Demand on shortage of finished goods.

PJ/Case Law /2016-17/3318

Case:- MAHENDRA STEEL INDUSTRIES VERSUS COMMISSIONER OF C. EX. & S.T., JAIPUR-I

Citation:- 2016 (339) E.L.T. 623 (Tri. - Del.)

Issue:- Demand on shortage of finished goods.

Brief facts:-The present appeal is against order dated 10-10-2014 of Commissioner (Appeals)-I, Jaipur. The appellants are engaged in the manufacture of M.S. Bars liable to central excise duty. In November, 2012, the officers conducted certain physical verification of stock and found that there was a shortage of 45 MT. of M.S. Bars with reference to 290.597 MT. of recorded stock. Proceedings were initiated against the appellant. The Original Authority confirmed duty of Rs. 2,01,901/- and imposed penalty of equal amount on the appellant. On appeal, the Commissioner (Appeals) vide the impugned order upheld the original order. The present appeal is against this order.

Appellant’s contention:- Ld. Counsel for the appellant submitted that thewhole case against the appellant is on the basis of alleged shortage found of finished goods. The whole stock taking of around 250 MT was supposed to have been done in 2 hours i.e. between 1600 hrs to 1800 hrs on 23-11-2012 as is evident from the Panchnama drawn to evidence such weighment. Ld. Counsel pleaded that it is not physically possible to weigh such quantity and arrive at the shortage of 45 MT within two hours. Apparently, a rough estimate has been made by the officers. In such circumstances, a shortage arrived at and the statement given admitting such shortage cannot be the basis for demanding any central excise duty. Even if it is considered that there is some shortage of finished goods, in the absence of any corroboration, a clandestine removal cannot be confirmed. Ld. Counsel also relied on certain decided cases in support of her plea.

Respondent’s contention:- Ld. AR supported the findings of the lowerauthorities and stated that non-availability of finished goods has to be explained by the appellant which they have failed to do. The physical shortage supported by the statement of Shri Gupta, partner of the appellant-firm makes it a clear case of clandestine clearance.

Reasoning of judgment:- They find that the case mainly rests on allegedshortage of finished products during physical verification. The total quantity should have been 290.597 as per the records maintained by the appellant. On physical verification, the stock was found to be 245.597 MT resulting in a shortage of 45 MT. It is a fact that the Panchnama is very brief and did not contain details of how the weighment was carried out especially considering the weighment on physical verification was arrived at upto a kilogram level. Further, the whole process of weighing about 250 MTs of M.S. bars is shown to have been completed in two hours. This raises serious question about the correctness and methodology adopted for arriving at physical stock of finished goods. The whole case is built up on such shortage. There is no other corroboration regarding clandestine manufacture or clearance or transportation of goods or receipt of sale proceeds. While such clandestine activities need not be proved stage by stage with precision, it is necessary to have a clear preponderance of probability which will shift the burden to the assessee to defend his case against non-payment of duty. Here, the very basis of shortage is doubted and as such, any admission of such shortage is of no relevance in the absence of any corroboration. Further, they find that the ld. Commissioner (Appeals) held that the admitted fact need not be proved again. It is not clear as to what type of fact has been admitted. Even if Shri Gupta, partner of the appellant firm, has accepted the manner of stock taking and admitted the shortage of 45 MTS, in view of non-availability of very basis of stock taking and physical impossibility of going through the process of weighment of about 250 MTs of M.S. Bars within 2 hours and also arriving at the physical stock upto Kg. level without explaining how measurement was made creates serious lacunae and seriously affected the very basis of revenue’s allegation. The Tribunal in Raj Ratan Industries Ltd. - 2013 (292) E.L.T. 123 (Tri.-Del.) held that the allegation of clandestine removal in such type of cases are to be established by production of concrete and tangible evidence. In the said case also, the appellant admitted the stock taking and agreed to pay the excise duty. Later, it was found that the stock taking was not done on actual basis.
Considering the above analysis and facts of thepresent appeal, they find that the case of clandestine removal cannot be sustained against the appellant in view of the reasons discussed above. As such, the impugned order is set aside and the appeal is allowed.

Decision:- Appeal allowed

Comment:-The analogy of the case is that the allegation of clandestine removal cannot be leveled merely on the basis of Shortage of finished goods on basis of physical verification. Weighment of entire stock of around 250 MTs of M.S. Bars supposed to have been done within 2 hours and physical stock up to kg. level arrived at without explaining how measurement was made. There is no corroboration regarding clandestine manufacture or clearance or transportation of goods or receipt of sale proceeds. In this case clandestine removal not being proved, hence demand is not sustainable.

Prepared by:- Monika Tak

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PJ/Case Law /2016-17/3318

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