2019 (8) TMI 598 - HC - Central Excise

Court upholds tax demand due to accepted shortages and lack of stock variance explanation.

The Court allowed the tax case, quashing the Tribunal's order. It held that the demand made by the assessing authority was valid due to the ... Clandestine removal - TMT Bars - major shortage of finished goods revealed in stock taking - shortage of raw material - statements recorded were not taken ito consideration and was ignored by the Tribunal - principles of natural justice - HELD THAT:- The Court therefore fails to appreciate as to why the statements duly recorded under statutory provisions of Section 14 of the Central Excise Act, 1944 was ignored or not taken into consideration by the appellate Tribunal - No where did the private Respondents plead that the allegation of clandestine removal was made against them. The department all along sought clarity from them for such huge difference in the physical stock vis a vis their book of accounts and only explanation offered by the Respondents- Company was that the goods have been “dislodged”. Since it is a case of acceptance and failure to explain the huge variation in the stock and the variations were not having been disputed, the demand so made and calculated by the assessing authority was in conformity with the law - The ratio relied upon by the Tribunal that it will be governed by the principle of clandestine removal seems to be misplaced in the facts and circumstances of the case. Tax case allowed - decided in favor of Revenue. Issues Involved:1. Legitimacy of the physical stock verification and resultant shortage findings.2. Justification for the imposition of Central Excise Duty, interest, and penalties.3. Applicability of the principle of clandestine removal.4. Consideration of statements recorded under Section 14 of the Central Excise Act, 1944.5. Tribunal's reliance on precedent cases.Issue-wise Detailed Analysis:1. Legitimacy of the Physical Stock Verification and Resultant Shortage Findings:The dispute originated from a search conducted by the Headquarters Preventive Branch at the factory premises of the Respondents for physical stock taking of finished goods and raw materials. The verification revealed a major shortage of 9076.766 MT of finished goods (TMT Bars) and 16.915 MT of raw materials (M.S. Ingot). The Respondents-Company paid a part of the duty amounting to Rs. 1,87,81,877/- and agreed to pay the balance over time. A subsequent search on 20.03.2013 revealed further shortages in various materials, leading to another show cause notice for recovery of Central Excise Duty amounting to Rs. 50,37,737/-.2. Justification for the Imposition of Central Excise Duty, Interest, and Penalties:The Commissioner, Central Excise, confirmed the entire demand made under both notices along with interest and imposed equivalent penalties upon the Respondents-Company. The Respondents-Company had accepted the shortages and volunteered to make good the demand of Excise duty, paying a significant amount and requesting more time due to financial distress. Despite this, they approached the appellate Tribunal, which allowed their appeal based on the principle that the Revenue should provide clinching evidence for clandestine removal.3. Applicability of the Principle of Clandestine Removal:The Tribunal relied on the principle that in cases of clandestine removal, the Revenue must produce clinching evidence, referencing the cases of CCE&ST, Ludhiana Vs. Anand Founders & Engineers and Continental Cement Company Vs. Union of India. However, the Court found this principle misplaced in the present case, as it was not about clandestine removal but about explaining the huge shortage in stock, which the Respondents-Company failed to do.4. Consideration of Statements Recorded Under Section 14 of the Central Excise Act, 1944:The Court emphasized the importance of the statements made by the company's representatives under Section 14 of the Central Excise Act, 1944, where they accepted the shortages and agreed to pay the duty. The Tribunal's decision did not consider these statements, which were crucial as they indicated acceptance of the shortages and the resultant duty liability.5. Tribunal's Reliance on Precedent Cases:The Court found that the Tribunal's reliance on the cases of Anand Founders & Engineers and Continental Cement Company was not applicable to the present case. The Court noted that the issue was not about proving clandestine removal but about the acceptance and failure to explain the significant stock variations.Conclusion:The Court allowed the tax case, quashing the Tribunal's order dated 05.03.2018. It held that the demand made by the assessing authority was in conformity with the law, given the acceptance of the shortages by the Respondents-Company and their failure to provide a fair explanation for the variations in stock. The principle of clandestine removal was deemed inapplicable, and the statements recorded under Section 14 of the Central Excise Act, 1944, were crucial in deciding the case.