2020 (12) TMI 811 - AT - Central Excise

Clandestine removal - finished goods found short during the stock taking - Department was also of the view that N/N. 67/95CE dated 16-03-1995 was not applicable to the Appellants since it applied only to inputs which are captively consumed and not to finished goods as was the case of the appellants - demand is time barred as the show cause notice has been issued on 15.09.2016 for the alleged clearances in 2012 - time limitation - HELD THAT - The charge of clandestine clearance cannot stand as the department has not been able to provide clinching evidence in support of the same. Clandestine clearance is a serious charge and has to be proved with positive evidence which is lacking in this case - It may be noted that not even one buyer of the clandestinely cleared goods has been identified by the department. Shortages detected during stock-taking - whether the shortages detected were real or only notional. The appellants have doubted the manner of stock taking itself as it was not done in the presence of any panchas and no panchnama was drawn? - HELD THAT - The appellants have been saying right from the investigation stage itself that the shortages were because of minor weighment errors which had accumulated over the years since no stocktaking had been done right from the date of production of those items. The shortage, when compared to the total production over the years, comes to a very nominal percentage as indicated in para 6.3 above. This has not been contested by the department. Such nominal percentage differences are to be expected while weighing, keeping the nature of the products in mind which are not amenable to precise weighment - the shortages noticed are not actual but only notional and, hence, no differential duty is payable. DI pipes - appellant s consistent stand has been that the shortages were because of damaged pipes which were reissued for re-melting in the factory itself but inadvertently not reduced from the recorded stock of DI Pipes - HELD THAT - These damaged pipes were all recorded in the Daily Stock Account of Scrap and also reflected in the ER-1 returns. Further, since these were captively consumed they were exempt from duty under notification 67/95-CE dated 16.03.1995. The Commissioner s finding that the exemption does not apply to finished goods is legally not sustainable because of the specific definition of inputs in the said notification which covers virtually all excisable goods including the goods manufactured by the appellants. Time Limitation - HELD THAT - The whole demand is time-barred as the shortages were noticed in December, 2012, and the show cause notice has been issued on 15.09.2016. There is no ground made out by the department to justify invoking the extended time period. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Allegation of clandestine removal of finished goods.
2. Applicability of Notification No. 67/95-CE dated 16-03-1995.
3. Validity of the demand for Central Excise duty and penalties.
4. Time-barred nature of the demand.

Detailed Analysis:

1. Allegation of Clandestine Removal of Finished Goods:
The department alleged that the appellants had clandestinely removed finished goods valued at ?22,76,79,686/- based on shortages found during stock verification. The appellants argued that the charge of clandestine clearance cannot be sustained as it must be proven with positive evidence, which was lacking. They highlighted that no panchnama was drawn, no unaccounted raw materials were identified, no transporters or buyers of the unaccounted goods were found, and no cash trail was established. The tribunal agreed with the appellants, noting that clandestine clearance is a serious charge requiring clinching evidence, which was absent in this case.

2. Applicability of Notification No. 67/95-CE dated 16-03-1995:
The department contended that the notification was not applicable as it only applied to 'inputs' and not 'finished goods.' The appellants countered that the notification's definition of 'input' includes all goods covered in the First Schedule to the Central Excise Tariff Act, 1985, which includes DI pipes. The tribunal found that the exemption under Notification No. 67/95-CE was applicable to the DI pipes as they were captively consumed in the manufacture of dutiable finished goods.

3. Validity of the Demand for Central Excise Duty and Penalties:
The department issued a show cause notice demanding Central Excise duty of ?2,81,41,208/- along with interest and proposed penalties. The appellants argued that the shortages were not real but notional due to minor weighment errors accumulated over the years. They provided logical explanations for the shortages, including the recycling of damaged DI pipes which were reflected in the RG1/DSA and ER-1 returns. The tribunal found that the shortages were not actual but only notional and hence, no differential duty was payable. Additionally, the tribunal noted that the Managing Director, Shri Aditya Jajodia, was not involved in day-to-day operations, and therefore, no penalty could be imposed on him.

4. Time-barred Nature of the Demand:
The appellants contended that the demand was time-barred as the show cause notice was issued on 15.09.2016 for alleged clearances in 2012. They argued that there was no ground for alleging deliberate mis-statement or suppression of facts to invoke the extended period. The tribunal agreed, noting that the shortages were noticed in December 2012, and the show cause notice was issued beyond the normal period, making the demand time-barred.

Conclusion:
The tribunal concluded that the charge of clandestine clearance could not be sustained due to lack of positive evidence. The shortages detected were deemed notional rather than actual, and the appellants were entitled to the exemption under Notification No. 67/95-CE. The demand for duty and penalties was invalid, and the entire demand was time-barred. Consequently, the impugned order was set aside, and the appeals were allowed.

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