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2016 (1) TMI 478 - MADRAS HIGH COURT

2016 (1) TMI 478 - MADRAS HIGH COURT - 2016 (334) E.L.T. 276 (Mad.) - Clandestine removal of goods - physical shortage of finished products - reliance on statements made by the officers of the appellant company - Held that:- the Tribunal had arrived at its conclusions, without properly appreciating the evidence available on record relating to the shortages and excesses found in the records of the appellant, including the internal audit. The actual audit practice of the appellant had not been con .....

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s made by the officers of the appellant company, cannot be sustained. - Matter remanded back. - C.M.A.Nos.1616 and 1617 of 2007 - Dated:- 10-12-2015 - MR. M.JAICHANDREN AND MRS. S.VIMALA, JJ For the Petitioner : Mr. C. Natarajan for Mr. N. Inbarajan For the Respondent : Mr. Rajnish Pathiyil JUDGMENT M. Jaichandren, J The above appeals had been filed against the final order of the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai, made in Final Order No.1261 and 1262 .....

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in the process (work-in-progress), for the purpose of ascertaining the handling shortages or the excesses, during the operations of the year. The corrected stocks, as per the actuals, are carried forward in the books and financial statements for the preparation of the final accounts and the balance sheet. When the officers of the Special Audit Department of the Central Excise had conducted the audit, for the period between December, 1997 and February, 1998, it had been found that the production .....

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d also been noticed in the internal audit of the company. Further investigations had been conducted at the company's actual working area, based on the information gathered from its records. During the physical verification, the appellant company had not put forth any valid reason for the shortages. Hence, it had been observed that the appellant company had cleared their final products without payment of duty, by contravening the provisions of Rule 9(1), read with Rules 173F, 52A, 53, 173G an .....

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nium castings found in excess during the said years, as the same had not been shown in the records and it had not been cleared on payment of duty and as to why penalty should not be imposed on the company for the violations committed by it, under Section 11AC of the Central Excise Act, 1944, and under Rules 173Q and 226 of the Central Excise Rules, 1944. 2.4) The appellant had submitted a reply, dated 7.2.1999, explaining the manufacturing process and the stock taking procedure followed by the c .....

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uty on the alleged shortages and therefore, a request had been made to the department to drop the proceedings. 2.5) The Commissioner of Central Excise had passed an Order-in-Original, dated 29.7.1999, imposing an amount of ₹ 45,26,680/-, in respect of the goods found short, under the proviso to Section 11A(1) of the Central Excise Act, 1944, after adjusting the excess castings found in the shortage notices. A penalty of ₹ 8,80,756/- had been imposed on the appellant, under Section 11 .....

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e Act, 1944, in Appeal No.E/1055/2000. 2.7) The Central Excise and Service Tax Appellate Tribunal had passed a common order, in Final Order No.1261 and 1262 of 2006, holding that the Commissioner of Central Excise, was not right demanding a lesser duty of ₹ 45,26,680/-, instead of ₹ 58,09,503.64, as proposed in the show cause notice. With regard to the duty demand on excess goods found, as the Commissioner of Central Excise had not given a definite finding as to whether they had been .....

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d on the shortage/excess recorded by the Annal Stock-taking of the Appellants' Internal Audit Department in accordance with accounting standards when there was no evidence of clearance of goods from the foundry of the appellants? 2. Has the Tribunal committed serious error in reversing the order of the learned Commissioner of Central Excise in so far as the learned Commissioner of Central Excise itself had noticed that the excess found by the assessee during annual stock-taking had been corr .....

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r, the learned counsel appearing on behalf of the appellant had submitted that he is not pressing the following substantial question of law raised by him at the time of admission and he has also made an endorsement to that effect: "Has the Tribunal committed serious error in reversing the order of the learned Commissioner of Central Excise in so far as the learned Commissioner of Central Excise itself had noticed that the excess found by the assessee during annual stock-taking had been corr .....

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of the Supreme Court, in Ishwar Dass Jain (dead) through Lrs., Vs. Sohan Lal (Dead) by L.R.s), the order passed by the Tribunal ought to be interfered with. 4. It had been further submitted that the matter adjudicated by the Commissioner of Central Excise, in the Order-in-Original, dated 29.7.1999, was to the effect that there were shortages of Iron and Aluminium castings, as noted from the stock taking done, as per the internal audit of the appellant company. The shortages of the goods in the s .....

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ation offered in reply to the show cause notice is an afterthought and cannot reflect the correct state of affairs. Such observations made by the Tribunal are erroneous in nature, as the appellants have consistently maintained and pleaded that the stock inventory taken by the internal audit pertain to Work-in-Progress' and not finished castings required to be entered in RG1 Register, as the Work-in-Progress' had not reached the RG1 stage. 6. It had been further submitted that the case of .....

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nt, as well as the stocks inventory, relates to the Work-in-Progress'. Even though the Tribunal had accepted the said position, it had arrived at a wrong conclusion. 7. It had been further submitted that the case of the appellant is corroborated by the statements made by R.Giridhar Gopalan and V.Jayakumar, which had been relied on by the Tribunal. However, the Tribunal had not considered the annual audited balance sheet of the appellant and that data contained therein, more particularly, tho .....

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ourable to the appellant. 8. It had been further submitted that the Tribunal had misread the case of the appellant, as if the appellant had pleaded and failed to establish that the discrepancy was due to clerical errors. The Tribunal had neglected to note that the Commissioner of Central Excise, vide his adjudication, has stated in Paragraph-19, that, in the show cause notice, there was no allegation of clandestine removal of the goods. Thus, without any evidence of removal of the goods, the Tri .....

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appeal of the assessee is devoid of merits. None of the ingredients of Section 11AC had been set out or applied to the case. The mere fact of affirmation of duty demand need not necessarily result in the affirmation of penalty, under Section 11AC of the Act, as the penalty proceedings in the said Section are quasi criminal in nature, as per the decision of the Supreme Court, in The Commissioner of Income-Tax, West Bengal Vs. Anwar Ali, 1970(2) SCC 185. 10. The learned counsel appearing on behal .....

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een found that the appellant company was guilty of suppression of the relevant particulars. Hence, the duty amount of ₹ 45,26,680/- had been made and a penalty had been imposed, under Section 11AC of the Act, by the Commissioner of Central Excise. The department had filed an appeal against the Order-in-Original No.4/99, under Section 35E(1) of the Central Excise Act, 1944, in Appeal No.E/1055/2000, challenging the reduction of duty amount. The appellant had filed an the appeal before the C .....

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d due to clerical errors. Therefore, the Commissioner of Central Excise had rendered his decision arriving at his conclusions which are against the appellant. Further, the department has been aggrieved by the findings of the Tribunal, reducing the amount demanded, from ₹ 58,09,503.64 to ₹ 45,26,680/-. As such, the Tribunal had arrived at its conclusions based on the relevant facts and the provisions of law applicable to the case. Therefore, the present appeals, filed by the appellant .....

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