2020 (3) TMI 255 - AT - Central Excise

Tribunal Remands Case for New Hearing, Emphasizes Natural Justice and Reconsideration

N Ranga Rao And Sons Pvt Ltd Versus C.C.,C.E. & S. T-Mysore

N Ranga Rao And Sons Pvt Ltd Versus C.C.,C.E. & S. T-Mysore - TMI Issues Involved:1. Excisability and Marketability of Agarbathi Masala.2. Principle of Res Judicata.3. Applicability of CBEC Circulars.4. Denial of Cross-Examination.5. Calculation of CENVAT Credit.6. Penalties Imposed.Issue-Wise Detailed Analysis:1. Excisability and Marketability of Agarbathi Masala:The core issue revolves around whether the Agarbathi Masala (AM), which is an odoriferous compound mixed and captively consumed by the appellant in the manufacture of Agarbathis, is excisable. The Department contended that AM is excisable and classifiable under Tariff Item No. 33029090 of the Central Excise Tariff as it is a distinct marketable commodity. The appellant argued that AM is not marketed and is used internally based on proprietary formulas, thus not excisable. The CBEC Circular No. 495/61/99-CX-3 dated 22.11.1999 clarified that odoriferous compounds used for manufacturing Agarbathis are not excisable, but the Department argued this circular was not applicable to AM manufactured separately and stored. The Tribunal noted that the excisability of a commodity depends on the twin tests of 'manufacture' and 'marketability,' which were not satisfactorily proven by the Revenue.2. Principle of Res Judicata:The appellant argued that the issue of non-excisability of AM was previously decided in their favor in an earlier adjudication (OIO No. 2/2000 dated 28.4.2000) which held that AM is not marketable and hence not excisable. This order was not appealed by the Revenue and thus attained finality, making the current proceedings barred by the principle of res judicata. The Tribunal acknowledged this argument, citing the principle that no man should be vexed twice over the same cause.3. Applicability of CBEC Circulars:The appellant relied on CBEC Circular No. 495/61/99-CX-3, which states that odoriferous compounds used in Agarbathis are not excisable. The Department argued that this circular did not apply to AM as it was separately manufactured and capable of being marketed. The Tribunal found that the applicability of the circular was wrongly denied by the Department without sufficient evidence of marketability.4. Denial of Cross-Examination:The Tribunal noted that the impugned order in Appeal No. E/20221/2017 was passed ex parte, violating the principles of natural justice. The Tribunal had previously allowed the appellant the right to cross-examine witnesses relied upon by the Revenue. However, the Commissioner passed the impugned order without affording this opportunity, which the Tribunal found to be improper.5. Calculation of CENVAT Credit:The Tribunal found that the Original Authority, while holding that the appellant is entitled to CENVAT credit of duty paid on inputs used in the preparation of AM, did not calculate or give the benefit of this credit while confirming the duty demand. The method of determining the value of AM by the Department did not exclude the duty paid on inputs, contrary to CAS-4 standards and the Supreme Court's judgment in Dai Ichi Karkaria Ltd.6. Penalties Imposed:The appellant argued that the imposition of penalties totaling nearly Rs. 18 crores was unfair, especially given the contentious nature of the case and the previous favorable ruling. The Tribunal agreed that the penalties were imposed without justification and needed reconsideration.Conclusion:The Tribunal set aside both impugned orders and remanded the cases to the Original Authority for de novo adjudication. The Original Authority was directed to afford the appellant the opportunity for cross-examination of witnesses and to comply with the principles of natural justice. The Tribunal also instructed the Original Authority to reconsider the issues of excisability, marketability, and calculation of CENVAT credit in light of the Tribunal's findings.