Per M. Veeraiyan:

These two appeals by the Department are against the order of the Commissioner (Appeals) No. 47-48/CE/CHD/2008 dated 18.1.08.

2. Heard both sides.

3. When the officers visited the factory premises of the respondent company on 10.3.07 and conducted stock verification, the stock of finished goods was found tallied with the recorded balance. However, the stock recorded of raw materials namely, Flexi PU foam sheets/ blocks was 14,102.11 Kgs. whereas the actual stock was 16,421 Kg. thus excess stock of 2318.89 Kgs. valued at Rs.2,78,267/- involving Cenvat credit of Rs.45,859/- was found and the same was seized. Show cause notice dated 9.7.07 was issued and the original authority after holding that unaccounted raw materials were kept for the purpose of manufacture of excisable goods without bringing into account and for removing clandestinely, confiscated the excess found raw materials under Rule 25 of the Central Excise Rules, 2002 but allowed the same to be redeemed on payment of fine of Rs. 55,000/-. He also imposed penalty of Rs.45,000/- on the respondent company and Rs.45,000/- on Shri Dinesh Godiyal, Deputy Manager of the respondent company. Commissioner (Appeals) held that inputs could not be confiscated under Rule 25 of the Central Excise Rules, 2002 and accordingly, set aside the order of the original authority.

4. Learned Jt. CDR after narrating the facts as above refers to the grounds of appeal and submits that the respondent have failed to account inputs and the said inputs are also excisable goods manufactured by the supplier of the said inputs in terms of section 2(d) of the Central Excise Act, 1944. As the excisable goods were stored in the premises of the respondent, Rule 25(b) of the Central Excise Rules, 2002 shall be applicable and therefore, the said inputs are liable for confiscation. He seeks setting aside the order of the Commissioner (Appeals) and restoration of the order of original authority.

5. Learned Advocate for the respondents submits that as noted in the show cause notice, there was no discrepancy in the stock of finished goods; the excess of raw material noted was due to mistake in weighment; at any rate there is no allegation in the show cause notice that they have taken any excess credit; the allegation that the inputs were kept unaccounted with a view to manufacture excisable goods meant for clandestine removal is purely on assumption. The terms excisable goods under Rule 25 of the Central Excise Rules cannot cover the inputs procured by the manufacturer. In the absence of any allegation of wrong taking of credit on the said inputs, provisions related to confiscation of cenvated inputs under Cenvat Credit Rules also do not apply. At the most, it can be a case of irregular maintenance of raw material account. He seeks upholding the order of Commissioner (Appeals). He also submits that it has been held by the Tribunal in the case of JJ Packagers (P) Ltd. reported in [2006 (196) ELT 381] that Rule 25 of the Central Excise Rules could not be invoked in respect of raw materials. He also refers to the decision of the Tribunal in the case of CCE Indore vs. Avanti LPG India Ltd. reported in [2004 (166) ELT 186 (Tri [LQ/CESTAT/2003/2313] -Del)] wherein it has been held that raw material procured by a manufacturer cannot be treated as excisable goods in terms of section 2(d) of the Central Excise Act, 1944.

6. I have carefully considered the submissions from both sides. The show cause notice in para 2 refers to only excess of raw materials. However, in para 4 the allegation expands to cover non-accountal excess stock of inputs / semi finished goods in the records. The allegation in the show cause notice that the inputs were kept for the purpose of manufacturing goods without bringing into account and clandestinely removing the same is in the nature of presumption and is not supported by any corroborative evidence including circumstantial evidence like any clandestine removal in the past etc. Therefore, the finding of the original authority in this regard cannot be sustained. However, it is not disputed that there was excess stock of inputs and therefore, improper maintenance of accounts is clearly established. The dispute about the manner of stock taking has been raised belatedly and does not deserve any consideration. Further, the excess was substantial in quantitative terms and in percentage terms. In the absence of allegation of Cenvat Credit having been taken, the violation has to be treated only as a technical violation. The finding of the Commissioner (Appeals) that Rule 25 of the Central Excise Rules, 2002 cannot be applied to inputs brought by the manufacturer of final products cannot be found fault with as such view is supported by the decision of the Tribunal in the cases of Avanti LPG and JJ Packagers (P) Ltd. cited (supra).

7. In view of the above, the appeals by the Department are disposed of in the following terms:-

a) The order setting aside the order of confiscation by the Commissioner (Appeals) is set aside and the order of original authority, in this regard is restored; however, while restoring the order of the original authority the redemption fine is reduced from Rs.55,000/- to Rs. 10,000/- (Rupees Ten thousands only)

b) The order of the Commissioner (Appeals) in setting aside the penalty on the respondent company is set aside and the order of original authority, in this regard is restored; however, while restoring the order of the original authority, the penalty is modified as penalty under Rule 27 and reduced to Rs.5,000/- (Rupees Five thousands only).

c) The order of the Commissioner (Appeals) in setting aside the penalty on Shri Dinesh Godiyal is upheld as no specific ground have been relied upon for imposing the penalty on Shri Dinesh Godiyal.