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CX – When Clause (b) of Rule 25 speaks of ‘account’, AA has to find out that goods were not accounted anywhere, not just in RG-1 but even in ERP, since CE Rules also recognize same: CESTAT

2019-TIOL-2327-CESTAT-MAD

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH, CHENNAI
COURT NO. I

Excise Appeal No. 42610 of 2017

Arising out of Order-in-Appeal No. 68/2017 (CTA-II), Dated: 30.06.2017
Passed by the Commissioner of Central Tax (Appeals-II): C.G.S.T. and Central Excise, Newry Towers, 2054/1, II Avenue, 12th Main Road, Anna Nagar, Chennai

Date of Hearing: 19.03.2019
Date of Decision: 19.03.2019

M/s CHITRAKOOT STEEL AND POWER PVT LTD
NO. 77, THANDALACHERRY ROAD (TCP LTD. ROAD)
NEW GUMMIDIPOONDI VILLAGE, GUMMIDIPOONDI
TIRUVALLUR DISTRICT – 601201

Vs

COMMISSIONER OF GST AND CENTRAL EXCISE
CHENNAI NORTH COMMISSIONERATE
26/1, MAHATMA GANDHI ROAD
NUNGAMBAKKAM, CHENNAI – 600034

Appellant Rep by: Shri R Suresh, Adv.
Respondent Rep by: Shri L Nandakumar, AR

CORAM: P Dinesha, Member (J)

CX – During the relevant period, the intelligence had been gathered that the assessee had not properly accounted for its production and that it removed dutiable goods without payment of appropriate duties – Hence the Revenue officers visited the assessee’s premises, whereupon it was observed that the Finished Goods Stock Register in RG-1 format was maintained only up to 23.01.2015 – Shortage of stock of Sponge Iron in Lumps & Fines was also observed – Two computer CPUs & some other documents were seized – SCNs were issued to the assessee – On adjudication, the goods were confiscated u/r 25 of the CER 2002, along with fines u/r 25 and u/s 34 of the CEA 1944 – On appeal, the Commr.(A) sustained such findings – Hence the present appeal.

Held: The assessee claimed to be following the ERP system for accounting purchase and sales and also in the preparation of its annual statements which are in tune with the Central Excise Rules, which fact also finds place in the Mahazar recorded – It is not the Revenue’s case that the ERP system being followed was defective – There is no case of any differences being found in the RG-1 stock register & the ERP system – There is no allegation that the assessee did not maintain proper records or omitted to follow the relevant rules & regulations in its compliances – Interestingly, no fault is found with the assessee’s explanation for non-entry in the RG-1 register – Hence the conditions in Rule 25 remain unsatisfied – When Clause (b) of Rule 25 speaks of ‘account’, the adjudicating authority has to find out that the same was not accounted anywhere, not just in RG-1 but even in ERP, since the Central Excise Rules also recognize ERP as a method – Hence the proceedings appear to have been conducted in haste & without proper enquiry and with insufficient investigation – Hence the O-i-A is unsustainable: CESTAT

Assessee’s appeal allowed

FINAL ORDER NO. 40796/2019

Per: P Dinesha:

This appeal is filed by the assessee against the Order-in-Appeal dated 30.06.2017 passed by the Commissioner of G.S.T. and Central Excise (Appeals-II), Chennai.

2.1 It is the case of the Revenue that based on the intelligence gathered that the appellant had not properly accounted for its production and that it had removed the excisable goods without payment of appropriate duties that prompted them to visit the appellant’s premises and accordingly, they visited the factory premises of the assessee on 31.01.2015. The Show Cause Notice inter alia reveals as to noticing the Finished Goods Stock Register (in RG-1 format) being maintained only up to 23.01.2015; that the stock of Sponge Iron in Lumps and Fines of 1850 tonnes was found unaccounted in their stock accounts in RG-1; and thus, the team seized two computer CPUs along with other Registers and documents as per Annexure-1 to the Show Cause Notice.

2.2 The appellant filed a detailed reply, but however, the adjudicating authority vide Order-in-Original dated 18.08.2015 proceeded to order confiscation under Rule 25 of the Central Excise Rules, 2002, levied a fine of Rs. 5,16,000/- under Rule 25 ibid and also imposed a fine under Section 34 of the Central Excise Act, 1944 in lieu of confiscation. The appellant having not met with success in its first appeal before the first appellate authority, has filed this appeal.

3. Today when the matter was taken up for hearing, Shri. R. Suresh, Ld. Advocate, appeared on behalf of the assessee and Shri. L. Nandakumar, Ld. AR, appeared on behalf of the Revenue. I have heard the rival contentions and have gone through the documents and orders placed on record.

4. The undisputed facts inter alia are that the Preventive unit visited the appellant’s factory premises on 31.01.2015; that they seized two computer CPUs, Registers and documents as per seizure Mahazar dated 31.01.2015; that they took note of the stock of Sponge Iron not entered in the stock register – RG-1; that on 04.02.2015, the General Manager of the appellant Shri. S. Kumaraswamy was summoned and on being asked, he explained the reasons for non-entry alleged due to the leave of absence of the staff concerned, etc. The allegations in the Show Cause Notice and the findings in the Order-in-Original restrict to a mere non-entry, as pleaded by the Ld. Advocate and not on the non-recording of production.

5.1 The other submissions of the Ld. Advocate inter alia are that in respect of other aspects like procurement of raw materials, recording of electricity consumption, etc., no irregularity was found or even alleged; that no recording or even whisper as to any sales outside the books and that there is no examination of the transporter; that there was no further enquiry/investigation carried out by the Revenue; that there is no whisper about the discrepancies in the seized computer CPUs or even the Registers seized or that the contents of the seized materials were ever used in support of the Revenue’s allegation as to clandestine activity, etc., assumes significance. Apparently, but for the statement of the General Manager no other document or evidence is used or even taken note of.

5.2.1 The other argument of the Ld. Advocate that the ERP system maintained by the appellant carried all the details as to the raw materials and production, but for the non-entry, that too for a few days due to the absence of the staff and in the absence of allegation as to non-entry on any other dates, deserves credit since the appellant has taken this plea right from its reply to the Show Cause Notice. The adjudicating authority having taken note of the appellant maintaining its records under ERP method, however, has not reacted and nor has he found fault with the same.

5.2.2 The appellant also claims that it has been following the ERP system since 2010 for accounting purchase and sales and also in the preparation of its annual statements which are in tune with the Central Excise Rules, which fact also finds place in the Mahazar recorded. It is not the case of the Revenue that the ERP system followed by the appellant was defective; it would have been a different matter altogether if the Revenue had found difference in the RG-1 stock register and the ERP system, but no such case is made out or even alleged since no such difference surfaced in the case on hand. It is not even the case of the Revenue that the appellant had not maintained proper records or not followed any rules or regulations in its compliances with the requirements of the Statutes and interestingly, no fault is found with regard to the appellant’s explanation for non-entry in the RG-1 Register, that too for a few days.

6. The above discussions clearly make out that the conditions of Rule 25 ibid remain unsatisfied. When Clause (b) of Rule 25 speaks of ‘account’, the adjudicating authority has to find out that the same was not accounted anywhere, not just in RG-1 but even in ERP, since the Central Excise Rules also recognize ERP as a method.

7. For the above reasons, I am of the considered view that the proceedings are concluded in haste, without proper enquiry and without sufficient investigation, which only renders the impugned order unsustainable.

8. As a result, the impugned order is set aside and the appeal is allowed with consequential benefits, if any, as per law.

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

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