Customs, Excise and Gold Tribunal - Bangalore
Commissioner Of Central Excise, ... vs M/S Mico Ltd., Bangalore on 16 February, 2001
ORDER
Shri S.S. Sekhon, Member(T)
1. This appeal has been filed by the Revenue against the order of Collector of Central Excise, Bangalore wherein after considering the submissions he came to the following findings -
"I have carefully considered their above said arguments. I further find that there is considerable force in their argument also. The day to day transactions are heavy and voluminous and almost more than 2 lakhs numbers are cleared from their factory daily. The goods are counted manually and hence errors do occur. The unit is working under Self Removeal Procedure and they cannot escape from the responsibility of proper accounting of excisable goods. However, as per their own admissions, it is established that there is irregular maintenance of accounts at their factory. In respect of stock difference on the three days, they have stated that the goods have been taken for over checking from the production or from the finished stores and they have not removed from the RG.1 register. However, the plea put forth by them are not convinced. The difference in ie., excess/shortage on the day of verification of stock on 23.8.1994 is more and they have also argued that they had not adjusted the stock a per their stock report on the early three occasions and hence, there is a difference in stock and also/ to manual counting errors and mischief of labourers, etc. However, the investigating authority has not brought out any evidence to prove the clandestine removal but alleged only of assumptions and presumptions. No corroborative evidences such excess purchase and usage of raw materials, power consumption additional consideration received in excess of the invoice are forthcoming to prove the alleged clandestine removal. In case of Shreenath Cement Industries Vs CCE, Jaipur - 1994 (73) ELT 142 (T), the Department has proved the clandestine clearance by way of private raw material account showing much higher quanity than that in the statutory raw material register, excess gunny bags, shortage of accounted for cement, double set of transport documents issued by transport company for non-duty paid cement transporter's statement that they were issued on assessee's directions and the statement of dealers to the effect that they have received cement without the cover of Central Excise documents.
The burden of proof to establish the clandestine removal lies on the Department. The Hon'ble Supreme Court has held that demand of duty cannot be fatened merely on presumption and assumption -1978 (2) ELT J 172 (SC).
The Hon'ble Tribunal has held that in fact clandestine removal is a deliberate and positive act for removal of goods contravention of Excise laws with the object of evading excise duty, therefore, it cannot be presumed but has to be proved and established by the Department with support of evidence rather direct physical evidence or by sufficient circumstantial evidence of 1984 (15) ELT 451 (T) and 1986 (26) ELT 333(T).
The Hon'ble Tribunal also held that there can be no surmises and assumptions as to clandestine removal, rather the Department should make enquiries from other concerned persons to establish clandestine removal. In other words, discrepancy in account books or shortage in stock must be corroborated with supportive evidence as to use of raw materials, the average production of the unit, transportation of goods or destination of the goods (1987 (32) ELT 430 (T), 1989 (39) ELT 118 (T), 1990 (47) ELT 369 (T) and 1989 (39) ELT 655 (T).
In the instant case, I have not even come across a single evidence to prove the clandestine removal. However, the assessee has accepted their mistake and paid duty amounting to Rs 1,56,749/- on shortages noticed, i.e., on 44 Nos Starters and 7 Nos EPI/Alternators on 23.8.94 as counting errors. I find that the excess and shortages noticed on the three days, i.e. on 5.5.93, 1.8.93 and 2.5.94 cannot form basis for determination of duty liability because the difference was worked out only with reference to their own physical verification and cannot be a basis to arrive at the actual excess or shortage for the purpose of demanding duty in as much as the same were carried forward upto 23.8.94 i.e., upto the day of stock verification by the Departmental Officers. The value arrived at for the excess quantity on average basis is also not correct in as much as there is a separate assessable value for each and every item. In view of the same, I find that the value works out to Rs 5,09,526/- on the excess quantity seized on 23.8.94 based on the price lists filed by the Unit. In view of the above said facts, it is clearly established that M/s MICO Ltd., have contravened the provisions of Central Excise rules, 1944 and they are also liable for penal action. The excess goods valued at Rs 5,09526/- seized on 23.8.94 are liable for confiscation. I also held that M/s MICO Ltd., are eligible for the refund of amount paid in excess of the duty liability for which they have to file a refund application with the jurisdictional Assistant Collector who will process the same as per Sec. 113 of the Central Excise & Salt Act, 1944 without any undue delay."
