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M/s. Maithan Alloys Ltd., Shri Subodh Agarwalla, Director of M/s. Maithan Alloys Ltd. Versus Commissioner of Central Excise, Bolpur

2016 (9) TMI 1176 - CESTAT KOLKATA

Whether stock-taking of goods manufactured by the Appellant has been correctly done by the officers of DGCEI and the Income Tax authorities to determine shortages and clandestine removal of goods - Imposition of penalty - Held that:- there is no other positive evidence on record that any finished goods have been cleared without payment of duty. Adjudicating authority has gone by the presumption that shortages of 1147.110 MT of Silico Manganese and 492 MT of Ferro Manganese calculated by the depa .....

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chase of extra raw materials, excess consumption of power etc. - In this present case before us even the Appellant has not admitted to have made any clearances clandestinely. The finished goods are cleared by the Appellant on actual weighment basis in containers/trucks and it is not the case of the Revenue that any less quantity is cleared by comparing final goods quantities shown in the clearance documents and the DSA quantity. In view of the observations and settled proposition of law, cas .....

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ined in the next paragraph. - So far as shortage of 6.750 MT of Silico Manganese, in packed condition is concerned, Appellants in Appeal accepted this shortage. Further in their reply to the show cause notice, before the Adjudicating authority, also Appellant accepted this shortage. Order-in-Original, passed by the Adjudicating authority, is required to be upheld. This shortage of 6.750 MT of Silico Manganese is required to be accounted for in the DSA and liable to duty if not already accoun .....

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n-Original No.63/Commr/BOL/10 dated 13.10.2010 issued on 25.10.2010, passed by Commissioner of Central Excise, Bolpur, West Bengal as Adjudicating authority. 2. Shri J.P.Khaitan (Sr.Advocate) and Shri Arijit Chakraborty (Advocate) appeared on behalf of the Appellants. Shri J.P.Khaitan submitted that Appellant is a manufacturer of Ferro Alloys Ferro Manganese and Silico Manganese falling under Central Excise Tariff Heading 72.02 of the first schedule to the Central Excise Tariff Act, 1985. That t .....

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e etc. That this stage of ferro Alloys is referred to as unsorted production and is not ready for entering in the Daily Stock Account (DSA) or RG-1 account but are duly reflected in Appellant s production records. That unsorted production of Ferro Alloys after breaking into smaller pieces, sorting and grading according to size and chemical analysis are packed in gunny/HDPE bags of 50 kg. each or are stacked in loose form as heaps for loading onto containers for exports or trucks for steel plants .....

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ght of loose ferro-alloys which is reflected in the DSA on daily basis and is called sorted production. That the shape and size of sorted ferro alloys greatly vary. Learned Senior Advocate made the Bench go through photographs of such materials copy of which is at page-95 of the Appeal papers. That due to great variation in the shape, size and density of material in the lumps of Ferro Alloys heavier lumps have a tendency to settle at the bottom of the stacks/heaps and lighter lumps/pieces of fer .....

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t estimation of stock done by the Income Tax authorities was not made the basis of making any addition to the income of the Appellant for the assessment year 2008-2009. Learned Advocate made the Bench go through copy of assessment order passed by the Income Tax authorities and stock taking inventory prepared. 2.2 That on 06.12.2007 officers of Central excise also visited Appellant s factory and calculated the weight and volume of sorted Ferro alloys on the basis of weigh-volume ratio rather than .....

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for Ferro Manganese. That after investigation department issued show cause notice dated 05.05.2009 which has been confirmed by Adjudicating authority under impugned Order-in-Original dated 13.10.2010 by confirming demand of ₹ 1,41,37,531/-, along with interest and also imposing a penalty of ₹ 1,41,37,531/- upon the Appellant and ₹ 10.00 Lakh on the Director. 3. Learned Senior Advocate for the Appellants submitted that due to following arguments the case of clandestine manufact .....

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o which has not reached DSA stage. (ii) That shortage has been calculated by starting from the Income Tax inventory dated 21.09.2007 and to that DSA figures from 20.09.2007 to December 5, 2007 have been added as per the show cause notice. That Income Tax inventory was an estimation and the method adopted for Income Tax inventory is not made available to the Appellant. That Appellant requested for cross-examination of Income Tax officers who prepared inventory but the same was not allowed. That C .....

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e which was also an accounting/clerical error. (iv) That there is not even an iota of evidence that any clandestine clearance is made by his clients as final sale is made on actual weighment basis when DSA goods are loaded onto the containers or trucks carrying finished goods. (v) That as per one opinion dated 13.09.2010, submitted by the Appellant to the Adjudicating authority as per record of personal hearing held on 10.09.2010 from a valuer Chartered Engineer, the weight of Ferro Manganese/Si .....

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case laws relied upon by the Appellants. (viii) That in view of the following case laws neither the stock-takings done by both the revenue authorities are acceptable nor the case of clandestine removal is established against his clients. :- (i) J.K.Corporation Ltd. v. Commissioner of C.Ex. & Cus., Bhubaneswar [2007 (210) ELT 501 (Ori.)] (ii) Steel Authority of India Ltd. v. Commissioner of C.Ex., Mysore [2006 (200) ELT 229 (Tri.-Bang.)] (iii) Geekay Wires Pvt.Ltd. v. Commr. of C.Ex., Hyderab .....

