2017 (1) TMI 1455 - AT - Central Excise

Accounting error, not theft, ruled in stock shortage case; penalty overturned under Section 11AC.

The presiding member in the case found that the shortage of finished goods detected during stock taking was not due to clandestine removal but likely an ... Clandestine removal - penalty - whether shortage of finished goods detected during stock taking can be held as shortage due to clandestine removal of goods, without any cogent evidence? - Held that: - it was observed that during the last six months i.e. from July 2010 to 24 January 2011, they have produced 8712.220 MT of MS Ingot and the shortage detected is only 0.63% of the production during the period in question and hence a very small negligible difference has been found which in no way can be removed clandestinely - there is no evidence on record of clandestine removal of the goods. In other words, it is a case of mere shortage of goods during stock verification and imposition of penalty under Section 11AC of the Act is not warranted. In the case of Commissioner of Central Excise and Service Tax, Ludhiana v. Anand Foundries Engineers [2015 (11) TMI 1166 - PUNJAB & HARYANA HIGH COURT], the Hon’ble Punjab and Haryana High Court dismissed the appeal filed the by the Revenue. It has been observed that the assessee, in his statement, had admitted only to shortage and not to clandestine removal of the goods. The charge of clandestine removal is not established. Penalty set aside - duty with interest upheld - appeal allowed in part. Issues:1. Whether shortage of finished goods detected during stock taking can be considered as shortage due to clandestine removal of goods without cogent evidence.2. Whether imposition of penalty under Section 11AC of the Central Excise Act, 1944 and demand of interest is justified.Analysis:1. The case involved a situation where the appellant's finished goods showed a shortage during stock verification. The appellant contended that the shortage was negligible, amounting to only 0.63% of the production during the period under question. The appellant denied any clandestine removal of goods and argued that the shortage was due to an accounting error. The Commissioner (Appeals) viewed the appellant's voluntary deposit of the amount as an admission of offense. However, the presiding member disagreed, emphasizing the necessity of concrete evidence to establish clandestine removal.2. The presiding member highlighted the absence of evidence supporting clandestine removal of goods. Instead, it was deemed a case of mere shortage during stock verification. Citing a precedent where the Hon'ble Punjab and Haryana High Court dismissed an appeal due to lack of evidence for clandestine removal, the presiding member emphasized the importance of substantiating such charges. Additionally, a reference was made to a case where a significant shortage of finished goods remained unexplained, contrasting it with the present scenario where a negligible shortage was accounted for with an explanation. Consequently, the imposition of penalty under Section 11AC was deemed unwarranted.3. Ultimately, the presiding member set aside the imposition of penalty while upholding the demand for duty and interest. The judgment concluded by disposing of the appeal on these terms, emphasizing the need for concrete evidence to support allegations of clandestine removal and highlighting the significance of explanations provided for any discrepancies in stock verification.