2018 (5) TMI 1668 - AT - Central Excise

Clandestine removal - excesses and shortage of stock - fabric was manufactured and clandestinely removed, without payment of duty - Held that - A prudent man will not conclude that the fabric was manufactured and clandestinely removed, without payment of duty in the absence of corroborative evidence - The fact that during cross examination, the labour contractor himself said that he gets paid twice for the fabric, once at the grey stage and once at finished stage further dilutes the evidence to substantiate the allegation of clandestine removal of fabric. The Officers have verified the stocks of the man made fabrics i.e. textiles and raw material and compared them with Form IV respectively and found differences. I agree with the department that the Commissioner should not have ignored the mahazar which was drawn on the spot and instead relying on a passing remark made in the original O-I-O drop the entire demand while ignoring the recorded evidence - there were shortages in one stage and excesses at another. When the stocks were taken on the same day, at same time, it would be reasonable to assume that there was some inaccuracy in recording by the assessee with some stock being shown as issued for processing and not actually being put in the process resulting in excess stock in one stage and a shortage in the other - demand on this count dropped. Goods found in excess in the vehicle - vehicle was intercepted by the officers based on the information they received and the documents they recovered with the distributors - Held that - While the Commissioner had questioned the evidence provided by the department and examined it minutely, the vague and baseless statement by the respondent that 5 metres sarees should be taken as 4.2 metres only so that their figures match was accepted by the Commissioner without any basis whatsoever. Therefore, find that the duty of ₹ 3,995/- is payable on this excess goods found in the truck and this along with recovery of duty, confiscation and redemption fine thereon be imposed. The quantity of excess fabric cleared without payment of duty is also liable to be confiscated. As find a redemption fine of ₹ 5,000/- is reasonable for the purpose. Confiscation of excess goods found in the factory premises - Held that - The mahazar being a document drawn up at the time should be accepted along with the contention of the respondent that the excess and shortages of the fabrics need to be set off against each other in view of the fact that grey products supposed to have been issued for production were still lying in stock - the excess quantities of fabric as recorded above are liable for confiscation. Appeal allowed in part.

Issues Involved:
1. Duty liability based on the statements of the folding contractor and seized documents.
2. Duty on goods cleared to distributors without payment of duty.
3. Duty on goods found short at the factory premises.
4. Duty and confiscation of excess goods found in a vehicle.
5. Confiscation of excess goods found in the factory.

Detailed Analysis:

1. Duty Liability Based on Statements of Folding Contractor and Seized Documents:
The appellant argued that no duty liability could be imposed solely based on the folding contractor's statements and reports without supporting documents proving the goods were manufactured. During the denovo adjudication, the respondent explained that fabric gets folded multiple times, and the contractor was paid accordingly. The Commissioner dropped the demand due to insufficient evidence. The Department contended that in cases of clandestine removal, mathematical precision is not required, citing the Supreme Court's judgment in Collector of Customs, Madras vs. D. Bhoormull. However, it was concluded that without corroborative evidence, the allegations of clandestine removal were not sustainable, and the Commissioner’s decision to drop the demand was upheld.

2. Duty on Goods Cleared to Distributors Without Payment of Duty:
The charge against the distributors holding stocks without payment of excise duty was dropped by the Commissioner and was not appealed by the Department, reaching finality. Consequently, the demand for duty on the factory for the same fabrics was not sustained.

3. Duty on Goods Found Short at the Factory Premises:
The respondent explained discrepancies in stock due to excess grey fabric not processed, which corresponded to shortages in processed and finished goods. The Commissioner agreed, citing a CESTAT Principal Bench order, and concluded that measurement inaccuracies led to the discrepancies. The demand for duty on goods found short at the factory premises was dropped, and this conclusion was upheld.

4. Duty and Confiscation of Excess Goods Found in a Vehicle:
The vehicle was intercepted, and an excess of 1175 meters of sarees was found. The respondent argued that the sarees measured less than the documented length, but the Commissioner’s acceptance of this argument was found unusual. It was concluded that the duty of ?3,995/- on the excess goods was payable, and the goods were liable for confiscation with a redemption fine of ?5,000/- imposed.

5. Confiscation of Excess Goods Found in the Factory:
The Commissioner dropped the demand for confiscation of excess stock based on a passing remark about approximate measurements, ignoring the mahazar. It was concluded that excess quantities of fabric found in the factory were liable for confiscation, with a redemption fine of ?25,000/- imposed.

Conclusion:
The Order-in-Original was upheld with modifications:
- Duty of ?3,995/- on excess fabric found in the vehicle.
- Confiscation of excess fabric found in the vehicle with a redemption fine of ?5,000/-.
- Confiscation of excess fabrics found in the factory with a redemption fine of ?25,000/-.

Appeal Outcome:
The appeal was partly allowed with the stated modifications.

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