Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise & ... vs M/S. Pentagon Steel (P) Ltd on 27 June, 2012
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, KOLKATA
EASTERN ZONAL BENCH: KOLKATA
Appeal No. Ex.Ap.419/06
(Arising out of Order-in-Appeal No.46-47/B-I/06 dated 19.04.2006 passed by the Commissioner(Appeals), Central Excise & Customs, Bhubaneswar.)
FOR APPROVAL AND SIGNATURE
HONBLE SHRI S.K. GAULE, MEMBER(TECHNICAL)
HONBLE DR. D.M. MISRA, MEMBER(JUDICIAL)
1. Whether Press Reporters may be allowed to see
the Order for publication as per Rule 27 of the CESTAT
(Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the
CESTAT(Procedure) Rules, 1982 for publication in any
Authorative report or not?
3. Whether Their Lordship wishes to see the fair copy
of the Order?
4. Whether Order is to be circulated to the Departmental
Authorities?
Commissioner of Central Excise & Customs, BBSR-I
Applicant (s)/Appellant (s)
Vs.
M/s. Pentagon Steel (P) Ltd.
Respondent (s)
Appearance:
Shri D.K.Nath, D.C.(A.R.) for the Revenue Shri S.K.Mohanty, Advocate for the Revenue CORAM:
Honble Shri S.K. Gaule, Member(Technical) Honble Dr. D.M. Misra, Member(Judicial) Date of Hearing :- 27.06.2012 Date of Pronouncement :-
ORDER NO.
Per Dr. D.M. Misra.
1. This is an appeal filed by the Revenue against Order-in-Appeal No.46-47/B-I/06 dated 19.04.2006.
2. Briefly stated the facts of the case are that the respondents are engaged in the manufacture of iron and steel products for which they are registered with the Central Excise department. The appellant has discontinued their manufacturing activity in July 2002. Their factory was visited by the Central Excise audit team on 11.02.2003. On verification of the records vis-`-vis the stock of the raw material as well as finished goods, the audit team has noticed certain discrepancies. It was found as follows:-
Sl.
No. Name of the finished product Quantity in M.T. Value per Unit (Rs.) Total Assessable value(Rs.) Rate of duty Total duty (Rs.)
1. M.S. Rod 77.953 13,650.00 10,64,058.40 16% 1,70,249.00
2. M.S. Scrap 43,617 5,400.00 2,35,531.80 16% 37,685.00 Total:
12,99,590.20 2,97,934.00 Sl.
No. Name of the input Quantity in M.T./K.L. Cenvat credit Availed (Rs.)
1. Billets/ingots 419.912 6,83,504.00
2. M.S. Rounds 18.580 28,945.00
3. Furnace Oil 14.000 K.L. 22,286.00 Total:
7,34,735.00
3. Consequently statement of the Director was recorded by the audit team who has admitted to the said shortage and furnished reasons stating that since factory was closed no proper security arrangement could be made in the factory resulting theft of the goods. Further he has stated that since their financial condition was not good he may be allowed to discharge the liability within six months. Further statement was recorded on 27.02.2003 where he has more or less repeated the same before the department. Consequently on completion of investigation the department issued a show cause notice demanding a total duty of Rs.10,15,748/- comprising of Rs.2,07,934/- on shortage of finished goods, Rs.7,37,006.56 towards shortage of inputs and Rs.71,745/- towards removal of finished excisable goods against invoice No.253 dated 01.07.2002 and 254 to 256 all dated 02.07.2002. On adjudication of the demand notice the adjudicating authority confirmed the demand and imposed equivalent penalty under section 11AC of the Central Excise Act and also personal penalty of Rs.10,000/- on Shri A.K.Agarwal, Managing Director, under Rule 26 of Central Excise Rules, 2002. Aggrieved by the said order, the respondents has filed an appeal before the Commissioner of Central Excise(Appeals), BBSR-I. The ld.Commissioner(Appeals) confirmed the demand of Rs.71,745/- with interest under Rule 8(3) of Central Excise Rules, 2002, dropped the demand of Rs.9,44,003/- and penalty imposed under section 11AC of the Central Excise Act and personal penalty imposed on the Managing Director Shri A.K.Agarwal. Aggrieved by the said order, the Revenue has filed the present appeal.
