2017 (12) TMI 666 - AT - Central Excise

Clandestine manufacture and removal - shortage of raw material and finished goods - evidence on record to corroborate the allegation of clandestine removal of the goods - Held that - It is a fact on record that the raw materials found during the course of investigation to manufacture final products other raw material required for manufacturing the, the Revenue has not produced any evidence from where other raw materials were procured or found shortage. It is essential to allege that clandestine manufacture and removal of the goods. No evidence has been produced on record how the goods were manufactured, from where the other raw materials procured, to whom the goods sold, how the goods transported and no tangible evidence has been produced to confirm that the same has been cleared without payment of duty. Therefore the whole of the demand is based on assumption an presumptions. As there is no allegation of shortage of other raw materials which were required to manufacture the said clandestine manufacture of the goods and there is no allegation how the said other raw materials were procured, therefore, the charge of clandestine manufacture and removal of the goods is not sustainable. The department has considered that there is wastage of 22% to 25% in the manufacture of final products relying on the Standard Input Output Norms that the appellant has clandestinely manufactured goods. In respect of the said allegation, Shri Vikas Aggarwal during the cross examination has stated that the number of shifts was recorded in the hot press production sheets which were not relied on by the department. Therefore, the statement cannot be relied in-toto. Although the appellant is manufacturing three final products the demand has been made on average basis which is not sustainable in the eyes of the law. In the absence of any corroborative evidence produced by the Revenue on record merely on the basis of shortage of raw materials during the course of investigation, which has been contested by the appellant that there is no shortage of raw material and finished goods and without adducing any evidence on record for clandestine manufacture and removal of the goods, the demand confirmed on assumption and presumpiton is not sustainable against the appellants - appeal allowed - decided in favor of appellants.

Issues Involved:
1. Allegation of clandestine removal of goods based on raw material and finished goods shortages.
2. Validity of evidence supporting the allegation of clandestine removal.
3. Relevance of Standard Input Output Norms (SION) in determining process loss.
4. Calculation and sustainability of the demand.
5. Bar of limitation on the demand.

Detailed Analysis:

1. Allegation of Clandestine Removal of Goods:
The primary issue revolved around the alleged clandestine removal of final goods due to shortages of raw materials (Melamine, Phenol, and Face Veneer) and finished goods (plywood, block board, and flush door) found during a physical stock verification on 05.05.2007. The appellant contested the findings, arguing that the stock was not properly inspected, particularly in shed No.2, and thus there was no actual shortage.

2. Validity of Evidence Supporting the Allegation:
The appellant contended that there was no corroborative evidence to support the allegation of clandestine removal. They emphasized that no evidence was provided regarding the buyers of the alleged clandestinely manufactured goods, receipt/payment of money, transportation, or extra consumption of electricity. The tribunal agreed, noting the lack of evidence such as procurement of other necessary raw materials, identification of buyers, and transportation records. The tribunal referenced several judicial pronouncements, including CCE v. Nexo Products (India) and CCE v. Anand Founders & Engineers, which underscored the necessity of concrete evidence to substantiate claims of clandestine removal.

3. Relevance of Standard Input Output Norms (SION):
The department relied on SION to argue that the process loss of face veneer was higher than the standard 17%. However, the tribunal found that the appellant's explanation of higher wastage due to manufacturing better quality goods was plausible. The tribunal noted that the hot press production records, which were not considered by the department, supported the appellant's claim. Consequently, the reliance on SION without considering actual production records was deemed insufficient.

4. Calculation and Sustainability of the Demand:
The tribunal observed that the department failed to specify the breakup of the entire demand into the three final products allegedly manufactured and clandestinely cleared. The demand was made on an average basis, which the tribunal found unsustainable. The tribunal highlighted that the demand was based on assumptions and presumptions without concrete evidence, referencing cases like Nachiketa Paper Ltd. and Nissan Thermoware Pvt. Ltd., which emphasized the need for solid evidence in such allegations.

5. Bar of Limitation on the Demand:
The appellant argued that the entire demand was barred by limitation. The tribunal did not explicitly address this point in the final judgment, as the primary focus was on the lack of evidence supporting the clandestine removal allegations.

Conclusion:
The tribunal concluded that the demand was not sustainable due to the absence of corroborative evidence. The tribunal emphasized that mere shortages detected during the stock verification could not ipso facto lead to allegations of clandestine removal without substantial proof. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief.

Pronouncement:
The judgment was pronounced in the open court on 11.12.2017.

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