Shree Shyam Pipes Pvt. Ltd Vs Commissioner of Central Excise (CESTAT Allahabad)
CESTAT Allahabad held that charge of clandestine removal cannot be imputed in absence of any evidence or in absence of an independent investigation. Accordingly, demand unjustified.
Facts- Appellant is manufacturer of copper tubes and installation kits falling in Chapters 74 & 84 of the First Schedule to Central Excise Tariff Act, 1985. During the visit by the officers of Central Excise to the premises of the appellant, on physical verification of stock and examination of the records, finished goods valued at Rs.25,85,613/- involving duty of Rs.3,23,202/- were found excess whereas stock of finished goods valued at Rs.42,105/-involving duty of Rs.5,263/- were found short. Alleging clandestine production and removal of the goods a show cause notice dated 30.10.2015 was issued to the appellant.
The appeal filed by the Appellant was dismissed for want of pre-deposit. Being aggrieved, the present appeal is filed.
Conclusion- Tribunal in the case of CCE v. Sai Iron (India) Ltd has held that even if the assessee fails to explain the shortages themselves, the charge of clandestine removal cannot be imputed in the absence of an independent investigation to corroborate the allegation.
Demand made in respect of shortages which are in range from 0.3 kgs to 23.60 kgs cannot be justified, without any evidence of any clandestine clearance or without any investigation also being made in this respect.
FULL TEXT OF THE CESTAT ALLAHABAD ORDER
This appeal is directed against Order-in-Appeal No. NOI-EXCUS-002-APP-950-19-20 dated 12.09.2019 of the Commissioner (Appeals) Central Goods and Service Tax, Noida. By the impugned order, Commissioner (Appeal) has in remand proceedings upheld the Order-in-Original No.10/AC/D-III/N-II/2016-17 dated 31.01.2017 holding as follows:-
“Order
(i) I order to confiscate the finished goods valued Rs.25,85,613/- (involving duty Rs.3,23,202/-) under Rule 25 of the Central Excise Rules, 2002 found excess as per detailed discussed above. I impose redemption fine of Rs.5,20,000/- (Rupees Five Lacs Twenty Thousand Only) on M/s Shree Shyam Pipes Ltd, in lieu of confiscation of aforesaid goods totally valued Rs.25,85,613/- under Section 34 of Excise Act, 1944. Further, I order to appropriate the Bank Guarantee of Rs.81,000/- (Rupees Eighty One Thousand Only) which was furnished by the noticee, against said redemption fine.
(ii) I confirm demand of Rs.5,263/- (Rupees Five Thousand Two Hundred and Sixty Three Only) on the shortages of finished goods on the party, under Section 11A of the Central Excise Act, 1944.
(iii) confirm the Interest, on demand confirmed above at (ii) above, at the applicable rates from the party, under Section 11AA of the Central Excise Act, 1944.
(iv) I impose penalty of Rs.3,28,465/- (Rupees Three Lacs Twenty Eight Thousand Four Hundred and Sixty Five Only) upon M/s Shree Shyam Pipes Ltd in terms of Rule 25 of Central Excise Rules,2002 read with section 11Ac of the Central Excise Act, 1944.
(v) I order to confiscate the vehicle (truck bearing No HR 55P 4363) found to be carrying goods found in excess as per detailed discussed above. I impose redemption fine of Rs.20,000/- (Rupees Twenty Thousand Only) upon M/s Hari Cargo Movers, Randhir Yadav Compound, Sihi Sikdapur, Kherki Daula, Gurgaon, in lieu of confiscation of aforesaid truck under Section 34 of Excise Act, 1944. Further, I order to appropriate the Bank Guarantee of Rs.20,000/- (Rupees Twenty Thousand Only) which was furnished by the noticee, against said redemption fine.
(vi) I impose penalty of Rs.5000/- (Rupees Five Thousand Only) upon M/s Hari Cargo Movers, Randhir Yadav Compound, Sihi Sikdapur, Kherki Daula, Gurgaon in terms of Rule 26 of Central Excise Rules, 2002.”
2.1 Appellant is manufacturer of copper tubes and installation kits falling in Chapter 74 & 84 of the First Schedule to Central Excise Tariff Act, 1985.