4. Ld.A.R. appearing for the Revenue submitted that the ld.Commissioner has not considered the fact that on the date of visit of the officers to the factory, the respondent had failed to show the stock of finished goods as well as raw materials recorded in their statutory Records. Further, on being asked, the Managing Director of the company had accepted the said shortage in the stocks and sought time to make good the duty involved on the said shortages. The Ld.A.R. further submitted that the show cause notice has been issued alleging clandestine removal of the goods, in absence of reasonable explanation on the shortage of inputs and finished stocks, during the visit by the officers on two occasions i.e. on 11.02.2003 and 27.02.2003. The Ld.A.R. submitted that the respondent had admitted removal of two consignments without debiting duty involving a total duty of Rs.71,745/- against invoice No.253 dated 01.07.2003 and 254-256 dated 02.07.2002, hence the conduct of the respondent clearly shows that the goods found short and not accounted for during the visit of the officers must have been removed clandestinely without payment of duty. He has further submitted that in view of the ratio of the Honble Tribunal in the case of Commissioner of Central Excise, Surat-I vs. N.D.Textiles-2004(168) E.L.T. 381(Tri.Mumbai) wherein it was held that facts admitted need not be proved, hence in the present case since the Managing Director in his statement dt. 11.02.2003 and 27.02.2003 had categorically admitted to the said shortages the department is not required to move the clandestine removal. He has submitted that the ld.Commissioner has erred in observing that the department could not prove that the finished goods/inputs had been removed as such without payment of duty.
5. Ld.Advocate appearing for the respondent has submitted that the show cause notice had been issued to them alleging clandestine removal of goods which were found short during the course of visit of the officers to their factory. There is no evidence whatsoever adduced by the department in support of the said allegation of clandestine removal. In absence of positive evidence and circumstantial evidence as held by the ld.Commissioner(Appeals), the charge of clandestine removal cannot be sustained against the respondent. This principle of law has been settled by the Tribunal in various cases. He has referred to the following judgements of the Tribunal :-