and confirmed the Central Excise Duty amounting to Rs 1,56,749/- on the shortages of execisable goods noticed on 23.08.1994 from M/s MICO Ltd., Bangalore (Respondent herein-after) under rule 9 (2) of the Central Excise Rules, 1944 read with proviso to Sec 11A of the Central Excise and Salt Act, 1944 and ordered the adjournment of the same against Rs 10,67,177/- debited vide PLA entry number 686 dated 08.10.94 against this demand. He ordered the confiscation of excisable goods found excess on 23.08.94 valued at Rs 5,09,526/- seized at M/s MICO Ltd., not under Rule 173 (Q) and above relief the same on payment of fine of Rs 50,000/- and imposed penalty of Rs 5,000/- under rule 173Q.
2. The Show Cause Notice was issued consequent to visit of the officers on 23.8.94, on the result of stock taking conducted and based on perusal of the record of M/s MICO Ltd., when it was noticed that RG.1 was written upto 17.8.94 only and there was a vast difference between the physical stock and that shown in the RG.1. The Excess quantities were found of Glow Equipment, Spark Plugs and Components valued at Rs 7,29,980/- while shortage of Starters & EQPT valued at Rs 1,46,812/- were found. The excess goods were seized. On verification of records it was noticed that the Respondent had undertaken verification of finished goods in their file No NU/ALP - 6/6 marked as 'Stock Verification' on 05.5.93, 1.8.93 and 2.05.94 when certain shortages and excess were noticed. The results of all such verification is as follows -
______________________________________________________________________________________ Date Description RG1 Physical Variance RG1/Physical ______________________________________________________________________________________ 5.5.93 Spark Plug 659531 620540 -38991 Glow Eqpt 39535 33531 -6004 Starter 524 598 74 Alternator 130 180 50 EPT - - -
Components 10279 10279 -
______________________________________________________________________________________ 1.8.93 Spark Plug 880495 780911 -99584 Glow Eqpt 46303 47618 1315 Starter 335 341 6 Alternator 274 324 50 EPT - - -
Components 7747 7762 15______________________________________________________________________________________ 2.5.94 Spark Plug 404083 297642 -106441 Glow Eqpt 24975 14097 -10878 Starter 97 97 -
Alternator 121 121 -
EPT 8 8 -
Components 19623 19566 -57
_______________________________________________________________________________________ 23.8.94 Spark Plug 675834 697481 21647 Glow Eqpt 22106 22887 781 Starter 214 170 -44 EPT 9 2 -7 Alternator - - -
Components 1913 2160 247_______________________________________________________________________________________ On the dates earlier to the checks conducted by the officers, the value of goods found short was Rs 63,38,060/- and value of goods found excess was Rs 6,86,722.47 and the total duty liable on the excess/shortages worked out tot Rs 17,52,196/-. It was alleged that the quantity found short on the stock taking dates as conducted by the assessee themselves were removed without payment of duty thereon and without following the Central Excise procedure. It was also alleged that the assessee has not initiated any steps to resolve the discrepancy noticed or took any action to record the excess quantity in RS.1, thereby rendering them liable for penalty. Duty of Rs 17,92,180/- was demanded on the shortage/excess noticed during the above three checks on 5.5.93, 1.8.93, 2.5.94 including the shortage noticed on the date of visit of the Central Excise Officers on 23.8.94.
