9911796707
TMI Blog2002 (5) TMI 293X X X X Extracts X X X X X X X X Extracts X X X X ..... he applicants have admitted the additional amount of duty payable by them at Rs. 108,39,25,925.09 as demanded in the SCN referred to above. 2. The facts of the case in brief are that the applicant manufacture motor vehicles and parts thereof falling under Chapter heading numbers 8702 and 8708 respectively of the Schedule to the Central Excise Tariff Act, 1985. They are availing Modvat credit of the duty paid on the inputs used in the manufacture of their finished product. On receipt of certain information, the Jurisdictional Central Excise authority initiated certain inquiries in August, 1999 and as a result of these inquiries, SCN referred to above was issued alleging that :- (i) MUL had failed to maintain statutory records correctly and failed to explain discrepancies in inputs/raw materials stock valued at Rs. 643,34,23,524.40 involving an excise duty of Rs. 108,39,25,925.09. (ii) Wilful and deliberate suppression of the fact of shortage noticed by them in RG 23A Pt. I on 28-2-99 and previous years. (iii) Suppression of the fact of thefts occurring in MUL with intent to evade Central Excise duty. (iv) Wilful and intentional tampering with Central Excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orms the RG 23A Pt. I record. (iii) In view of the huge volume of transactions, company was not following a system of recording issues for production but deriving the consumption on the basis of opening balance plus receipts less closing balance to arrive at a figure of consumption of components. The computer system was changed in 1995-96 with a new set of software and due to the inadequacies in logic in it, errors crept in capturing data in few parts. (iv) The company officials detected the discrepancy between the closing stock of components as per RG 23A Pt. I reports generated vis-a-vis physical stock at the end of the previous financial year, i.e. 31-3-1998. Thereafter their officials brought the matter to the notice of the management through note dated 23rd March, 1999 and in this the liability to reverse the Modvat credit (due to inability to identify the reasons for discrepancy) was accepted. The top management had asked for more detailed exercise and also gave instructions for monitoring reconciliation and finding reasons to avoid such occurrence in future and to proceed with the Modvat reversals as per legal opinion. (v) As a result of the exercise the disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he RG 23A Part I occurred and emphasized that :- (i) in their system of recording, the figure of issues was a derived figure based on the quantity of cars manufactured and entered at the end of the month, (ii) there was a flaw in the logic of their software program, as a result of which all transactions were not recorded, (iii) discrepancies between the recorded balance and the actual physical stocks of some items were detected by their staff who took necessary action to bring the matter to the notice of top management for remedial action as per law, (iv) they have taken proper action as warranted by the circumstances and the law, (v) they have taken on substantial duty liability on the basis of correct facts as ascertainable, (vi) taking into account the level of proof/contemporary documentation required by the CCE and the time and effort required to make a complete reconstruction and reconciliation, they have decided to accept the entire amount demanded by the CCE and have the matter settled. 7. In substantiation, he submitted the copies of the internal notings in the company s files which were already a part of the relied upon documents. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He also pointed out that the case in 1990 was only in respect of 3 items, namely, music system, air-conditioners and another item for which the department issued show cause notice for Rs. 1.6 crores but in appeal before the CEGAT, the demand has been directed to be re-worked out and only Rs. 70 lakhs were held to be payable. He reiterated that the applicant and its staff deserve appreciation for taking corrective measures themselves even though it meant paying huge amount of duty. He submitted that applicant has fully cooperated in the proceedings of the Commission in this case and have given full and true disclosure of their duty liability which has already been paid. 10. Accordingly they were entitled to the waiver and immunity as prayed. 11. The applicant submitted written submissions on 15-4-2002, in addition to the hearing held on 27th March, 2002, highlighting some of the submissions made during the hearing : The issue involved in the present application is on the difference noticed by the applicants between the physical stock as compared to the balance as per the records. The main reason for the discrepancy was the non-posting of the issues in certain parts in the RG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the Finance division. February, 1999 Comparison of stock as on 31-3-1998 book balance vis-a-vis physical stock was conducted on a sample basis and variations (shortages and excesses) were noticed. 23-3-1999 A report on the discrepancy in stock showing the shortage (Rs. 738.22 crores) and excess (Rs. 71.92 crores) was put up by Shri. D.D. Goyal and Shri Bipul Arora to bring the fact of discrepancy to the notice of the management. It was also brought to the notice of the management that prima facie examination in respect of 44 high value parts has been carried out. In this note it was further indicated that :- Wherever reasons of discrepancy cannot be explained, Maruti would have to reverse the Modvat, purely because of inability to identify the reasons for discrepancy along with evidences although discrepancies may be well within norms. The management responded to the above implication by suggesting the appointment of outside agencies for carrying out the verification. 