2018 (2) TMI 791 - AT - Central Excise

Difference in the stock vis-a-vis RG-I - Revenue submits that 2% norm is prescribed and it will have to be followed. However, he accepts that somewhere the loss was below 2% - Held that - it appears that 2% limit prescribed by the Board is on estimate basis and it is a guiding factor. By looking the chart in another year, the loss was somewhere below the 1%. If the average will be taken it will go on minor side. Specially when the assessee is a Public Sector Undertaking and no individual interest is involved - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Central Excise duty demand based on stock variation.
2. Permissibility of variation as per Board circular.
3. Applicability of 2% norm.
4. Judicial precedent on demands made under Rule 223A.
5. Consideration of practical difficulties in estimating stock.

Central Excise Duty Demand Based on Stock Variation:
The appeal was filed against an order demanding Central Excise duty due to a difference found in stock during a verification process. The appellant, a Public Sector Undertaking manufacturing steel items, contested the demand, arguing that the variation was within permissible limits as per industry practices and Board circulars.

Permissibility of Variation as per Board Circular:
The appellant contended that the variation in stock was in line with industry norms and Board circulars, which allow for a 2% variation. The appellant highlighted that previous and subsequent years had variations below 2%, cumulated in the year under review, where it exceeded 2%.

Applicability of 2% Norm:
The Revenue, represented by the ld. AR, acknowledged that the 2% norm was prescribed but argued that the variation in some instances was below this threshold. The Tribunal noted that the 2% limit was an estimate-based guiding factor and considered the variation in stock levels in other years, where losses were below 1%, indicating minor deviations.

Judicial Precedent on Demands Made Under Rule 223A:
The Tribunal referred to a previous case involving the same appellant, where it was observed that demands made under Rule 223A for a 13-year period were not sustainable. The Tribunal emphasized practical difficulties in stock accounting in steel plants and cited case laws supporting the application of Section 11A for duty demands based on stock discrepancies.

Consideration of Practical Difficulties in Estimating Stock:
The Tribunal considered the practical challenges in accurately estimating stock in steel plants due to various factors like production processes, accounting methods, and limitations in physical stock assessments. Relying on the previous order and judicial precedents, the Tribunal concluded that the demand for duty based on stock discrepancies could not be sustained, especially for a Public Sector Undertaking where no individual interest was involved.

In conclusion, the Tribunal allowed the appeal, setting aside the impugned order demanding Central Excise duty, based on the considerations of permissible variations, practical difficulties in stock estimation, and judicial precedents supporting the appellant's position.