3. Revenue has filed the present appeal on the findings and order of the Collector on the following grounds -
(i) "The internal stock verification s conducted by the assessee were valied and were accepted by the assessee themselves. M/s MICO had carried out checks of physical stock that was available, on various dates mentioned, with the computerised accounts of the company. There is no reason to suggest that the accounts maintained by the company are not correct and hence the stock taking discrepancies are to be considered to be true and valid. Further there was no satisfactory explanation by the Company that the physical stock taking carried out by them on the aforesaid dates was incorrect and so the result of stock takings have to be accepted as correct.
ii) The assessee's contention that the variation in stock recorded by them were with reference to their computer account and not with reference to their RG1 is not correct. Sri. Mallikarjuna Gowda, Officer-in-charge of Central Excise records at M/s MICO, in his statement dated 23.8.94, has stated that "and when production is made and supplied to finished goods stores supply list will be generated through terminal (computer) by shop person with main computer centre and this supply list will be given to stores. On the basis of this supply list, they post the entries in RG 1 register Thus, it cannot be said that variations are with reference to computer statement only and not with RG 1.
iii) During the course of investigations, the assessee had accepted responsibility for the lapses and has paid an amount of Rs 10,67,177/- being part of the duty demanded, which was further evidenced by statement dated 3.1.95 given by Shri Jayasimha, Divisional Manager. At a later stage it cannot be said that no lapses have occured, more so when no new/fresh evidence is produced by them in support of their contention. In fact there was no evidence to show that the discrepancies have been properly accounted for.
iv) In the present case, the Commissioner had erred in holding that the burden of proof lies with the department. In the cases of (1) Asst. Collector Vs Loganathan (Criminal appeal No 634 of 1974, decided on 13-4-76 by Madras High Court) and (2) Dinesh Kumar Uttamchand Samadadiya Vs. Collector (1988 (37) ELT 583 (T)) it was hel that as and when there is a discrepancy between the account books maintained by the assessee and the actual stocks held by him, it is the assessee's duty to explain as to how the discrepancy has occured. It was held that in the even of non-explanation by the person it would lead to drawing of an inference that there have been malpractices and evasion of duty. Similarly in the case of Asst. Collector Vs. C. Namperumal Gounder (1978 (2) ELT J56 (Mad) ) it was held that it was for the person to explain how the discrepancy has dropped up in case of discrepancy between stock book and actual stock. In the present case, the Commissioner himself has observed that the pleas putforth by the assessee explaining the discrepancies are not convincing. No evidence is produced by the assessee in support of their argument. The burden of proof in the case therefore lies with assessee which has not been done. Also when the assessee has not taken any action to rectify the discrepancies found, nor have informed the department about the lapses, it cannot be said that the variations were forward upto 23.8.94."
and have prayed, that taking into consideration of these sub-missions, the order of Collector should be determinated to be not legal, correct and proper and should be set aside and demands of duty as made should be confirmed and appropriate amount of penalty taking the gravity of situation should be imposed.
4. The Respondent has taken the following grounds in cross objections -
"None of the grounds urged in the appeal are maintainable in law and on facts.
There is no infirmity in the order passed by the Ld. Commissioner. The Ld. Commissioner rightly held the view that apart from the mere figures contained in the stock taking returns on 3 occassions, thereis no corroborative evidence as to the production and clearance of the said goods clandestinely and that in the absence of such evidence no duty is demandable on mere assumption and presumption.
The Ld Commissioner took note of the fact that right from the beginning the respondents have not admitted any clandestine production or removal and the duty was voluntarily paid by them in order to avoid litigation to keep good relationship with the Department and at the same time reserves right to claim the refund as and when they could establish their bonafides. It is, therefore, submitted that the respondents did not admit their shortages in question at any point of time.
The Ld. Commissioner failed to note that the stock taking done on the 3 days are not with the reference to the RG1 stock but with reference to computer position and not with reference to the actual figures mentioned in the computer stock.
The Ld. Appellant failed to appreciate the fact that the respondent were manufacturing more than 2 lakhs pieces of goods per day and as such always possible to human error for accounting and recording the figures and as long as there is no clear room for any clandestine removal of the goods, the mere fact of internal stock taking reflected some figures cannot be a ground to hold that the excess stock registered and the same was disposed of without payment of duty.
