CESTAT sets aside copper clandestine removal demand citing lack of evidence and natural justice violations

CESTAT NEW DELHI allowed the appeal, holding that allegations of clandestine removal of 536.134 MT copper were merely presumptive without corroborative evidence. The department violated natural justice principles by concealing favorable test reports from buyer's premises showing 11.9% copper content. No evidence existed of transportation without duty payment or accounting irregularities. The department failed to prove excess raw material consumption or clandestine clearance. Extended limitation period was wrongly invoked as no suppression of facts occurred by the registered manufacturer who regularly filed returns. The demand for Cenvat credit reversal was unsustainable and time-barred.

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Issues Involved:
1. Alleged fraudulent availing of Cenvat credit by the assessee.
2. Alleged clandestine removal of inputs (copper ingots/scrap).
3. Validity of the demand confirmed by the adjudicating authority.
4. Invocation of the extended period of limitation for recovery of Cenvat credit.

Detailed Analysis:

1. Alleged Fraudulent Availing of Cenvat Credit:
The department alleged that the assessee availed fraudulent Cenvat credit amounting to Rs.2,57,94,584/- during the period 31.12.2004 to 25.02.2008. The allegation was based on the observation that the ratio of copper consumption against the production of S.S. Ingots and Alloy Steel Ingots was 12.31%, much higher than the manufacturing standards which require a maximum of 2% copper. The adjudicating authority confirmed a demand of Rs.12,06,902/- out of the proposed demand.

2. Alleged Clandestine Removal of Inputs:
The department's case was built on the premise that the assessee had clandestinely removed 536.134 MT of copper and availed irregular Cenvat credit on this quantity. However, the assessee contended that there was no evidence of such clandestine removal or diversion of inputs. The Tribunal noted that no unaccounted stock of raw material or finished goods was found during the search, and there was no investigation into the buyers or transportation of the alleged clandestinely removed copper.

3. Validity of the Demand Confirmed by the Adjudicating Authority:
The Tribunal observed that the adjudicating authority confirmed the demand of Rs.12,06,902/- based on the assumption of clandestine removal of 20.636 MT of copper ingots without any corroborative evidence. The Tribunal held that the confirmation of the recovery of Cenvat credit was not sustainable due to the lack of tangible evidence of clandestine removal, such as transport details, buyer details, or financial transactions.

4. Invocation of the Extended Period of Limitation:
The Tribunal held that the extended period of limitation was wrongly invoked. The assessee was a registered manufacturer who regularly filed returns, and there was no evidence of willful suppression of facts to evade duty. The Tribunal cited the Supreme Court's rulings in Anand Nishikawa Co. Ltd. and Pushpam Pharmaceuticals Co., which emphasized that suppression of facts requires a deliberate act to escape duty payment. The Tribunal concluded that the department's concealment of the correct test reports and the lack of evidence of evasion negated the grounds for invoking the extended period.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, setting aside the demand of Rs.12,06,902/- and the imposition of penalty. The appeal filed by the department was dismissed. The Tribunal held that the allegations of clandestine removal and fraudulent availing of Cenvat credit were not substantiated by evidence, and the extended period of limitation was wrongly invoked. The show cause notice was deemed barred by time.

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