2014 (12) TMI 1171 - AT - Central Excise

Tribunal upholds duty demand on finished goods, rejects duty on raw materials. Penalty upheld under Section 11AC.

The Tribunal upheld the demand of Central Excise duty on finished goods clandestinely removed by a 100% EOU, rejecting the argument for duty on raw ... Demand of duty on the finished goods clandestinely removed - demand of Customs duty on raw material used in the manufacture of the said finished goods. - Held that:- Res Judicata would not apply in the tax matters. Demand of duty on raw materials cannot be sustained when the demand was raised on the final product. This view is supported by the decision of the Tribunal in the case of M/s Sanjari Twisters (2007 (9) TMI 369 - CESTAT, AHMEDABAD) which is upheld by the Hon’ble Supreme Court [2008 (11) TMI 671 - SUPREME COURT] - in so far as the setting aside of entire amount of penalty under Section 11Ac of Central Excise Act 1944. Commissioner (Appeals) accepted that the clandestine removal of the final product involving demand of duty of ₹ 11,00,055.00. On a query from the Bench, ld.A.R. submits that the respondent has not filed any cross objection. Hence, the imposition of penalty under Section 11AC of Central Excise Act 1944 in respect of the demand of duty of ₹ 11,00,055.00 is warranted. The Hon’ble Supreme Court in the case of Union of India Vs Dharmendra Textile Processors [2008 (9) TMI 52 - SUPREME COURT ] held that the demand of duty on extended period of limitation as well as the ingredients available under Section 11A, a mandatory penalty would be imposed. - Decided partly in favour of assessee. Issues:1. Demand of Central Excise duty on clandestine removal of finished goods.2. Demand of Customs duty on raw material used in the manufacture of finished goods.3. Setting aside of penalty under Section 11AC of the Central Excise Act 1944.Issue 1: Demand of Central Excise duty on clandestine removal of finished goods:The case involved a 100% EOU engaged in the manufacture of grey fabrics where a surprise visit revealed a shortage of finished goods, leading to a show cause notice for Customs duty under the Customs Act, 1962. The Tribunal set aside the duty demand under the Customs Act, 1962, ruling that the duty levied was Excise duty. A subsequent show cause notice proposed a demand of Central Excise duty on finished goods clandestinely removed. The Adjudicating authority confirmed the duty demand, which was partially allowed by the Commissioner (Appeals). The Revenue appealed against the setting aside of the demand, arguing that the duty on finished goods exceeded permissible limits for DTA clearance. The Tribunal upheld the demand of Central Excise duty on the finished products, relying on relevant case law and rejecting the argument that duty on raw materials should also be demanded.Issue 2: Demand of Customs duty on raw material used in the manufacture of finished goods:The case also involved a demand of Customs duty on raw materials used in the manufacture of finished goods, which was contested by the respondent. The Adjudicating authority confirmed the demand, but the Commissioner (Appeals) set aside the demand and penalty. The Revenue argued that the duty on raw materials should be imposed as well, citing the principle of Res Judicata. However, the Tribunal, supported by relevant case law, held that the demand of duty on raw materials cannot be sustained when the demand was raised on the final product. The Tribunal upheld the Commissioner (Appeals) decision on this issue.Issue 3: Setting aside of penalty under Section 11AC of the Central Excise Act 1944:Regarding the penalty under Section 11AC of the Central Excise Act 1944, the Revenue contested the setting aside of the penalty imposed for the demand of Central Excise duty on finished goods. The Tribunal, considering the absence of a cross objection from the respondent, upheld the imposition of penalty under Section 11AC. Citing relevant case law, the Tribunal emphasized that in cases involving extended periods of limitation and Section 11A ingredients, a mandatory penalty should be imposed. Consequently, the Tribunal partially allowed the appeal filed by the Revenue, upholding the penalty under Section 11AC.This detailed analysis of the judgment from the Appellate Tribunal CESTAT AHMEDABAD highlights the issues surrounding the demand of Central Excise duty, Customs duty on raw materials, and the imposition of penalty under Section 11AC of the Central Excise Act 1944. The Tribunal's decision was based on a thorough examination of the facts, relevant legal provisions, and precedents, ensuring a comprehensive resolution of the disputes raised in the case.