1. CCE, Kanpur vs. Minakshi Castings 2011 (274) ELT 180 (All.)
2. CCE, Daman vs. Nissan Thermoware Pvt.Ltd. 2011 (266) ELT 45(Guj)
3. Central Cables Ltd. vs. CCE, Nagpur 2011 (272) ELT 735 (Tri.-Mum.)
4. Galaxy Textiles vs. CCE, Vapi 2011 (263) ELT 604 (Tri.-Ahmd.)
5. CCE, Lucknow vs. Roll Tubes Ltd. 2011 (265) ELT 414 (Tri.Del.)
6. Rajshri Forex Limited vs. CCE, Indore 2001 (136) ELT 121(Tri.Del.)
7. Lalit Chordia vs. CCE, Jaipur 2002 (150) ELT 584 (Tri.-Del.)
8. Vakharia Traders vs. CCE, Surat 2004 (173) ELT 287(Tri.-Mumbai)
9. Kirtibhai Manganbhai Patel vs. CCE, Nagpur 2003 (159) ELT 1162(Tri.)
10. Kanpur Strips (P) Ltd. vs. CCE, Kanpur 2001(137)ELT 1198(Tri.Del.)
11. Arora Products vs. CCE, Jaipur 2003 (152) ELT 69(Tri.-Del.)
12. Hemson Textile Processors vs. CCE, Mumbai-2004(177)ELT 413(Tri.)
13. Sayaji Iron & Engg.Co.Pvt.Ltd.vs.CCE - 1990(45)ELT 104(Tri.)
14. P.S.P. Appliances (P) Ltd.vs.CCE,Delhi - 2005(186) ELT 128(Tri.)
15. Associated Cylinder Industries Ltd.v.CCE-1990(48)ELT 460(Tri.)
16. CCE, Raipur vs. C.M.Re-rollers & Fabricators 2004(168)ELT 506(Tri.)
17. Parle Beverages Ltd.vs.CCE, Mumbai-I 1998 (99) ELT 468(Tri.)
18. K.Harinath Gupta vs. CCE, Hyderabad 1994 (71) ELT 980(Tri.)
19. CCE, Madras vs. Systems & Components Pvt.Ltd.-2004(165)ELT 136(SC)
20. CCE, Surat-I vs. N.D.Textiles 2004(168) ELT 381(Tri.)
6. We have considered the submissions of both sides and carefully gone through records of the case. It is not in dispute that during the course of visit of the officers on 11.02.2003, the following shortages were noticed:-
Finished Goods of (1) M.S.Rod : 77.953 MT (2) M.S. Scrap : 43.617 MT and inputs (1) Billet/Ingot : 412.072 MT (2) M.S.Round : 26.420 MT TOTAL : 438.492 MT (3) Furnace Oil : 14.00 KL
7. The visiting audit officers asked the Managing Director of the respondent company Shri A.K.Agarwal to explain the reason for such shortage in physical stock against their statutory stock register and monthly ER-1 return filed for the month of January, 2003. The Managing Director admitting to the said shortage informed the officers that the company has been closed since July, 2002 and explained that due to poor security arrangement in the factory premises on account of closure of the factory there could have been theft of the said shortage in stocks. Accepting the liability he has stated that duty involved on the said shortages would be made good within a period of six months. Later, on 27.02.2003 the officers from preventive unit visited the factory again and asked the Director to account for the physical stock of finished goods as well as inputs vis-`-vis the stock shown in their statutory records. Shri A.K.Agarwal, Managing Director reiterated the his statement made earlier before the visiting audit officers on 11.02.2003. This fact shows that the shortage found in the physical stock of finished goods as well as raw materials were admitted by the respondent and no reasonable explanation was furnished in support of non-availability of the said goods in the stock. On the contrary, the Managing Director of the respondent company had admitted to such shortages and agreed to discharge the duty involved on such shortages and sought six months time. However, he has requested to consider the benefit of burning losses in calculating the duty liability. The main plank of argument advanced by the ld.Advocate is that since the allegation against the Appellant was clandestine removal of goods and if the department fails to prove the same by way of adducing direct and/or circumstantial evidence, the respondents are not liable to discharge duty even though the shortages of goods and raw materials were found on the date of visit of the officers to their factory and admitted by the Director of the Appellant. On a query from the Bench to explain the reason for the said shortages by way of documentary evidences even on the date of hearing, the ld.Advocate expressed his inability to comply with the same as relevant records are not available with them. We do not see merit in the said submission of the ld.Advocate. It is well settled principle of law that the goods manufactured in a factory are to be accounted for in their statutory production register and inputs are required to be accounted for in the CENVAT input register maintained by the assessee. The assessee is duty bound to show the physical stock of the goods as entered in their statutory register as and when demanded by the visiting officers during the course of verification of the stocks. In the event, the assessee fails to account for the shortages in the stock noticed during such verification, the liability from payment of duty on such shortages cannot be escaped. Needless to emphasize, excise duty is levied on the manufacture of goods, but for administrative convenience, collection of duty is postponed till the clearance of goods from the factory. Hence, as soon as the goods are manufactured, the same are required to be accounted/entered in the Daily Stock Account (DSA) Register i.e. RG-1 Register. The Central Excise Rules provides that in the event the goods are lost due to natural causes, remission of duty on lost goods could be applied to the proper officer. No such procedure has been followed in the present case.
8. However, we are of the view that mere shortage of finished goods or raw materials in the stock cannot by itself construed that the said goods were removed clandestinely by the assessee. The department has to adduce positive evidences of such removal of goods clandestinely demonstrating the intent to evade payment of duty. In the present case even though it was explained by the Managing Director that shortage of goods could be attributed to the fact of theft that might have taken place during the closure of the factory, the department had not carried out any further investigation to ascertain the correctness of the said statement. In absence of any contrary evidence we do not find force in the argument of the ld.A.R. that the goods must have been clandestinely removed. The case laws cited by the ld.Advocate in his reply also endorse our aforesaid view. In these circumstances we do not find merit in the submission of the Ld.A.R. that the penalty under Section 11AC is invocable against the respondent. However, the respondent is required to pay duty involved on such shortages which could not be explained and the respondent are liable for general penalty for the said discrepancy. Since no penal provision is invoked in the Show Cause Notice other than section 11AC, no penalty could be imposed on that count. We agree with the finding of the ld.Commissioner(Appeals) that in absence of direct or indirect involvement of the Managing Director Shri A.K.Agarwal in the clandestine removal of the goods no personal penalty under Rule 26 of the Central Excise Rules, 2002 is imposable on him. In these circumstances, we set aside the order of the ld.Commissioner(Appeals) to the extent of dropping the demand of Rs.9,44,003/-(Rupees Nine Lakns Forty Four Thousand and Three only) involved on the shortage of finished goods and inputs and allow the Appeal filed by the Revenue only to this extent. Appeal disposed of in above terms.
(Pronounced in the open court on .)
Sd/ sd/
(S.K. GAULE) (D.M.MISRA) MEMBER(TECHNICAL) MEMBER(JUDICIAL)
sm
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Appeal No.Ex.Ap.419/06