Whether mere shortages in stock lead to the inevitable conclusion of clandestine removal?

PJ/Case Law/2014-15/2179

Case:- M/s RESINOVA CHEMIE LTD Vs COMMISSIONER OF CENTRAL EXCISE, KANPUR

Citation:- 2014-TIOL-672-CESTAT-DEL

Brief facts:- The appellant was engaged in the manufacture of Adhesive and Resins falling under Chapter 35 of the Central Excise Tariff Act, 1985. Their factory was visited by Officers on 31.10.2007, who conducted various checks and verifications. As a result shortages in the stocks of raw material i.e. Bisphinol, Barium Sulphate and Epi-Chlorohydrine involving out to Rs. 2,35,612/- were deducted. Shri Sanhay Mishra, Authorised Signatory of the appellant admitted such shortages but expressed his inability to give the reasons of the said shortages. However, he deposed that since new ERP based Navision Software was installed for making entries, he was not aware of the discrepancy.
On the above basis, proceedings were initiated against the appellant for confirmation of demand of duty as also for imposition of penalty. The said show cause notice dated 26.09.2008 culminated into an order passed by the lower authorities and upheld by the appellant authority.

Appellant’s contentions:- It was seen that the appellant had recently started using ERP Based Navision Software. The main Server of the same was located in the head Office at 54/38, Nayaganj, Kanpur. The main feature of this Software was that it was to be connected through Broadband Network and subsequently the entries in the records were then made at the Unnao Unit at the end of the day. But sometimes, due to problem in services of BSNL connectivity to the Server was not available and it resulted into delay in feeding entries/data in the Computer. Thus at the time when inspection was conducted by the Department, due to server problem, the broadband could not be connected to the main server and hence the days entry could not be updated in the system of the applicant.

Respondent’s contentions:- The above explanation given by the appellant did not stand accepted by the lower authorities and they had confirmed the demand.

Reasoning of judgment:-The Hon’ble judge found that the sole reason for holding against the appellant was the alleging shortages of the raw-materials. There was admittedly no other evidence to show that the said allegedly short found raw materials stood cleared by the appellant, without payment of duty or reversal of credit.
Tribunal in a number of decisions held that mere shortages in this stock could not lead to the inevitable conclusion of clandestine removal. Reference could be following decisions:-

2013 (290) ELT 317 (Tri-Del.), CCE, Kanpur Vs. Ambica Polytubes
2011 (263) ELT 604 (Tri-Ahmd.), Galaxy Textiles Vs. CCE, Vapi = 2010-TIOL-1126- CESTAT-AHM 3. 2011 (264) ELT 142 (Tri-Del.), CCE, Kanpur Vs. Kapoor Print Pack Pvt. Ltd.

In the case concerned also the appellant representative had accepted the shortages only but nowhere accepted the fact of removal of the same. On the other hand, there was plausible explanation of the same. As such, he found no reasons to the upheld the confirmed demand against them. Accordingly, the impugned orders were set aside and appeal was allowed with consequential relief to the appellant.

Decision:- Appeal was set aside.

Comment:- The analogy drawn from the case is that Tribunal in a number of decisions held that mere shortages in the stock could not lead to the inevitable conclusion of clandestine removal. Hence if shortage in stock are found and there are no other additional evidences supporting the case of clandestine removal, then duty demand cannot be confirmed against the assessee. In the present case, there was justifiable reason for shortage in the stock as there was delay in feeding data in the ERP software. Accordingly, the appeal was allowed.

Prepared by: Ranu Dhoot

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PJ/Case Law/2014-15/2179

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