation:
The issue in this appeal revolved around discrepancies found in the quantity of stock of raw material and finished goods compared to the recorded balance in the register. The Central Excise Preventive Officers conducted physical verification and found 24.454 MT of raw material and 33.027 MT of finished goods in excess. A show cause notice was issued proposing confiscation and penalty under Rule 25 of Central Excise Rules, 2002. The confiscation of excess stock and penalty were confirmed upon adjudication, with an option to redeem the goods on payment of a fine. The appellant contested this decision, leading to an appeal before the learned Commissioner (Appeals).

2. Commissioner's Observations and Ruling:
The learned Commissioner (Appeals) analyzed the appellant's modus operandi regarding stock management and observed that minor variations in quantity were normal in the industry. The Commissioner noted that the excess stock had not been accounted for in the records, but the appellant had admitted to the discrepancies. The Commissioner also highlighted that the stock verification was based on eye estimation rather than actual weighment, even though a weighbridge was available on the premises. Relying on precedent, the Commissioner held that confiscation and penalty for excess stock were not tenable. The confiscation of billets was set aside, and the confiscation of finished goods was upheld with a reduced penalty.

3. Tribunal's Decision:
The appellant appealed to the Tribunal, arguing that the show cause notice did not reference Section 11 AC of the Act and that penalty under Rule 25 was not justified. The Tribunal considered the lack of actual weighment during stock verification and the discrepancies in the quantity of raw material and finished goods. It noted that the discrepancies were due to eye estimation and held that such variations did not warrant adverse inferences against the appellant. The Tribunal found no evidence of clandestine removal of goods and deemed the show cause notice vague and presumptive. Consequently, the Tribunal set aside the confiscation and penalty imposed by the Commissioner (Appeals), allowing the appeal filed by the appellant.

In conclusion, the Tribunal ruled in favor of the appellant, setting aside the confiscation and penalty, and granting them consequential benefits in accordance with the law.