CESTAT Quashes Excise Demand, Says Stock Shortage Alone Can’t Prove Clandestine Removal

Neelachal Ispat Nigam Ltd. Vs Commissioner of GST & Central Excise (CESTAT Kolkata)

The appeal arose against an Order-in-Original confirming a central excise duty demand of Rs. 7,06,34,526/-, together with interest and an equivalent penalty, on the allegation that the appellant had clandestinely removed pig iron, mixed coke and crude tar without payment of duty. The demand was based primarily on an alleged shortage of 20,327/20,328 MT of pig iron noticed during stock verification conducted by an external agency.

The appellant, a joint venture of Central Public Sector Enterprises and Odisha Government PSUs, explained that during the relevant period pig iron production was not measured through an actual weighment system after the hot metal stage. Production figures recorded in the Daily Stock Account (DSA) were derived using historical conversion ratios from hot metal to pig iron, whereas dispatches were recorded on actual weighment. According to the appellant, this accounting methodology inherently resulted in variations between book stock and physical stock. After the discrepancies were identified during stock verification, the appellant constituted internal committees, examined the causes, recorded the reasons for variation, and recommended installation of improved weighing facilities and revised accounting procedures. The stock adjustment was also reflected in the financial statements.