2008 (9) TMI 355 - AT - Customs

Tribunal allows appeals, finding lack of evidence in department's case.

FAIRFIELD ATLAS LTD. Versus COMMISSIONER OF C. EX., PUNE-II

The tribunal allowed the appeals and set aside the impugned order, finding that the department's case was not substantiated by evidence. The appellants ... 100% EOU - Clandestine removal – held that - There is no proof of transportation. There is no proof of receiving extra consideration. There is also no proof of raw-material required, energy consumed etc. to make such goods which are alleged to be clandestinely removed - It is settled position in law that clandestine removal is required to be proved, by evidence, and can not be based upon conjectures and surmises -With regard to the demand of Rs. 158485/-, it is not understood how a demand can be raised with regard to erroneous availment of Cenvat credit when the invoices of the inputs themselves show that they are not duty paid and, therefore, no Cenvat credit could have been taken in that regard. The said demand is clearly based on non-application of mind – the argument that of breach is alleged primarily on the ground that the EOU did not have manufacturing capacity at the relevant time nor had it commenced commercial production during the said period is not acceptable since the goods are used in export and it is immaterial that the goods are manufactured by EOU or DTA Issues Involved:1. Demand of duty and penalty on DTA unit for alleged clandestine removal of goods.2. Demand of duty and penalty on EOU for alleged violation of Notification No. 1/95-C.E.3. Demand of duty for erroneous use of Cenvat credit on sub-assemblies.4. Evaluation of evidence and arguments presented.Detailed Analysis:1. Demand of Duty and Penalty on DTA Unit for Alleged Clandestine Removal of Goods:The department raised a demand on the DTA unit for clearing excisable goods without payment of duty, based on discrepancies found during a cost audit report. The audit revealed a difference of 85,138 pieces of gears between the company's accounts and the excise records, which the department alleged were cleared clandestinely. Additionally, a further quantity of 17,114 gears was also alleged to have been removed without payment of duty.The appellants argued that the difference was due to the transfer of semi-finished goods from the DTA to the EOU for further processing and export. They presented extensive documentary evidence, including statutory challans, letters of transfer, and permissions from the Assistant Commissioner, which supported their claim. The tribunal found no substantial evidence of clandestine removal and noted that the department's case was based on conjectures and surmises. The tribunal held that the case of clandestine removal of 85,138 pieces by the DTA was not substantiated and that the evidence supported the appellants' claim of lawful transfer to the EOU.2. Demand of Duty and Penalty on EOU for Alleged Violation of Notification No. 1/95-C.E.:The department alleged that the EOU violated Notification No. 1/95-C.E. by not using the inputs obtained without payment of duty for manufacturing export goods, as the EOU did not have sufficient manufacturing capacity during the relevant period. The department's case was based on the assertion that the EOU's installed capacity was only 45,000 gears, as per the LOP.The appellants countered this by presenting evidence, including balance sheets, certificates from Chartered Accountants and Engineers, and electricity and labor consumption records, which demonstrated that the EOU had an installed capacity of 12 lakh gears. The tribunal found that the department failed to inspect the machinery or obtain relevant certification regarding the installed capacity. The tribunal held that the EOU had sufficient manufacturing capacity and that the inputs were used in the manufacture of export goods, thereby satisfying the conditions of the notification.3. Demand of Duty for Erroneous Use of Cenvat Credit on Sub-Assemblies:The department raised a demand of Rs. 158,485/- on the DTA unit for allegedly erroneous use of Cenvat credit on sub-assemblies, claiming that the sub-assemblies were exported without processing.The appellants clarified that the invoices of the sub-assemblies showed that they were not duty-paid, and therefore, no Cenvat credit was taken. They also stated that the sub-assemblies were worked upon and exported, and the duty was paid and rebate claimed. The tribunal found the demand to be based on non-application of mind and held it to be unsustainable.4. Evaluation of Evidence and Arguments Presented:The tribunal emphasized that the charge of clandestine removal must be supported by substantial evidence and cannot be based on conjectures and surmises. In this case, the tribunal found no evidence of unaccounted inputs, extra consideration, or transportation of clandestinely removed goods. The appellants provided extensive documentary evidence, including statutory and private records, which supported their claims. The tribunal found that the department failed to provide any direct evidence of clandestine removal and that the appellants' explanations were credible and substantiated by evidence.The tribunal also noted that the Development Commissioner, who oversees the EOU, did not take any adverse action against the unit, indicating satisfaction with the EOU's operations.Conclusion:The tribunal allowed the appeals and set aside the impugned order, finding that the department's case was not substantiated by evidence and that the appellants had provided credible explanations supported by extensive documentation.