Whether clandestine charge leviable on basis of excess clearances shown in security register?.

PJ/CASE LAW/2014-15/2320

Case:- COMMISSIONER OF C. EX., AURANGABAD VERSUS JYOTI WIRE INDUSTRIES LTD.

Citation:- 2014 (300) E.L.T. 477 (Tri. - Mumbai)

Brief facts:-Brief facts of the case are that the respondent is the manufacturer of enameled winding wires made of copper and PVC insulated copper wires. On 7-12-1996, the factory premises of the appellant was searched. During the course of search, a register maintained by the Security Officer of the respondent was taken over and the same was compared with the other records wherein the Security officer makes the entry of the removal of the goods date-wise. The quantity mentioned in the security register were not tallied with the invoices of the said dates. On perusal of the records, it was found that there were some excess clearances shown in the security register on 24-4-1996 and 22-6-1996. It was also found that some of the rejected goods received by the respondent were also lying in the factory beyond the period of six months. Further, it was also found that numbers of gunny bags of waste and scrap which were short at the time of inspection as compared to the packing showing the higher number of bags. Therefore, a show cause notice dated 3-2-1999 was issued. The show cause notice was adjudicated and on the basis of allegation made in the show cause notice, demand of Central Excise duty along with interest was confirmed against the respondent and equivalent amount of penalty under Section 11AC of the Act was also imposed. The said order was challenged by the respondent before the Commissioner (Appeals) who set aside the adjudication order. Aggrieved by the same, the Revenue is in appeal.

Appellant’s contentions:-Shri V.R. Kulkarni, Dy. Commissioner (A.R.) appearing for the Revenue submitted that at the time of investigation on 7-12-1996, the Security Officer was enquired and he made a statement and produced a register meant for clearance of the goods. In the statement, it is an admitted fact that the quantities shown in the Security Officer’s register are more in quantity than shown in the invoices made on that date. The said fact has been denied by the Commissioner (Appeals). Therefore, the impugned order is required to be set aside on that ground. He further submitted that it is evident that waste and scrap are of less quantity of gunny bags at the time of investigation. Therefore, the differential quantity had been cleared without payment of duty. On these grounds the impugned order is required to be set aside.

Respondent’s contentions:- Shri Vinay Sejpal, learned Advocate appearing for respondent strongly opposes the contention of the learned A.R. and submitted that although the Security Officer has admitted the difference between the quantity mentioned in the invoices and the quantity recorded in his register but Shri Omprakash Rathi, Asst. Manager has replied to a query raised to him that the differences in the quantity shall be explained through documentary evidence later on. Thereafter during the course of investigation, it was explained by Shri Omprakash Rathi that there are some difference in the quantity of invoices and the Security Officer’s entry record in the register. The explanation has not been considered by the adjudicating authority but on appeal before the Commissioner (Appeals), the Commissioner (Appeals) considered the explanation in paragraphs 8 and 9 of the impugned order. He further submitted that the allegation that the rejected goods have been replaced by the finished goods has not taken place as the same has been alleged on the ground that the rejected goods have not been replaced within six months. The rejected goods have been entered in the Annexure 5 of Rule 173H of Central Excise Rules, 1944. With regard to the shortage of waste and scrap it is submitted that the waste and scrap were packed in gunny bags and there was variation in number of gunny bags were found at the time of inspection. With regard to the shortage of waste and scrap it is explained that during the course of loading/unloading of the waste and scrap which is packed in gunny bags some of the gunny bags were torn off which were replaced in other gunny bags. Therefore there is a difference in number of gunny bags but the quantity of waste and scrap remain the same. Therefore, the allegation of shortage of waste and scrap is not sustainable.
In view of the above submissions the learned Counsel for the respondent submits that the impugned order be upheld and the appeal filed by the Revenue be rejected.

