2019 (8) TMI 598 - HC - Central Excise

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

The Principal Commissioner, CGST & Central Excise, GST Bhavan Versus M/s. G.P. Ispat Pvt. Ltd., Shri Gurpreet Singh Chandok

The Principal Commissioner, CGST & Central Excise, GST Bhavan Versus M/s. G.P. Ispat Pvt. Ltd., Shri Gurpreet Singh Chandok - 2019 (368) E.L.T. 76 ... 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.