Shortage detected in Stock taking not conclusive evidence of clandestine removal.

PJ/Case Laws/2012-13/1255

Case: - CASTROL INDIA LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, CHENNAI

Citation: - 2012 (283) E.L.T. 399 (Tri- Chennai)

Brief fact: - The Appellants are manufacturers of lubricating oils of various specifications. They have been availing the benefit of MODVAT credit of excise duty paid on inputs as well as packing materials used in the manufacture of such finished lubricating oils.
On 26-3-1996, the officers of Central Excise department visited the factory of the appellants and conducted a stock taking. They found shortage of 28,760 ltrs. Of finished goods, 1,02,739 Kgs. of inputs and 69,805 nos. of packing materials in the physical stock available as compared to the accounted stock. The Revenue proposed to demand excise duty in respect of finished goods found short as also reversal of the CENVAT credit taken on inputs and packing materials which were found short. A show-cause notice issued in this regard was adjudicated confirming demand of duty of Rs. 1, 21,109/- in respect of finished goods, Rs. 19, 06,004/- in respect of inputs and packing materials. Further, a penalty of Rs. 1, 21,109/- was imposed under Section 11AC of the Central Excise Act.
Aggrieved by the order, appellants filed an appeal before the Tribunal. The Tribunal after hearing the matter remanded the matter vide Order No. 534/03 dated 24-6-2003 for de novo consideration. Consequent to this remand order, the matter has been re-adjudicated by the Commissioner vide order dated 13-7-2004 and the present impugned order is such adjudication. In the adjudication order, the amounts which were confirmed originally have been re-confirmed.

Appellant Contention: - Appellant contended that they were manufacturing more than 300 products and the stocktaking for such variety of products was very difficult task so the stock taking was not done with the required degree of accuracy. The Appellant also point out that some of the impugned goods were stored in bulk and measurement of such goods stored in storage tanks was taken by dip level readings and such measurements were not very accurate. He further submitted that during stocktaking, there were excess detected in respect of certain items and there were shortages in respect of certain inputs. However, Revenue has ignored the excess and demanded duty in respect of goods which were found short. They submit that all the different varieties of oils are basically made of same lube stock and the differences have arisen basically because of wrong accounting of the finished goods. They also submit that during the period their accounts were not computerized because of which some errors had happened in accounting itself and such errors also contributed to the difference in stock.
The main contention of the appellants is that the Revenue has not been able to prove any instance of clandestine removal of the finished goods or the inputs on which CENVAT credit has been taken and, therefore, the case made out by Revenue can at best be an issue of improper accounting of goods and it cannot be a case of clandestine manufacture and removal of either the excisable goods or inputs on which CENVAT credit has been taken. The appellants pointed out that in the following cases decided by the Tribunal while dealing such matters, the Tribunal has given relief by setting aside the demand of duty :- (1) CCE, Munibai v. Castrol India Ltd. - 2005 (191) E.L.T. 376 (Tri.- Mumbai) (2) Denso Kirloskar Indus. Pvt. Ltd. v. CCE, Bangalore - 2006 (195) E.L.T. 102 (Tri.-Bang.) (3) aerial, P. Vershese v. CE - 1992 (59) E.L.T. 537 (Tn.)

Respondent Contention:- The Id A.R. for Revenue submits that the appellants had admitted shortage of 69,805 nos. of drums/barrels/tins and also admitted shortage of 959 Kgs of two types of additives during the investigation stage and paid duty of Rs. 2,76,455/- and Rs. 15,763/- during the investigation stage itself and there cannot be any dispute about these items in this proceedings. He further submits that the argument of the Appellant that excesses found in certain types of final product against shortages against another type of final products is not acceptable because such products are different and differently priced and the shortages were accepted by the authorized signatory of the appellants on the day of the stock taking and disputes raised at a later point of time regarding the method of stock taking cannot be accepted. He also points out the quantities involved are too huge to be brushed aside.

Revenue further argues that the shortages have to be seen as a percentage of quantity in stock rather than as percentage of goods manufactured by them over a period of time. The Appellant had not maintained their accounts properly and that is very obvious from the excesses and shortages noticed. Therefore, the appellants are very casual about maintaining the accounts and it is not justifiable to condone such lapses in the case of a company with high turn-over as the present appellant.

Revenue also draws attention to the decision of Hon. Madras High Court in the case of Alagappn Cements v. CEGAT - 2010 (260) E.L.T. 511 (Mad.) where the court upheld duty demanded on quantity of finished goods found short even without proof of clandestine removals.

Reasoning of Judgment: The Tribunal held that they are inclined to go by the argument that the errors are on account of errors in accounting rather than due to clandestine removal because of the fact that discrepancies have been noticed involving both excesses and shortages. While Tribunal agrees with the argument of Revenue that such excesses cannot be set off against shortages noticed, this factor weighs in their mind while appreciating the evidence. In their view it is a case of improper accounting rather than a case of clandestine removal of inputs and finished goods. The admission of the authorized signatory on the day of stock taking is understood to mean that there was a difference between accounted stock and physical stock but this cannot be proof enough to conclude that the accounted stock was correct. The overall facts of the case suggest otherwise that the proceeding for imposing penalty for not maintaining accounts properly would have been more appropriate rather than demanding duty on goods found short vis-a-vis the goods as reflected in the accounts. The decision of the Hon'ble Madras High Court in the case of AIngappn Cements (supra) is not a decision that can be applied to the facts of case considering the nature of commodity involved and the large number of final products manufactured by the present appellant. Considering the overall facts and circumstances tribunal are giving the benefit of doubt to the appellants in this case but they would like to make it clear that the appellants are required to maintain proper accounts of inputs and finished goods available with them as per Central Excise Rules. So Tribunal allows the appeal by setting aside the duty demanded and penalty imposed. However the duty paid , which has not been contested in earlier proceeding, shall not be refundable consequent to this order.

Decision:- Appeal allowed

Comments:- The clandestine removal has to be corroborated with cogent and conclusive evidence, it cannot be based on shortages only. The shortage leads to great suspicion but it is not corroborative evidence of clandestine removal. Something more positive is required to be proved by the department. This analogy is clearly brought about by this decision.

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PJ/Case Laws/2012-13/1255

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