2017 (11) TMI 936 - AT - Central Excise

Successful appeal against duty demand due to lack of proper segregation of goods and inadequate verification in show cause notice.

M/s. Friends Steel Enterprises Versus Commissioner of Central Excise & ST, Chandigarh

M/s. Friends Steel Enterprises Versus Commissioner of Central Excise & ST, Chandigarh - TMI Issues:1. Duty demanded on the ground of manufacturing instead of trading activity.2. Allegation of not paying duty by availing exemption Notification No.8/2003-CE.3. Discrepancy in VAT rates for manufactured and traded goods.4. Lack of effort by Revenue to ascertain if 2% sales exclusively involved manufactured goods.5. Failure of Revenue to segregate quantity of manufactured and traded goods.Analysis:1. The appellant appealed against an order demanding duty, alleging that they were engaged in manufacturing activities instead of trading. The appellant was involved in manufacturing shuttering plates and scaffolding pipes, as well as trading angles and channels. An investigation was initiated due to discrepancies in turnover, with the Revenue claiming that all traded goods were actually manufactured by the appellant. Consequently, a show cause notice was issued demanding duty on both manufactured and traded goods sold at a 2% rate, which was contested by the appellant.2. The appellant argued that the Revenue merely presumed that 2% of sales were of manufactured goods without verifying if trading activities were involved. The appellant's buyers confirmed purchasing raw materials, not finished products, indicating a mix of manufacturing and trading activities. The appellant contended that the Revenue failed to establish that the 2% sales exclusively comprised manufactured goods, rendering the demand unsustainable.3. The Revenue, represented by the AR, reiterated the findings of the impugned order, emphasizing the duty demand based on the presumption of 2% sales being of manufactured goods. However, during the proceedings, the appellant presented invoices showing a clear distinction between traded and manufactured goods. The invoices revealed sales of shuttering plates and raw materials like channels, highlighting the mix of goods sold by the appellant.4. Upon reviewing the invoices, the Member (Judicial) found that the Revenue had not conducted a proper analysis to segregate the quantity of manufactured and traded goods. It was concluded that the demands were not sustainable as the show cause notice lacked factual basis and was issued without proper verification. Consequently, the impugned order was set aside, and the appeal was allowed in favor of the appellant, providing consequential relief.5. In the final order, it was highlighted that the Revenue's failure to differentiate between manufactured and traded goods, coupled with the lack of supporting evidence, led to the decision to overturn the demand for duty. The judgment emphasized the importance of factual verification and proper investigation before imposing duty based on presumptions or incomplete assessments.