2023 (6) TMI 1 - AT - Central Excise

Appeals Granted, Demand Set Aside, Emphasizing Revenue Neutrality, Lack of Intent

The Tribunal allowed the appeals, setting aside the demand for duty, interest, and penalties. Emphasizing revenue neutrality and the lack of intent to ... Clandestine Removal - additional consideration has flown from the appellant to their customer or not - Processing loss - rule 4(5) of the CENVAT Credit Rules, 2004 - HELD THAT:- The entire case of clandestine clearance has been made against the appellant in respect of the goods cleared by the appellant on the proper documents as per rule 4(5) of the CENVAT Credit Rules, 2004 or duty paying documents without establishing flow of any additional consideration. In the present case it appears the additional consideration has flown from the appellant to their customer in form the material used by the job worker to compensate for the processing loss. In case of STERLITE INDUSTRIES (I) LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE [2004 (12) TMI 108 - CESTAT, MUMBAI], a larger bench of tribunal has held that Modvat credit of duty paid on the inputs used in the manufacture of final product cleared without payment of duty for further utilisation in the manufacture of final product, which are cleared on payment of duty by the principal manufacturer, would not be hit by provision of Rule 57C. In case of WELSPUN INDIA LTD. VERSUS COMMISSIONER OF C. EX., DAMAN [2009 (2) TMI 690 - CESTAT, AHMEDABAD] where the issue was held in favour of assessee. Circular No 54/88-CX dated 01.10.1988 relied in the impugned order, was in context of the rule 173H/173L of the erstwhile Central excise Rules, 1944 and has no application to the facts of the present case. Even if it is to be held that appellant was clearing his finished goods in the garb of job worked goods without payment of duty then also the case of revenue will fail in absence of any additional consideration received by the appellant against such clearances. Demand do not sustain - As the demand for duty cannot be upheld, so the demand for interest and penalties imposed cannot be sustained - appeal allowed. Issues Involved:1. Recovery of Central Excise duty on Copper Rods/Bars/Profiles/Pipes/Tubes cleared without payment of duty.2. Recovery of interest on the rebate amount sanctioned and paid.3. Imposition of penalty under Section 11AC of the Central Excise Act, 1944.4. Imposition of penalty on the Managing Director under Rule 26 of Central Excise Rules, 2002.Detailed Analysis:1. Recovery of Central Excise Duty:The Tribunal examined whether the appellant cleared finished goods equivalent to the scrap received, despite process loss, without payment of duty. The Revenue alleged that the appellant clandestinely cleared goods to the extent of process loss. The appellant argued that there is no prohibition on using their own inputs for job work under Rule 4(5)(a) of the CENVAT Credit Rules, 2004, citing multiple precedents including Sterlite Industries (I) Ltd., Shakti Industrial Wires Pvt Ltd., and Jindal Polymers. The Tribunal noted that the entire case of clandestine clearance was based on proper documents as per Rule 4(5) or duty-paying documents without establishing additional consideration flow. The Tribunal found that the additional consideration flowed from the appellant to their customer in the form of material used to compensate for the processing loss.2. Recovery of Interest:Interest was ordered to be recovered under Section 11AB of the Central Excise Act. The Tribunal held that as the demand for duty could not be upheld, the demand for interest also could not be sustained.3. Imposition of Penalty under Section 11AC:A penalty equal to the amount of duty was imposed under Section 11AC of the Central Excise Act. The Tribunal referenced several cases, including Essar Steel Ltd. and SRF Ltd., to conclude that even if there was undervaluation, it would be revenue-neutral as the principal manufacturer would compensate for any shortfall at the time of clearance of processed goods. The Tribunal found no intent to evade duty and held that the penalty could not be sustained.4. Imposition of Penalty on the Managing Director:A penalty of Rs 1,00,000/- was imposed on the Managing Director under Rule 26 of the Central Excise Rules, 2002. The Tribunal, considering the overall findings and the lack of merit in the demand for duty, concluded that the penalty on the Managing Director could not be sustained.Conclusion:The Tribunal allowed the appeals, setting aside the demand for duty, interest, and penalties. The decision emphasized the principle of revenue neutrality and the lack of additional consideration or intent to evade duty. The Tribunal did not pronounce on the issue of limitation due to the lack of merit in the case on the substantive issues.