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 ... Standard Input-Output Norms (SION) - determination of production for levy of central excise duty - audit objection as basis for demand - extended period of limitation under Section 11A (fraud, collusion, willful mis-statement, suppression of facts) - requirement of corroborative evidence to establish clandestine removalStandard Input-Output Norms (SION) - determination of production for levy of central excise duty - audit objection as basis for demand - requirement of corroborative evidence to establish clandestine removal - Whether SION under DGFT/Foreign Trade Policy and proviso to condition 3(d) of Notification No. 52/2003-Cus can be applied to determine production and to sustain demand of excise duty where demand is founded solely on audit objection. - HELD THAT: - The exemption Notification No. 52/2003-Cus is issued under the Customs Act and does not prescribe any method for determining quantum of production under the Central Excise Act. Section 3 of the Central Excise Act charges duty on goods actually produced or manufactured; a demand based on presumed production derived from SION, without physical verification or any corroborative evidence of clandestine removals, is not permissible. In both appeals the departmental demand rested solely on audit objections comparing declared input-output ratios with SION (95%) and used SION serial numbers not specified in the show cause notices. No investigation was carried out - there were no statements from buyers, transporters, no flow-back analysis and no other corroborative material to substantiate clandestine manufacture or removal. Reliance on precedents holding that input-output norms alone cannot sustain a demand in absence of evidence of diversion or clandestine removal supports this approach. The adjudicating authority's reliance on SION (and SION numbers not mentioned in the show cause notices) went beyond the scope of the show cause and cannot substitute for evidence of actual evasion of duty. [Paras 14, 15, 16, 17]Demand of duty founded solely on SION-based presumed production and on audit objection, without any corroborative evidence of clandestine removal, is unsustainable and cannot form the basis for levy of excise duty.Extended period of limitation under Section 11A - fraud, collusion, willful mis-statement or suppression of facts - periodic audit and knowledge of department - Whether extended period of limitation under Section 11A(4) can be invoked where the demand arises from audit objections but there is no evidence of fraud, collusion, willful mis-statement or suppression of facts by the assessee. - HELD THAT: - Section 11A(4) permits invocation of the extended period only where non-levy or short payment of duty is by reason of fraud, collusion, willful mis-statement, suppression of facts or contravention with intent to evade duty. In the present cases the appellants were registered units subject to periodic central excise audits (records show repeated audits over the years) and there is no finding or material in the orders to establish that the appellants withheld returns or suppressed facts from the department. The departmental case was based on audit objections discovered during routine audit and there is no other evidence of deliberate concealment or intent to evade. In these circumstances extended period cannot be invoked. [Paras 18, 19]Extended period of limitation under Section 11A cannot be invoked in absence of material establishing fraud, collusion, willful mis-statement or suppression of facts; therefore the computation of demand on that basis is not sustainable.Final Conclusion: The Tribunal set aside the impugned orders: demands premised on presumed production computed by applying SION without corroborative evidence of clandestine removals are unsustainable, and invocation of the extended period under Section 11A is unjustified in absence of material showing fraud or suppression; both appeals are allowed with consequential relief. 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.)