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2016 (3) TMI 993 - CESTAT MUMBAI

2016 (3) TMI 993 - CESTAT MUMBAI - TMI - Demand of excise duty on account of reversal of credit on duty paid finished goods at the depot - demand of excise duty on account of shortages of raw material at the factory both for the period 1999-2000 and 2000-01 - demand time barred - Held that:- The base oil being a petroleum product, its weight and volume is dependant upon temperature and density. At the time of receipt in the factory, base oil is emptied in tank and the procedure for determining t .....

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extent of 0.6% of the total consumption which can arise on account of variation in temperature, variation in viscosity while dip reading, temperature and density at the time of measurement of stock. In this regard, the appellant referred to circular No. 55/89-CX.8 dated 15.12.1989 which provides for condonation of shortage and handling losses of petroleum products in a refinery and in the method of determining the quantities of petroleum products for the purpose of accountal in statutory excise .....

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n record, I am of the considered opinion that the shortages found are very minor in nature, i.e. 0.6% which is well accepted in petroleum products as observed in the judgments cited above. Also find that in the show cause notice also, there is no allegation that there is clandestine removal of goods by the appellant. - Further, as far as limitation is concerned, the entire demand appears to be time barred as it relates to financial year 1999-2000 and 2000-01 whereas the show cause notice was .....

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appeal is directed against the order of the Commissioner, No. 12/COMMR/05-06 dated 9.6.2006 vide which the Commissioner has confirmed the demand along with penalty against the appellant. 2. Briefly the facts of the present case are that the appellant is engaged in the manufacture of lubricating oil classifiable under Chapter 27 of the Central Excise Tariff Act, 1985. The appellant has been verifying the stock of finished goods and raw material in their factory on regular basis and whenever the s .....

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ent of Income Tax Act, the appellant has been getting their accounts audited under the Income Tax Act, 1961 and the report is required to be submitted to the Income Tax Department under form 3CD. The annexure attached to the report in form 3CD for the financial year 1999-2000 and 2000-01 showed the following differences in stock of finished goods and raw material. It has further been alleged that from the tables above, it is evident that in some year, physical stock is more than the book stock a .....

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he period ending on March 2000 and March 2001 and observed shortages in respect of certain finished goods and raw materials as stated in the tables above. The appellant clarified that they have paid the duty of ₹ 1,06,612/- towards the shortage of inputs and towards the shortage of finished goods observed in the factory in order to avoid disputes. Thereafter the appellant was issued show cause notice dated 25.3.2004 by the department requiring the appellant to show cause for payment of  .....

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unsel for the appellant submitted that there are number of reasons for shortages of raw material in the base oil viz. variation in weigh bridge calibration, variation in temperature, minor defect in flow meter, variation in viscosity while dip reading and temperature at the time of measurement of stock. He further submitted that the Tribunal in the case of Bombay Dyeing and Manufacturing Co. Ltd. reported in 1999 (113) ELT 331 has held that when the minor variation in physical quantities receive .....

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red to the quantity indicated in the challan, if there is no evidence of removal of goods from the factory premises. In support of this argument, he relied upon the following judgments of the Tribunal:- (i) Neera Enterprises vs. CCE reported in 1998 (104) ELT 382; (ii) CCE vs. Bombay Dyeing reported in 1998 (97) ELT 101. He also submitted that it is well known that there is always variation in weight of 1% to 2% when weight is taken by different weighing scales and further, the difference in wei .....

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on the following judgments:- (i) Vindhya Pipes & Plastics reported in 2001 (129) ELT 86 (T); (ii) Kanpur Strips (P) Ltd. reported in 2001 (137) ELT 198 (T); (iii) IPCL vs. CCE reported in 2005 (181) ELT 99 (T). It is his further submission that the shortage of finished goods has been observed not only in the stock lying in the factory but also in various depots. He also submitted that as regards shortage of finished goods at the factory, the appellant has already paid the duty of ₹ 21, .....

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reas the show cause notice was served on 26.3.2004 which is after a period of one year from the relevant date. He also submitted that the alleged demand in this case is based on shortages of raw material and finished goods as shown in form 3CD i.e. report under the Income Tax Act whereas the fact of the matter is that the appellant has been verifying the stock of finished goods at the factory regularly and has been paying excise duty wherever there is shortage of finished goods. Further, the app .....

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indings of the Commissioner. 5. I have heard the learned counsel for the parties and perused the records. 6. The matter in a narrow compass involves firstly, the demand of excise duty on account of reversal of credit on duty paid finished goods at the depot and secondly, the demand of excise duty on account of shortages of raw material at the factory both for the period 1999-2000 and 2000-01. 6.1 As far as the shortage of raw material is concerned, I find that the base oil being a petroleum prod .....

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ithin the petroleum industry for petroleum products whereas in this case, the shortage as reported in annexure A to form 3CD during the period 2000-01 has only been to the extent of 0.6% of the total consumption which can arise on account of variation in temperature, variation in viscosity while dip reading, temperature and density at the time of measurement of stock. In this regard, the appellant referred to circular No. 55/89-CX.8 dated 15.12.1989 which provides for condonation of shortage and .....

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th before and after each operation of either receipt into or discharge of oil from the tanks. The difference noticed in the dip readings measured between two operations should constitute the storage loss. 3. The handling losses on the other hand would mean those losses which takes place in the course of discharge of petroleum products from the storage tank into the tank wagon/tank lorry. For the purpose of accountal in RG. 1, quantity determined on the basis of difference of dip of the storage t .....

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ve argument:- CCE, Rajkot vs. Bombay Dyeing & Mfg. Co. Ltd. reported in 1998 (97) ELT 101, wherein in para 3 the Tribunal has held as under:- 3. The ratio of the decision of the (sic) relied? upon by the Tribunal decision Commissioner was that, when duty had been paid by the manufacturer of fibre on a particular quantity, but the quantity on receipt at the users factory was found to be less, apparently on account of loss and moisture during transit, credit would be available of the duty paid .....

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uarely apply. Neera Enterprises vs. CCE, Chandigarh reported in 1998 (104) ELT 382, wherein in para 5, the Tribunal has held as under:- 5. It is not disputed by the department that the goods were initially removed from the Rourkela Steel Plant of the SAIL. If the time of the issuing of invoice was not inadvertently mentioned by Rourkela Plant the benefit of Modvat Credit cannot be denied to the appellants so long as the duty payment in their invoice is not disputed. It is also further observed t .....

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scales. Again this could not be a ground for disallowing the Modvat Credit when the duty paid nature of the goods and its use are not in dispute. Tata Motors Ltd. vs. CCE reported in 2005 (179) ELT 413, wherein the Tribunal in para 8 has held as under:- 8. The appellants procured inputs in sealed railway rakes from the plants of Indian Oil Corporation and Hindustan Petroleum Corporation. The consigned quantity and the quantity of receipt are measured through manual measurement process and the di .....

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57A of the Central Excise Rules, 1944. Similar view has been expressed in the case of Commissioner of Central Excise, Rajkot v. Bombay Dyeing & Mfg. Co. Ltd. reported in 1998 (97) E.L.T. 101 (Tribunal). In the present case, the minor shortage of the inputs was due to dryage and due to handling is sufficient and logical reasons shown by the appellants. The duty has been taken does not exceed the duty paid on the invoices merely because after receipt it was found that certain small percentage .....

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