2004 (1) TMI 425 - AT - Central Excise

Appellate Tribunal Upholds Excise Duty, Rejects Final Product Classification

HINDUSTAN LEVER LTD. Versus COMMISSIONER OF CENTRAL EXCISE, BHOPAL

The Appellate Tribunal upheld the imposition of Central Excise duty on 74 MTs of Rin Concentrate Powder Oversize due to unexplained shortage, amounting to ... Manufacture - Intermediate product - Clandestine removal - Proof - Processing loss Issues:1. Unaccounted production and clearance of Rin Concentrate Powder Oversize (RCP-OS).2. Dispute regarding the classification of RCP-OS as an intermediate product.3. Imposition of Central Excise duty, penalties, and interest based on unaccounted shortage of RCP.Analysis:1. The Appellate Tribunal addressed the issue of unaccounted production and clearance of RCP-OS. The Commissioner issued a show cause notice alleging 369 MT of RCP was unaccounted and removed without duty payment. However, the Tribunal noted that the investigators failed to provide reliable evidence to fix the opening balance of RCP-OS. The Commissioner acknowledged a shortage of 74 MTs on 31-12-1995, which the assessee attributed to process loss. Despite the lack of proper records, the Tribunal found the department failed to prove clandestine removal conclusively. The Commissioner's decision to impose duty on the 74 MTs was upheld due to the unexplained shortage, amounting to Rs. 8,06,615.2. The classification of RCP-OS as an intermediate product was disputed. The Commissioner rejected the plea that RCP-OS was an intermediate product, emphasizing the need for proper accounts and compliance with procedures. The Tribunal, however, disagreed with this assessment, noting that RCP-OS was being removed on payment of duty and received from another unit. The Tribunal considered the commercial reality of processing losses, with job worker contracts allowing for a 1% wastage during grinding. Given that the unaccounted 74 MTs represented only 0.38% of turnover, falling within acceptable losses, the Tribunal upheld the processing loss plea and rejected the Commissioner's decision.3. Regarding the imposition of Central Excise duty, penalties, and interest, the Tribunal upheld the duty demand of Rs. 8,06,615 on the unaccounted 74 MTs of RCP. However, the demand of Rs. 32,15,559 was dropped for lack of merit. Penalties of Rs. 8,06,615 under Section 11AC and Rs. 1.00 lakh under Rule 173Q were imposed. The Tribunal also ordered the payment of interest at the prescribed rate. Ultimately, the Tribunal allowed the appeal, considering the commercial realities of processing losses and the acceptable level of wastage in the manufacturing process.In conclusion, the Appellate Tribunal's judgment clarified the issues of unaccounted production, the classification of RCP-OS, and the imposition of duties and penalties, emphasizing the importance of maintaining proper accounts and complying with procedures in excise matters.