Reasoning of judgment:- It is a case where the allegation is clandestine removal of the goods on the basis of clearance register maintained by the Security Officer and the statement of Security Officer at the time of investigation. During the course of investigation, itself it has been explained to the departmental officers that there is no shortage of goods and no clandestine removal of the goods and the same were supported by various documents produced by the respondent before the investigating authority. It is also explained by the respondent that although the Security officer has maintained a register of clearance but it is a internal stock register of the goods. The goods were cleared finally from the factory gate on the basis of the gate pass and the clearance shown in gate pass are tallied with the invoices. As the respondent maintain two security checks the final security check deals with the clearance which are tallied with the actual clearance in the respondent stock register which tallies with each other and no evidence has been produced by the Revenue that these documents are not correct. Therefore, the allegation of clandestine removal is not sustainable. As recorded by the Commissioner (Appeals) in paragraphs 8 and 9 of the impugned order which is reproduced hereinunder :-
“8. I find that apart from the entries in the Security Loading Register on two specific dates there has been no other independent corroborative evidence which shows that the so called excess quantity of goods had been actually removed from the appellants’ factory. The stock taking of the finished goods as well as raw material undertaken by the visiting preventive officers did not point out any variations in the stock physically available in the appellants’ factory viz-a-viz their statutory records. Had there been excess removal of 71 boxes plus 14 reels against the dispatches made on 24-4-1996 and similarly excess removal of 28 boxes in respect of consignment dispatched on 22-6-1996, the stock position ought to have shown shortage of goods to that extent. The absence of shortage in the stocks suggests that only that quantity of goods as mentioned in the Central Excise Invoices duly matching with Gate Slips and finished goods outward register were removed from the appellants’ factory on those dates. Therefore, the charge of clandestine removal of goods is not found substantiated.
9. So far as the discrepancy in the number of vehicle shown as MH-12G-5523 in Invoice No. 48, 49 and 50 in place of MWQ-5823 is concerned, I find that the fourth invoice No. 51 dated 24-4-1996 bears vehicle No. MWQ-5823 which tallies with the Gate Slip as well as finished goods outward register. Not only this but the quantity shown in all the four C. Ex. Invoices do tally with the quantity reflected in the gate slip and the outward register. It appears that at time of preparation of Invoice No. 48, 49 and 50 dated 24-4-1996 the appellants might have booked the vehicle No. MH-12G-5523 but at the time of actual loading of the goods vehicle No. MWQ-5823 might have come and which ultimately transported the said goods covered under all the four invoices. Hence this discrepancy loses its significance.”
With regard to the allegation of replacement of the rejected goods with the finished goods, same has been recorded in an Annexure 5 as per Rule 173H ibid and the said fact has not been controverted by the Revenue. Therefore, the allegation of replacement of rejected goods, when no query from the buyers has been made whether they have received finished goods against the rejected goods or not, the allegation that the rejected goods have been replaced by finished goods is not sustainable.
With regard to the differences in the waste and scrap it is clarified and found that quantity of waste and scrap is tallying with each other and the only difference is no. of gunny bags, therefore, the allegation is not sustainable as the duty is to be demanded on the basis of quantity of clearance and not on the basis of packets. Therefore, the said allegation against the respondent is not sustainable.
All these things have been considered by the Commissioner (Appeals) in detail and it was held that the allegations made against the respondent in the show cause notice are not sustainable. After going through the explanation recorded in the impugned order, Tribunal was also of the view that the allegations alleged against the respondent in the show cause notice are not sustainable. In this term, the impugned order and dismiss the appeal filed by the Revenue. Cross-objection is also disposed of in the above term.

Decision:- The appeal dismissed.

Comment:- The analogy of the case is that merely because of difference in the quantity of clearances shown in the security register and the invoices, it cannot be concluded that the there was clandestine removal of goods. Moreover, there was no shortage of inputs which proved that there was no clandestine manufacture and clearance of goods.

Prepared by: Monika Tak

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PJ/CASE LAW/2014-15/2320

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