Denial of credit for shortage of inputs in absence of cogent evidences of clandestine removal.

PJ/CASE LAW/2015-16/2906

Case:- H.M. PIPES PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, JAIPUR

Citation:-2015 (325) E.L.T. 924 (Tri. - Del.)

Brief facts:- Appellant is in appeal against the impugned order wherein demand of duty has been confirmed on shortage of inputs found at the time of visit.
The facts of the case are that on 26-10-2009, a search was conducted in the premises of appellant. It was found that as per statutory records there was stock of 5,61,330 Kgs. whereas on verification physical stock was found to be 4,86,000 Kgs. A statement of Director of the appellant was recorded who admitted the shortages but when asked for reason for shortages, he explained that appellant has not taken the stock position for a long time. Thereafter the appellant paid the duty on shortages. A show cause notice was issued to the appellant for appropriation of the said amount and for imposition of penalty under the provisions of Central Excise law. Matter was adjudicated. Demand of duty along with interest was confirmed. Penalty was also imposed. On appeal, learned Commissioner (Appeals) confirmed the order of adjudication. Aggrieved from the said order, appellants is before them.

Appellant’s contention:-Shri Bipin Garg, learned advocate for the appellant appeared and submit that appellant is manufacturer of plastic pipes and HDPE granules, the raw material. They started their factory in the year 2000 and they are clearing the goods on payment of duty. During the course of verification of stock, on 26-10-2009, a shortage of 75.330 MT was found, that might be due to wastage of stock during the course of manufacturing, but it is not admitted by the Director of the appellant during the course of investigation and that shortage is due to clearance of storage of stock of goods what they have manufactured clandestinely. Although they have paid the duty on pointing out by the department, it does not mean that they have admitted the shortage. In these circumstances, without any cogent evidence of clandestine clearance of the goods, duty cannot be demanded. To support this contention, the appellant relied on the decision of CCE, Damanv. Nissan Thermoware P. Ltd. [2011 (266)E.L.T.45 (Guj.); CCE, Chandigarhv. H.S. Steels (P) Ltd. [2010 (254)E.L.T.465 (Tri.-Del.)]which has been affirmed by Hon’ble Punjab and Haryana High Court as reported in [2012 (286) E.L.T. A178 (P&H)]. Therefore, he prayed that impugned order be set aside.

Respondent’s contention:-On the other hand, learned AR submits that during the course of verification of stock, the Director himself has admitted the shortage and paid the duty. When the appellant themselves admitted their guilt, therefore, Revenue is not required to prove with cogent evidence that they have clandestinely removed the goods/inputs. He relied on the decision of Hon’ble High Court of Allahabad in the case of Sarin and Sarin {[2015] 54 taxmann.com 147 (Allahabad)} to support his contention. He also relied on the decision of Bajrang Petro Chemicals (P) Ltd.v. CCE, Kanpur [2014-TIOL-2254-HC-ALL-CXI = 2015 (317)E.L.T.243 (All.)].

Reasoning of judgment:-In this case, it is admitted fact that during the course of verification of stock of inputs, there was shortages and have been explained by the Director that these shortages were due to the reason that they have not taken their stock position since long. It is also a fact that process of manufacturing of appellant is like that where HDPE granules goes waste. The appellant has paid duty on the shortages at the time of investigation itself. But the contest done by the appellant on issuance of show cause notice shows the intent of the appellant. In these circumstances, burden lies on the Revenue to prove that the shortages were due to reason of clandestine removal of the goods. To that effect, no evidence has been brought on by the Revenue. Moreover, the learned AR relied on the decision of Hon’ble High Court of Allahabad High Court in the case of Sarin v. Sarin (supra) wherein the facts of the case were that during the course of investigation, the shortages of material was found as well as unaccounted cash was also found in the premises of assessee. In these circumstances, when the assessee fails to explain the reason of shortage as well as unaccounted cash, the Hon’ble High Court arrived at a decision that shortages are due to the reason of clandestine removal. He also relied on the decision of Bajrang Petrochemicals Ltd. wherein the observation of the Hon’ble High Court is that there was huge shortage of finished goods while during taking stock. It is not the case of the stock taking of finished goods. It is a case of inputs. In these circumstances, they hold that decision relied upon by the learned AR are of no help to the Revenue Further in the case of Nissan Thermoware P. Ltd. (supra), the Hon’ble High Court of Gujarat has observed that when the raw material was found short on verification of stock and same has been admitted by the Director, is not sufficient evidence to allege clandestine removal of the inputs. In this case, inputs were found short but same has been explained by the Director that as they have not taken the stock position since long, that might be the reason of shortage. These facts have not been appreciated by the lower authorities. In these circumstances, they rely on the decision of Nissan Thermoware P. Ltd. (supra) that held that in the absence of any cogent evidence of removal of inputs clandestinely, the cenvat credit cannot be denied on shortage of inputs to the appellants. With these terms, the impugned order is set aside. Appeal is allowed with consequential relief, if any.

Decision:-Appeal allowed

Comment:-The analogy of the case is that cenvat credit cannot be denied for shortage of inputs detected during the course of stock verification. In the present case, during the course of verification of stock of inputs, there were shortages and it was explained by the Director that these shortages were due to the reason that they have not taken their stock position since long. Although assessee has paid differential duty at the time of investigation, clandestine clearance was not admitted and shortages were explained as resulting from wastage during manufacturing process and because stock assessment had not been undertaken since long. There was no evidence that shortages were due to clandestine clearance and so cenvat credit was allowed.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2906

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