EOU wins appeal against duty recovery for alleged PVC resin diversion without proof of actual misuse

CESTAT Mumbai allowed the appeal of a 100% EOU against recovery of customs duty, central excise duty, interest and penalty for alleged diversion of PVC resin. The tribunal held that standard input output norms (SION) cannot be stretched to presume misuse of exemption without evidence of actual diversion. Recovery of duty for non-conformity with SION on post-procurement evaluation requires mathematical precision not inherent in the norms. The Commissioner failed to prove that PVC resin was diverted to unauthorized users or used excessively beyond prescribed limits. No valid grounds existed for duty recovery.

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Issues Involved:
1. Alleged diversion of duty-free imported and indigenously procured raw materials.
2. Demand of customs and central excise duties for the period April 2010 to March 2016.
3. Adherence to 'standard input output norms (SION)'.
4. Legality of clearance of goods into the domestic tariff area (DTA) at concessional rates.
5. Misclassification of export goods.
6. Evidentiary support for the alleged diversion.

Summary:

1. Alleged Diversion of Raw Materials:
The Department alleged that the appellant-assessee procured duty-free raw materials in excess of what was required for export production, resulting in clandestine sale/diversion in the domestic market. The demand covered customs duty of Rs. 678,85,68,924 and Rs. 12,58,94,577 for imported raw materials, and central excise duty of Rs. 55,75,39,599 and Rs. 4,08,13,609 for indigenously procured raw materials.

2. Demand of Duties:
The Commissioner of Central Excise & CGST, Palghar, confirmed recovery of Rs. 27,90,00,071 under section 11A of the Central Excise Act, 1944, with interest and penalty, and Rs. 28,247 under section 28 of the Customs Act, 1962, with interest and penalty. The jurisdictional Commissioner also appealed for the original proposal of higher recovery amounts.

3. Adherence to SION:
The Tribunal noted that the case against the appellant was not about finished goods but about the diversion of raw materials procured without payment of duties. The foundational logic of the charges was based on non-conformity with SION, which served both as justification for and computation of recovery.

4. Clearance into DTA:
The Tribunal examined the legality of the clearance of goods into the DTA at concessional rates. The adjudicating authority's determination of duty liability under section 3 of the Central Excise Act, 1944, was challenged for traversing beyond the show cause notice framework. The Tribunal found no evidence to support the claim that the goods cleared were not similar to those exported, thus invalidating the demand for differential duty.

5. Misclassification of Export Goods:
The Tribunal noted that the alleged misclassification of export goods based on procurement and consumption records was not supported by evidence. The adjudicating authority's findings on non-leviability of differential duty were upheld.

6. Evidentiary Support for Diversion:
The Tribunal found the evidence presented by the Department, including statements and documents, insufficient to prove the alleged diversion. The reliance on 'pen drives' and other records without forensic certification was deemed inappropriate. The Tribunal emphasized that the burden of proof for diversion rested on the Department, which failed to provide conclusive evidence.

Conclusion:
The Tribunal allowed the appeal of M/s Responsive Industries Ltd, dismissing the appeals of the Commissioner of CGST & Central Excise, Palghar, for lack of evidence and improper application of legal principles. The Tribunal held that the demands for recovery of duties were not substantiated by the facts and evidence presented.

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