2.2 During the visit by the officers of Central Excise to the premises of the appellant, on physical verification of stock and examination of the records, finished goods valued at Rs.25,85,613/- involving duty of Rs.3,23,202/- were found excess whereas stock of finished goods valued at Rs.42,105/-involving duty of Rs.5,263/- were found short. Alleging clandestine production and removal of the goods a show cause notice dated 30.10.2015 was issued to the appellant asking them to show cause as to why:
(i) “Finished goods valued at Rs.25,85,613/- involving Central Excise duty of Rs.3,23,202/- as detailed in Para 4 above found excess of the recorded balances on 12.05.2015 should not be confiscated under Rule 25 of Central Excise Rules, 2002.
(ii) Central Excise duty amounting to Rs.5,263 (Rupees Five Thousand Two Hundred and Sixty Three Only) involved on the shortages of 84.70 Kgs of finished goods valued at Rs.42,106/-should not be recovered from them under Section 11A of the Central Excise Act,1944.
(iii) Interest under Section 11AA should not be demanded in respect of the demand at para 13 (ii) above.
(iv) Penalty should not be imposed upon them under Rule 25 of Central Excise Rules, 2002 read with section 11Ac of the Central Excise Act, 1944 for the alleged contravention as narrated above at Para 13 (i) and (ii) above.”
2.3 The show cause notice was adjudicated as per the Order-in-Original referred in para 1 above. The appeal filed by the Appellant was dismissed as per Order-in-Appeal No. NOI-EXCUS-002-APP-1924-17-18 dated 26/03/2018 of the Commissioner (Appeal) for want of pre-deposit. Tribunal vide order No.70545/2019 dated 14.03.2019 allowed the appeal observing as follows:
“Nobody appeared for the appellant. On going through the impugned order, I find that the appeal stands rejected for non-deposit of 7.5% of the confirmed demand in terms of provisions of Section 35F of the Central Excise Act. I find that appellant has now deposited 10% of demand at the time of filing of appeal before Tribunal. As such, I set aside the impugned order and remand the matter to Commissioner (Appeals) for decision on merits.
2. Appeal is thus allowed by way of remand.”
2.4 Commissioner (Appeal) has vide the impugned order referred in para 1, dismissed the appeal. Aggrieved appellant have filed this appeal.
3.1 I have heard Shri D. K. Tyagi, Advocate for the appellant and Shri Sandeep Pandey, Authorized Representative for the revenue.
3.2 Arguing for the appellant learned counsel submits that:
◊ Shortage of 84.7 Kgs found on physical stock verification is due to human error in identifying the exact size of pipes since weighed in small quantity on a kanta of IMT capacity. The shortage of 84.7 kgs in available stock of 2530 Kgs cannot be on account of clandestine clearance. Reliance is placed on the decisions reported at [2015 (325) ELT 193 (T-Del)], [2015 (321) ELT 330 (T-Del)], [2015 (316) ELT 497 (T-Del)], [2013 (298) ELT 117 (T-Del)], [2015 (317) ELT 298 (T-Del)], [2011 (274) ELT 180 (ALL)];
◊ Excess was due to eye estimation of various sizes of pipes. The alleged excess was lying on the manufacturing floor in unpacked condition. This stock would have been entered in the books of account on 12.05.2015 as the same was production of 10.05.2015 and 11.05.2015 was holiday. The production on the day of visit has not been considered.
◊ Stock of scrap of defective pipes lying on the floor and also found loaded in truck standing in the factory premises has been confiscated and allowed to be redeemed on a redemption fine of Rs.5,20,000/-
◊ The truck by which the said goods were to be transported HR 55 N 5117, for which the job work challans were also prepared was not provided by the transporter, but truck bearing no HR 55P 4363 had been provided. Accordingly appellant were awaiting the fresh inward e-challan for the new truck by which these goods were to be transported. It is not even the case of revenue that the truck had moved out of their premises.
◊ It is settled law that no confiscation is warranted when the goods were found in the factory premises. Reliance is placed on the decisions reported at [2013 (321) E.L.T. 231 (AP)], [2015 (319) E.L.T. 263 (P & H)], [2013 (298) E.L.T. 730 (T-Del)], [2014 (308) E.L.T. 421 (T-Del)], [2006 (193) E.L.T. 566 (T-Del)], [2015 (324) E.L.T. 727 (T-Del)].
