2013 (5) TMI 796 - AT - Central Excise

Tribunal bars demand for June-Nov 2002, quantifies Dec 2002 demand based on inflation. Penalties set aside.

The Tribunal set aside the demand for the period from June 2002 to November 2002 as barred by limitation. For December 2002, the demand was to be ... Duty demand - Invocation of extended period of limitation - whether the job workers/processors of fabric were having the knowledge of over-invoicing of the grey fabrics supplied to them by merchant manufacturer or not - Held that:- From the records and during the course of arguments, except from the statement of Dyeing Master, nowhere it is coming out that it was in the knowledge of the processors that the grey fabric is over-valued and invoices issued for grey fabrics, are fake. The dyeing master has nowhere having the knowledge of the valuation of the goods/invoices as he was concerned only with the processing of fabric. Therefore, as it held that was not in the knowledge of the processors that the grey fabric is over-invoiced therefore, the allegation of suppression against the processor is not sustainable. Accordingly, extended period of limitation is also not invokable. Demand of ₹ 12,52,453/- is not sustainable against the processors as they have cleared the goods to M/s. Pristine Exports under bond and CT-3 certificate. It was also not in processor’s knowledge that their goods shall be diverted in the local market although M/s. Pristine Exports. For violation of bond, M/s. Pristine Exports has paid duty thereon. Therefore as duty has already been paid by M/s. Pristine Exports, the same is not sustainable against the appellant/processors. As duty demand is not sustainable, therefore, penalty is also not imposable on the appellants as the allegation of suppression against the processors have already been set aside. Provisions of Rule 13 shall apply to the person who has taken the credit. Admittedly in this case the merchant exporters have not taken the credit but deemed credit has been taken by the processing units. Therefore, provisions of Rule 13 are not applicable to the merchant exports in this case. Penalty is imposable on a producer or manufacturer or registered person of warehouse or a registered dealer. Admittedly, in this case the learned Commissioner has not hold the merchant exporter as producer as manufacturer or registered person of warehouse or a registered dealer. As in the case of C.C.E., Delhi v. Balaji Trading Co. & Ors. - [2013 (1) TMI 502 - DELHI HIGH COURT ] the Hon’ble High Court of Delhi held that the respondents were neither producers nor registered person of a warehouse. That the respondents are not also not registered dealer. That being the case, no penalty is imposable on the said respondent. Therefore, following the decision of Balaji Trading Co. & Ors. (supra), we set aside the penalty imposed on the merchant exporter under Rule 25 of the Central Excise Rules, 2002. - Decided in favour of assessee. Issues Involved:1. Confirmation of duties and penalties imposed on independent textile processors and merchant exporters.2. Allegations of excess credit availed by processors.3. Allegations of suppression of actual value of grey fabrics and mis-declaration by merchant exporters.4. Applicability of Rule 12 of the Cenvat Credit Rules, 2002 and Section 11A of the Central Excise Act.5. Validity of penalties under Rule 13 and Rule 25 of the Central Excise Rules, 2002.6. Limitation period for demand of duty.Detailed Analysis:1. Confirmation of Duties and Penalties:The appellants challenged the confirmation of duties and penalties imposed on them. The duty amounts confirmed included excess credit availed by processors on clearances of processed fabrics and duty paid on goods cleared for export but diverted to the local market. The penalties were imposed on both processors and merchant exporters.2. Allegations of Excess Credit:The department alleged that the processors availed excess credit on clearances of processed fabrics on behalf of merchant exporters by overvaluing the grey fabrics supplied. The processors were accused of not following the correct procedure and not maintaining accurate accounts, resulting in undue availment of excess deemed credit.3. Allegations of Suppression and Mis-declaration:The department's case was that the merchant exporters suppressed the actual value of grey fabrics by producing fake bills and mis-declared the value to facilitate excess availment of deemed credit by the processors. The processors were aware of the overvaluation but did not take corrective measures, leading to contravention of the provisions of Section 4 of the Central Excise Act and Rule 6 of the Valuation Rules, 2000.4. Applicability of Rule 12 and Section 11A:The duty amounts were directed to be recovered under Rule 12 of the Cenvat Credit Rules, 2002 read with the proviso to Section 11A(l) of the Central Excise Act. The appellants argued that denial of the entire amount of deemed credit by invoking para 6 of Notification 6/2002-C.E. (N.T.) was erroneous as there was no short payment or short levy of duty on the final product.5. Validity of Penalties:The penalties imposed under Rule 13 of the Cenvat Credit Rules, 2004 and Rule 25 of the Central Excise Rules, 2002 were contested. It was argued that Rule 13 applies to persons who have taken the credit, which was not the case for the appellants. Additionally, Rule 25 penalties were not applicable as the appellants were not held to be producers, manufacturers, registered persons of the warehouse, or registered dealers. The imposition of penalties without specifying the clause of Rule 25 was also challenged.6. Limitation Period:The appellants argued that the demand for the period from June 2002 to November 2002 was barred by limitation as there was no evidence of suppression of facts by the processors. The Tribunal agreed, stating that the extended period of limitation was not invokable, and the demand for this period was barred by limitation. For the month of December 2002, the disallowance of deemed credit was to be limited to the actual extent of inflation in the value of grey fabric cleared for export under bond.Conclusion:The Tribunal set aside the demand for the period from June 2002 to November 2002 as barred by limitation. For December 2002, the demand was to be quantified based on the actual extent of inflation in the value of grey fabric cleared for export under bond. Penalties on the processors and merchant exporters were also set aside. The appeals were disposed of in these terms.