2026 (3) TMI 430 - AT - Central Excise

Evidentiary weight of on-site records upheld; clandestine removals sustained while third-party records excluded and director penalty set aside.

Demand for duty was sustained insofar as stock shortage was established by a panchnama conducted with the party present and by a slip pad recovered from ... Demand of duty on goods found shortage found during stock taking (MS ingots and billets) and on clearances recorded in a slip pad recovered from the premises - demand based on the notebook recovered from the broker - Validity of stock-taking by sample/averaging method in industrial goods - probative value of documents recovered from assessee's premises - requirement of section 9D procedure for admission of statements recorded during investigation - penalty under Rule 26 contingent on goods being liable to confiscation Validity of stock-taking by sample/averaging method in industrial goods - inference of clandestine removal from unexplained shortage - mandatory penalty under section 11AC linked to sustained demand - HELD THAT: - The Tribunal held that the method of taking stock by ascertaining weight of standard-sized pieces and multiplying by number of pieces is an acceptable and established method in the iron and steel industry; the appellants, having been present at the Panchnama and expressed satisfaction at the time, cannot belatedly challenge the method. The recorded shortage of 415.700 MT of billets and the undisputed admission of shortage by the director supported the inference that those manufactured goods were neither in stock nor cleared on invoices, and therefore were clandestinely removed. Accordingly the demand arising from the shortage was upheld and the mandatory penalty under section 11AC was adjusted to correspond to the duty sustained. [Paras 10, 11, 12, 24, 27] Demand of duty on goods found short during stock taking is upheld and the mandatory penalty under section 11AC reduced correspondingly. Probative value of documents recovered from assessee's premises - inference of clandestine removal from assessee-maintained internal records - HELD THAT:- The slip pad, undisputedly recovered from and maintained at the assessee's premises, recorded consolidated daily loading/clearance figures that exceeded the quantities for which excise invoices were issued on the corresponding dates. In the absence of any contrary evidence or assertion that the entries pertained to another year, the Tribunal accepted that the slip pad pertained to the relevant period and affirmed the demand based on the excess clearances shown therein. [Paras 15, 16, 17, 24, 27] Demand of duty based on the slip pad recovered from JD Ispat is upheld. Requirement of section 9D procedure for admission of statements recorded during investigation - Demand of duty based on the notebook recovered from the broker and accompanying statements - HELD THAT: - Although the notebook recovered from the broker contained entries of clearances, the statement of the broker explaining the notebook was not admitted in evidence after following the procedure under section 9D of the Act; the Tribunal therefore found that the notebook, without the procedural admission of the associated statement, did not carry sufficient evidentiary weight. For that reason the demand premised on the broker's notebook and the related entries was set aside. [Paras 18, 19, 20, 24] Demand of duty based on the notebook recovered from the broker is set aside. Penalty under Rule 26 contingent on goods being liable to confiscation - Validity of penalty imposed on the director under Rule 26 of the Central Excise Rules, 2002 - HELD THAT: - The Tribunal observed that penalty under Rule 26 is imposed for acts rendering goods liable to confiscation and, in the absence of any confiscation of goods in the present case, held that Rule 26 could not be invoked to impose penalty on the director. Consequently, the penalty imposed on the director under Rule 26 was set aside. [Paras 25, 26, 27] Penalty imposed on the director under Rule 26 is set aside. Final Conclusion: The Tribunal partly allowed the appeals: demands sustained for duty on goods short in stock and on clearances shown in the assessee's slip pad were upheld; the demand based on the broker's notebook was set aside; the mandatory penalty under section 11AC was reduced to correspond to the upheld demand, and the penalty imposed on the director under Rule 26 was set aside. Issues: (i) Whether the demand of duty on goods found short in stock taking and on clearances recorded in a slip pad recovered from the premises is sustainable; (ii) Whether the demand based on the notebook recovered from the broker is sustainable; (iii) Whether penalty under Rule 26 of the Central Excise Rules, 2002 can be imposed on the director.Issue (i): Demand of duty on shortage found during stock taking (MS ingots and billets) and on clearances recorded in the slip pad recovered from the appellant's premises.Analysis: The stock taking was conducted under a panchnama in the presence of the appellant's representatives who expressed satisfaction at the method. The method of taking stock by sampling and multiplication is an accepted industry practice for iron and steel products. The slip pad was recovered from the appellant's premises and recorded clearances in excess of issued invoices for specified dates; the slip pad, though not stating the year, was recovered during the panchnama and no contrary evidence or assertion as to a different year was offered. Admitted facts and documents recovered from the premises were relied upon to establish clandestine removals.Conclusion: Demand of duty on goods found short in stock taking and on clearances recorded in the slip pad is upheld in favour of the revenue to the extent quantified in the order.Issue (ii): Demand of duty based on the notebook recovered from the broker (M/s. Bajrang Enterprises).Analysis: The notebook was recovered from the broker's premises and the broker's statement implicated the appellant, but the Commissioner did not admit the broker's statement in evidence following the procedure under section 9D of the Act. The notebook therefore lacked the necessary evidentiary foundation without the properly admitted statement and the appellant had opportunities for cross-examination which were not availed.Conclusion: Demand of duty based on the broker's notebook is not sustained and is set aside.Issue (iii): Imposition of penalty under Rule 26 of the Central Excise Rules, 2002 on the director.Analysis: Rule 26 penalises persons dealing with excisable goods liable to confiscation under Rule 25. In the present case no goods were confiscated; the statutory conditions for invoking Rule 26 were therefore not satisfied. The mandatory penalty under section 11AC was reduced corresponding to the demands upheld and the individual penalty under Rule 26 was examined against the absence of confiscation.Conclusion: Penalty imposed on the director under Rule 26 is set aside.Final Conclusion: The appeal against the demand is partly allowed by upholding demands based on stock shortage and the slip pad while setting aside the demand founded on the broker's notebook; the appeal against the director's penalty is allowed and the penalty is set aside. Consequential reliefs are granted if any.Ratio Decidendi: Where stock shortage is established by a panchnama taken in the presence of the party and a document recovered from the party's premises shows clearances in excess of invoices, such evidence can sustain a demand for clandestine removal; by contrast, documents recovered from third parties require proper evidentiary admission (including compliance with section 9D) and, absent confiscation, Rule 26 cannot be invoked to impose penalty on third persons.