2007 (3) TMI 100 - AT - Central Excise

Tribunal decision: duty demand set aside, shortage upheld, penalties overturned

The Tribunal set aside the duty demand on exempted final products, citing evidence from issue slips that inputs for dutiable products were not diverted. ... Demand – Alleged that same input is used both for the manufacture of dutiable product and exempted product and no separate account is maintained by the appellant and accordingly demand were made alongwith penalty – Held that demand and penalty not sustainable Issues: Duty demand on exempted final products, authenticity of issue slips, shortage of inputs, penalty impositionDuty Demand on Exempted Final Products:The appellants, engaged in manufacturing various systems, cleared goods to the Ministry of Defence under exemption. Central Excise Officers found discrepancies in maintaining separate accounts for inputs used in both dutiable and exempted products. A show cause notice was issued demanding duty on exempted final products and confiscating certain inputs. The matter reached the Tribunal, which remanded it to the Commissioner for further examination. The Commissioner doubted the authenticity of issue slips and lack of records regarding inputs for exempted goods. Despite the appellants' efforts to establish a correlation between inputs and issue slips, the Commissioner confirmed the duty demand. However, the Tribunal held that the appellants had shown through issue slips that inputs used in dutiable products were not diverted for exempted products, setting aside the duty demand.Authenticity of Issue Slips:The Commissioner raised concerns about discrepancies in the issue slips provided by the appellants, questioning the accuracy of the records. The appellants argued that the issue slips established the proper use of inputs in dutiable products and explained discrepancies as clerical errors. The Tribunal noted that the Commissioner failed to provide evidence of fabricated issue slips and found that the appellants had reversed credits for inputs used in exempted products, ultimately ruling in favor of the appellants.Shortage of Inputs:A demand for duty on the shortage of inputs found during an inspection was upheld as the appellants did not contest it. The Tribunal affirmed this decision due to lack of contestation by the appellants.Penalty Imposition:Regarding the substantial reduction in the duty demand upheld, the Tribunal deemed the imposed penalty excessive and cited precedents to set it aside. The composite penalty under various rules was deemed impermissible. The penalty imposed on the Managing Director was also set aside following the same rationale.In conclusion, the Tribunal disposed of the appeals by setting aside the duty demand on exempted final products, upholding the demand for shortage of inputs, and overturning the penalties imposed based on legal precedents.