1999 (3) TMI 583 - AT - Central Excise

Confiscation of goods - Accountal of goods - Modvat/Cenvat - Demand - Clandestine manufacture and removal

Summary

Issues:
1. Confiscation of unrecorded stock of final goods
2. Confiscation of final goods stored outside the BSR
3. Recovery of Modvat credit on inputs contained in waste goods
4. Shortages and excesses in raw materials
5. Demand of duty under Rule 9(2)
6. Imposition of penalties and confiscation of assets

Analysis:

1. The appellant's factory was visited by Jurisdictional Officers who found unrecorded stock of final goods in the BSR. Confiscation and redemption on payment of fine were allowed for these goods. Additionally, final goods stored outside the BSR were seized. The Collector in the impugned order directed the recovery of Modvat credit on inputs contained in waste goods. Shortages and excesses in raw materials were also noted, with discrepancies in LDPE granules and M.G. Kraft Paper. The Collector did not accept arguments on the excesses but refrained from making any order due to lack of proposal in the show cause notice. Shortages in LDPE granules and printing ink were acknowledged, with discrepancies in the quantities. The Collector held that a portion of the raw materials was used to manufacture and clear plastic bags clandestinely, confirming duty and imposing penalties on the appellants.

2. The Collector considered claims regarding excess plastic bags in the BSR, where arguments were made about the timing of entries and the production process. The Collector held that entries should be made promptly after manufacturing, disregarding the practice of daily entries for three shifts. The charge against the excess goods was not established, leading to the orders of confiscation being overturned. Regarding bags stored outside the BSR deemed as scrap, the Collector directed the reversal of Modvat credit. However, Rule 57-D permitted non-reversal of Modvat on inputs in scrap, and the Collector's decision exceeded the scope of the show cause notice, rendering it invalid.

3. Concerning the demand of duty under Rule 9(2), the Collector rejected the reconciliation by the appellants, labeling it as an afterthought. However, the Tribunal's judgment in a similar case highlighted that shortages in raw materials do not conclusively prove clandestine removal. The Collector did not estimate the production of bags based on the shortages found, and the evidence presented did not substantiate clandestine removal, leading to the dismissal of this part of the order.

4. Due to the lack of substantial evidence supporting clandestine removal and the absence of corroboration for the presumption arising from raw material shortages, the imposition of penalties on the appellants and the confiscation of their assets were deemed unnecessary. The appeals were allowed, the impugned order was set aside, and consequential relief was directed.