2023 (12) TMI 308 - AT - Central Excise

Tribunal Overturns Excise Duty Demand on Computer Sales; Case Sent Back for Re-evaluation Due to Lack of Evidence.

The Tribunal set aside the Commissioner (Appeals)' order confirming the demand of Central Excise Duty on the sale of computer systems. The case was ... Levy of Central Excise Duty - sale of computer systems - examination of documents not carried out properly - principles of natural justice - HELD THAT:- There was a specific direction given in the remand order of Tribunal to pass order after considering the documents. It is seen from the impugned order that while it contains a list of documents numbers there is no examination of documents whatsoever even on the sample basis. The order of Commissioner is based on his belief that at the material time what was the practice in the trade. There is no examination whatsoever of the documents like invoices. Not even one invoice has been examined in detail. The impugned order merely repeats the allegations made in the show cause notice that too without giving any independent finding whatsoever. In this background, the impugned order which is based on presumptions cannot be sustained and the same is set aside. The onus of proving that the activity of manufacture had taken place was on the revenue and revenue has failed to fulfill the said obligation despite repeated opportunities being given. There are no merit in the case, the same is set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the confirmation of Central Excise duty on sales invoiced as resale of computer parts is sustainable when the adjudicating authority did not examine the invoiced documents as directed on remand. 2. Whether the revenue discharged the onus of proving that the transactions were manufacture/assembling of computer systems (and not genuine resale of trading goods) where the Commissioner (Appeals) relied on market-practice narratives and third-party statements without independent examination of invoices. 3. Whether reliance on confessional/statements of suppliers and trade practice, without documentary scrutiny or independent findings, can constitute adequate evidence to sustain demand and penalty. 4. Whether an appellate order based on presumptions and repetition of show-cause allegations, without cogent findings or examination of material, is legally sustainable. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of confirmed excise demand absent examination of remanded documents Legal framework: An appellate authority executing a remand direction must decide afresh and consider material evidence specifically directed to be examined; findings must be based on record and not on mere recital of allegations. Precedent Treatment: The Tribunal's remand required document consideration; the Commissioner (Appeals) was bound to comply with that direction in making independent findings. Interpretation and reasoning: The impugned Commissioner (Appeals) order lists document numbers but contains no substantive examination of invoices even on a sample basis. The Tribunal finds that the statutory duty to consider material evidence on remand was not performed - the order lacks analysis of the documents which the Tribunal expressly directed to be produced and examined. Ratio vs. Obiter: Ratio - An appellate authority's failure to examine documents on remand renders its decision unsustainable. Obiter - The listing of document numbers without analysis is insufficient practice. Conclusions: The confirmed demand is set aside because the Commissioner (Appeals) did not comply with the remand direction to examine the documents and hence made no independent, documentary-based findings. Issue 2 - Burden of proof on revenue to establish manufacture/assembly vs resale Legal framework: The onus lies on the revenue to prove that the transactions amounted to manufacture/assembly (dutiable) rather than bona fide trading (non-dutiable). Findings must rest on evidence satisfying the burden, not on assumption of trade practice. Precedent Treatment: The Tribunal had earlier remanded precisely to permit assessment of documentary evidence to resolve whether sales were of parts (trading) or of assembled systems (manufacture); that direction must be honored. Interpretation and reasoning: The Commissioner (Appeals) concluded that market practice involved vendors assembling parts into systems and therefore duty was payable, but did so without examining the invoices or other documentary evidence demonstrating the actual nature of each transaction. The Tribunal holds that mere acceptance of a generic market-practice narrative does not discharge the revenue's burden when specific invoices were produced and required scrutiny. Ratio vs. Obiter: Ratio - Revenue must prove manufacture by evidence; absent such proof (documentary or otherwise), demand cannot be sustained. Obiter - General assertions about trade practice cannot replace transaction-specific proof. Conclusions: Revenue failed to meet its burden; in the absence of document-based findings, the demand cannot stand. Issue 3 - Evidentiary value of confessional and supplier statements without corroborating documentary analysis Legal framework: Statements/confessions and supplier statements may be admissible evidence but their probative value depends on context, corroboration, and whether they are retracted; they cannot alone substitute for examination of documents expressly produced in the record. Precedent Treatment: The Commissioner (Appeals) treated third-party statements and a confessional statement as valid, admissible, and corroborative of the allegation of assembly/manufacture. Interpretation and reasoning: Although the impugned order accepts these statements as unretracted and therefore admissible, the Tribunal finds that reliance on such statements - without examining the invoices and other documentary material - is insufficient to constitute a reasoned adjudication. The admitted statements do not automatically validate the demand where the proceedings required investigation of invoices and transaction specifics. Ratio vs. Obiter: Ratio - Third-party or confessional statements, even if admissible, require corroboration and cannot replace required documentary analysis when the record contains invoices and other relevant documents. Obiter - The unretracted nature of statements enhances admissibility but not necessarily sufficiency. Conclusions: Unretracted statements alone do not sustain the demand in the absence of the directed documentary examination; reliance on them without such examination is inadequate. Issue 4 - Legal effect of an order based on presumptions and repetition of show-cause allegations Legal framework: Adjudicatory findings must be independent, reasoned, and based on evidence; orders based on presumption or mere repetition of allegations from the show-cause notice lack the requisite judicial exercise of mind. Precedent Treatment: The Commissioner (Appeals) largely repeated the show-cause allegations and inferred market practice to support its conclusion, without independent findings on the material evidence. Interpretation and reasoning: The Tribunal emphasizes that an order premised on presumptions and allegation recital, without analysis of the evidence directed for consideration, cannot be sustained. The absence of independent findings on invoices or even a sample review demonstrates that the adjudicatory process was perfunctory and legally flawed. Ratio vs. Obiter: Ratio - An appellate order grounded on presumptions and repetition of allegations rather than evidentiary findings is legally untenable. Obiter - Procedural and evidentiary fairness requires examination of at least sample documents when directed. Conclusions: The impugned appellate order is set aside as being founded on presumptions and a lack of independent adjudication; appeals are allowed.