The Ld. Appellant failed to appreciate the statement of Sri Mallikarjuna Gowda and Sri Jayasimha in the proper perspective.
The Ld. Appellant failed to not that the system of sending the goods to the production shop and quality control for over-checking was in existence for a quite a long time and the shortages if any occured because of not taking into consideration this position. At any rate there are no shortage in the physical stock even as per the returns in question.
The Ld. Appellant appears to have misconstrued the bonafide act of the respondents in paying an amount of Rs 10,67,177 voluntarily as amounting to accepting of the shortages reflected in the internal stock taking returns without appreciating the circumstances under which the amount was paid as stated in their letter dated 7.10.94 addressed to the Assistant Commissioner of Central Excise (Preventive) Bangalore. The relevant portion is extracted hereunder for ready reference.
QUOTE "We our part in order to avoid any litigation would pay duty of Rs 10,67,177/- by way of debit in out P.L.A for details shown in Annexure II to this letter. We would like to state that this amount is made voluntarily by us without prejudice to the right to claim refund on production of adequate evidence".
UNQUOTE Thus the ground urged by the Learned Appellant that the payment of duty voluntarily amount to acceptance of the shortages in question is totally baseless.
It is well settled law that when there is an allegation of clandestine removal, the burden of proof is squarely on the department. It is not the case where the respondents failed to give explanation for the discrepancies noticed as for the excesses as quoted in ground No.4 of the Appeal. The Appellant have not at all disputed the existence of system of sending the good for over-checking.
The Ld. Appellant rightly took into consideration the fact that there are no evidence for qcquisition of any raw material, power consumption, receipt of additional consideration or discrepancy between the figures declared to the Sales Tax and Income Tax authorities.
The observation of the Learned Commissioner in para 25 to the effect that the plea putforth by the respondents is not convincing relates to the non accounting on the day of visit as well as shortages noticed on 23.8.94. It is evident from the fact of subsequent discussion in the same paragraph, the Learned Commissioner has categorically held that the department has not proved the allegation of shortages with reference to those 3 days stock taking returns. Even otherwise, he has not totally rejected the contentions of the respondent. He looked for corroborative evidence and int he absence of corroborative evidence, he has rightly dropped the allegation.
The Ld Commissioner also relied upon the ratio decision contained in several cases regarding burden of proof to be discharged by the Department in this regard. Hence if the whole observation of the Learned Commissioner is read in an harmonious manner it would lead to the conclusion that from the findings of the Learned Commissioner the Department has not discharged the burden cast on them to prove any clandestine removal on the part of the respondents with reference to the alleged discrepancies noticed n the 3 stock taking reports. Hence there is no infirmity at all in the orders passed.
The Respondents, therefore, prays that this Hon'ble Tribunal may be pleased to hold that there was no merit in the appeal and consequently to dismiss the same in the interest of justice."
5. The matter was heard when the Learned SDR reiterated the ground in the Department's appeal and submitted that the documents relied upon in the Show Cause Notice were that there is re-concillation statements, allegation now have been made that their re-concillation was not considered is not correct and no duty on earlier 'excess stock' found was demanded. The Learned Advocate submitted that the Annexures to the show cause notice clearly pointed out that duty was demanded not only on shortages but on excess goods found also. This demand on shortages was not called for as their plea that goods were called back, for Quality Control checks from the Stores, and there could be counting errors which have not been considered. As regards demands on shortages, it was submitted that no evidence of clandestine removal was arrived or alleged. The payments effected was under protest. The discrepancies were carried over till the physical verification which was conducted in the presence of excise Officers on 22.3.94. The main reason for discrepancy is item issued for stock taking were not reduced from the RG.1 stock. the percentage of error is insignificant to cause the visitation of duty and penalty. Both sides reiterated their written statements.
