2010 (12) TMI 290 - AT - Central Excise

Clandestine removal and excise valuation dispute: demand confirmed beyond notice lacked corroboration, order set aside

Clandestine manufacturing and removal allegations were not supported by corroborative evidence, and therefore the charge was not established, resulting in ... Clandestine removal - Evasion of duty and suppression of production - Non maintenance of accounts - Valuation of excisable goods with reference to retail sale price - Demand - Penalty - HELD THAT:- We find that though the show-cause notice charged the appellants with the allegation of clandestine manufacturing and removal of the goods with intention to evade Central Excise duty, the findings of the adjudicating authority has not supported the said charge. It is seen that the adjudicating authority has let go the charge of clandestine removal from the factory premises, obviously for the reason that there was no corroborative evidence as regards the clandestine manufacturing and removal of goods. The adjudicating authority having not given any positive findings as regards the clandestine manufacturing and clearance of the goods, in itself would indicate that the said charges as alleged against the appellants were not proved. If that be so, the show-cause notice which proceeded against the appellants on the charge of clandestine manufacturing and removal of final products with intention to evade duty, proceedings should have been dropped. We find that the adjudicating authority has confirmed the demand on the appellants. We find that the judgments of the Hon'ble Supreme Court in the case of CCE, Nagpur Vs. Ballarpur Industries Ltd.[2007 (8) TMI 10 - SUPREME COURT] and in CCE, Bhubaneswar-I Vs. Champdany Industries Ltd. [2009 (9) TMI 7 - SUPREME COURT], has settled the law that once the order confirms a demand beyond the allegations mentioned in the show-cause notice, then impugned order is not sustainable. The question of undervaluation would not arise, and assuming even if it arises, during the relevant period (in this case prior to 01/03/2008) there was no procedure under Section 4A of the Central Excise Act to demand the duty, as the said procedure came into statute from 1/3/2008 only. As regards the finding by the ld. adjudicating authority that suppression could be on account of volume, we have already recorded that there is no corroborative evidence nor there is any finding as to the exact quantity of goods clandestinely cleared to come to the conclusion that the value is attributable to the specific quantity of goods on amount of clandestine removal. In the absence of any such details, we are of the considered view that the impugned order is unsustainable. Since we disposed off all the appeals only on the merits of the case, we are not recording any other finding on the other submissions made by both sides on various issues. Thus, we are of the view that the impugned order is not sustainable and is liable to be set aside and we do so. Issues: Whether the appellants are liable to pay central excise duty, interest and penalties on alleged suppressed production/clearances for December 2001 and January 2002 and whether penalties imposed on company officers are sustainable.Analysis: The appeals concern duty quantification under Section 4A of the Central Excise Act, 1944 based on alleged undisclosed sales of Rs. 3.75 crores and consequent penalties under Sections 11A(1), 11AB and 11AC and Rule 26 of Central Excise (No.2) Rules, 2001. The Department relied primarily on statements/records originating from Income-tax searches and extrapolated MRP/RSP to re-determine assessable value. However, during the relevant period there was no statutory procedure in force to re-determine MRP/RSP under sub-section (4) of Section 4A; the Central Excise rules for determination of retail sale price (Notification No. 13/2008 and related Rules, effective 1-3-2008) and the machinery for re-determination were not in force for clearances made prior to 1-3-2008. The adjudicating authority itself did not sustain the charge of clandestine manufacture/removal and proceeded to quantify duty by extrapolation and re-working MRP in absence of the required statutory rules. The Tribunal found that in absence of corroborative evidence proving clandestine removal or a legal mechanism to re-determine MRP for the period in question, the demand and connected penalties could not be sustained.Conclusion: The impugned order confirming duty, interest and penalties is set aside and the appeals are allowed; decision is in favour of the assessee (appellants).