ORDER
T.K. Jayaraman, Member (T)
1. This is an appeal against Order-in-Original No. 8/2002, dated 30.10.2002 passed by the Commissioner of Central Excise, Mangalore.
2. The appellants are manufacturers of steel and steel products, which are excisable. They carried out a stock verification from 19.2.2001 to 31.3.2001. The Central Excise officers were also associated with the stock verification. A statement of stock of finished/semi-finished goods as on 31.3.2001 was submitted to the Department. The Department initiated proceedings against the appellants for demand of duty to the tune of Rs. 25,60,44,120/- under Rule 223A of the Central Excise Rules. The adjudicating authority passed the impugned order confirming a demand of Rs. 8,71,14,393/- under Rule 223A of the Central Excise Rules, 1944. The appellants strongly challenge the findings of the adjudicating authority.
3. Shri M.S. Nagaraja, learned Advocate appeared for the appellants and Shri K.S. Bhatt, learned SDR for the Revenue. The learned Advocate submitted that the demand covers a period of 13 years from 31.3.1998 to 31.3.2001. Moreover, the demand cannot be made under Rule 223A, because under Rule 223A the Commissioner is supposed to order verification of stock of the finished goods. But in the present case, the appellants themselves conducted the stock verification and the departmental officers simply associated themselves with the verification. In these circumstances, Rule 223A cannot be invoked, as all the ingredients of Rule 223A have not been fulfilled. The stock verification is based only on estimation. There was actually no weighment at all. Normally, in steel plants the stock verification is based on estimate and only when the goods are cleared, they are weighed. Therefore, a demand simply based on the shortage arrived at from the estimated quantity cannot be accurate and is not sustainable. The learned Advocate cited the decision of the Tribunal in their own case in Steel Authority of India v. CCE Bhubaneswar reported in 2001 (47) RLT 343 (Tribunal) wherein it is held that difference in figures of manufacture and clearance between the annual financial accounts and RG-1 cannot form the basis for demand of duty, when there is nothing on record to show that the appellants have indulged in clandestine clearance without payment of duty. It was further pointed out that demand is also hit by time bar, as Section 11A is clearly applicable for short-levied duty even arising from for stock challenge or stock taking under Rule 223A of the Central Excise Act as held in Shri Hanuman Jute Mills v. CCE Calcutta . There is no allegation of suppression of facts, fraud, etc., to involve longer period.
4. The learned SDR reiterated Order-in-Original.
5. We have gone through the records of the case carefully. The demand has been issued under Rule 223A covering a period of 13 years from 31.3.1998 to 31.3.2001. The Revenue has issued the show case notice on the belief that Section 11A is not applicable for demands made under Rule 223A. The Department’s view is not correct in terms of the judicial pronouncements cited by the appellants. There is no allegation that the appellants have removed goods in clandestine manner. Moreover, the stock taking was done by the appellants themselves. The departmental officers only associated 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 to condonation of losses observed during annual stock taking. The appellants’ submission that the excess/shortage noticed was only marginal should have been given its due consideration. The Tribunal in the case of Micro Forge (I) Pvt. Ltd. v. CCE Rajkot reported in 2004 (169) E.L.T. 251 (T) has held that when the stock position is arrived at on the basis of estimation, the allegation of shortage of stock and consequent illicit removal of finished goods cannot be sustained. A plethora of case 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 is inherently inaccurate. Losses like cutting, grinding and milling, scale loss after heat treatment and straightening, reprocessing after inspection at various stage of manufacture are not recorded in RG-1. Rejections are not recorded while accounting for quantity produced or issued in the form of sections and ingots. Shortage is inflated due to errors in taking opening balance as on 1.4.1998 and physical stock on 31.3.2001. Considering the practical difficulties, in estimating the actual stock 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.
(Operative portion of this Order was pronounced in open Court on conclusion of hearing)