Custom, Excise & Service Tax Tribunal
M/S Lubrizol India Pvt. Ltd vs Commissioner Of Central Excise, ... on 12 May, 2016
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. I Appeal No. E/737/05 (Arising out of Order-in-Appeal No. 19/COMMR/04-05 dated 29.11.2004 passed by the Commissioner of Central Excise, Belapur). For approval and signature: Honble Shri M.V. Ravindran, Member (Judicial) Honble Shri Raju, Member (Technical) ======================================================
1. Whether Press Reporters may be allowed to see : No 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 : Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordships wish to see the fair copy : Seen of the order? 4. Whether order is to be circulated to the Departmental : Yes authorities? ====================================================== M/s Lubrizol India Pvt. Ltd. Appellant Vs. Commissioner of Central Excise, Belapur Respondent Appearance: Shri H.G. Dharmadhikari, Advocate with Shri D.A. Bhalerao, Advocate for Appellant Shri S.V. Nair, Supdt. (AR) for Respondent CORAM: SHRI M.V. RAVINDRAN, MEMBER (JUDICIAL) SHRI RAJU, MEMBER (TECHNICAL) Date of Hearing: 12.05.2016 Date of Decision: 12.05.2016 ORDER NO. Per: Raju
The appellants, M/s Lubrizol India Pvt. Ltd., are manufacturer of certain chemicals. During the audit conducted by Revenue, it was noticed that the figures of stock reported in their financial accounts (3 CD Returns) filed with the Income Tax authorities were different from stocks reported in their RG-1 register. A show-cause notice was issued to the appellant alleging that the difference in the stock reported in the 3 CD returns and the RG-1 register were the finished goods cleared clandestinely. Accordingly, duty on said stock was demanded in respect of the financial year 1998-99. Subsequently, another show-cause notice was issued on similar grounds for the year 1998-99, 1999-2000 & 2000-01. The said demand was confirmed by the Commissioner after allowing the cum duty benefit. Aggrieved by the said order, the appellants are in appeal before this Tribunal.
2. Learned Counsel for the appellant argued that the financial records are made as per the principles of accounting laid down by the ICAI. It was argued that so far as RG-1 register is concerned, the entry of stock in the same are made only after the goods are checked and verified after quality inspection and are ready for dispatch. He argued that criteria for considering the stock as finished goods are different for the financial accounts and for the Central Excise law and, therefore, the two cannot be compared. He further pointed out that in their submissions made before the Commissioner, they had explained the difference. He pointed out all the following averments made before the Commissioner: -
Year 1998-99 Explanation of excess quantity of 403 MT with respect to physical stock v/s RG-1 Accounts:
Phy. Stock - 2,500 MT WIP 272 MT RG-1 2,097 MT Rejected 96 MT Scrapped 37 MT Excess 403 MT Total 403 MT Thus, the above figures explain that the rejected quantity and scrap quantity are part of the excess inventory in comparison with RG-1 stock and the said has been presumed as shortages by the Department and wrongly demanded the duty without establishing the removal of goods. Moreover, for the same period in the earlier show-cause notice No. V/Adj/SCN/15/121/Commr/03/Bel/1894 dated 27.3.2003, the Department has demanded the duty on 339MT, which is the difference between the Physical inventory and the stocks reflected in financial books of Accounts and not in RG-1. Thus, the same quantity of 96 MT and 37 MT has considered twice while raising the demand by way of two different show-cause notices. Similarly, he pointed out that they had explained the difference for other year as well. Learned Counsel also pointed out that the Commissioner in the impugned order had not given any reasons for not accepting the reconciliation submitted by them. He further pointed out that there was no allegation of clandestine clearance by them and in these circumstances, no demand of duty can be made. He also pointed out that the shortage pointed out was less than 1% of the volume manufactured during the year. He especially relied on the decision of the Tribunal in the case of Shree Precoated Steel Pvt. Ltd. 2000 (124) ELT 531 (Tri), which was affirmed by the Hon'ble Apex Court as reported in 2001 (131) ELT A153 (SC). He further pointed out that at no stage, Revenue had done any physical stock taking of the goods.
3. Learned AR relies on the impugned order. He pointed out that the provision of Rule 49(1) covers this case and demand can be made on the strength of this rule. He argued that there is no need to prove any clandestine clearance. He further relied on Rule 3 to assert that appellants were required to maintain proper daily stock account of the goods manufactured by them.
4. We have gone through the rival submissions. We find that in the instant case while there is allegation of clandestine clearance on the basis of shortages found, no stock verification has been done nor any evidence of clandestine clearance has been recorded. The entire case of Revenue is based on the mismatch between 3CD returns submitted by the Income Tax authorities and the RG-1 register maintained by the appellant under the Central Excise law. The Tribunal In the case of Shree Precoated Steel (supra) has observed as follows: -
The form 3CD which is required to be filed to the Income-tax Department is statement of the record showing semi-finished and finished goods in the stock of the appellant; and the stock was stated to be 1504.309 MTs. In arriving at the shortage by comparing this quantity with the quantity of fully finished goods found in, therefore, the Commissioner has not taken into account the quantities of finished products lying unpacked in stock. It is fruitless to speculate what the position would be if stock of such goods would not have been included. In that situation comparison between different kind of products between finished products lying in stock and stock computation of semi-finished products made in the return to the Income-tax Department does not justify finding that there has been shortage of excisable goods. While the Departmental Representative adopts the reasoning in the Commissioners order he was unable to explain the difference on the basis of computation. His emphasis on the other aspect of the matter does not have the effect of showing that the allegations with regard to these have been established. The said decision of the Tribunal has been affirmed by the Hon'ble Supreme Court. In the instant case, the facts are similar. The entire case has been booked on the mismatch between the figures reported in 3CD returns filed with Income Tax authorities and the RG-1 register and there has been no physical verification of stock. There is no evidence of any clandestine clearance being made. Moreover the criteria for recording stocks as per the standards of ICAI and Income Tax are different from the criteria for recording stocks under Central Excise law. In these circumstances, the two figures cannot be alleged and compared.
5. Relying on the decision of the Tribunal in the case of Shree Precoated Steel (supra) affirmed by the Hon'ble Supreme Court, the impugned order is set aside and the appeal is allowed.
(Operative portion of the order pronounced in Court)
(M.V. Ravindran) (Raju)
Member (Judicial) Member (Technical)
Sinha
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Appeal No. E/737/05