2020 (12) TMI 31 - AT - Central Excise

Tribunal overturns duty demands without evidence of intentional evasion, penalties not justified.

The Tribunal set aside the duty demands based on presumed production derived from Standard Input Output Norms (SION) without corroborative evidence. The ... Clandestine removal - applicability of Standard Input Output Norms (SION) of DGFT Policy - SION norms as per proviso to condition 3(d) of Notification No. 52/2003-CUS as amended during the period 2012-13 to 2016-17, complied with or not - duty has been demanded on the basis of an audit objection on difference in production arrived by taking input output ratio @ 95% based on SION and that shown in their Form 3CD, ER-5 /ER-4 returns - extended period of limitation - suppression of facts or not - Scope of SCN. Scope of SCN - HELD THAT:- The Notification No. 52/2003-CUS has been issued in terms of sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962) and is an exemption notification. It does not prescribe any method/ procedure to determine quantum of production under Central Excise Act for demand of duty. Section 3 of the Central Excise Act –being the charging section, stipulates that duty is to be charged on the goods produced or manufactured - It is found that no physical verification of input consumption qua finished goods manufactured thereto was carried out by the department. The duty has been demanded on the basis of audit objection without causing any investigation. The objection of audit cannot be the basis or reason to believe to further investigate the matter and cannot be the sole ground for holding clandestine manufacture and removal, in absence of any corroborative evidence. It is observed from records that neither investigation has been carried out from any buyer of finished goods nor from any transporter nor any flowback of funds was checked and neither any statement brought on record to substantiate clandestine removal without payment of duty. It is found that no SION number was given in the show cause notice while learned Adjudicating Authority has relied upon SION number C-460 & C-514. Thus, he has travelled beyond the Show Cause Notice. The Tribunal in the case of M/S. SARADHA TERRY PRODUCTS LTD. AND SHRI K. JAYARAJ VERSUS CCE, SALEM [2015 (1) TMI 678 - CESTAT CHENNAI] held that in absence of evidence of removal of excess yarn or finished goods without payment of duty, duty demand not justified purely on basis of input-output norms (SION) without adequate and corroborative evidence of excess utilization of cotton yarn or diversion of yarn. In the present case, it is found that there is neither any corroborative nor any other evidence brought on record to substantiate clandestine removal without payment of duty. The deemed production arrived on presumption for demand of duty is not permissible under Section 3 of Central Excise Act, 1944. The learned Adjudicating Authority merely relied upon standard input-output norms (that too without disclosing any relevant SION SNo.) to confirm the demand of duty and to hold the charge of clandestine removal of goods without payment of duty. Thus, the same cannot be made basis for determining the duty liability, in absence of any evidence to justify the clandestine manufacture / clearances. Extended period of limitation - Suppression of facts or not - Section 11A of Central Excise Act, 1944 - HELD THAT:- The allegation of suppressing the facts from the department does not hold good in the event of periodic audit of both the appellant assessees. There is no other evidence in the impugned order to show that the appellants have willfully suppressed the facts from the department in order to evade payment of duty. As such extended period of limitation cannot be invoked in the present case - reliance can be placed in the case of COLLECTOR OF C. EX. VERSUS MALLEABLE IRON & STEEL CASTINGS CO. (P) LTD. [1997 (12) TMI 123 - SUPREME COURT]. Appeal allowed - decided in favor of appellant. Issues Involved:1. Applicability of Standard Input Output Norms (SION) of DGFT Policy.2. Validity of duty demand based on presumed production derived from SION.3. Invocation of extended period of limitation.4. Imposition of penalty under Section 11AC of the Central Excise Act, 1944.Detailed Analysis:1. Applicability of Standard Input Output Norms (SION) of DGFT Policy:The core issue in both appeals is whether the SION norms under the DGFT Policy apply to the appellants. The department alleged that the appellants did not maintain the SION norms for domestic production, leading to presumed clandestine removal of goods without payment of duty. The appellants contested this, arguing that SION norms are not universally applicable and depend on various factors such as infrastructure, quality of raw materials, and technical efficiency. They emphasized that SION norms are not mandated under the Central Excise Act for determining production and duty liability. The Tribunal agreed, noting that the SION norms cannot be the sole basis for determining duty liability without corroborative evidence of clandestine removal.2. Validity of Duty Demand Based on Presumed Production Derived from SION:The duty was demanded based on an audit objection, using a 95% input-output ratio derived from SION, without physical verification of the manufacturing process or input consumption. The Tribunal found this approach flawed, as the Central Excise Act requires duty to be charged on actual goods produced or manufactured, not on presumed production. The lack of corroborative evidence such as buyer statements, transporter records, or financial flowbacks further weakened the department's case. The Tribunal cited precedents where similar demands based on SION were dismissed due to lack of evidence of actual clandestine removal.3. Invocation of Extended Period of Limitation:The extended period of limitation under Section 11A of the Central Excise Act was invoked, alleging willful suppression of facts by the appellants. However, the Tribunal noted that the appellants were regularly audited by both the department and the AG, West Bengal, with no discrepancies pointed out in previous audits. This regular audit history undermined the allegation of willful suppression. The Tribunal concluded that the extended period of limitation could not be invoked, as there was no evidence of intentional evasion of duty.4. Imposition of Penalty under Section 11AC of the Central Excise Act, 1944:Penalties were imposed under Section 11AC, which requires evidence of fraud, collusion, willful misstatement, suppression of facts, or contravention of the Act with intent to evade duty. Given the lack of corroborative evidence and the regular audits, the Tribunal found that the conditions for imposing penalties were not met. The penalties were thus deemed unsustainable.Conclusion:The Tribunal set aside the impugned orders, finding that the demands based on presumed production derived from SION were not justified without corroborative evidence. The invocation of the extended period of limitation and the imposition of penalties under Section 11AC were also found to be unwarranted. Both appeals were allowed with consequential relief.(Order pronounced in the open Court on 01 December 2020.)