Whether duty payable on shortage of finished goods found on average basis?

PJ/CASE LAW/2015-16/2825

Case:-PAWAN ALLOYS AND CASTING PVT. LTD. VERSUS COMMR. OF C.E. & S.T., MEERUT-I

Citation:- 2015(318) E.L.T. 267 (Tri.-Del.)

Brief Facts:-It is the case wherein shortage of finished goods was found on the basis of average weighment of MS ingots as stated in the panchnama. Average basis counting of the MS ingots was done and thereafter it was arrived that physical finished goods available in the of the factory of the appellant was compared with the statutory records and a shortage of 88.5% was found. No other corroborative evidence has been ascertained in this matter to allege the clandestine removal of the goods . Although the authorized representative of the appellant has admitted the shortage but he is not admitted any fact that any goods have been removed from the factory.

Appellant’s contention:-The ld. Counsel for the appellant submit that the stock taking was done on average basis and it was not done physically as it is coming out from the panchnama itself. Therefore, it cannot be alleged that there was a shortage of finished goods. Moreover the shortage alleged by department works out to 88.5% only. If the stock taking would have been done on the actual weighment basis, there would not be any variation in the statutory records and the physical finished goods. He further submits that there is no corroborative evedince produced by the revenue for clandestine removed of the goods. Therefore, the demands are not sustainable. Consequently, penalties on both the appellants are not imposible .

Respondent’s Contention:-The prevenative officer of the central excise department visited the factory of the appellant and verified the finished stock of MS Ingots. After verification, it was found that the stock entered in the satatutory records is less than the physical quantity found in the factory as recorded in the statutory records. Therefore, it was alleged that appellant has cleared 27.88 MT without payment of duty. Accordingly, it was also found that the appellant received the credit note from the supplier of the goods on the basis of defective quality of the inputs.

Reasoning of Judgment:- In this scenario, Tribunal found that in the case of Durga Steel Rolling Mills (Supra) wherein the shortage was found on average basis, this Tribunal observed that in such a scenario when physical counting of the goods has not taken place charge of clandestine removal cannot be alleged. After going through the facts of this case, Tribunal observed that in this case the physical verification of the goods has been done on average basis and there is a shortage of only 88.5%, it was held that appellant is not liable to pay duty on the shortage of finished goods found during the period. The discount given by the supplier to the goods is not chargeable to duty, as the discount has been given for the defective quality of the input
Further, Tribunal held that as duty is not payable by the main appellant , therefore the penalties cannot be imposed on appellant.

Decision:- Appeal allowed.

Comment:-The essence of this case is that mere shortage of fininshed goods found on calculation done on average basis cannot lead to duty liability unless and until it is proved with corroborative evidences that there was clandestine removal of finished goods.

Prepared by:- Bharat Singh

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PJ/CASE LAW/2015-16/2825

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