2023 (5) TMI 188 - AT - Central Excise

Tribunal sets aside order, emphasizes reconciliation for revenue neutrality, remands within two months.

Commissioner of Central Excise & ST, Bhavnagar Versus Gujarat Heavy Chemicals Limited

The Tribunal set aside the impugned order and remanded the matter for a fresh order within two months, emphasizing the need for reconciliation to ... Revenue neutrality - Process amounting to manufacture - repacking of bulk packages of imported STPP into retail pack of 40/50 Kgs. in HDPP bags - excisable under Chapter sub-heading No. 28353100 of Central Excise Tariff Act, 1985 or not - Extended period of limitation - HELD THAT:- There is no dispute that all the goods on which the duty was demanded have been imported duly duty paid including CVD/SAD. In such case, if at all there is any duty liability of repacked goods or alleged clandestine removal or sales under dealer invoice or repacking job work, in all these cases, the appellant were entitled for the Cenvat credit in respect of the goods imported/ purchased by them. If on reconciliation it is found that duty is payable on the goods being deemed manufactured in terms of Chapter note 9 to note 28, in all such cases it prima-facie appears that the appellant is entitled for Cenvat credit on the goods procured and if such Cenvat credit is sufficient to adjust against the demand of output then the entire case is Revenue neutral and in such case, no further demand can be raised. However, this reconciliation exercise has not been conducted therefore in our considered view the matter needs to be reconsidered on this issue. The respondent is required to submit reconciliation showing co-relation between the procurement and Cenvat involved therein and the sale of the goods involving duty payable thereon. After verifying these details, the Adjudicating Authority shall pass a fresh order keeping in mind the observation. Matter remanded to the Adjudicating Authority for passing a fresh order within a period of two months from the date of this order - appeal allowed by way of remand. 1. ISSUES PRESENTED AND CONSIDERED Whether the departmental demand for excise duty relating to repacking of imported Sodium Tripolyphosphate (STPP) into retail packs and alleged clandestine removals can be sustained where the goods were imported duty-paid and Cenvat credit may be available (i.e., whether the matter is revenue-neutral). Whether the adjudicating authority erred in dropping demands without conducting reconciliation between imported/purchased inputs (duty/CVD/SAD paid and Cenvat availed) and alleged output liability arising from deemed manufacture under Chapter Note 9 (i.e., repacking constituting manufacture). Whether demands premised on contemporaneous private registers, parallel invoices and statements alleging clandestine removals are sufficient, without reconciliation of Cenvat credit and output liability, to sustain excise demands. Whether the extended period of limitation invoked by the department was correctly addressed by the Adjudicating Authority (limited issue raised but not pursued on appeal beyond the reconciliation point). 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Revenue neutrality where imported goods were duty-paid and Cenvat credit may be available. Legal framework: Chapter Note 9 to Chapter 28 treats repacking from bulk to retail packs or labeling/relabeling to render product marketable as 'manufacture' and hence potentially excisable. Cenvat credit provisions permit set-off of input duties against output liability; duties paid on import (CVD/SAD) form part of input tax credit subject to conditions and reconciliation. Precedent treatment: The Court referenced multiple authorities on repacking constituting manufacture and on evidentiary and limitation aspects; however, the Tribunal emphasized the principle that where inputs are duty-paid and available as Cenvat credit, any resultant excise liability may be neutralized by available credit, rendering the case revenue-neutral (relied on authorities concerning reconciliation and credit adjustment cited by the respondent). Interpretation and reasoning: The Tribunal found no dispute that the goods in question were imported duty-paid (including CVD/SAD). It reasoned that if repacking triggers excise liability, the importer/processor would, in ordinary course, be entitled to Cenvat credit for duties paid on procurement/import. Therefore, before sustaining any demand, the authority must reconcile quantities and values of imported/purchased goods, the extent of Cenvat credit availed, and the output liability attributable to deemed manufacture on repacked units. Absent such reconciliation, a prima facie demand may not reflect net liability, since available Cenvat could fully offset output duty, resulting in revenue neutrality. Ratio vs. Obiter: Ratio - Where inputs are duty-paid and Cenvat credit is available, adjudicatory authorities must undertake reconciliation of procurement/Cenvat and output liability before sustaining excise demands on repacking