Central Excise duty demand confirmed for stock shortages but clandestine removal allegations rejected due to insufficient computer evidence

CESTAT Kolkata confirmed Central Excise duty demand based on stock shortages found during joint verification conducted in presence of company director. However, demand for alleged clandestine removal was set aside as computer data recovered from CPUs and pen drives lacked proper authorship identification and corroborative evidence. Penalties on Managing Director and Director were reduced from Rs. 10 lakh each to Rs. 1 lakh each, proportionate to confirmed shortages only. Appeal partially allowed.

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Issues Involved:
1. Demand of Central Excise duty and disallowance of CENVAT Credit based on stock shortages.
2. Demand of duty on alleged clandestine removals.
3. Penalties imposed on the Managing Director and Director.

Summary:

1. Demand of Central Excise duty and disallowance of CENVAT Credit based on stock shortages:
The appellants contested the demand of Rs.48,41,515/- and disallowance of CENVAT Credit amounting to Rs.7,86,930/- on the grounds that the stock verification was not conducted properly and the confirmation of shortages was obtained under coercion. However, the Tribunal observed that the stock verification was done in the presence of the Director, who authenticated the findings on the spot. The Tribunal upheld the demand and disallowance, along with interest and penalties, stating that the suppression of facts with the intention to evade duty was established.

2. Demand of duty on alleged clandestine removals:
The demand for the financial years 2004-2005 and 2005-2006 was based on printouts retrieved from the appellant's computer CPUs. The appellants argued that these computerized documents were not admissible as evidence since the mandate u/s 36B of the Central Excise Act, 1944 was not followed. The Tribunal found merit in this argument, noting that the author of the data was not identified and no corroborative evidence was provided. Consequently, the demand based on alleged clandestine removals was set aside.

3. Penalties imposed on the Managing Director and Director:
Penalties of Rs.10,00,000/- each were imposed on the Managing Director and the Director u/r 26 of the Central Excise Rules, 2002 read with Rule 15 of the CENVAT Credit Rules, 2004. The Tribunal observed that while they admitted the shortages during joint stock verification, the demand related to clandestine removals was not substantiated. Therefore, the penalties were reduced to Rs.1,00,000/- each.

Order:
(i) The demand of Central Excise duty of Rs.48,41,515/- and disallowance of CENVAT credit amounting to Rs.7,86,930/-, along with interest and penalties, was upheld.
(ii) The demand of duty on alleged clandestine clearances was set aside.
(iii) Penalties on the Managing Director and Director were reduced to Rs.1,00,000/- each.
(iv) The appeals were disposed of on these terms.

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