3.3 Arguing for the revenue learned authorized representative reiterated the findings recorded in the impugned order.
4.1 I have considered the impugned order along with the submissions made in appeal and during the course of arguments.
4.2 Commissioner (Appeal) has in the impugned order recorded following findings for dismissing the appeal filed by the appellant:
“5.1 The original authority has determined the shortages as well as excess in stock of different goods during physical verification. The sole defence canvassed by the appellant is that the difference was due to human error in identifying the size of copper pipes, that is why the pipes were found to be in excess in some case s and short in other during stock verification.
5.2 I note that, – (i) the search was carried out on 12/13.05.2015, (ii0 the panchnama proceedings were carried out and recorded in the presence of independent witnesses, (iii) panchnama records physical verification of stock and stated shortage/ excess of stock, (iv) the appellants admitted the difference in stock in statements recorded on 28.05.2015 (v) the panchnama was not questioned at any point of time and (vi) the statements have not been retracted at any point of time.
5.3 Further, I observe that during search operation, the departmental officers have found that un-accounted goods are lying in the factory premises and the appellant is not maintaining any requisite records of purchase, production and sale of finished goods as well as raw material, shortage of finished goods and a truck loaded with scrap without documents. The search proceedings do not suffer from any infirmity, the statements are recorded in conformity with law and not retracted. The panchnama proceedings of search process were carried out in accordance with the relevant statutory provisions in the presence of independent witnesses.
5.4 Further, I find that the difference (shortages/ excess) in stock, recorded in the presence of the independent witnesses has been supported by the statement of the authorized signatory, who have accepted the discrepancy both shortage and excess, found in stock. Non recording of correct quantity of goods in the book of accounts maintained by the appellant establi9shes the case for demand of duty.
5.5 I find that the appellant has not presented any credible defense for not maintaining any statutory records. I hold that the objection regarding manner of stock verification is superfluous and doesn’t hold good.
5.6. I understand that the law recognizes well settled principle of “administrative inconvenience” especially under tax statutes. The Apex Court has referred to the principle of “administrative inconvenience” in its decision in Indian Aluminum Company Ltd. Vs Thane Municipal Corporation reported in 1991 (55) E.L.T. 454. Hon’ble CESTAT in Satyabrat Swain vs. CCE, Meerut reported in 2015 (316) E.L.T. 106 held as under:-
“Similarly, in the case of Indian Aluminum Company Ltd. v. Thane Municipal Corporation reported as 1991 (55) E.L.T. 454 (S.C.), it was observed that non-observance of even a procedural condition not to be condoned if likely to facilitate commission of fraud and introduce administrative inconveniences. Admittedly, if the condition is so important that non-observance of the same may result in fraudulent activity, such condition cannot held to be an empty formality.”
5.7. In my understanding of Central Excise and Service tax statutory regime, undermining of relevance and requirement of proper documents and accountal thereof would very likely facilitate commission of fraud and introduce in surmountable inconvenience for tax administration. The appellant fails to record the goods in the proper documents viz RG1 etc.
5.8. As regards the allegation and finding of clandestine removal I place reliance of the case of Dasani Electra (P) Ltd. Vs CCE Calcutta I [2000 (125) E.L.T. 646 (Tribunal) Clandestine removal – it was held that the initial onus cast upon the department by showing that the goods manufactured had not been accounted for gets shifted to the appellant. It is now onus of the appellants to prove it beyond doubt by production of sufficient legal evidence that such missing serial numbers were in fact not removed by them but was on account of damaged and rejected alternators. The said case has been maintained by the Hon’ble Supreme Court.
Further in the case of Indian Cork Mills Ltd vs. CCE, Bombay 1984 (17) E.L.T. 513 9 Tri), it was held that non accounting of goods cannot be technical breach and the department is not required to prove guilt beyond doubt.”
4.3 I am constrained to observe that the findings recorded by the Commissioner (Appeal) in the impugned order, to the effect that the appellants were not maintaining statutory records etc is contrary to the provisions of Rule 22 of Central Excise Rules, 2002 and the panchnama itself. Rule 22 of Central Excise Rules, 2002 provide as follows:
“22. Access to a registered premises.-
(1) An officer empowered by the Commissioner in this behalf shall have access to any premises registered under these rules for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of revenue.
(2) Every assessee shall furnish to the officer empowered under sub-rule (1), a list in duplicate, of all the records prepared or maintained by the assessee for accounting of transactions in regard to receipt, purchase, manufacture, storage, sales or delivery of the goods including inputs and capital goods.
