Demand not sustainable on assumptions when the fact of shortage of inputs not corroborated with clandestine removal.

PJ/Case Law/2013-14/1995

Case:- ZINCOLLIED (INDIA) Vs COMMISSIONER OF CENTRAL EXCISE, VAPI

Citation:- 2013 (297) E.L.T. 370 (Tri. - Ahmd.)

Brief facts:- This appeal was directed against the OIA No. AKP/165-166/DMN/NDMN/2009-2010, dated 18-12-2009. The relevant issue that arose for the consideration was that, the appellant herein was visited by the officers of the Revenue department on 12-7-2008 and they noticed the following:-
(i)         Excess stock of Zinc Residue and Zinc Horn.
(ii)        Shortage of Zinc Metal on which Modvat credit was taken.
Show cause notice was issued to the appellant which was contested by the appellant on the ground that the excess material of Zinc residue found was nothing but WIP and WIP material could not be taken into consideration as finished goods and further, the said WIP material was also consumed for the manufacturing of the final product in their factory premises. As regards the shortage of Zinc metal, it was submitted that the person handling the RG23 Part-I had failed to record the issues made for the purpose of production. Both the lower authorities did not agree with the contentions raised by the appellant and confirmed the demand along with interest and penalties and also confiscation of the excess found goods in the factory premises with an option to redeem the same on payment of redemption fine.

Appellant’s contentions:- Learned counsel drew attention to the order passed by the first appellate authority. It was his submission that as regards quantity of Zinc Metal found short, they had explained in various statements that the said Zinc Metal was issued to the production wing but was unfortunately not recorded by the dealing clerk. It was his submission that Revenue had not put-forth any evidence regarding clandestine removal of the material as such or any finished goods manufactured out of such material. In the absence of any such evidence, the judgment of the Tribunal in the case of Atlas Conductors - 2008 (221)E.L.T.231will apply. It was his submission that the said judgment had been followed by the Bench in the following cases:-
(i)        Tipco Industries Limited - 2009 (247)E.L.T.813 (Tri.-Ahmd.).
(ii)       Galaxy Textiles - 2011 (263)E.L.T.604 (Tri.-Ahmd.).
As regards the excess found of Zinc Residue and Zinc Horn, he submitted that said goods were WIP (Work-in-Progress). It was his submission that undoubtedly, they sell the said Zinc Residue and Zinc Horn, but as and when the sale occurs they record the quantity in RG-1 register and sell the goods. As regards the unrecorded balance which was found, it was his submission that the said goods were declared as WIP even to the Bank and was recorded in their private records being in work in progress. In support of such submission, he produced copy of the statement of stock submitted by them to their bank, with whom they had hypothecated the stock. He further drew attention to the date of the statement i.e. 10-7-2008 and submitted that the officers visited the factory premises of the appellant on 12-7-2008, which indicated that the appellant had been declaring this stock as WIP and recorded in their private records. It was his submission that the judgment of the Tribunal in the case of CCE, Mumbai v. Shree Rubber Plast Company (P) Limited - 2007 (220)E.L.T.279 (Tri.-Mumbai)and CCE, Hyderabad v. Srinivasa Frozen Foods Limited - 2010 (262)E.L.T.594 (Tri.-Bang.)would cover the issue in their favour.

Respondent’s contentions:- Learned SDR would reiterated the findings of lower authorities.

Reasoning of judgment:- After considering the submissions made by both sides, Hon’ble judge found that the issue involved in this case was regarding the confiscation of the goods which were found unaccounted in the factory premises and demand of duty on the short found goods.
He took up the issue of shortage of Zinc Metal. He found from the statements recorded of the various responsible persons of the appellant company that they had clearly indicated in reply to the show cause notice as well as during the statements recorded, that the Zinc Metal was issued for manufacturing of the final products but inadvertently was not recorded in the RG23 Part-I register. It was also seen that the charge of the department was of clandestine removal of such Zinc Metal from the factory premises. For such charge, the Revenue had not adduced any corroborative evidence of clandestine removal. In the absence of any corroborative evidence, he found that the decision of the Tribunal in the case of Atlas Conductors (supra), would squarely cover the issue in favour of the assessee. In the absence of any corroborative evidence of clandestine removal, duty demand could not be made on the presumptive grounds, either for removal of inputs as such or on the presumptive ground of manufacturing final products from the said goods. Accordingly, the demand of duty on the short found goods was unsustainable and he held it so.
As regards confiscation of the goods found excess in the factory premises i.e., Zinc Residue and Zinc Horn, he found strong force in the contentions raised by the learned counsel that the said goods were recorded in their private records which was evident from the fact that they had been utilizing and declaring the goods to the banks as work in progress. He found it so from the statement submitted by the learned counsel before the Tribunal as regards work in progress for the month ending 30 June, 2008 and in the said statement Zinc Residue and Zinc Horn was shown as WIP to the extent they were found excess during visit of officers. If the goods were in work in progress, the same could not be called as final products. If that be so, the goods found in excess, in his considered view, could not be held as offending goods as they had not reached the stage of recording in the RG-1 register. The decisions cited by the learned counsel in the cases, Shree Rubber Plast Company (P) Limited and Srinivasa Frozen Foods Limited would cover the issue in favour of the assessee.
Hon’ble Judge found that the impugned order of the first appellate authority was liable to be set aside and he did so. In view of the foregoing, the appeal was allowed.

Decision:- Appeal allowed.

Comment:- The analogy drawn from the case is that in case of shortage of inputs found on verification, and absence of any certain evidence, duty demand cannot be made on the presumptive grounds, either for removal of inputs as such or on the presumptive ground of manufacturing of final products from the said inputs. Further in case of goods found excess in the factory premises, if the said goods are accounted for as Work In Progress then the same cannot be called as final products and thus could not be held as offending goods as they had not reached the stage of recording in the RG-1 register. Therefore, such excess WIP could also not be leviable to duty.

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PJ/Case Law/2013-14/1995

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