2010 (7) TMI 331 - HC - Central Excise

Tribunal overturns duty demand and penalties, ruling in favor of assessee on account maintenance issues.

The Tribunal allowed the appeal, setting aside the duty demand and penalties imposed on the assessee for not maintaining proper accounts for samples of ... Demand of duty - assessee had willfully suppressed and mis-stated the facts to the Department - there was a bona fide doubt on the payment of duty - Held that: - it cannot be said that there was suppression of facts or any wilful intention to evade duty - there was no suppression of facts relating to payment of duty by the assessee - appeal is dismissed Issues Involved:1. Whether the Tribunal was correct in allowing the appeal despite the assessee not maintaining proper accounts for samples of cigarettes drawn for tests, leading to duty evasion.2. Whether the Tribunal was correct in allowing the appeal despite the assessee not maintaining separate accounts for cigarettes drawn for quality checks before 1-10-2003.3. Whether non-maintenance of accounts for cigarettes drawn for quality tests amounts to willful suppression and misstatement with intent to evade duty, attracting the extended period of limitation under Section 11A and interest and penalty under Sections 11B and 11C of the Central Excise Act, 1944.Detailed Analysis:1. Tribunal's Decision on Proper Account Maintenance and Duty Evasion:The appellant argued that the assessee failed to maintain proper accounts for samples of cigarettes drawn for quality tests, resulting in non-payment of duty. The demand for duty from September 1999 to November 2002 was justified under the proviso to Section 11A of the Central Excise Act due to suppression of the quantity of cigarettes drawn for testing. The Tribunal, however, allowed the assessee's appeal, setting aside the order-in-original dated 7-4-2005, which confirmed the duty demand and imposed penalties.2. Tribunal's Decision on Separate Accounts for Quality Checks:The appellant contended that the assessee did not maintain separate accounts for cigarettes drawn for quality checks before 1-10-2003, as required by Circular F. No. 112/36/90-CX.3, dated 4-1-1991, and Para 3.2 Chapter 11 of the Excise Manual of Supplementary Instructions, 2005. The Tribunal allowed the appeal despite this non-compliance, which the appellant argued was indicative of willful suppression and misstatement of facts.3. Willful Suppression and Misstatement with Intent to Evade Duty:The appellant asserted that non-maintenance of accounts for cigarettes drawn for quality tests amounted to willful suppression and misstatement with intent to evade duty, justifying the extended period of limitation under Section 11A and the imposition of interest and penalties under Sections 11B and 11C. The Tribunal, however, found no evidence of suppression or intent to evade duty, noting continuous correspondence between the assessee and the Department, and previous Tribunal decisions favoring the assessee.Key Points and Judgments:- The Apex Court's decision in the assessee's case on 10-12-2002 clarified that duty was not payable on cigarettes destroyed during quality control tests but was payable on cigarettes the moment they emerged in the form of sticks.- The Tribunal's decision in Godfrey Philips India Ltd. (1999) held that samples drawn for testing at a pre-marketable stage were not excisable, which influenced the assessee's practice.- Continuous correspondence between the assessee and the Department, including letters dated 9-10-1999, 19-6-2000, and 8-8-2000, showed the assessee's transparency and lack of intent to suppress facts.- Several show-cause notices issued for periods from July 2000 to December 2001 were contested by the assessee, and duties were paid as per the orders of the Appellate Commissioner.- The Department's reliance on assumptions and presumptions in calculating the duty demand for the period from September 1999 to November 2002 was not justified.- The Tribunal concluded that there was no suppression of facts or willful intent to evade duty, and the extended period of limitation under Section 11A was not applicable.Conclusion:The Tribunal's decision to allow the appeal was upheld, finding no suppression of facts or intent to evade duty by the assessee. The extended period of limitation under Section 11A was not justified, and the appeal was dismissed as devoid of merit.