Clandestine removal cannot be alleged on the basis of assumptions without actual stock verification.

PJ/Case Law/2013-14/2032

Case:- COMMISSIONER OF C. EX., MEERUT-I VS SARVOTTAM ROLLING MILLS (P) LTD.

Citation:- 2013 (297) E.L.T. 385 (Tri.-Del.)

Brief Facts:- The assessee was engaged in the manufacture of MS Bars failing under chapter 72 of the Central Excise Tariff Act, 1985. Their factory was visited by the officers on 9.1.2009 who conducted various checks and verification. As a result a shortage of 187.685 MT of finished goods and 11.335 MT of inputs was detected. Though the director of the company in his statement accepted the shortages and debited the duty of Rs. 605078/- involved in the finished goods and Rs. 25686/- leviable in the inputs but he did not accept that the finished goods were cleared by them without payment of duty.

On the above basis, proceedings were initiated against the respondent by way of issuance of show cause notice dated 31.12.2009. The said notice culminated into an order passed by the Adjudicating authority confirming the demand and imposing penalties. On appeal, Commissioner (Appeals) set aside the order of the original authority. Aggrieved by the said order, the revenue filed the present appeal.

Appellant’s Contention:-The appellant-revenue relied upon the Hon’ble High Court decision in case of Alagappa Cement Pvt. Ltd. v. CEGAT, Chennai-2010 (260) ELT 511 (Mad.) in support of their plea that the shortages of goods reflect upon the clandestine clearance of the same.

Respondent’s Contention:-The respondent supported the order in appeal passed by the Commissioner Appeals and prayed to set aside the appeal filed by the revenue.

Reasoning of Judgment:- The Hon’ble Tribunal held that the while going through the impugned order of the Commissioner (Appeals), they find that the stock taking was done not by actually weighing the stock of the goods but based upon the average weight of various sizes of bundles and the number of pieces of bars contained in each bundles. The Revenue weighed one bundle each of various sizes of MS Bars at the weigh-bridge installed in the assessee factory and thereafter the number of bundles lying in the factory were counted and the calculation were made to arrive at the stock lying in the factory premises. As such the total weight was arrived on the basis of calculation after multiplying the average eight by the number of bundles. The Commissioner (Appeals) has observed that there is nothing to show on record as to by whom the said counting to calculations were made. As such he has agreed with the assessee that such stock taking was not proper and in the absence of any evidence of removal of goods by the assessee, the finding of clandestine removal cannot be upheld.

Further, the Revenue in the Memo of appeal has not referred to any evidence to show that the shortages of the goods were cleared by the respondent without payment of duty. Further, they have gone through the decision of Hon’ble Madras High Court in the case of Alagappa Cement Pvt. Ltd. v. CEGAT, Chennai. It stands recorded in para 6 of judgment that the assessee did not raise any objection at the time of stock taking as regards the improper method of verification of stock. Apart from this, there were other evidences of loading coke breeze and the limestone etc. to show irregular maintenance of stock in the appellants unit which was found to be usual phenomenon. That apart, difference in the quantity of limestone was also noted. It was in these circumstances that the Hon’ble High Court held that the shortage of clinkers and the excess quantity of limestone quarried during the relevant period was sufficient enough for the authorities to conclude as to the ultimate quantity of Portland cement manufactured by the assessee and cleared by other clandestinely.

They held that the facts of the present case are entirely different from the facts before the Hon’ble Madras High Court in the above referred decision. In the present case admittedly there was no actual weighment in the stock or MS Bars of Ingot. Such stock-taking was done on the basis of assumption and the calculations made upon the basis of number of bundles available and the average weight of one bundle. It is well settled law that Revenue cannot allege clandestine removal based upon the shortages detected at the time of physical stock taking, without there being any independent corroborative evidence. In as much as in the present case there is nothing on record to show the clandestine removal of the final product they find no justifiable reason to interfere in the impugned order of Commissioner (Appeals).
In view of the above findings, the appeal is rejected.

Decision:- The appeal was rejected.

Comment:-The essence of this case is that the Revenue cannot allege the charge of clandestine removal on the basis of average stock measurement while stock verification without even proving the clearance of the said short quantity with corroborative evidences. The charge of clandestine removal is a very big charge and it cannot be levelled on the basis of assumptions and presumptions without having corroborative evidences.

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PJ/Case Law/2013-14/2032

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