2023 (8) TMI 658 - AT - Central Excise

Tribunal overturns duty demand and penalty on manufacturer, emphasizes evidence, remands for fresh decision

Quality Technocast Private Limited Versus Commissioner of Central Excise & ST, Ahmedabad-I

The Tribunal set aside the decision confirming duty demand and penalty on an Appellant, a 100% EOU manufacturing Polyester fabrics, for alleged diversion ... Clandestine Removal - Grey Fabrics - Evasion of Central Excise Duty - diversion into Domestic Tariff Area (DTA) in guise of clearance to the said EOU unit of West Bengal and failed to get the goods re-warehoused at the said EOU - HELD THAT:- The responsibility of transportation of goods from factory is upon the M/s Neeraj Exim. The contract produced by the appellant clearly shown the delivery term as Ex-factory - It is also found that the appellant has contended that they had followed the procedure as laid down in law for clearances of goods to M/s Neeraj Exim and department has not disputed on the genuineness of CT-3 certificate issued by the department and re-warehousing certificate issued by the Jurisdictional officer of M/s Neeraj Exim - this aspect has not been considered by the Ld. Commissioner in the present matter. Since the department has made the allegation of non-re-warehousing of the goods at the consignee’s end, it has to prove the same by substantial evidence and it cannot be made on assumption. It has to be shown as if the goods were not warehoused then where were the same diverted. In present case there is no evidence of diversion of goods. It is also found that on the one hand the Revenue has made demand of central excise duty on goods consumed in the finished goods and on the other hand it is demanding duty on the finished goods which is wrong. Even if there is any duty demand, the same shall be restricted only upon finished goods. The raw material duty cannot be demanded as the same were consumed for intended purpose of manufacture. This aspect also not properly considered by the Ld. Commissioner. Since the issues have not been dealt with in a proper manner by the Learned Commissioner, the matter needs to be reconsidered as a whole - Appeal is allowed by way of remand to the Adjudicating Authority. ISSUES PRESENTED AND CONSIDERED 1. Whether demand of central excise duty and penalties could be sustained where consignments to an EOU were alleged to be fictitiously cleared and diverted to DTA without adequate proof of non-receipt or diversion. 2. Whether re-warehousing certificates, CT-3 forms and payment records, when produced and not shown to be false, absolve the consignor of liability for duty in respect of alleged non-re-warehoused consignments to an EOU. 3. Whether, in addition to duty on finished goods, duty can simultaneously be demanded on raw materials consumed in manufacture of those finished goods. 4. Whether adjudicating authority's reliance on third-party departmental reports (e.g., Commercial Tax report) and oral statements without expressly testing documentary proofs requires reconsideration. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Proof of diversion and sustainment of excise demand where consignments to an EOU are alleged to be fictitious Legal framework: Central excise law principles require the department to prove clandestine removal/diversion and evasion of duty; confiscation and duty demand under relevant rules and sections require substantive evidence of non-receipt or illicit diversion. Precedent treatment: The appellant relied on authorities addressing liability where documentary formalities (forms, warehousing certificates) are in order; the Tribunal noted that precedents apply only after factual parity is established and must be tested against the record. Interpretation and reasoning: The Court emphasised that mere allegation of non-re-warehousing or diversion is insufficient; the department must lead substantial evidence showing non-receipt or diversion and, where documentary evidence (CT-3, re-warehousing certificate, payment proofs) is produced and not impugned as forged, adjudication must consider these documents. Reliance solely on a third-party departmental report and vehicle statements without reconciling or testing produced documentary evidence is inadequate. The Court found that the adjudicating authority failed to examine or discredit the re-warehousing certificates and CT-3 forms and thus did not adequately prove diversion. Ratio vs. Obiter: Ratio - An excise demand for diversion cannot be sustained without substantial evidence of non-receipt/diversion where CT-3, re-warehousing certificates and payment proofs prima facie exist and are not shown to be false. Obiter - Observations on contractual delivery terms (ex-factory) informing responsibility for transport are contextual but supportive of the main ratio. Conclusions: The demand based on alleged paper transactions was not sufficiently proved; adjudicating authority's reliance on external reports without testing the appellant's documentary proofs renders the demand unsustainable as adjudicated. Matter required fresh adjudication after consideration of the produced documents and opportunity of hearing. Issue 2 - Effect of re-warehousing certificates, CT-3 forms and payment proofs on liability Legal framework: Statutory and procedural regime governing deemed exports/EOU clearances contemplates specified documentation (e.g., CT-3 