Excise duty demand quashed due to lack of evidence and erroneous assumptions.

The Tribunal set aside the excise duty demand as it was based on assumptions without substantive evidence. The appellant's argument that the department erred in assuming 100% conversion of preforms to PET bottles and failed to account for wastage was accepted. The allegation of clandestine removal of goods was not substantiated, and the delay in issuing the Show Cause Notice led to the limitation period being exceeded. Consequently, the demand for excise duty, penalty, and interest was quashed, and the appeal was allowed with consequential relief.

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Issues Involved:
1. Whether the demand of excise duty based on the difference in consumption figures of preforms as per ER 6 and Form 3CD is justified.
2. Whether the department erred in considering 100% conversion of preforms to PET bottles without accounting for wastage.
3. Whether the allegation of clandestine removal of goods is substantiated.
4. Whether the demand is barred by limitation due to delay in issuing the Show Cause Notice (SCN).

Detailed Analysis:

1. Justification of Excise Duty Demand Based on Consumption Figures:
The demand of excise duty amounting to Rs. 35,68,644/- was confirmed by the Commissioner based on the difference in consumption figures of preforms as per ER 6 returns and Form 3CD. The department assumed 100% conversion of preforms into PET bottles, leading to the conclusion that the appellant clandestinely removed excess PET bottles without paying excise duty. However, the Tribunal found that the demand was based solely on figure work without any substantive evidence to support the allegation of clandestine removal. The appellant had consistently argued that the department erred in assuming 100% conversion and failed to account for wastage during the manufacturing process.

2. Consideration of Wastage in Conversion of Preforms to PET Bottles:
The appellant provided detailed reconciliations showing wastage during the manufacturing process, ranging from 0.40% to 1.60%, which is within the industry average of 2%. The lower authority did not consider this wastage, leading to an incorrect assumption of 100% conversion. The Tribunal found that the reconciliation provided by the appellant clearly accounted for the wastage, and the lower authority's order was based on assumptions without cogent evidence. Hence, the demand based on 100% conversion was set aside.

3. Allegation of Clandestine Removal of Goods:
The department's allegation of clandestine removal was not substantiated by any evidence other than the consumption figures. The Tribunal cited several judgments, including those in the cases of PENNZOIL QUAKER STATE INDIA LTD. and SHIVALAYA ISPAT & POWER PVT. LTD., which held that the burden of proving clandestine removal lies with the department. The Tribunal noted that no investigation was conducted to prove clandestine manufacture and removal of PET bottles. The absence of corroborative evidence, such as unaccounted cash, statements from buyers or transporters, or extra production, meant that the charge of clandestine removal could not be sustained.

4. Limitation and Delay in Issuing the SCN:
The demand covered the period from 2012-13 to 2015-16, but the SCN was issued on July 27, 2018, well beyond the normal period of limitation. The spot memo was issued in August 2014, indicating that the department was aware of the facts much earlier. The Tribunal found that the invocation of the extended period of limitation was not justified due to the gross delay in proceeding with the matter.

Conclusion:
The Tribunal concluded that the demand of excise duty based on assumptions and without substantive evidence could not be sustained. The lower authority's order was set aside, and the demand of excise duty, along with the imposition of penalty and interest, was quashed. The appeal filed by the appellant was allowed with consequential relief.

Pronouncement:
The judgment was pronounced in the open court on August 13, 2021.

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