deemed to be manufacture; if reconciliation shows no net differential, demands cannot be sustained. Obiter - References to numerous precedents were treated as contextual support rather than forming the basis for a peremptory rule on evidentiary sufficiency. Conclusions: The matter requires remand for detailed reconciliation. If reconciliation establishes that available Cenvat credit suffices to meet any output liability, the demand will not sustain as the matter is revenue-neutral. Issue 2: Need for reconciliation before sustaining demands based on private registers, parallel invoices and alleged clandestine removals. Legal framework: Excise demands may be based on documentary/ testimonial evidence (private registers, parallel invoices, statements). However, the statutory scheme contemplates input credit adjustment and reconciliation to ascertain net duty payable; evidentiary findings must be tested against available credits and records. Precedent treatment: The Tribunal considered Rulings cited by both sides concerning standards of proof for clandestine removals and repacking-as-manufacture, but emphasized procedural fairness and the requirement to quantify net liability after credit reconciliation rather than rely solely on prima facie documentary inferences. Interpretation and reasoning: The Tribunal observed that the show-cause notice relied on assumptions drawn from private registers and parallel invoices to quantify quantities alleged to have been repacked or clandestinely removed. Even if such documentary inferences establish occurrences of repacking or unaccounted clearance, the net duty realization depends on whether Cenvat credits for imported/purchased goods were available and adjusted. Hence, documentary evidence pointing to outward quantities does not conclusively establish recoverable duty without correlation to input credits and reconciliation of records. Ratio vs. Obiter: Ratio - Demands founded on documentary inference must be subjected to reconciliation against available input/Cenvat records; absent such reconciliation, demands may overstate recoverable duty. Obiter - Observations about the insufficiency of particular documentary items in the present record are case-specific illustrations rather than general evidentiary rules. Conclusions: The adjudicating authority must require the respondent to submit a reconciliation correlating procurement/import (with duty paid/Cenvat taken) and sales/clearances (with alleged output liability). Only after assessing this reconciliation can a sustainable demand be quantified and adjudicated. Issue 3: Legitimacy of dropping demand on limitation and effect of appeal grounds not challenging limitation findings. Legal framework: Appeals lie against orders; if part of an order is set aside on limitation grounds and not challenged, that finding may attain finality for the purposes of the appeal. However, where other substantive issues remain (e.g., reconciliation), the Tribunal may remit the matter for fresh adjudication subject to limitation findings. Precedent treatment: The respondent relied on authorities reiterating that once an adjudicatory dropping of demand on limitation is not contested by the revenue on appeal, that aspect stands final. The Tribunal noted those authorities but framed disposal on a narrower threshold point (reconciliation/revenue neutrality) rather than re-examining limitation in detail. Interpretation and reasoning: The Tribunal noted that the Adjudicating Authority had dropped demands on both merit and limitation. The Revenue did not advance substantial grounds specifically contesting the limitation ruling in the appeal. Nevertheless, because reconciliation had not been conducted, the Tribunal found it appropriate to remand for fresh adjudication focused on reconciliation and net liability; it did not disturb the limitation principle but required fresh consideration consistent with the Tribunal's observations. Ratio vs. Obiter: Obiter - The Tribunal's comments on finality of limitation findings where not challenged on appeal are reiterative and not central to the remand. Ratio - Remand for reconciliation is appropriate even where limitation findings exist, if the remand is necessary to determine net revenue position; the Tribunal must direct the authority to pass a fresh order within a specified time. Conclusions: The appeal is remitted to the Adjudicating Authority to conduct reconciliation and pass a fresh order within two months; the earlier order is set aside to the extent necessary for fresh adjudication on the revenue-neutrality and quantification issues. If reconciliation shows no net duty, demands shall not be sustained. Disposition The impugned order is set aside and the matter remanded for fresh adjudication limited to reconciliation between imports/purchases (duty paid and Cenvat credit) and alleged output liability arising from repacking/clandestine removals; the authority is directed to pass a reasoned order within two months, giving effect to the principle of revenue neutrality where applicable.