forms, re-warehousing certificates) and compliance with notifications and rules as satisfying conditions for duty exemption or deemed export treatment; where such compliance is contested, the department must demonstrate falsity or non-compliance. Precedent treatment: The appellant cited multiple authorities holding that when prescribed forms and certificates are in order, liability may not be fastened on the consignor absent proof of fraud; the Tribunal acknowledged reliance on such precedents but required case-specific verification. Interpretation and reasoning: The Tribunal observed that the adjudicating authority did not examine the re-warehousing certificates nor make any finding as to their falsity or manipulation. Given that CT-3 and re-warehousing certificates were produced and the genuineness was not disputed by the department, the statutory regime shifts burden to the department to rebut those documents with cogent evidence. The Court noted that the department's circular regarding consignor liability in absence of re-warehousing certificate cannot substitute for proof where certificates exist and are unchallenged. Ratio vs. Obiter: Ratio - Production of unchallenged re-warehousing certificates and CT-3 forms demands positive proof from revenue to justify demand; absence of such proof undermines the demand. Obiter - Reference to departmental circulars and judicial discipline principles is ancillary and informative. Conclusions: Re-warehousing certificates and CT-3, when produced and not shown to be false, materially weaken the department's case; adjudicating authority must evaluate and either accept or specifically disprove them before confirming demand or confiscation. Issue 3 - Propriety of simultaneous demand on raw material and finished goods Legal framework: Excise duty is chargeable on dutiable goods; where duty is imposed on finished goods manufactured using raw materials procured duty free under an exemption notification, recovery of duty on raw materials already consumed is legally impermissible if demand on finished goods is pursued for the same transactions. Precedent treatment: The appellant relied on authorities precluding double recovery (duty on both raw materials consumed and finished goods). The Tribunal endorsed the legal principle that duty cannot be doubly exacted. Interpretation and reasoning: The Court found the adjudicating authority simultaneously demanded duty on intermediate inputs and on the finished goods, without explaining why both demands were justified. The Tribunal held that if duty is leviable on the finished goods in respect of clandestine removal, recovery ought to be restricted to finished goods value and not extended to raw materials consumed in the manufacture which were used for the intended manufacturing process. Ratio vs. Obiter: Ratio - Duty demand cannot be imposed twice by charging both raw materials consumed in manufacture and the finished goods for the same alleged contravention. Obiter - The precise method of valuation in permitted circumstances requires factual adjudication on remand. Conclusions: The demand in the impugned order was legally unsound to the extent it sought duty on raw materials in addition to finished goods; adjudicating authority must limit any demand to finished goods value if liability is established on remand. Issue 4 - Adequacy of adjudicating authority's fact-finding and need for remand Legal framework: Principles of fair adjudication require that adjudicating authority examine and record findings on critical documentary evidence, afford opportunity of personal hearing, and base conclusions on tangible evidence and reasoned analysis. Precedent treatment: The Tribunal noted that precedents relied upon by the appellant could be applied only after fact-specific comparison; it stressed the requirement to test documentary proofs rather than dismiss them without explicit findings. Interpretation and reasoning: The Tribunal observed material lacunae in the impugned order - failure to consider or rule upon re-warehousing certificates, lack of explanation regarding vehicle operator statements, and absence of nexus showing where goods were diverted if they were not warehoused. The Tribunal concluded that these omissions demonstrated inadequate fact-finding and procedural infirmity, warranting remand for fresh adjudication with an opportunity of personal hearing within a specified short timeframe. Ratio vs. Obiter: Ratio - When adjudication fails to address pivotal documentary evidence and lacks reasoned findings on disputed facts, the correct remedy is remand for fresh adjudication after affording a hearing. Obiter - Comments on the supposed contractual allocation of transport responsibility are illustrative and not decisive. Conclusions: The impugned order was set aside and the matter remitted for fresh adjudication; adjudicating authority directed to consider the produced documents, test the genuineness of certificates if disputed, restrict any permissible demand as indicated, and afford personal hearing within two months. Cross-references See Issue 1 and Issue 2 for interrelated principles on burden of proof when CT-3 and re-warehousing certificates are produced; see Issue 3 for limitation on quantum of recoverable duty if liability on finished goods is established; see Issue 4 for the remedial consequence (remand) where these issues were not properly examined.