2021 (10) TMI 184 - AT - Central Excise

Clandestine removal - Clinker - shortage of Limestone (raw material) - shortage not explained to the Internal Physical Verification Agency or to the A.G. Audit - HELD THAT - Duty of excise is leviable if and only if the taxable event has taken place. In terms of Section 3 of Central Excise Act there shall be levied and collected in such manner as may be prescribed, a duty of excise to be called Central Value Added Tax (CENVAT) on all excisable goods (excluding goods produced or manufactured in SEZ) which are produced and manufactured in India as, and at the rates set-forth in the first Schedule to the Central Excise Tariff Act, 1985 . There is no provision in the Central Excise Act to charge central excise duty on the basis of presumption of manufacture or production. If there is no production or manufacture no duty can be charged even if one procures raw material which is not accounted for. Of course, if it is a cenvatable input, Cenvat credit can be taken only if the raw material or input is used in or in relation to manufacture and not otherwise. Limestone is not even a cenvatable product. In this case, the show cause notice is issued by the Department alleging production/ manufacture of clinker from the limestone found short. There is no evidence that the clinker has been manufactured. Although limestone is the main ingredient for manufacture of clinker other ingredients, power, etc. are also required. There is nothing on record to show that there was corresponding proportionate shortage in the stock of other raw materials or that excess electricity has been consumed to correspond to the shortage of raw material - Having found to shortage, the respondent itself paid central excise duty on the clinker found short. On the question of shortage of limestone they conducted an enquiry and thereafter provided the explanation to the Revenue. The argument of the Revenue is that this explanation is not satisfactory and this shortage has not been reflected in their records or in the returns which they filed with the mines. It is observed that if these were indeed recorded in their books of accounts and reflected in their returns then there will be no shortage. The shortage was discovered when they conducted physical verification of the stock which did not match the accounts. Had the shortages been reflected in the accounts and in their returns then there would not be any shortage at all. Shortage of limestone - HELD THAT - The respondent gave an explanation. We find no reason to disbelieve the respondent. If they had used the limestone for construction somewhere and not properly accounted for such usage in their books of accounts stock taking will show a shortage. It is not for the respondent to show that they have not actually manufactured any final product out of this limestone found short. It is for the Revenue to, if a show cause notice is to be issued, to prove that the clinker was actually manufactured. In the present case, we find no such evidence coming forth. Therefore, even if it is held that the appellant has not satisfactorily explained its shortage of limestone, no duty can be demanded on presumption of manufacture of clinker - the learned Commissioner has in the impugned order, after considering all facts, correctly dropped the show cause notice and the impugned order needs to be sustained. Appeal dismissed.

Issues Involved:
1. Legality of the Commissioner's decision to drop the demand without considering the reasons for the shortage of limestone.
2. Whether the shortage of clinker and limestone indicates clandestine clearance of clinker.
3. Whether the shortage of limestone used in manufacturing clinker was accounted for.
4. Whether the Commissioner's decision to drop the demand was appropriate.

Issue-wise Detailed Analysis:

1. Legality of the Commissioner's Decision:
The Revenue challenged the Commissioner's decision to drop the demand, arguing that the reasons for the limestone shortage provided by the respondent were not explained to the Internal Physical Verification Agency or the A.G. Audit, suggesting these reasons were an afterthought. The Commissioner, however, accepted the respondent's explanations, which included changes in raw-meal factors, weighbridge errors, and limestone usage for various purposes within the factory. The Tribunal upheld the Commissioner's decision, emphasizing that mere shortage in stock does not automatically imply clandestine manufacture and clearance of goods.

2. Shortage Indicating Clandestine Clearance:
The Revenue argued that the respondent's acceptance of the clinker shortage and payment of duty indicated clandestine clearance. The Commissioner, however, found no evidence to presume that the limestone shortage led to clandestine production and clearance of clinker. The Tribunal agreed, noting that the shortage of limestone alone, without corresponding evidence of excess electricity consumption or shortage of other raw materials, does not prove clandestine manufacture of clinker.

3. Accounting for Limestone Shortage:
The Revenue contended that the respondent did not account for the limestone shortage in their books of accounts or returns to the Regional Controller Mines, suggesting the limestone was used for clandestine manufacture of clinker. The Tribunal observed that if the shortages were recorded in the accounts and returns, there would be no shortage. The Tribunal accepted the respondent's explanation that the limestone was used for construction and other purposes within the factory, which was not properly accounted for, leading to the shortage.

4. Appropriateness of Dropping the Demand:
The Tribunal emphasized that central excise duty is leviable only if there is evidence of production or manufacture of excisable goods. In this case, the show cause notice alleged production of clinker from the limestone found short, but there was no evidence to support this. The Tribunal noted that the respondent's physical verification revealed the shortage, and they paid duty on the clinker found short. The Tribunal found no reason to disbelieve the respondent's explanation for the limestone shortage and held that the Commissioner correctly dropped the show cause notice.

Conclusion:
The Tribunal upheld the Commissioner's order, finding that the Revenue did not provide sufficient evidence to prove clandestine manufacture of clinker from the limestone found short. The appeal by the Revenue was dismissed, and the respondent was granted consequential relief. The decision was pronounced in open court on 01/10/2021.

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