2007 (2) TMI 471 - AT - Central Excise

Appellate Tribunal overturns demand for duty evasion due to lack of evidence, highlights importance of verifying explanations

The appeal before the Appellate Tribunal CESTAT, New Delhi involved the confirmation of demand for goods found short-cleared without payment of duty. The ... Cenvat/Modvat - Capital goods Issues:1. Confirmation of demand for short-cleared goods without payment of duty.2. Imposition of penalty based on shortage of copper circles found during a factory visit.3. Appellant's claim of damaged goods under re-processing.4. Burden of proof on revenue for clandestine removal.5. Verification of explanation provided by the appellant regarding shortage of goods.Analysis:The appeal before the Appellate Tribunal CESTAT, New Delhi involved the confirmation of demand for goods found short-cleared without payment of duty. The appellant, engaged in manufacturing copper sheets and circles, was visited by revenue officers who discovered a quantity of copper circles less than recorded. The partner of the appellant explained the shortage by stating that defective goods were sent for re-melting and were under process. The adjudicating authority confirmed the demand and imposed a penalty, which was upheld by the Commissioner (Appeals).The appellant contended that the goods found short were damaged and undergoing re-processing, shifting the burden of proof onto the revenue to establish clandestine removal. Citing the decision in Icycold Commercial Enterprises v. CCE, Calcutta-I, the appellant argued that the revenue failed to verify the explanation provided by the partner regarding the shortage. The appellant maintained that the goods were not cleared without duty payment and that the defective items were being reprocessed.The revenue, on the other hand, argued that while the partner provided an explanation for the shortage, no supporting evidence was presented. Despite the partner's statement, the revenue insisted that the demand was justified due to the lack of proof. However, the Tribunal found that the revenue did not verify the appellant's explanation that the defective goods were sent for re-melting and were still under process. As there was no evidence indicating goods were cleared without duty payment, and considering the explanation provided by the appellant, the demand was deemed unsustainable and set aside. Consequently, the appeal was allowed, overturning the previous decisions.The judgment, delivered by Shri S.S. Kang, emphasized the importance of verifying explanations provided by appellants in cases of shortages and highlighted the necessity for revenue to establish evidence of duty evasion before confirming demands. The decision serves as a reminder of the burden of proof in such cases and the requirement for thorough verification before imposing penalties or confirming demands.