2009 (7) TMI 978 - AT - Central Excise

Tribunal Overturns Duty Demands and Penalties for Shortages, Emphasizes Need for Concrete Evidence

The Tribunal set aside the confirmation of duty demands and penalties imposed on appellants for shortages of final products and raw materials, except for ... Clandestine removal - Proof of Issues involved: Duty on shortages of final products, duty on shortages of raw materials, duty on Fork Lift, imposition of penalties.Shortages of final products: The appellants, engaged in manufacturing P.P. Moulding Powders and Master Batches, were found with a quantity shortage of finished goods involving duty of Rs. 1,29,773. The General Manager and Managing Director admitted to the shortages, attributing them to practical reasons like tearing of bags, spillage, clerical errors, and weighing scale variances. The Tribunal found no evidence of clandestine clearance and noted that the shortages were minimal at 0.3% of total production, likely due to normal production hazards. The confirmation of demand was set aside due to lack of tangible evidence supporting clandestine removal.Shortages of raw materials: Additionally, there were shortages of raw materials valued at Rs. 2,66,345, involving duty of Rs. 40,297. The appellants explained that these shortages were accumulated over time due to practical reasons in day-to-day operations, including material received for job work. The Tribunal observed that there was no substantial evidence to attribute the shortages to clandestine activities. As such, the confirmation of duty and penalties imposed on the appellants for raw material shortages were set aside.Duty on Fork Lift: The appellants had availed modvat credit on a Fork Lift, which was later transferred to another unit without reversing the credit of Rs. 77,345.49. The appellants admitted the duty liability on the Fork Lift but argued that it was a bona fide mistake and a revenue-neutral exercise as the credit could have been availed by the sister unit. The Tribunal confirmed the duty on the Fork Lift but did not impose any additional penalties, considering the circumstances of the transfer as explained by the appellants.Imposition of penalties: The lower authorities had imposed penalties on the appellants and the General Manager for the alleged duty violations. However, the Tribunal set aside the penalties imposed, except for the duty confirmed on the Fork Lift. The Tribunal emphasized the lack of concrete evidence supporting the allegations of clandestine removal, highlighting the importance of positive, tangible, and affirmative evidence in such cases.Conclusion: The Tribunal disposed of the appeals by setting aside the confirmation of demands of duties and interest related to the shortages of final products and raw materials, as well as the penalties imposed on the appellants, except for the duty on the Fork Lift. The judgment emphasized the necessity of substantial evidence to prove clandestine activities and upheld the principle that charges of clandestine removal cannot be based solely on detected shortages without additional tangible proof.