2015 (1) TMI 213 - AT - Central Excise

Appellate court ruling on duty demand for finished goods and raw materials

COMMISSIONER OF C. EX., KANPUR Versus TRELA FOOTWEAR EXPORTS PVT. LTD.

The appellate court allowed the assessee's appeal regarding duty demand on short found finished goods, as mere shortages did not prove clandestine ... Confirmation of demand of duty on the short found finished goods and the raw materials - Commissioner (Appeals) has set aside the demand of ₹ 4,02,477/- in respect of short found raw materials on the ground that the same were used by the assessee in the manufacture of the final goods, which were found in excess - He also observed that once the raw materials were entered in the records, assessee cannot escape to record the finished goods against the said raw materials - Held that:- Entire case of the Revenue is based upon the alleged shortages detected during their visit in the assessee’s factory. The assessee’s authorised representative, in his statement, has accepted the shortages. However, he is nowhere deposed that the said alleged short found goods were cleared by them clandestinely. Apart from the alleged shortages, there is virtually no evidence on record to corroborate the allegation of clandestine removal. The Tribunal in number of decisions has held that mere shortages cannot lead to inevitable conclusion of clandestine removal. As such, I find no justification for confirmation of duty demand of ₹ 2,26,880/- against the assessee. There were certain excesses also found in the assessee’s factory. Admittedly, the said excess found goods must have been manufactured out of the raw materials entered in the records. There is no evidence that the raw materials for the said excess found goods were procured clandestinely by the assessee. As such, Commissioner (Appeals) has rightly observed that once raw materials entered in the record, an assessee is bound to reflect the use of the same in the manufacture of the final product. If the raw materials contained in excess found goods is taken into consideration, no duty confirmation would fall on the assessee. Otherwise also, I find that there is virtually no evidence on record to show that the said alleged short found raw materials stand cleared by the assessee. Accordingly, I find no infirmity in the said part of the impugned order of the Commissioner (Appeals). - Decided in favour of assessee. Issues:Dispute over duty demand on short found finished goods and raw materials.Analysis:The judgment involves two appeals, one by the assessee and the other by the Revenue, arising from the same impugned order by the Commissioner (Appeals). The assessee is engaged in manufacturing PU soles and PVC soles. Central Excise officers found discrepancies during a visit to their factory, including shortages and excesses of finished goods and raw materials. Statements were recorded admitting the shortages and excesses. The dispute revolves around the duty demand on the short found finished goods and raw materials. The original adjudicating authority confirmed duty demands and imposed penalties. The Commissioner (Appeals) set aside the demand for short found raw materials but confirmed the demand for short found finished goods and imposed penalties. The Revenue appealed the decision on raw materials, while the assessee appealed the decision on finished goods.The Revenue's case was based on alleged shortages detected during the factory visit. The assessee's representative admitted the shortages but did not confirm clandestine removal. The Tribunal precedent states that mere shortages do not prove clandestine removal. Therefore, the duty demand on finished goods was not justified, and the assessee's appeal was allowed. On the other hand, the excess found goods were manufactured from raw materials in the records. There was no evidence of clandestine procurement of raw materials for the excess goods. The Commissioner (Appeals) rightly noted that once raw materials are recorded, the assessee must show their use in final products. Since there was no evidence of the alleged short found raw materials being cleared, the Commissioner's decision was upheld, and the Revenue's appeal was rejected. Both appeals were disposed of accordingly.