M/S National Engineering Industries ... vs Cce, Jaipur I

Excise Appeal No. 2832 of 2011 with Misc. Application No. 51230 of 2015 and

Excise Appeal No. 3024 of 2011

[Arising out of the Order-in-Original No. 49/2011 (CE)-Commissioner dated 06/09/2011 passed by The Commissioner of Central Excise, Jaipur.]

For Approval and signature :

Honble Shri Ashok Jindal, Member (Judicial)

Honble Shri B. Ravichandran, Member (Technical)

1. Whether Press Reporters may be allowed to see :

the Order for publication as per Rule 27 of the

CESTAT (Procedure) Rules, 1982?

2. Whether it would be released under Rule 27 of :

the CESTAT (Procedure) Rules, 1982 for

publication in any authoritative report or not?

3. Whether their Lordships wish to see the fair :

copy of the order?

4. Whether order is to be circulated to the :

Department Authorities?

M/s National Engineering Industries Ltd. Appellant

Versus

CCE, Jaipur  I Respondent

and

CCE, Jaipur  I Appellant

Versus

M/s National Engineering Industries Ltd.

Appearance

Shri Amit Jain, Advocate  for the appellant/respondent.

Shri M.S. Negi, Authorized Representative (DR)  for the Respondent/appellant.

CORAM: Honble Shri Ashok Jindal, Member (Judicial)

Honble Shri B. Ravichandran, Member (Technical)

Final Order No. 52490-52491/2015 Dated : 04/08/2015

Per. B. Ravichandran :-

The assessee as well as the Revenue are in appeal against the impugned order of Commissioner dated 06/09/2011. The brief facts of the case are that the assessee is manufacturer of Ball Bearings and Axle Boxes liable to Central Excise duty. They are availing credit of inputs and capital goods. They manufactured wide varieties of Ball Bearings and claimed to deal with 1,40,000 different types of raw materials, work-in-progress goods, finished goods, stores and supplies taken together. They have conducted audit of their inventory of all items namely inputs in stock, goods-in-process, and finished stock. During the course of such verification they found certain shortages and certain excesses in respect of various inputs as well as finished goods. Based on the report of the assessees auditors the Revenue conducted certain inquiries and proceeded against them to demand reversal of credit on inputs found short and excise duty on finished goods found excess. The case was adjudicated by the Original Authority, who allowed adjustment of shortage of raw material and finished goods against excess found during stock taking and ordered reversal of Cenvat credit of Rs. 28,71,823/- in respect of inputs found short and demanded duty of Rs. 2,39,048/- on the finished goods found excess. Aggrieved by this order of the learned Commissioner, both the assessee as well as Revenue are in appeal before us.

2. The assessee appeal is to the effect that in large scale operation of inventory management these shortages and excesses in both raw material and finished product cannot be eliminated and such shortage/excess which are very small compared to the volume and complexity of operation cannot legally lead to a conclusion of clandestine clearance resulting in irregular credit or non-payment of excise duty. The assessee pleaded that they have consumed raw materials worth more than Rs. 472 crores and their sale turnover is Rs. 1,112 crores on which duty of Rs. 164 crores have been paid during the impugned period. They have emphasized that they use SAP Software for Supply Chain Management and manufacturing and the system calculates, based on the input given, as to how much raw material is consumed or how much of finished goods manufactured. In actual process the exact numbers of finished goods are quantum of raw material will not all the time match with the default information fed into the SAP system. The assessee elaborately discussed in their appeal with illustration about the possibility of shortages or excesses arising in the situation where large numbers of variants are dealt by during the manufacturing process. They have also elaborated that various reasons which could result in the variation in accounted stock and physical stock. Finally, they reiterated that the percentage of net shortage/excess of the goods, in question, during the impugned periods is below 0.5%. Further on value of clearance of more than Rs. 1,112 crores the finished goods found in excess is to the value of Rs. 14.64 lakhs with a duty liability of Rs. 2.39 lakhs. Such value of excess goods works out to 0.012%. This they have emphasized to show that there could be no reason for them to evade payment of duty or take wrong credit of such a small amount. The variations, if any, are solely attributable to the large scale operation and complexity of accounting. Such shortages and excess are well within the reasonable limit and as long as there is no allegation or evidence to the effect that there is an unaccounted clearance there could be no question of short levy or reversal of credit on goods.

