2020 (2) TMI 4 - AT - Central Excise

Clandestine removal - shortage of finished goods and raw materials, as compared with the stock records - demand on the basis of records recovered and statements recorded under Section 14 of the Central Excise Act - CENVAT Credit - credit denied on the strength of invoices were no goods allegedly were received in the factory of the appellant. HELD THAT - On perusal of the impugned order passed by the learned Commissioner, it is found that the he has neither followed the provisions of Section 9D of the Central Excise Act, 1944, nor the law laid down by the Hon ble Punjab and Haryana High Court in M/S G-TECH INDUSTRIES VERSUS UNION OF INDIA AND ANOTHER 2016 (6) TMI 957 - PUNJAB HARYANA HIGH COURT - thus, the statements recorded under Section 14 of the Central Excise Act, cannot be relied upon and hence has to be eschewed from the evidence. Further, the ld. Commissioner have not dealt with the stand of appellant, do not have manufacturing capacity to manufacture the goods as alleged by the department. With respect to documents relied upon by department, the author of the said documents has not been identified and examined - In view of the law laid down by the Hon ble High Court of Chhattisgarh in the case of Hi-Tech Abrasives Ltd. Vs CCE Customs, Raipur, 2018 (11) TMI 1514 - CHHATTISGARH HIGH COURT , the said documents cannot be relied upon. The department has also not enquired at the end of the buyers and there is no positive evidence adduced by the department. The demand has been confirmed on the basis of assumption and presumption - Therefore, demand of ₹ 44,06,966/- on alleged 2118.733 MT of SS Ingots clandestinely cleared for the period 18.08.2002 to 16.12.2002 is hereby set aside. Further, the stock taking has been conducted on eyes estimation basis, as can be seen from the Panchnama drawn at the factory premises. However, the director Mr. Raman Bhatia and the Authorized Signatory Mr. Rajesh Sharma had expressed satisfaction and agreed with the shortage computed - demand on the alleged shortages is confirmed, but penalties set aside. CENVAT Credit - denied only the basis of statement of transporter and Sh. Rajesh Sharma (Authorized Signatory) - HELD THAT - The said statements has to be eschewed from evidence inasmuch provisions of Section 9D has not been followed. Therefore, the denial of cenvat credit of ₹ 64,244 is not legally sustainable and hereby set aside. Since the demand is set aside, therefore interest and penalty is also set aside, and further penalty on Sh. Raman Bhatia is also set aside - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Demand of ?44,06,966/- for alleged clandestine manufacture and clearance of SS Ingots.
2. Demand of ?5,76,425/- for alleged shortages in finished goods and raw materials.
3. Denial of Cenvat credit of ?64,244/-.
4. Imposition of penalties on the appellant company and its director.

Issue-wise Detailed Analysis:

1. Demand of ?44,06,966/- for Alleged Clandestine Manufacture and Clearance of SS Ingots:
The Tribunal noted that the demand was based on records and statements recorded under Section 14 of the Central Excise Act. The appellant argued that the alleged production of 2118.733 MT was impossible given their declared production and electricity consumption. The appellant also contended that they lacked the capacity to produce such a quantity with their existing machinery and labor force. Further, the Tribunal found that the Commissioner did not follow the procedure outlined in Section 9D of the Central Excise Act, as previously directed. The Tribunal emphasized that the demand was confirmed based on vague records without corroborative evidence, such as details of raw material purchases, electricity usage, and sales. The Tribunal cited the case of Continental Cement Company Vs Union of India, which requires clinching evidence for such allegations. Consequently, the demand of ?44,06,966/- was set aside.

2. Demand of ?5,76,425/- for Alleged Shortages in Finished Goods and Raw Materials:
The appellant argued that the stock verification was conducted based on eye estimation, and the Panchnama did not detail the verification process. The Tribunal noted that mere shortages do not necessarily indicate clandestine removal of goods. However, the director and authorized signatory had accepted the shortages and deposited the duty during the investigation. Therefore, the Tribunal confirmed the demand of ?5,76,425/- but set aside the penalty, referencing judgments from the High Courts in similar cases.

3. Denial of Cenvat Credit of ?64,244/-:
The denial of Cenvat credit was primarily based on statements from the transporter and the authorized signatory. The Tribunal found that these statements were inadmissible as the procedure under Section 9D was not followed. Additionally, no inquiry was conducted with the supplier of the goods. Thus, the denial of Cenvat credit was deemed unsustainable and was set aside.

4. Imposition of Penalties:
Given that the demand for clandestine manufacture and clearance was set aside, the Tribunal also set aside the penalties imposed on the appellant company and its director. The Tribunal concluded that the department had not proven clandestine removal of goods and there was no evidence of the director's involvement in such activities.

Conclusion:
The Tribunal allowed the appeal in part, setting aside the impugned order except for the confirmation of duty of ?5,76,425/-. Interest and penalties were also set aside, providing consequential relief to the appellants as per law.