30-3-1999 Legal opinion regarding the unreconciled difference between the physical stock and balance as per the RG 23A Part I was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rores, it was proposed to make a liability provision of Rs. 85 crores on account of components and a further Rs. 7 crores on account of consumables in the financial accounts. 2-8-1999 Board of Directors approved the Balance Sheet as on 31-3-1999 in which a liability provisions of Rs. 85 crores was made on account of the stock discrepancy. 20-8-1999 Letter was issued by the Department calling for physical inventory of finished stock and raw materials for the year 1998-99. 30-8-1999 The efforts on reconciliation indicated unreconciled cumulative discrepancy of Rs. 501.14 crores for the years 1986 to 1999. It was also indicated as under : We would seek appropriate endorsement, confirmation, documentation from concerned functional department like TAD/Mx etc. on resolved discrepancy of Rs. 1,063.92 crores so that Excise Authorities can be convinced about this. This would be done in consultation with Excise Advocate. This will also have to be fed computer records so as to make appropriate entries in RG 23A Part-I. It was proposed to make a payment (debit in RG 23 Part II) of Rs. 37 crores as ad hoc inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extensive investigation by the department. It was also brought to the notice of the management that department would issue show cause notice and reconciliation is subject to documentary evidence and acceptance of the same by Central Excise authorities. 18-7-2000 Letter addressed to Director (Finance) by the Deputy Commissioner calling for stock verification report, correspondences, reports, notes, etc., along with advise or opinion received from consultants, chartered accountants. 25-7-2000 Letter of the applicants forwarding copies of the internal notes, physical inventory, annual balance sheet, and other documents/records called for. 27-9-2000 A report on the unreconciled discrepancy of Rs. 511.82 crores and steps taken to satisfy the departmental officers regarding the reconciliation carried out was put up to the management by Shri George Mathews, Shri Nanda Kumar and Shri D.D. Goyal. It was also proposed to make a further ad hoc interim payment of Rs. 7 crores. The note further indicated that : Reconciliation done by us is subject to relevant documentary evidences and acceptance of same by the Excise authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the departmental officers and enabled them to conduct the verification to their fullest satisfaction. In order to enable the officers to cross check the various information the applicants provided computer facilities and various data was transferred for the purpose of verification. 15. The applicants further submit that the fact the departmental officers have accepted the major portion of the reconciliation made by the applicants shows the correctness of the reconciliation done by the applicants as also their bona fides. 16. In respect of consumables like paints reconciliation was done jointly with the department. During the verification process the soft copy of the paint consumption was not accepted for period from 1995 to 1997. Thus effectively it was concluded that the applicants had cleared the vehicles without painting during this period. The adjustment for the subsequent period was allowed on the basis of hard copies of production shop consumption statements. 17. The applicants further submit that they did not alter or modify or make corrections to the existing RG 23A Part I register submitted along with the monthly RT 12 returns. The applicants had to reconcile t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atement below : Year Modvat credit available for utilization (at month end) but deferred Amount paid in PLA (BED) March, 1997 Rs. 28.49 crores Rs. 150.30 crores March, 1998 Rs. 79.39 crores Rs. 182.09 crores March, 1999 Rs. 90.36 crores Rs. 172.10 crores March, 2000 Rs. 66.68 crores Rs. 183.16 crores. 19. The applicants submit that they have cooperated with the Hon ble Commission to the fullest extent. 20. In view of the foregoing, the applicants pray to the Hon ble Commission to grant waiver in full from penalty and interest. The applicants also pray to the Hon ble Commission to grant immunity from prosecution under the Central Excise Act, 1944 and other Central Acts. It is further prayed that immunity may be granted to the officers of the Company, namely, Shri D.D. Goyal and Shri George Mathews, from penalty and prosecution under the Central Excise Act, 1944 and other Central Acts. 21. The Revenue also submitted their comments, particularly with reference to paras 46, 47 and 50 of the SCN under their report dated 11-4-2002. Para 46 During the year 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SCN and cooperated with the department in investigation, immunity to the party as well as its employees may be considered on merit as per the provisions of Section 32K of Central Excise Act, 1944. 24. The Revenue, in their further report dated 1-5-2002, submitted that there was delay in supplying the information by the applicant after investigations had started in August, 1999, that though the applicant may be aware of the discrepancies in the stock of inputs but they did not intimate the same to the Department and that the applicant had taken the closing balance of regenerated RG 23A (Part-I) of September, 1999 as the opening balance of October, 1999. 25. We have carefully considered the record of the case and the submissions made by both the parties before us. In view of what has been stated above, we are satisfied that this is a case more of inadvertent error creeping in the computerized mode of accounting adopted by the applicant. The applicant have shown at length the precaution taken by them but the errors appeared to have crept in on account of a very large number of inputs and the system of just in time inventory of raw material and inputs. We are also satisfied that ..... 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