By TIOL News Service

MUMBAI, JUNE 17, 2016: THE appellantsare manufacturer of chemicals. During the audit conducted by Revenue, it was noticed that the figures of stock reported in their financial accounts (3CD returns) filed with the Income Tax authorities were different from stocks reported in their RG-1 register.

Based on the above, it was alleged that the stocks shown short in the RG-1 were cleared clandestinely without payment of any CE duty.

The demand was confirmed and, therefore, the appellant is before the CESTAT.

The appellant argued that the financial records are maintained as per the principles of accounting laid down by the ICAI and the criteria for considering the stock as finished goods are different for the financial accounts and for the Central Excise law and, therefore, the two cannot be compared.

As for the year 1998-99, the difference in stock was explained thus –

Explanation of excess quantity of 403 MT with respect to physical stock v/s RG-1 Accounts:

A similar explanation was also given for other years as well. It is also pointed out that the Commissioner in the impugned order had not given any reason for not accepting the reconciliation submitted by them or proved the allegation of clandestine removals.Moreover, the shortage pointed out was less than 1% of the volume manufactured during the year and importantly Revenue had not done any physical stock taking of the goods.

The AR emphasized on the provisions of Rule 49(1) of CER, 1944 and submitted that demand can be made on the strength of this rule and that there is no need to prove any clandestine clearance.

After considering the rival submissions, the Bench inter alia observed –

“…The entire case has been booked on the mismatch between the figures reported in 3CD returns filed with Income Tax authorities and the RG-1 register and there has been no physical verification of stock. There is no evidence of any clandestine clearance being made. Moreover the criteria for recording stocks as per the standards of ICAI and Income Tax are different from the criteria for recording stocks under Central Excise law. In these circumstances, the two figures cannot be alleged and compared."

The impugned order was set aside and the appeal was allowed.

(See 2016-TIOL-1454-CESTAT-MUM)