6. We have considered the matter, and find -
(a) the gounds taken in appeal by the Revenue, are conflicting from grounds extracted 'herein above numbered as (i), it will be apparent that the ground taken is that "M/s MICO had carried out checks of physical stock that was available, on various dates mentioned, with the computerised accounts....". While in ground (ii) it has been averred ...."Thus it cannot be said that variations on with reference to computer statement only and not with RG.1". This conflict as to the cause in variations of the stocks is vital. If the variations are noticed in the company's stock taking with reference to Actual & Computer Records, then the evidence that the 'Supply list is generated through terminal (computer) by shop person with the main computer centre and this supply list will be given to Stores & RG.1 entry is made based on, this supply list generated does not indicated what has been submitted in the ground. The respondent manufacturers are submitting in the statements, now relied upon in the appeal before us, that there are no reconcillation of figures of RG.1 and Computer balance and the internal issue which they have termed as 'over checking'. Therefore, the earlier shortages & excess are difference between computer historical data and actuals and not necessarily the RG.1 figures & actual. We therefore do not accept these two grounds Nos (i) & (ii) to enthuse us to set aside the order in original.
(b) As regards the (iii) ground in appeal, of the assessee having accepted the responsibility and having paid an amount of Rs 10,67,177/- being part of duty demand & reliance on the statements of Shri Jayuasimha; the respondents have in the cross objection submitted the relevant extract of letter dated 7.10.94 by which the amount was paid. It reads as - "We on our part in order to avoid any litigation would pay duty of Rs 10,67,177/- by way of debit in our PLA for details shown in Annexure II to this letter. We would like to state that this amount is made voluntarily by us without prejudice to the right to claim refund on production of adequate evidence."
This has not been denied by the DR at the hearings before us. Thus the payment was not an acceptance of liability. Payments made in error or omissions and as an act of Gentlemens word/in commerce, on account, are required to be refunded, if not due. When the rights to refund and production of adequate evidence are reserved; the ground remains only to consider, whether fresh evidence was produced. From the findings of the Collector, as extracted herein above, specially para 29 thereof, it is evident that Collector has redetermined the valuation of the goods in question and has determined that the variations found earlier tot he visit of officers on 23.8.94 were carried forwarded. He has accepted the plea of large number of components and counting errors. He has also not accepted the valuation on average basis as arrived at in the show cause notice but has determined separate assessable value. These determinations of value were not there before the stock taking officers. They are in the nature of fresh evidence and material relied by the Collector (SIC) challenged before us. Therefore the ground in appeal that there was no new/fresh evidence produced by the respondents is not established. We observe that the Collector's findings are on the essential aspect of valuation, arrived necessary to determine duty has not been challenged in appeal. We, therefore, find no valid ground for appeal in ground No (iii) to set aside the order.)
(c) The next ground (iv) in appeal is regard onus being on the assessee to explain the discrepancy between actual stocks and RG.1 stocks. We have considered the ground and accept the same. However, it has to be first proved by the Revenue that there is a discrepancy between RG.1 stock and the actual, then only onus will shift on to the assessee. In the case before us, the shortages and excess noticed on 5.5.93, 1.8.93 & 2.5.94 are not between actuals and RG.1 stocks, but between Actuals & Computerised accounts of the company as given in ground (i) and not between the Actual and supply list generated though terminal (computer) with main Compute Centre as made out in grounds No (i) & (ii). Therefore, the onus in the cases as on 5.5.93, 1.8.93 & 2.5.94 will not shift on the assessee. As regards the shortage & excess found by the officers on 23.8.94, the Collector has confirmed the demand on shortages, confiscated the excess and no grounds have been urged before us to find any flaw with the same. This ground No (iv) also therefore does not survive to set aride the impugned order.
(d) We have considered the submissions made and find that duty on shortage/excess goods have been demanded. No duty can be demanded on excess goods, without proving clandestine removal thereof; Relying on 1991 (52) ELT 145; 2000 (91) ELR 569, 2000 (117) ELT 644. We find that even confiscation as arrived at by the Collector and penalty was doubtful since no clandestine removal was alleged or determinable in this case. However, there is no appeal as regards this aspect, therefore, we refrain from giving any finding on this aspect.
7. In view of the above, the appeal is dismissed.
(Pronounced and dictated in the open Court)