ENNORE FOUNDRIES LTD. Vs. COMMISSIONER OF CENTRAL EXCISE

JUDGEMENT

(1.) M /s. Ennore Foundries Ltd. (EFL) is engaged in making Aluminium and Iron castings. In the impugned order, the Commissioner of Central Excise, Chennai I Commissionerate has demanded duty on castings found short on stock verification by the assessee, M/s. Ennore Foundries Ltd. He has also imposed a penalty of Rs. 8,80,756/ - under Section 11AC for the period from 28.9.96 and further penalty of Rs. One lakh under Section 173Q. The assessee and the Revenue have filed the subject appeals against the impugned order.

(2.) DURING the special audit of EFL during December, 1997 to February 1998, the jurisdictional officers of Central Excise came across certain private records, which showed that the internal audit branch of the assessee company had noticed shortages in the finished goods manufactured by it during the years 1993 -94 to 1996 -97 as follows:

(3.) IN order to keep account of production of castings, it transpired that the company had maintained a pouring chart where the account of number of moulds filled with molten metal was maintained showing separately the run outs and short runs. A daily production report (DPR) used to be prepared by the mold shop. It contained the scrap quantity and net quantity of castings manufactured. The certified net and good casting particulars were fed into the computer and it was taken by the Industrial Engineering Department in their stock movement analysis statement. It was also found that the RGI Register did not post the daily production figures. Only the clearance figures were entered as day's production. Shri V. Jayakumar, Sr. Manager and Shri R. Giridhar Gopalan, Manager in -charge of foundries admitted the shortages during investigation in the statements recorded from them. Shri V.M. Vaidyanathan, Asst. Manager (Sales) confirmed that he made entries in the RGI only at the time of making invoices. Shri A. Venkatesan, Dy. Manager (Accounts) confirmed shortages and stated that they had made certain adjustments in the production, clearances and rejection figures after the shortages were noticed. He admitted that the Central Excise department had not been notified of the shortages. It appeared that the assessee company had deliberately withheld information of shortages of excisable goods they noticed and off set such shortages against excess noticed. A Show Cause Notice was accordingly issued demanding an amount of duty of Rs. 58,09,503.64 on the goods found short in terms of Section 11A(1) of Central Excise Act, 1944. Another amount of Rs. 12,82,825/ - was demanded on the goods found in excess of the book stock. The notice also contained proposals to impose penalties under Section 11AC of the Central Excise Act and Rule 173Q of the Central Excise Rules, 1944. In the reply to the Show Cause Notice, the assessee had replied that they produced more than 80 varieties of castings; that the process of manufacture started with pouring molten metal into the moulds and that there were several stages before the finished castings were ready for dispatch when the castings were entered in the RGI. In a day they produced only 150 to 160 M.Ts. of finished castings even though the total quantity of castings in various stages of production would be 2000 to 4000 M.Ts. Daily production report was prepared at the pouring stage. The castings which were discarded at various stages (which took 5 to 7 days to reach the finished goods stage) were entered as foundry scrap. Therefore, until the finishing operations were over, the goods were in the 'work -in -progress' stage. As required by the provisions of Companies Act they had conducted an annual stock taking and the inventory that figured in the balance sheet of the company included both finished goods and work -in -progress.