….”
As per the above rule there are no separate statutory records prescribed under the Central Excise laws but the records maintained by the assessee in normal course of his business are considered as statutory for the purpose of Central Excise Law. Panchnama records as follows:
“On being asked to produce the records/ Registers maintained by them in respect of Finished goods and raw material, and other records such as Cenvatable invoices, sale invoices etc., Shri Krishna Kumar Sharma informed that they are maintaining the stock of Finished goods manually in Register RG 1. The stock of raw material was being maintained by them in computer. Shri Sharma provided the RG-1 register showing the closing balances as on 10.05.2015. On being asked whether the entries in RG-1 are complete and also about the details of production and clearance of 11.05.2015, if any which have not been entered in RG-1, Shri Sharma informed that their factory was not operational on 11.05.2015 and the entries in RG 1 register were complete irrespective of the date being shown in the RG 1 register against the finished goods. Shri Sharma also informed that entries in RG-1 register were actually the opening balance of the products on 12.05.2015. Shri Sharma also clarified that they were not making any entries of all the goods on daily basis. The daily entry is made in the goods which are running products. On being asked about the last sale invoice number issued by them, Shri Sharma informed that the last invoice issued was 115 dated 10.05.2015. The computerized stock sheet of raw material/ input has also been submitted duly signed by Shri Krishna Kumar Sharma. The officers scrutinized the documents regarding sale and purchase provided by the party.
..
On being asked to depute some responsible person to get the stock of finished goods and main raw material/ input physiacally verified. Shri Krishna Kumar Sharma deputed Shri mohd. Abdul, Packing in charge in M/s Shree Shyam Pipes Pvt Ltd. D-3 & E 59-60 Surajpur Industrial Area, Greater Noida GB Nagar for getting the stock of finished goods and raw material physically verified. No stock of main raw amterioals/ inputs i.e. copper pipe was available in the records but was being unloaded from one vehicle bearing Registration No HR 74 9551. The total quantity received on 12.05.2015 under invoice No 67 dated 08.05.2015 of M/s RHJ Industries Pvt Ltd., Daman was 10.00 MT (16 mother tubes). The details of the vehicle and details of the goods were found to be in order. The stock of finished goods was verified on the basis of the agreed upon method i.e. adding the weight after weighing all the goods. The weighment of stock of finished goods was done on the weigh bridge installed in the unit having capacity to weigh 1.00 MT. The stock position of Finished goods so obtained were compared with the Book Balance maintained by the party and is reflected in Annexure A to this Panchnama.
On comparing the physical stock of finished goods as verified by the officers with the Book Balance i.e. RG 1register maintained by the party certain differences (shortage/ excess) were noticed. Further while taking round of the factory and conducting the physical verification of the stock of finished goods a truck bearing Registration No HR 55 P 4363 was found inside the factory loaded with copper scrap. On being asked whether any document such as invoice/ challan has been prepared in respect of the goods loaded in the truck, Shri Sharma informed that no document has been prepared till the time of visit of the officers. On being asked about the quantity of copper scrap loaded in the said truck Shri Mohd Abdul informed that 5002.025 Kgs of Copper scrap has been loaded in the truck. He also produced the slips showing the weighment details which were prepared by him when the goods were being physically weight on the weigh bridge installed in the unit (having capacity of 1.00 MT) at the time of loading. As the truck was inside the factory, therefore, the quantity of scrap loaded in the said truck has also been taken in the total stock of scrap physically verified. On being asked to explain the reasons for shortages and excesses detected as detailed in Annexure A to this panchnama, Shri Sharma could not give any plausible reason for the differences. Thus the officers on having the reasonable belief that excess quantity of finished goods namely copper tubes of various sizes and copper scrap (including the quantity loaded in the truck) which were complete in all respect and were in ready to dispatch condition, were stored unaccounted in the factory for removal without payment of duty. Therefore the officer have placed the entire excess quantity of finished goods (pipes) and copper scrap as detailed in Annexure A to this panchnama valued at Rs.25,85,614/- under seizure under Rule 24 of the Central Excise Rules 2002 framed under Central Excise Act, 1944.”
Further Annexure C to Panchnama provides the details of the documents that were resumed from the premises of the appellant at the time of stock verification. Annexure C to panchnama is reproduced below:
