Whether confiscation can be proved where the shortage of goods occurs merely because of comparison of RG-1 register and other private document?

PJ/Case Laws/2011-12/1123

Prepared By:
CA. Rajani Thanvi &
Bharat Rathore

Case: Ambuja Intermediates Ltd v/s Commissioner of C. Ex., Ahmedabad

Citation: 2011 (264) ELT 277 (Tri-Ahmd)

Issue: - Whether confiscation can be proved where the shortage of goods occurs merely because of comparison of RG-1 register and other private document?

Brief Facts:- Appellant-assessee are engaged in the manufacture of DASA and H. Acid and other goods falling under Chapter 29. During the visit of Excise officers on 15.03.2001 in their factory and head offices, search was conducted. Search was also conducted in the residential premises of the employee of the appellant from where incriminating documents were recovered. The Director of the appellant-company admitted the shortage of raw material as well as finished goods and clearance of them without payment of duty. He deposited the amount involved immediately. Suring search of another employees residential premises, two registers i.e. lignite register and input register pertaining to year 97-98 were recovered. It was stated that these registers were maintained by an ex-employee. During search, excise officers also recovered ‘Spin Flash Drier Reports’ (SFDR) alongwith other records like analysis, note books mentioning the date, the shift, lot number, number of bags, purity etc. Statements of operator and laboratory chemist were also recorded.

Revenue issued show cause notice dated 22.03.2002 alleging clandestine removal. The matter went upto the Tribunal and the Tribunal remanded the matter on the ground of violation of principles of natural justice.

In the de-novo proceedings, the Commissioner confirmed the demand of duty on the charge of clandestine removal of H. Acid and of demand of duty for clandestine removal of inputs and final products. Penalty of amount equivalent to excise duty under Section 11AC of the Central Excise Act, 1944 was imposed. The Commissioner however, set aside part of the demand relating to clandestine manufacture and removal of H. Acid and the demand on account of non-inclusion of freight charges in the assessable value. The Commissioner had not accepted the appellant’s contention on the ground that it is not at all clear as to what was the source of the figures of purity in Annexure-IV. And there is discrepancy between SFDR and RG-1 entries even after adjustment for purity. It was observed that the SFDR is a detailed and contemporaneous record.

With regard to confirmation of duty regarding the shortages of inputs and final products detected at the time of visit of officers, the Commissioner confirmed the demand by observing that a regular panchnama was drawn in the presence of the appellant’s representatives and attested by panchas and that Director in his statement had admitted the clearances of the raw material napthalene to M/s Parik Acid Company. Ahmedabad without payment of duty. And another director of the Appellant-company had admitted the illicit removal of inputs as final product on cash payment basis.

The appellant is before the Tribunal against demand of duty which was confirmed.

Appellants Contention: - Before the adjudicating Authority, the appellant contended that the figures of production of H. Acid in SFDR will not tally with the figures given in RG-1 because of purity of H. Acid. The production of H. Acid is recorded in SFDR immediately and it is only after purity test, a real weight is arrived at. Appellant filed a co-relation statement between SFDR records, the purity of the lot and the real weight of the final product. Appellant contended that the weight given in the SFDR report is the weight of H. Acid “as it is” but the entry in RG-1 is the real weight i.e. the weight of the H. Acid reduced to bring it to 100% purity. Each lot number has the purity report and by multiplying the percentage purity with “as is” weight, the assessee has arrived at the ‘real weight’, which is entered in the RG-1 register. The complete table showing the lot number “as is” weight, purity as per test report and the “real weight” has been submitted as Annexure. It was submitted that after adjusting for purity, the entry in the RG-1 matches exactly with real weight. Therefore, there is no short accountal of H. Acid manufactured by the noticee.

It was further submitted that the Director in his statement had already explained that the variation in the weight as per the SFDR report and the entry in the RG-1 register is due to the adjustment of purity. The appellant had also produced the invoices of other manufacturers where the same practice was being followed.

Reasoning of Judgment:- The Tribunal held that with regard to confirmation of demand of duty on account of suppression of production of H. Acid on basis of spin flash drier reports during the period 1999-2000 and 2000-01, it was found that the Revenue’s entire case was based on comparison of entries made in SFDR and the RG-1 register. Admittedly SFDR is not statutory document and is being maintained by the appellant internally for their own convenience. The SFDR which are private document cannot be made the sole basis for alleging manufacture and clearance of the final product without payment of duty. It was noted that there is no other evidence corroborating the charge and it was also noted that the difference in the entries made in RG-1 and SFDR was explained by the appellant. It was observed that the Commissioner had not taken into account the factors pointed out by the appellant and has gone by some minor discrepancies, even if the 100% purity weight of H. Acid is derived from the entries made in SFDR.

The Tribunal further held that allegations of clandestine removal are required to be based on tangible and positive evidence. SFDR is only an optional maintaining of records and is not statutorily prescribed register. There is no inculpatory statement of any person admitting clandestine removal of their final product during the relevant period. It was held that clandestine removal being a serious charge, cannot be based upon the recovery of private registration indicating day to day production. Reference was made to judgments given in Ashwin Vanaspati Industries Pvt Ltd v/s Collector of Central Excise [1992 (59) ELT 175 (Tribunal)] and in T.G.L. Poshak Corporation v/s CCE, Hyderabad [2002 (140) ELT 187 (Tri-Chennai)] and on Bhor Rubbery Factory & Anr v/s CCE, Pune [2006 (198) ELT 549 (Tri-Mum)].

The Tribunal noted that the Revenue did not find any investigations conducted by the Revenue so as to establish the identity of the buyers, who have purchased the final product allegedly removed clandestinely was made. It was held that there are no justifiable reasons to confirm the demand of duty based on comparison of entries between SDFR and RG-1. Impugned order confirming demand and imposition of duty set aside.

With regard to confirmation of demand in respect of the shortages of inputs and final products detected at the time of visit of officers, the Tribunal agreed with the finding of Adjudicating Authority that the same is based on Panchnama and the admission of director about shortage and their clearance to a specific party. Confirmation of demand upheld and Penalty to the extent of 100% is required to be imposed.

Conclusion: - Appeal partially allowed and partially rejected.

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PJ/Case Laws/2011-12/1123

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