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gs. and 30 kgs. capacity buckets and cannot now object to the method of weight determination and adopted by the officers of Central Excise. That stock calculation done by the Income Tax authority has not been contested by the Appellants. That shortages worked out by DGCEI authorities were not properly explained by the Appellants and their employees when they were present at the time of physical stock verification. That as per para 22.0 (d) of the Order-in-Original dated 13.10.2010 no physical we .....

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d 13.10.2010 to argue that Appellants have no case. Learned AR thus strongly defended the order passed by the Adjudicating authority. 5. Heard both sides and perused the case records. The only issue required to be decided in these Appeals is whether stock-taking of goods manufactured by the Appellant has been correctly done by the officers of DGCEI and the Income Tax authorities to determine shortages and clandestine removal of goods. Adjudicating authority in the Order-in-Original dated 13.10.2 .....

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the inventories dated 06.12.2007 and 21.09.2007, prepared respectively by DGCEI and Income Tax authorities in the presence of Shri Hemanta Kr. Bhattacharjee, that DGCEI authorities only took into consideration stock of sorted finished goods. On the other hand Income Tax authorities have taken both sorted finished goods and unsorted production into consideration while preparing inventory dated 21.09.2007. The calculations done by the department are shown in Annexure-C to the show cause notice dat .....

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equested by the Appellant. It is also not clear from DGCEI inventory whether estimation done as per 1 X 1 X 1 box was with one calculation or several samples were taken from different portions of the heap/heaps. It is observed from letter date dated 14.09.2010, given by the Appellant to the Adjudicating authority, that three photographs were, inter alia, provided to department, which indicate that heaps/stack of ferro alloys are irregular geometrical shapes and are heterogenous so far as size of .....

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dated 13.10.2010 but no findings were given by him as to why the version given by the Appellant and endorsed by an expert, cannot be accepted. In the absence of any documentary evidence or expert opinion obtained by department a view expressed by an expert Chartered Engineer cannot be brushed aside. Adjudicating authority or agency issuing show cause notice could have asked for cross-examination of the said Chartered Engineer. Alternately the cross-examination asked by the Appellant on stock-ta .....

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dated 13.10.2010 are highly illogical as nothing has been brought on record as to what is the DSA/RG-1 stage prescribed by the department. Secondly, department also preferred to calculate finished goods stocks of ferro alloys as per inventory dated 06.12.2007 and nothing was mentioned about the unsorted stocks of ferro alloys. In view of these observations the stock takings and calculations done by the department are not authentic and cannot be made the basis for confirmation of demand against .....

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ppellant has relied upon a series of case laws, as per para-3(viii) above, where it has been held by courts and co-ordinate benches that stock taking based on eye witnesses/averaging cannot be made the basis of clandestine removal. Department has not been able to bring any contrary case laws on this issue. CESTAT Bangalore on this issue held as follows in the case of Steel Authority of India Ltd. v. CCE, Mysore (supra) :- 5. We have gone through the records of the case carefully. The demand has .....

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sociated with the same. Hence, the stock taking cannot be said to have been conducted in terms of Rule 223A of the C.E. Rules. In any case, the shortage arrived at is based on estimates. The estimate cannot be said to be very accurate, as it has got its own limitations. It should also be appreciated that there are practical problems in steel plants in the matter of accounting of their production. The CBEC Circular No. 52/79 Cx.6, dated 26-10-1979 has also laid down certain guidelines with regard .....

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se laws hold that provisions of Section 11A would apply in making demands of duty on deficiencies found during stock taking. The appellants based many reasons for discrepancies between the RG-1 and the physical stock. For example, the RG-1 is only based on estimated production and not based on actual weighment. Physical stock is also based on estimation of weight on the basis of volumetric estimate and conversion to theoretic weight based on sectional weight. A comparison between two estimation .....

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and in view of the submissions made by the appellants, we find that the demand of duty made by the adjudicating authority cannot be sustained. Therefore, we allow the appeal with consequential relief. 6.1 Similar views were expressed by CESTAT Delhi and CESTAT Mumbai, in case laws Satpushp Steels (P) Ltd. v. CCE, Jaipur(supra) and Micro Forge (I) Pvt.Ltd. v. CCE, Rajkot(supra) to the effect that stock-taking on average weight calculation/estimation cannot be accepted for the purpose of demand a .....

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be held to be proved on the basis of presumptions, assumptions and surmises. Secondly, it has already been observed by us that stock taking done by the department is hypothetical and full of flaws. In the case of clandestine removals there should be positive evidence to indicate clandestine activity like seizure of finished goods in transit, purchase of extra raw materials, excess consumption of power etc. In the case of Durga Trading Company v. Commissioner of Central Excise, Lucknow [2002 (14 .....

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has observed that demand of duty cannot be raised on the strength of assumptions and presumptions. There should be sufficient evidence of the removal of the goods alleged to have been manufactured and cleared without payment of duty. The charge of clandestine removal must be based on tangible evidence and not on inferences involving unwarranted assumptions. This very principle of law had been applied by the Tribunal in a number of cases and out of those, few are, Amba Cement and Chemicals v. CC .....

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