Assessee Failed To Explain Huge Variation In Stock And Admitted To Shortage: CESTAT Upholds Penalty Under Section 11 AC(1)(A) Of The Central Excise Act, 1944

Section 11 AC(1)(A) Of the Central Excise Act, 1944 provides that if any excise duty has not been levied, paid, short-levied, short-paid, or erroneously refunded due to fraud, collusion, willful misstatement, suppression of facts, with the intent to evade duty, the person liable for the duty under Section 11A(2) and must also pay a penalty equal to the duty determined.

The Bench of Binu Tamta (Judicial Member) has observed that the Panchnama records that the assessee has accepted the difference between shortage in the raw material and the finished goods. Since he admitted the shortage, he deposited the central excise duty as determined.

The appellant/assessee, a manufacturer of M.S. Ingots, was found with shortages in stock and evidence of clandestine removal of goods during a search. The appellant deposited central excise duty of Rs.13,15,617/- for shortage detected in the raw material. A show cause notice was issued to the assessee demanding central excise duty on two counts i.e. Rs.13,15,617/- for shortage detected in the raw material and finished goods and Rs.71,45,014/- on account of clandestine removal of goods. The Adjudicating Authority confirmed the demand of Rs.13,15,617/-, while the remaining demand was dropped. Being aggrieved, the assessee filed an appeal before the Commissioner (Appeals), which was rejected. The Commissioner (Appeals) confirmed the demand of central excise duty on account of shortage found in the raw material and the finished goods and imposed equivalent amount of penalty under Section 11AC1(a)of the Central Excise Act, 1944. The assessee has challenged the order passed by the Commissioner (Appeals) before the Tribunal.

The assessee contended that shortages cannot be assumed as clandestine removal without corroborative evidence. Also, no comprehensive investigation was conducted to determine the nature of the alleged discrepancies and in the absence of evidence of clandestine removal, no duty is payable.

The department contended that sufficient opportunity was granted to the assessee to declare the stock and, therefore, the difference found was on the basis of the declaration given by the assessee themselves, which they could not explain.

The Tribunal opined that the challenge that the stock verification was not proper as it was based on eye estimation and not on physical verification and the same was conducted in a short span of time of six hours which is unpractical, has no substance as no such objection was taken at the time of stock verification, rather the Panchnama was accepted and duly signed by the assessee. The assessee is trying to cover-up their admission by taking technical glitches, however, there is no merit therein.

The Tribunal observed that “the Adjudicating Authority has categorically concluded that the appellant had contravened the provisions of Rule 4, 6, 8,10, 11 and 12 of Central Excise Rules, 2002 by not recording its production of finished goods found short during the physical verification and not determining the central excise duty on the goods found short. Had the investigation not been taken up by the Department, the shortage in the stocks would not have come to light causing loss to the Government exchequer. In the circumstances, the imposition of mandatory penalty on the shortage detected, the appellant has been rightly held liable for penal action under Section 11 AC(1)(a) of the Act.”

In view of the above, the Tribunal dismissed the appeal.

Counsel for Appellant/ Assessee: Rajnish Kumar Verma

Counsel for Respondent/ Revenue: Arun Sheoran

Case Title: M/s. Tridev Ispat Pvt. Ltd. v. Commissioner of Central Goods and Service Tax and Central Excise

Case Number: Excise Appeal No.54880 of 2023 (SM)

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