2005 (9) TMI 415 - Commissioner - Central Excise

Appellate authority overturns demand for duty, interest, and penalty, finding department's evidence insufficient.

The appellate authority set aside the lower authority's decision, finding the demand of duty, interest, and penalty unsustainable. The burden of proof was ... Cenvat/Modvat - Inputs - Removal as such without duty payment Issues Involved:1. Alleged willful suppression and surreptitious removal of inputs.2. Availment of Modvat credit on inputs and subsequent clandestine clearance without payment of duty.3. Procurement of raw materials from the open market without valid duty-paying documents.4. Demand of duty, interest, and imposition of penalty.5. Verification and acceptance of purchase documents for non-modvatable inputs.6. Appropriation of pre-deposited duty amount.Detailed Analysis:1. Alleged Willful Suppression and Surreptitious Removal of Inputs:The appellant, a manufacturer of Textile Narrow Woven Fabrics, was accused of willfully suppressing the removal of inputs such as Nylon, Rayon, Rubber, and polyester from 16-4-1999 to 18-12-1999 without issuing Central Excise invoices and without payment of Central Excise duty. The lower authority confirmed the demand of duty on the quantities of 4246.640 kgs. of Rubber Thread, 5510.400 kgs. of Nylon, and 6573.400 kgs. of Rayon, which were allegedly removed without payment of duty.2. Availment of Modvat Credit on Inputs and Subsequent Clandestine Clearance Without Payment of Duty:The appellant was accused of availing Modvat credit on inputs and clearing them clandestinely without payment of duty. The lower authority observed that the appellant failed to produce relevant Central Excise documents to substantiate their claim that the disputed inputs were cleared following Central Excise formalities. The adjudicating officer confirmed the demand of duty based on the quantities of inputs removed without payment of duty.3. Procurement of Raw Materials from the Open Market Without Valid Duty-Paying Documents:Another allegation was that the appellant procured raw materials from the open market without valid duty-paying documents and utilized them for manufacturing their final product. The lower authority noted that this allegation was based on presumption rather than documentary evidence.4. Demand of Duty, Interest, and Imposition of Penalty:The lower authority confirmed the demand of duty amounting to Rs. 5,06,932/- under Section 11A(1) of the Central Excise Act, 1944, and imposed a penalty of the same amount under Section 11AC of the Central Excise Act. Interest was also demanded at the appropriate rate under Section 11AB of the Central Excise Act.5. Verification and Acceptance of Purchase Documents for Non-Modvatable Inputs:The appellant contended that the raw materials removed were from non-modvatable stock lying since February 1994, which had become defective. They provided purchase documents for part of the stock, which were not fully considered by the adjudicating authority. The appellant also argued that no discrepancies were found in the stock of finished products and inputs during the Central Excise officers' visit. The lower authority accepted the appellant's contentions regarding the defective stock but demanded valid purchase documents for the inputs purchased during 1998-1999.6. Appropriation of Pre-Deposited Duty Amount:The appellant had paid Rs. 50,000/- before the issuance of the show-cause notice. The lower authority appropriated this amount against the total demand. The appellant argued that the penalty under Section 11AC was not imposable and requested the setting aside of the impugned order.Judgment:The appellate authority found that the crux of the allegations was the clearance of inputs on which Modvat credits had been availed without payment of duty. The authority noted that the lower authority had accepted the appellant's contentions regarding the defective stock but erred in demanding purchase documents for non-modvatable goods. It was held that the burden of proof lay with the department to establish that the goods were modvatable inputs, which was not done satisfactorily. Consequently, the demand of duty, interest, and penalty was found unsustainable. The appropriation of Rs. 50,000/- was also set aside.Conclusion:The impugned order was set aside, and the appeal was allowed with consequential relief to the appellant.