2017 (10) TMI 394 - AT - Central Excise

Tribunal Decision on Confiscation and Penalties for TAG and Other Entities

M/s. Trishul Arecanut Granules Pvt. Ltd. & Others Versus Commissioner of Central Excise, Bangalore

The Tribunal upheld the confiscation of goods and redemption fine for M/s. Trishul Arecanut Granules Pvt. Ltd. (TAG) but set aside the demand of duty. ... Clandestine manufacture and removal - Gutkha Pouches - whether recourse under section 3A is available to the adjudicating authority for the levy of excise duty on the basis of production capacity and whether any notification was available under this Section for gutkha, during the period covered by the appeals? - Held that: - the dispute in the present case pertains to the period 2002-03 to 2004-05. Hence it is evident that the said section was not in the statute books for the period of dispute and no notifications were also issued covering the commodity gutka, for the relevant period. Hence there is no question of raising any demand on the basis of such provisions - neither the show cause notice nor the adjudicating order has referred to in section 3A. Hence it is to be concluded that the duty demand raised and confirmed was not on the basis of Section 3A which was not in the statute books during the period of dispute. The evidences lead us to the inescapable conclusion that the appellants were involved in systematic fabrication of records relating to procurement of raw materials, suppression of the account of the exisable goods manufactured in their statutory records and clearance of the same without payment of duty. Thus there is no doubt on the factum that evasion of excise duty was taking place rampantly. The dispute appears to be in the quantification of such duty evaded resulting in the demand to be confirmed Scope of SCN - Whether the adjudicating authority or the Tribunal in the earlier round of litigation, has confirmed the demand of excise duty going beyond the reasons appended in the SCN? - Held that: - the show cause notice / SoF is silent on how the duty demand was to be increased from above ₹ 2.82 crores to ₹ 4.29 crores. No work sheet has been attached to show cause notice to indicate for which period the production norms has been adopted and for which period other evidence have been used to determine the duty liability. - the demand raised in Show cause notice is beyond the reasons given in SOF. It is settled position of law that before confirming the demand of Central Excise duty, the assessee is required to be put to notice not only on the extent of duty demand but also evidence on which such duty demands are proposed. As discussed above, we are of the view that the show cause notice has demanded the duty amounting to about ₹ 4.29 crores but have outlined reasons for such demand only to the extent of about ₹ 2.84 crore. Hence, we are of the view that duty demand raised beyond ₹ 2.84 crore has been made without outlining the reasons for such demand and accordingly cannot be sustained. Extended period of limitation - Held that: - the demand of duty by show-cause notice dated 31.1.2007 is also based on evaluation of evidence relating to procurement of unaccounted raw materials/packing materials etc., suppression of production and admitted case of clandestine removal. Therefore, to say that the SCN dated 31.1.2007 relied upon the same evidence as the SCN dated 20.6.2005 is incorrect. Therefore, extended period of limitation has been rightly invoked. Further, the period of 5 years in terms of proviso to Section 11A is invokable from the relevant date and the relevant date is not dependent upon the knowledge acquired by the department but with reference to the obligation of the assessee - extended period rightly invoked. Penalty u/s 11AC and u/r 25 - Held that: - TAG has indulged in manipulation of records relating to procurement of raw materials; they procured unaccounted raw materials; they admittedly entered abysmally low quantity of the production and cleared the same without preparing invoices and payment of duty. Under these circumstances imposition of penalty under Section 11AC is fully justified. However, having imposed penalty under section 11AC, separate penalty under Rule 25 is neither justified nor warranted and the same is liable to be set aside. Penalty on Director - Held that: - His statements reveal his knowledge of manipulation with intention to evade payment of duty. Therefore penalty on him is justified. M/s Embee Agencies and M/s Wahab Stores have knowingly involved themselves in dealing with excisable goods liable for confiscation and therefore penalty on them are also justified. Further, the penalties imposed on them are only nominal and calls for no interference. Appeal allowed in part. Issues Involved:1. Confiscation of goods and penalties imposed on M/s. Trishul Arecanut Granules Pvt. Ltd. (TAG) and others.2. Demand of duty and penalties imposed under Section 11AC and Rule 25 of the Central Excise Rules, 2002.3. Legality of the demand based on production capacity in the absence of Section 3A of the Central Excise Act during the relevant period.4. Examination of whether the ultimate amount quantified in the Show Cause Notice (SCN) goes beyond the reasons recorded or appended to the SCN.5. Admissibility of evidence and cross-examination of witnesses.6. Invocation of the extended period of limitation for the demand of duty.Detailed Analysis:1. Confiscation of Goods and Penalties:- TAG challenged the confiscation of goods allowed to be redeemed on payment of a fine of Rs. 50,000/-, a demand of duty of Rs. 2,85,634/-, and a penalty of Rs. 50,000/-.- The Tribunal upheld the confiscation of goods and the redemption fine of Rs. 50,000/-. However, the demand of Rs. 2,85,634/- was set aside.- Penalties imposed on M/s. Wahab Stores (Rs. 10,000/-) and M/s. Embee Agencies (Rs. 20,000/-) were upheld.2. Demand of Duty and Penalties:- TAG faced a demand of duty of Rs. 4,29,95,446/- along with interest and penalties of equal amounts under Section 11AC and further penalties under Rule 25.- The Tribunal upheld the demand of Rs. 46,77,703/- based on private records and corresponding penalties under Section 11AC.- For the period April 2004 to March 2005, the duty demand was to be reworked based on production capacity, and corresponding penalties under Section 11AC were upheld.- Penalties under Rule 25 were set aside as they were deemed unjustified.3. Legality of Demand Based on Production Capacity:- The Hon’ble High Court of Karnataka remanded the matter to examine whether Section 3A was applicable for the levy of excise duty based on production capacity during the relevant period.- Section 3A was not in the statute books during the period of dispute (2002-03 to 2004-05), and no notifications were issued covering gutkha.- The Tribunal concluded that the duty demand was not raised based on Section 3A.4. Examination of SCN Quantification:- The Tribunal examined whether the ultimate amount quantified in the SCN went beyond the reasons recorded or appended to the SCN.- The SCN raised a demand of Rs. 4,29,95,446/-, but the reasons outlined supported a demand of only about Rs. 2.84 crores.- The Tribunal found that the demand beyond Rs. 2.84 crores was made without outlining reasons and could not be sustained.5. Admissibility of Evidence and Cross-Examination:- TAG argued that the adjudicating authority confirmed duty demands and penalties beyond the grounds advanced in the SCN.- The Tribunal noted that the SCN did not provide the basis for the entire demand and violated principles of natural justice.- The Tribunal acknowledged the failure to produce a witness for cross-examination, which affected the reliance on certain statements.6. Invocation of Extended Period of Limitation:- TAG argued against the invocation of the extended period of limitation.- The Tribunal upheld the extended period of limitation, noting that the demand was based on evidence of clandestine removal and suppression of production.Separate Judgments:- The Tribunal's final order disposed of the appeals as follows:- Appeal No. E/69/08: Demand of Rs. 46,77,703/- upheld, with penalties under Section 11AC. Duty for April 2004 to March 2005 to be reworked based on production capacity.- Appeal No. E/559/08: Confiscation of goods and penalties upheld; demand of Rs. 2,85,634/- set aside.- Appeal No. E/70/2008: Penalty of Rs. 5 lakhs on the Managing Director upheld.- Appeal No. E/826/08: Penalty of Rs. 20,000/- on M/s. Embee Agencies upheld.- Appeal No. E/825/08: Penalty of Rs. 10,000/- on M/s. Wahab Stores upheld.