Case Law Details
Steel Authority of India Ltd Vs Commissioner of Central Excise (CESTAT Bangalore)
The CESTAT Bangalore in M/s. Steel Authority of India Ltd. v. The Commissioner of Central Excise [Appeal No. E/562/2008 dated May 25, 2023] overturned the decision to demand excise duty based on the differential quantity of goods as per the ER-1 returns and the audited books of accounts. The tribunal determined that the discrepancy between the values mentioned in the RG-1 and the physical stock statement provided by the assessee was inherently inaccurate, as both values were estimated.
Facts:
M/s. Steel Authority of India (“the Appellant”) is engaged in the business of manufacturing of iron and steel products and it conducts annual stock verification of finished/ semi -finished goods manufactured every financial year.
The Revenue Department found various differences between physical stock of finished/semi-finished goods shown in Appellant’s stock statement when compared with the adjusted RG-1 for the year 2001-02, 2002-03, 2003-04 (“the Impugned Period”).
Subsequently, the Revenue Department (“the Respondent”) issued 3 Show Cause Notices dated April 4, 2003, March 19, 2004, and April 7, 2005, (“the Impugned SCNs”) respectively for the Impugned Period, demanding excise duty on the goods found short during the comparison. Later, the Respondent vide an Order (“the Impugned Order”) confirmed the demand of duty.
Being aggrieved, this appeal has been filed.
The Appellant contented that the goods recorded in RG-1 are based on estimated production, whereas, physical stock of goods was recoded on the basis of volumetric estimation and goods are physically weighed only at the time of clearance from the factory/deport. Thus, comparison of estimated production and estimated physical stock of goods is totally incorrect and will lead to improper conclusion. Further, the demanded duty is on the basis of differential quantity of goods based on ER-1 and goods shown in audited books of accounts.
Issue:
Whether the Revenue department was correct in issuing SCN on the basis of difference values stated in RG-1 and physical stock statements as reported by the Appellant ?
Held:
The CESTAT Bangalore in Appeal No. E/562/2008 held as under:
- Observed that, the Respondent vide the Impugned Order has demanded the duty on the differential quantity between ER-1 and audited books which appears to be beyond the framework of Impugned SCNs. The parameters relied upon by the Respondent in the Impugned SCNs and the parameters relied upon in the Impugned Order are at variance, which is legally not sustainable.
- Further observed that, the Impugned SCNs did not allege fraud, collusion, willful misstatement or contravention of the provisions of Central Excise Act. However, the Respondent had invoked proviso to Section 11A of the Central Excise Act, 1944 (“the Central Excise Act”) to impose penalty under Section 11AC of the Central Excise Act, which is beyond the scope of Impugned SCNs.
- Relied on its earlier judgment in Appellant’s case [2006 (200) ELT 229 (Tri. -Bang,)], wherein, it was held that, the discrepancy between the RG-1 stock and the physical stock are based on the estimated production and not on actual weighment. Thus, comparison between two estimations is inherently inaccurate and considering the practical difficulties in estimating the actual stock.
- Opined that, even if there are differences in the stock taking and the shortages are found, the duty can be demanded only when the goods are removed from the factory.
- Held that, the Impugned SCNs and the Impugned Order have failed to prove that there was any illicitly removal of goods these goods were clandestinely removed.
- Set aside the Impugned Order.
FULL TEXT OF THE CESTAT BANGALORE ORDER
M/s. Steel Authority of India Ltd., are the manufacturers of Iron and Steel Products falling under Chapter 72, 73 and 84 and other miscellaneous products falling under Chapter 25, 26, 28, 38 and 69 of the Central Excise Tariff Act, 1985. Appellants conduct annual stock verification of finished/semi-finished goods manufactured by them for every financial year. In the present appeal, the department found various differences in the physical stock of finished/semi-finished goods shown in their statement when compared with the adjusted RG-1 opening balance of stock of finished/semi-finished goods for the years 2001-02, 2002-2003 and 2003-2004. Accordingly, 3 show-cause notices dated 4.4.2003; 19.03.2004 and 7.04.2005 were issued demanding duty on the differential value of the stock as per Annexures to the respective show cause notices. In the impugned order, the Commissioner has confirmed the demands for the respective periods taking into account the differences in stock and accordingly demanded the differential duty.
2. Learned advocate Shri M. S. Nagaraja appeared for the appellant and Mrs. D. S. Sangeetha, Additional Commissioner (AR) appeared for the Revenue.
3. Heard both sides and perused the records.
4. The contentions of the appellants as put forth by the learned advocate are summarized as below:
4.1 The appellants are Public Sector Undertaking engaged in the manufacture and clearance of Iron and Steel Products falling under Chapter 72, 73, 84, etc., of the First Schedule to the Central Excise Tariff Act, 1985. They carry out Annual Stock Verification of the goods as on 31st March every year for the purpose of preparation of annual reports. The process of stock taking is carried out by a team of officers from December onwards and corrected as on 31st March of each year. The appellants prepare excess/deficit statements of the finished goods/semi-finished goods and scrap each year and copies of the same were being submitted to the department.
