2018 (3) TMI 623 - AT - Central Excise

Tribunal Overturns Duty Decision, Upholds Cotton Yarn Shortage Penalty

The Tribunal set aside the adjudicating authority's decision to demand duty on cone yarn clearances instead of hank yarn, finding it beyond the scope of ... Clandestine removal - hank yarn allegedly cleared without accounting by the appellant to their job workers - Held that: - The adjudicating authority cannot obviously go beyond the parameters of the demand proposals made in the show cause notice. This is the law that has been laid down in plethora of decisions. Scope of SCN - Held that: - the department cannot now bring out an entirely new allegation which was not there or seek demand of the duty liability on an entirely new premise which was not featured in the show cause notice issued. Appeal allowed in part. Issues Involved:1. Unaccounted purchase and manufacture of cotton yarn.2. Excess stock of cotton yarn found during search.3. Clearance of cotton to job work units without proper documentation.4. Clearance of cotton yarn for further processing without central excise documents.5. Non-disclosure of actual production and clearances in returns.6. Confiscation and penalties related to seized cotton yarn.7. Adjudication of duty demands based on unaccounted clearances and shortages.8. Applicability of Rule 12B of Central Excise Rules.Issue-wise Detailed Analysis:1. Unaccounted Purchase and Manufacture of Cotton Yarn:The department alleged that the appellants indulged in unaccounted purchase of cotton and unaccounted manufacture of cotton yarn. This was based on investigations and the interception of a van carrying a consignment of cotton yarn with discrepancies in quantity and description compared to the invoices.2. Excess Stock of Cotton Yarn Found During Search:During a search on 5.3.2004, excess stock of cotton yarn was found in the factory premises. This was part of the basis for the department's allegations of unaccounted manufacture and clearance of goods.3. Clearance of Cotton to Job Work Units Without Proper Documentation:The appellants were found to have cleared cotton to job work units without proper invoices or job work challans, and without accounting for these transactions. This was a significant point in the department's case against the appellants.4. Clearance of Cotton Yarn for Further Processing Without Central Excise Documents:The appellants sent cotton yarn for further processing without the cover of central excise documents and received sale proceeds in cash for unaccounted clearances. This led to allegations of contravention of several provisions of the Central Excise Act, 1944, and the Rules made thereunder.5. Non-disclosure of Actual Production and Clearances in Returns:The department contended that the appellants failed to disclose the actual production and clearances from the factory in their returns, violating Rule 12 of the Central Excise Rules, 2001 & 2002.6. Confiscation and Penalties Related to Seized Cotton Yarn:The adjudicating authority ordered the confiscation of 12,512 kgs of cotton yarn valued at Rs. 14,68,688/- seized from the premises with an option to redeem on payment of a fine. Additionally, 1060 kgs of cotton yarn valued at Rs. 1,63,600/- seized from the appellants' premises were also confiscated with an option to redeem on payment of a fine. Penalties were imposed on the appellants and co-noticees under various provisions.7. Adjudication of Duty Demands Based on Unaccounted Clearances and Shortages:The adjudicating authority confirmed duty liabilities for unaccounted clearances of cotton cone yarn for the years 2002-03 and 2003-04, and for shortages found during the search. However, the appellants contended that the adjudicating authority went beyond the scope of the show cause notice by demanding duty on cone yarn clearances instead of hank yarn.8. Applicability of Rule 12B of Central Excise Rules:The department's appeal was based on the applicability of Rule 12B, which places the responsibility of discharging duty on the principal manufacturer who gets the work done by job workers. The adjudicating authority's decision to demand duty on cone yarn clearances was contested by the department, arguing that the duty liability should be on the hank yarn received back from job workers.Judgment:The Tribunal found that the adjudicating authority went beyond the scope of the show cause notice by demanding duty on cone yarn clearances instead of hank yarn. The impugned order was set aside in respect of the demands for the years 2002-03 and 2003-04. The demand of Rs. 3,37,037/- for the shortage of cotton yarn was upheld, and the penalty was modified accordingly. Penalties on co-noticees were set aside, and the department's appeal was dismissed. The Tribunal emphasized that the adjudicating authority cannot go beyond the parameters of the demand proposals made in the show cause notice.