2020 (4) TMI 502 - HC - Central Excise

High Court overturns Tribunal decision, quashes demand & penalties for errors in assessment & application of rules.

The High Court allowed the appeals, quashing the Tribunal's orders and setting aside the demand and penalties imposed on the appellants. The Tribunal ... Clandestine removal - production capacity of machines - scope of remand proceedings - the reasonings arrived at by the Commissioner did not find favour with the Tribunal. In such circumstances, the matter came to be remitted - Tribunal completely overlooked the fact that in the first round of the litigation, the remand was on the very same issue and, therefore, there was no question of taking the view that it would be a futile exercise. Whether the Tribunal committed any error in passing the impugned order? Held that:- It is expected of the Department to know the position of law. When the position of law is abundantly clear that such examination of the machine can be undertaken at some other place, the Department should have agreed to do so. Having not done so, the Department now cannot take shelter of the order passed by the Tribunal, which is not tenable in law - By now, this litigation is almost two decades old. It will be too much for this Court to once again remand the matter for the very same exercise, which could have been undertaken a decade back. In such circumstances, we decline to accept the vociferous submission of the learned standing counsel appearing for the Revenue that the appellants should not be permitted to have an undue advantage as the same would lead to a huge loss to the Revenue. The case of the Department, of clandestine manufacture and removal of the goods should be looked into having regard to the production capacity of the machine, installed in the factory premises - For any good reason, if the Department was unable to arrive at any final conclusion with regard to the production capacity of the machine on account of the same not in a working condition, then the Department owed a duty to examine the machine of similar type, which might have been installed in any other factory premises. This is what Rule 173(E) of the Rules, 1944, provides for. The principle of law, in this regard, is that the burden will be upon the Department to show that the entries in the Registers, etc. match with the production capacity of the machine. The impugned orders passed by the Tribunal are hereby quashed and set aside. The substantial questions of law are answered in favour of the appellants and against the Revenue - Appeal allowed. Issues Involved:1. Whether the Tribunal erred in not considering the remand order and confirming the demand beyond the scope of remand proceedings.2. Whether the Tribunal erred in not considering production capacity based on certificates and confirming demand beyond production capacity on an assumption basis.3. Whether the Tribunal erred in not permitting determination of production capacity on identical machines at any other factory.4. Whether the Tribunal erred in not considering other legal submissions regarding production capacity under Rule 173E.Issue-wise Analysis:1. Scope of Remand Proceedings:The Tribunal's failure to adhere to the remand order was a central issue. The Tribunal was expected to consider the production capacity of the machinery as per the remand order. However, the Commissioner ignored this directive, arguing that the machinery was not in working condition, thereby deeming the production capacity assessment impossible. This approach was deemed incorrect since the Tribunal had earlier emphasized the need to determine the production capacity to ascertain the alleged clandestine removal of goods.2. Production Capacity Based on Certificates:The appellants presented certificates from technical authorities and manufacturers, asserting that the production capacity of their machine was significantly lower than the figures alleged by the Department. The Tribunal in its first round had accepted these certificates as crucial evidence. Despite this, the Commissioner dismissed these certificates without independent verification, leading to a flawed conclusion. The Tribunal's failure to ensure the certificates were properly considered in the second round was a significant oversight.3. Determination of Production Capacity on Identical Machines:The appellants requested a trial run on an identical machine at another factory since their machine was not operational. The Commissioner rejected this request, stating it was beyond the scope of the remand order. This rejection was contrary to Rule 173E, which allows for such assessments to determine normal production capacity. The Tribunal's agreement with this rejection further compounded the error, as it disregarded the clear directive to ascertain production capacity, whether on the specific machine or a similar one elsewhere.4. Legal Submissions under Rule 173E:Rule 173E mandates that production capacity assessments consider factors like installed capacity, raw material utilization, and power consumption. The Tribunal and the Commissioner failed to apply this rule correctly. Instead of exploring alternative means to determine production capacity, they relied on assumptions and incomplete data, leading to an unjust conclusion. The Tribunal's oversight in not ensuring compliance with Rule 173E resulted in an erroneous affirmation of the demand.Conclusion:The High Court found that the Tribunal and the Commissioner erred significantly in their approach. The Tribunal's failure to adhere to its own remand order, the improper dismissal of technical certificates, the refusal to assess production capacity on identical machines, and the incorrect application of Rule 173E collectively led to an unsustainable judgment. The High Court allowed the appeals, quashing the Tribunal's orders and setting aside the demand and penalties imposed on the appellants.