4.2 Further, learned advocate submits that at para 100 of the impugned, the learned Commissioner has held that since the excess clearances have been admitted by the appellants as reflected in their audited books of accounts, no further corroborative evidence is required. He submits that appellants had not admitted that there were excess clearances as compared to the duty paid clearances in their ER-1 returns.
4.3 Learned advocate submits that the goods produced are recorded in RG1 based on estimation. The physical stock of goods was on the basis of volumetric estimation and its conversion into theoretical weight based on average cross-sectional weight. The goods are physically weighed only at the time of clearance of the goods from the factory/depots. Therefore, comparison of estimated production as recorded in RG1 and estimated physical stock of goods as on 31st March of each year amounts to comparison of two estimates which is inherently incorrect and leads to distorted conclusions. The excess/deficiency in stock was due to the fact that both production and physical stock taking was based on estimates whereas the clearances were based on actual weighment. Based on the above facts appellant claimed that there was no shortage of goods attracting levy of excise duty.
4.4 Further, learned advocate submitted that the department issued show-cause notices demanding excise duty on the goods found short by comparing the ascertained stock of goods as per RG1 with the physical stock of goods as per stock taking reports for the year 2001-2002, 2002-2003 and 2003-2004. However, the learned Commissioner demanded duty on differential quantity of goods based on the ER1 returns as against the quantity of goods shown in the audited books of accounts. They also submitted that ER1 returns and the audited books of accounts figures do not match because they are meant for different purposes.
4.5 Appellants further claims that the Board had issued two circulars i.e., (i) CBEC Circular No.4/73/70/CS 6/1971 dated 12.4.1971 and (ii) CBEC Circular No.52/79 CS 6 dated 16.10.1979 laying down guidelines for condonation of losses and also with regard to the different practices followed in the Steel Plants for accounting production, clearance, stock taking, etc., and to consider the explanation offered by the plants while examining excess/deficit of the goods during stock taking.
4.6 He further submitted that CESTAT in their own case as reported in 2006 (200) ELT 229 (Tri.-Bang.) has set aside the demand. They also relied upon the following judgments.
i. SAIL, Rourkela Steel Plant vs. CCE,Bhubaneshwar: 2001 (137) ELT 566 (Tri.-Kol.)
ii. Rashtriya Ispat Nigam Ltd. vs. CCE, Visakhapatnam
4.7 He further submitted that the department having accepted the principles laid down in the judgment of the Tribunal in appellant’s own case on the same facts and issue for the period from March 1988 to March 2001, the initiation of proceedings and demand of duty for the subsequent periods from 31.3.2002 onwards on identical facts and issue is against the settled law.
i. Birla Corporation Ltd. vs. CCE: 2005 (186) ELT 266 (SC)
ii. Jayaswals Neco Ltd. vs. CCD: 2006 (195) ELT 142 (SC)
iii. CCE vs. Bigen Industries: 2006 (197) ELT 305 (SC)
iv. CCE vs.Amar Bitumen & Allied Industries: 2006 (202) ELT 213 (SC)
v. Indian Oil Corporation Ltd: 2006 (202) ELT 37 (SC)
vi. CCE vs. Novopan Industries Ltd.: 2007 (209) ELT 161 (SC)
4.8 It is further submitted that the show-cause notices demanded duty under Section 11A but the demand was for more than the normal period. Show-cause notices did not allege fraud, collusion, willful misstatement or contravention of the provisions of Central Excise Act, 1944 and they have not invoked proviso to Section 11A of the Central Excise Act, 1944. However, the Commissioner the impugned order has demanded duty under proviso to Section 11A of the Central Excise Act, 1944 which is clearly contrary to the contents of the show-cause notices. Accordingly, the penalty imposed under Section 11AC is also beyond the scope of show-cause notice, hence, they pleaded that impugned order should be set aside.
5. Learned Authorised Representative for the Revenue submitted that in a complicated industrial unit such as SAIL, stock taking procedure is very lengthy and complicated procedure, hence department relies on the documents maintained by the appellant themselves. The appellants in a self-assessment era are responsible and accountable for explaining differences in their own statements. Reiterating the findings of the Commissioner, the leaned Authorised Representative argued that though the show-cause notices for the year 2001-2002 demanded duty of Rs.3.93 crores, the Commissioner while taking into account various factors into consideration has demanded duty only to the extent of Rs.3,72,821/-; for the period 2002-2003, the total duty demanded was Rs.70.83 crores whereas the Commissioner has confirmed only Rs.26.44 crores and similarly for the year 2003-2004, against the duty demand of Rs.58 lakhs, only Rs.4,47,636/- was confirmed. The revenue thus claimed various factors as per the Board’s Circulars were considered and after setting of the excess quantities the demands were limited only to the extent of shortages.