3. The Revenue is on appeal against the impugned order on the ground that the learned Commissioner should not have allowed adjustment of shortage of raw material and finished goods against excess found during stock taking. He should have got the matter verified by the officers to the effect that whether such adjustment has actually taken or not. The Revenue also pleaded that the Commissioner erred in not confiscating the finished goods found in excess and also in not imposing redemption fine.

4. Heard both the sides and perused the appeal records. The short point for decision in this case is that whether or not the accounting errors as claimed by the assessee resulted in certain short payment of duty on finished goods and availment of irregular credit on certain inputs. The learned Counsel for the assessee reiterated the grounds mentioned in their appeal and pleaded that the basis and the nature of accounting errors which are inevitable in the nature of operation undertaken by the assessee is well explained and the same cannot be discounted. He emphasized that considering the volume of operation and lack of any material on record to show any unaccounted clearance vis-`-vis the shortages and excesses found in stock taking there is no case for any demand against them. On the other side, learned AR reiterated the contention that the shortages and excesses found during physical stock taking are to be duly subjected to the provisions of Central Excise law and consequently the assessee is liable for reversal of credit arisen out of such non-availability of physical stock and duty on excess final product.

5. The admitted facts of the case are that the assessee is having computerized accounting which manages end to end operations i.e. from the set of procurement of raw material to sale of finished goods. It is also admitted fact that there are large varieties of raw materials, work-in-progress and finished products. The consumption of raw material goods which are used in process of making and the finished goods are not physically numbered and accounted on day-to-day basis. The standardized system of accounting based on measurement and conversion of raw material to finished product on weight/length basis is fed to the computer. The assessee undertakes with the help of cost auditor stock verification on annual basis to reconcile the inventory position. In such a situation it is but natural that minor variation (0.5% and below) do occur during reconciliation. The explanations provided by the assessee during the original proceedings have been accepted by the lower authority and he allowed the possibility of shortages and excesses in respect of various individual category of raw materials and finished goods.

However, he confirmed the reversal of credit in respect of raw material found short after netting of excess with shortage among various varieties. Same method has been adopted for finished goods also. We find that the shortages and excesses found during physical stock verification which remained un-reconciled are within the tolerance limit keeping in view the thousands of types of raw material and finished goods involved in the accounting by the assessee. Such view has been taken by this Tribunal in the case of Maruti Udyog Ltd. vs. CCE, Delhi  III reported in 2004 (173) E.L.T. 382 (Tri.  Del.) and in Widia India Ltd. vs. CCE, Bangalore reported in 2007 (207) E.L.T. 562 (Tri.  Bang.) later affirmed by the Honble High Court of Karnataka  2010 (255) E.L.T. 36 (Kar.). Another important point to be noted here is that while the whole discrepancy in physical stock has come to light only as per the stock taking conducted by the assessee, there is no allegation or evidence to the effect that the shortages/excesses are not attributable to accounting errors or complexities but are due to unaccounted clearances finished goods and consumption of raw material.

In the absence of any such corroboration the assessees plea on the non-sustainability of order reversing credit or demanding duty has strong force and is to be admitted. Accordingly, we find the reversal of credit on the raw material and the demand of duty on the finished goods solely on the ground of physical stock taking done by the assessee is not sustainable in the facts and circumstances of the present case.

6. On the appeal filed by the Revenue against Commissioners order of allowing adjustment of shortage with excess, we find the lower authority has given a detailed reasoning with illustrations in paras 40, 41 and 42 of the impugned order. The Revenues plea is that verification should have been done by the officers before the Commissioner allowed such adjustment. We find that the physical inventory was in fact done by the assessee and the Revenue came into the picture much later. In any case, the nature and possibility of accounting error not being denied the adjustment as ordered by the Commissioner on the clear reasoning cannot be faulted. We find that remand of the case on this ground will not serve any purpose. In any case the assessees appeal having been allowed we find no further reason for remand.

7. Considering the above discussion and findings, the appeal filed by the assessee is allowed with consequential relief, if any. Revenue appeal is dismissed. The miscellaneous application is also disposed of.

(Operative part of the order pronounced in the open court.)

(Ashok Jindal)

Member (Judicial)

(B. Ravichandran)

Member (Technical)

PK

??

??

??

??

2