2022 (3) TMI 1316 - AT - Central Excise

Tribunal overturns tax order due to lack of evidence

The Tribunal allowed the appeal filed by M/s KEI Industries against the denovo order-in-original passed by the Commissioner of Central Goods & Service ... 100% EOU - Permission to debond the unit - allegation of irregular clearance of unutilized/surplus raw material in excess of the permissions sought from the Customs Authorities - violation of the Foreign Trade Policy - HELD THAT:- The appellant had sought to debond and was permitted to debond. The debonding was allowed by the Development Commissioner after the Jurisdictional Assistant Commissioner has confirmed in writing to him that no Central Excise or Customs Duty are pending from the appellant and they have been duty paid. The audit objection raised by CERA does not indicate how it had come to conclusion that there was a short payment of ₹ 139.58 Lakhs and that the appellant had cleared goods in excess of the permission granted by the Customs Authorities. A perusal of the letters issued by the Customs officers shows that no limit – whether in terms of quantity or value was fixed or specified in either of the letters. If the allegation is that goods over and above these were cleared by the appellant without paying duty there must be evidence that: (a) that goods were cleared in excess; and (b) no duty was paid on such clearances - There is no evidence either in the audit report or in the show cause notice, which was issued on the basis of the audit report with respect to either of the above. The appellant had sought the details from the Commissionerate by filing an application for information under the Right to Information Act and received a reply dated 02.11.2018 signed by the Central Public Information Officer - the clarification makes it abundantly clear that the Department has no idea as to on what basis the demand has been raised and has no documents to support the demand at all. The show cause notice raising a demand only on the ground that “audit said that you have short paid duty” with not even a vague attempt to explain how the demand was calculated cannot be sustained. The inescapable conclusion is that the demand has been confirmed on some figment of imagination not supported by any facts or documents. Such a demand cannot be sustained and needs to be set aside - the demand of interest and imposition of penalty also cannot sustain - appeal allowed - decided in favor of appellant. Issues:1. Appeal against denovo order-in-original passed by the Commissioner of Central Goods & Service Tax, Alwar.2. Allegation of irregular clearance of unutilized/surplus raw material in excess of permissions sought.3. Confirmation of demand, interest, and penalty based on audit report.4. Remand by the Tribunal for fresh adjudication.5. Lack of evidence supporting the demand calculation.6. Lack of clarity on basis for demand and supporting documents.7. Appeal challenging the impugned order confirming the demand, interest, and penalty.Issue 1: Appeal against denovo order-in-originalThe appeal was filed by M/s KEI Industries against the denovo order-in-original passed by the Commissioner of Central Goods & Service Tax, Alwar. The appellant, engaged in manufacturing electric conductors and stranded wires of copper, previously operated as a 100% Export Oriented Unit (EOU) under the Foreign Trade Policy (FTP) and later sought to debond and convert into a domestic unit. Permissions for debonding were granted by the Assistant Commissioner of Central Excise, leading to the appellant operating as a domestic unit.Issue 2: Allegation of irregular clearanceAn audit report by Central Excise Revenue Audit (CERA) alleged that the appellant irregularly cleared unutilized/surplus raw material in excess of permissions sought from Customs Authorities, resulting in a demand for recovery of a significant amount along with interest. The show cause notice issued to the appellant detailed the alleged irregularities and proposed demand, interest, and penalty based on the audit findings.Issue 3: Confirmation of demand, interest, and penaltyThe Commissioner, relying on the audit report, confirmed the demand for duty along with interest and imposed a penalty equal to the duty demanded. This confirmation was challenged in the appeal, leading to a detailed examination of the basis for the demand and the supporting documentation.Issue 4: Remand by the TribunalThe Tribunal remanded the matter back to the adjudicating authority for fresh adjudication, highlighting the lack of clarity regarding the quantity of raw material utilized for export, the amount permitted for disposal, and whether duty was paid on the surplus raw material cleared by the appellant.Issue 5: Lack of evidence supporting demand calculationThe Tribunal noted the absence of evidence in both the audit report and the show cause notice regarding the alleged irregular clearance of raw material by the appellant. The demand was based on unspecified quantities and values without concrete evidence of excess clearance or non-payment of duty.Issue 6: Lack of clarity on basis for demandThe Tribunal observed that the impugned order failed to address fundamental questions such as the quantity cleared in excess of permissions, whether duty was paid on the excess clearance, and the basis for determining the demand. The lack of supporting documents and factual basis for the demand rendered the order unsustainable.Issue 7: Appeal challenging the impugned orderUltimately, the Tribunal set aside the impugned order, highlighting the lack of clarity on how the demand was calculated and the absence of supporting documents. The demand, interest, and penalty were deemed unsustainable as they were based on speculative figures without factual backing, leading to the appeal being allowed in favor of the appellant.This detailed analysis of the judgment highlights the issues involved, the Tribunal's observations, and the ultimate decision to set aside the impugned order due to the lack of evidence supporting the demand calculation and the absence of clarity on the basis for the demand.