6. We find that the three show-cause notices which demanded duty were issued calculating the differential quantity between the RG1 stock and physical stock as reported by the appellant in their own statements. The learned Commissioner in the impugned order had demanded duty on the differential quantity between the ER1 returns and the audited books of returns of the appellant. First of all, the basis for demanding duty appears to be beyond the framework of the show-cause notices. The parameters relied upon by the authorities in the show-cause notice and the parameters relied upon by the learned Commissioner are at variance, which is legally not sustainable.
6.1 Further the show-cause notices though demanded duty beyond the normal period fail to invoke proviso to Section 11A but the learned Commissioner in his impugned order invoked proviso to Section 11A and imposed penalty under Section 11AC which is beyond the scope of show-cause notices. In this regard, the Hon’ble Supreme Court in case of CCE, Surat vs. Sun Pharmaceuticals Indus. Ltd.: 2015 (326) E.L.T. 3 (S.C.) has held as follows:
“6. As already noted above, the only ground which was mentioned in the Show Cause Notice was that since the goods had not been sold, the provisions of Section 4(1)(a) of the Act could not be applied. We find that in the show cause notice, the Department has, thus, accepted that no monetary consideration or any other consideration had been received by the assessee or the distributors from a doctor or concerned to whom free distribution of sample packs had been made. Further there was no allegation in the show cause notice that the price at which the goods were sold by the assessee to the distributors was not sole consideration. In fact, the genuineness of the price at which the physician samples were sold by the assessee to the distributors was not even doubted. It is only on the ground that the goods were not actually sold by the distributors to the physicians, which was the ground on which it was contended that the case was not covered under Section 4(1)(a). The CESTAT, therefore, in our opinion, has gone beyond the Show Cause Notice and on this ground alone, the judgment of the CESTAT dated 27-2-2009, which is the subject matter of Civil Appeal No. 3263 of 2009, warrants to be set aside. Civil Appeal No. 3263 of 2009 is, accordingly, allowed.
6.2 The Commissioner also at para 103 of the impugned order states that:
“103. The last issue for consideration is the proposal for imposition of penalty under Rule 25 and 27 of the Central Excise Rules, 2002, mentioned in the show-cause notice. Rule 25 provides for liability to confiscation and penalty in four specified situations, namely, removal of gods in contravention of the rules and regulations; non-accountal of the goods manufactured and stored; manufacture, production or storage without registration and contravention of the rules or notifications with an intent to evade payment of duty. In the instant case, discrepancies between the accounts (RG1) and the audited accounts have been noticed in respect of closing stocks. Since it is inherent from the very nature of estimation of stocks in steel factories that there will be variations between what is reflected in the RG1 and what is actually found, no malafide can be attributed in the discrepancies or inaccuracies found between the two figures which are based on estimates. In the absence of any mala fide, confiscation of goods found in excess stock and imposition of penalty is not warranted. However, there have been clearances in excess of what is declared in the monthly ER1 returns without payment of duty. Such clearances attract liability to confiscation and imposition of penalty. Since the goods are not available for confiscation, actual confiscation is not possible. However, in such cases, imposition of penalty is certainly warranted, especially considering the fact such contraventions/violations have been repeated year after year and I hold accordingly. Since the duty demand has been confirmed under the proviso to Section 11A(1) of the Central Excise Act, 1944, penalty is imposable under Section 11AC read with Rule 25 of the Central Excise Rules, 2002.” Emphasis applied In spite of these observations, he proceeds to impose invoke proviso to section 11A and impose penalty under Section 11AC which is legally not sustainable.
6.3 Further, the appellant’s in their own case reported in 2006 (200) ELT 229 (Tri.-Bang.), the Tribunal has held that the discrepancy between the RG1 stock and the physical stock are based on the estimated production and not on actual weighment. Comparison between two estimations is inherently inaccurate. Because of these shortages, if any, is inflated due to errors in taking opening balance and physical stock. Considering the practical difficulties in estimating the actual stock and in view of the submissions made by the appellant, the Tribunal had set aside the impugned order.
6.4 In the case of Rourkela Steel Plant (SAIL) vs. CCE, Bhubaneswar: 2001 (137) ELT 566 (Tri.-Kolkata), the Tribunal had held that even if there are differences in the stock taking and the shortages are found, the duty can be demanded only when they are removed from the factory. The findings on the clandestine manufacture and removal cannot sustain against the appellants as Revenue has not provide any proof of clandestine removal. Accordingly, demand was set aside.
6.5 In the present appeal also even if the shortages are to be accepted, there is no iota of evidence either in the show-causenotices or in the impugned order to prove that these goods were clandestinely removed.
6.6 By following the ratio of the above judgments and based on the observations as recorded above, the demands are set aside and accordingly, penalty is also set aside.
7. In the result, the impugned order is set aside and the appeal is allowed.
(Order pronounced in the Open Court on 25/05/2023.)
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