2019 (2) TMI 205 - AT - Central Excise

Tribunal rules in favor of appellants, emphasizes good faith compliance

M/s. ARKKAYS NATIONAL ENGG. & FOUNDRY CO. Versus COMMISSIONER OF CENTRAL EXCISE, CHENNAI

The Tribunal ruled in favor of the appellants, setting aside the impugned orders on limitation and allowing the appeals with consequential reliefs. The ... Process amounting to manufacture - returned goods - Rule 16 of Central Excise Rules, 2002 - Held that:- The Hon'ble Apex Court in the case of Commissioner of Central Excise, Chandigarh Vs M/s. Vee Kayan Industries [1994 (9) TMI 97 - SUPREME COURT OF INDIA] had held that the processing of Round Bars into Bright Bars does not amount to manufacture. The department by Trade Notice No. 18/2003, dated 14.08.2003 clarified that the process of making Bright Bars from Wire Rods amounts to manufacture and credit was being allowed on inputs. A further Trade Notice dated 16.06.2004 was issued in clarification of Trade Notice 18/2003. Extended period of limitation - Held that:- There is no evidence to establish any positive act of suppression on the part of the appellants with intent to evade payment of duty. Their repeated representations made to the department would strongly indicate that they entertained a bona fide doubt as to whether the process is manufacture or not - demand invoking extended period is, therefore, unsustainable. Appeal allowed - decided in favor of appellant. Issues Involved:1. Whether the processes undertaken by the appellants on the returned finished goods amount to manufacture.2. Whether the appellants are liable to pay duty as per Rule 16 of Central Excise Rules, 2002 on the returned goods.3. Whether the appellants are guilty of suppression of facts with the intention to evade payment of duty.4. Whether the demand raised by the department is hit by limitation.Analysis:Issue 1: Manufacture of Returned GoodsThe appellants argued that the processes undertaken on the defective returned goods resulted in new products, thus constituting manufacture. The Assistant Commissioner had previously confirmed that the processes involved, such as heat treatment, pickling, grinding, and peeling, amounted to manufacture. The department's clarification to the appellants supported this view, and the appellants paid duty based on this understanding. The Tribunal found that the appellants did not suppress facts and acted in accordance with the department's clarification, thus ruling in favor of the appellants.Issue 2: Liability to Pay DutyRule 16 of Central Excise Rules, 2002 mandates payment of duty if the process on returned goods does not amount to manufacture. The department alleged that the appellants failed to pay duty as required and short-paid on certain inputs cleared to sister units. However, the Tribunal noted that the processes undertaken by the appellants did amount to manufacture, as confirmed by the Assistant Commissioner, and thus the duty paid by the appellants was correct.Issue 3: Suppression of FactsThe department argued that the appellants suppressed facts by not paying duty as per Rule 16 and by short-paying on inputs cleared to sister units. However, the Tribunal found that the appellants sought clarification from the department regarding the manufacturing process, and the department confirmed that the processes amounted to manufacture. Therefore, the allegation of suppression was deemed unsustainable.Issue 4: LimitationThe department invoked the extended period alleging suppression of facts by the appellants. However, the Tribunal found that the appellants repeatedly sought clarification from the department, indicating a bona fide doubt regarding the manufacturing process. As there was no evidence of intentional evasion, the demand raised by the department was held to be hit by limitation.In conclusion, the Tribunal ruled in favor of the appellants, setting aside the impugned orders on limitation and allowing the appeals with consequential reliefs. The judgment highlighted the importance of seeking clarification from authorities and acting in good faith based on such guidance in matters of excise duty compliance.