TaxTMI 
TaxTMI 
2007 (10) TMI 91
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....r. 2. On the basis of some intelligence simultaneous searches were carried out in all the units of M/s. Castrol India Ltd. situated all over India. The present appeal concerns the investigation carried out in the two units at Ballabhgarh. During the course of investigation, physical stock taking is said to have been undertaken in CIL-II on 8-5-2001 in which various discrepancies were noticed in the opening balance, closing balance and issues as reflected in the Daily Tank Status Report, batch log-sheet and the issue and closing balance etc. shown in RG-23A Part-I register showing shortages of raw material issued for manufacture. In view this a complete scrutiny of all the records maintained by both the units was undertaken, as a result of which it came to notice that both the units had a practice of conducting physical stock taking in respect of both raw materials and finished goods at the end of each quarter in the course of which shortages/excesses were found. On punching the physical stock into the computer system negative/positive PIs denoting shortages/excesses were generated. However these shortages or excesses were not reflected in the Central Excise records and not repor....
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....ges found in the raw material and Rs. 98,76,450/- in respect of shortages found in finished goods and imposed penalty of equivalent amount. 3. We have heard both sides. 4. The appellants' submissions is that the demand is based purely on the negative PIs generated by their computer during their own stock taking and department has not conducted on independent investigation to show that there were shortages. No physical stock taking was conducted in Unit I to which 90% of the demand relates and that the computer was generating positive PIs also but the same have not been taken into account. It was submitted that the negative PIs are generated in the computer system not because of any inherent shortages but for the various reasons. The break-up is as follows :- Break-up of reconciliation Quantity Duty demanded % of duty 1. Duty on Compensating errors 6065195 20780058 78.24 2. Duty on Direct Sale Qty. 197745 1072802 4.04 3. Duty on GIT Diff. Qty. 283869 619940 2.33 4. Duty on Punch. Error Qty. 448848 2587042 9.74 5. Duty on Actual Process Loss Qty. 212108 1300271 4.90 ....
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....ocuments submitted by them did not support their contention and in this regard Commissioner has just cited two examples that in respect of quarter ending September 1999 and March 2000 there are negative PIs but there are no corresponding positive PIs. It was pointed out to him that there were positive PIs in the subsequent quarters of equivalent amount but the same was ignored by him on the ground that positive and negative PIs should occur in the same quarter. It was explained that in respect of direct sales made to industrial institutes from the factory, the sales ledger was not automatically updated, as their JDE computer system module did not have a field for direct sales. This updating was subsequently done by regional sales office at Delhi on the basis of monthly advices send by the plant by the first week of the next month. This despatch made at the end of the month was not reflected in the computer system in the same month but was reflected in the first week of the following month and therefore computer entry in the month in which despatches were made will create a negative PIs whereas for the following months when the entry is made, computer will show a positive PIs. Simil....
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.... been issued for production. The entries in the RG-23A Part I register are entered only after completion of batch. This was a practice that has been followed and never objected to. The department has totally ignored the RG 23A Part I register. They have shown to the Commissioner that the quantity mentioned in the show cause notice had subsequently been entered in RG-23A Part-I register. Each entry is backed by a batch report which shows complete co-relation. It was further submitted that DTSR is not record on which clandestine removal can be alleged and even the show cause notice does not demand duty on the basis of DTSR figures. 8. The appellant thereafter referred to the reconciliation statement submitted by them regarding the negative PIs generated in the computer system in which 78.24% was on account of duty on compensating error, 4.04% on direct sales, 2.33% on goods in transit, 9.74% on punching error, 4.90% on actual process loss and 0.76% on wrong calculation of duty. The losses under various categories were explained as under :- (1) Compensating errors There are four types of compensating errors namely : (i) Same inputs received under different Item codes since....
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....itted that appellant received raw material in different pack size either in bulk or in barrel. They have given different code to each such pack code and are accordingly fed into the computer. Many times in view of clerical/punching errors the stocks get updated in different pack code creating a discrepancy in both the codes. After quarterly stock taking such errors are corrected by passing appropriate positive and negative PIs. The same applies to the finished goods. In other words there may be a positive variance in the item packed in bulk and negative variance in respect of the same item packed in barrel. It is immaterial whether the stocks is in bulk form or otherwise as long as the stock as per the excise book and physical stocks is available. The total quantity of the item in question in stock does not change. The errors only arose because of the incorrect punching in the computer. (iii) Quarantined material in location code 01. It was submitted that whenever material is received it is given a location code and the quantity received is entered into the computer. Subsequently, this material is declared by the quality control department as 'Off-spec' i.e. it is not to be u....
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....s invited to the reconciliation statement for the quarter July to September 1999 where in respect of two inputs 0306/S1 and 0306/S2 8000 Ltrs. and 10000 Ltrs. issued for production against issue document (TNB) Nos. 601665 and 601666 were missed to be punched as issues in the JDE (computer raw material ledger). However these quantities were recorded in the cardex of input maintained only to track available stocks of inputs. Therefore at the time of physical stock taking at quarter end there was shortage of 8000 and 10000 Ltrs. respectively of the above two inputs as compared to JDE raw material register as shown in their reconciled sheet Roll No. 8 & 9 at page 525, cardex of inputs 0306/Si at page 552 and cardex of inputs 0306/52 (at page 552 and 556 of paper book II Volume II). Similarly in the reconciliation statement for the quarter September to December 2000, there was punching error of posting part quantity of sale of one furnished product in another resulting in stock difference. There was a clearance for sale of 9000 Ltrs. each in September 2000 and October 2000 recorded in RG-I (Page No. 400 & 401 of Paper Book II Volume II) of product code 0254/01. However the sales quantit....
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....70) E.L.T. 653. They have submitted an input output ratio for the period 1997 to March 2002 certified by Chartered Accountant which shows that the total consumption to production is 99.54%. The balance .46% being wastage which is much below 0.9% opined by the Deputy Chief Chemist. The Commissioner has not accepted the input output ratio on the ground that very good ratio has come on account of the fact that positive PIs has been deducted by the appellants from the total raw material consumed which is totally erroneous as positive PIs are not actual receipt. Actual receipt was recorded in RG-23A Part I register. The positive PI is only correction entry made in the books of account after comparing book stock with the physical stock at the time of stock taking out. 15. It was also pointed out that similar issues in respect of Patalganga plant has been decided in their favour and the Commissioner has set aside the entire demand except Rs. 85 lakhs and though the department is understood to have filed an appeal against the same, they have not filed appeal in respect of adjustment of positive and negative PIs and therefore a contrary view cannot be taken in the present case. Similar d....
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....ing errors as per the appellants' own say, the duty involved is Rs. 25,87,042/- and form 9.74% of the total duty demand, we find that the Commissioner has rejected the plea of the appellants for lack of documentary evidence to establish such errors. We have perused the reconciliation statement furnished by the appellants and we find that in many cases the shortages are not supported by documentary evidences. Appellants have been able to give few documentary evidence which on their own admission do not cover the entire errors. Since these errors are not negligible and constitute about 10% of the demand, they cannot be ignored. Similarly in respect of the process losses which constitute 4.9% of the total demand roughly amounting to Rs. 13,00,271/- losses up to .5% alone are to be condoned as this has been established practice admitted by the appellant where they themselves were limiting the process losses up to .5% and were paying duty in respect of loss beyond that. These were unexplained losses and consequently attributed as process loss. The possibilities of these losses being on account of other than process loss also cannot be ruled out. Further merely because in some industries....