2018 (9) TMI 746 - HC - Central Excise

Clandestine removal - shortage of finished goods - Confiscation - Whether mere storage of finished products and lying in the factory can be treated as unaccounted stock liable for confiscation? - Whether the Tribunal can ignore the plea of defect in quantification and impossibility of search operation within the short time and pass the order without reference to such issues? Held that - There has been no investigation into the material aspects, which are required to be proved for establishing an allegation of clandestine removal - It may be true that the burden of proving such an allegation is on the Department. However, clandestine removal with an intention to evade payment of duty is always done in a secrete manner and not as an open transaction for the Department to immediately detect the same. Therefore, in case of clandestine removal, where secrecies involved, there may be cases where direct documentary evidence will not be available. Based on the seized records, if the Department is able to prima facie establish the case of clandestine removal and the assessee is not able to give any plausible explanation for the same, then the allegation of clandestine removal has to be held to be proved - the assessee has not denied any of the allegations, which were put forth except for simple and flimsy retraction. If the assessee had sufficient records to establish their innocence, nothing prevented the Managing Director to say so while making the retraction. There was no attempt made by the assessee to state their case by coming forward to give a statement and producing records. The allegation of parallel invoicing has not been disproved in the manner known to law. Appeal dismissed - decided against assessee.

Summary

Issues Involved:

1. Whether mere storage of finished products and lying in the factory can be treated as unaccounted stock liable for confiscation?
2. Whether the Tribunal can ignore the plea of "defect in quantification" and impossibility of search operation within the short time and pass the order without reference to such issues?

Issue-wise Detailed Analysis:

1. Whether mere storage of finished products and lying in the factory can be treated as unaccounted stock liable for confiscation?

The assessee was engaged in manufacturing cotton yarn. During an inspection on 18.09.1999, discrepancies were found in the stock of raw materials and finished goods. The Department alleged that the assessee had not accounted for the production of 1,21,338.665 kgs of cotton yarn and had cleared 1,19,043,665 kgs without payment of duty. The assessee argued that the demand was based solely on diary notings and statements that were retracted. The Department, however, maintained that there was sufficient proof of clandestine removal. The Tribunal dismissed the assessee's appeal, affirming the findings of the Adjudicating Authority and the First Appellate Authority. The Tribunal held that the storage of finished products in the factory without proper accounting indicated an attempt to evade duty. The Court agreed with the Tribunal, noting that the assessee had not provided a plausible explanation for the discrepancies and that the burden of proof in cases of clandestine removal is on the Department, which had been met in this case.

2. Whether the Tribunal can ignore the plea of "defect in quantification" and impossibility of search operation within the short time and pass the order without reference to such issues?

The assessee contended that the search and seizure operation, including inventory taking, could not have been completed within 5 ½ hours and that the Tribunal failed to address this issue. The Court noted that the Adjudicating Authority had conducted a thorough inspection in the presence of the factory manager and independent witnesses. The factory manager's statement, given under Section 14 of the Act, was initially accepted by the Managing Director but later retracted. The Adjudicating Authority rejected the retraction as an afterthought, noting that the Managing Director had not questioned the facts and figures during his statement. The Tribunal also found that the assessee had maintained two sets of invoices, one with pre-printed serial numbers and another without, which the assessee did not deny. The Court concluded that the Tribunal had adequately addressed the issue of quantification and upheld the findings of the lower authorities.

Conclusion:

The Court dismissed the appeal, holding that the Department had sufficiently proved the allegation of clandestine removal and that the assessee had failed to provide a plausible explanation for the discrepancies. The Court found no substantial question of law arising for consideration and affirmed the factual findings of the Adjudicating Authority, the First Appellate Authority, and the Tribunal.