2024 (7) TMI 1040 - AT - Central Excise

Company wins appeal against central excise duty demand as clandestine removal charges lack sufficient evidence under Section 2(f)

Shri Milan Kumar Mehra, Director, M/s. Wide Angle Packaging System (P) Limited Versus Commissioner of Central Excise Kolkata-IV Commissionerate

CESTAT Kolkata allowed the appeal, setting aside central excise duty demand and penalties imposed on the company and its director. The tribunal held that ... Clandestine removal - Job-work - burden of proof - appellant submits that clandestine removal, being a serious charge, is required to be proved beyond doubt on the basis of affirmative evidence and not on the basis of inferences - Penalty imposed on the Director, Shri Milan Kumar Mehra. HELD THAT:- The submission of the appellant is agreed upon that clandestine removal must be proved and supported by sufficient evidence and the burden of proof in this regard is on the Department. Such onus to prove is required to be discharged by production of sufficient tangible and affirmative evidence, which is found to be absent in the instant case. Charge of clandestine removal cannot be made and confirmed against the appellant on the basis of assumptions, based on purported documents whose authenticity is disputed - all the goods mentioned in the challans have been supplied to established units, whose addresses are available. The Department could have conducted verification at the end of the recipients and easily ascertained what type of activities were undertaken by the appellant for them. The appellant has submitted that the above said three SSI units have sent inputs under the job challans for processing and the semi-finished goods were returned to the respective companies under the appellant’s job challans and the appellant raised the bills on the said companies for the 'job charges' giving reference of both the challans. The only job work which the appellant undertook for these companies was 'printing' of the boards sent and returned the same. The activities undertaken by the appellant to these companies does not amount to 'manufacture' as defined under Section 2 (f) of the Central Excise Act, 1944. On receipt of the semi-finished goods, the respective units undertook further processing and the final product chargeable to duty emerge only at the premises of the respective units - the Department has not brought in any evidence to counter these submissions made by the appellant. The Department merely alleges that these units were not existing and hence they could not have sent the material for job work. The demands of central excise duty confirmed in the impugned order on the basis of the Annexures D/1 to D/8 to the Notice, is not sustainable and accordingly, we set aside the same. Since, the demand of duty is not sustainable, the question of demanding interest and imposing penalty on the appellant-company does not arise. Penalty imposed on the Director, Shri Milan Kumar Mehra - HELD THAT:- It is observed that the impugned order alleged that he is the mastermind in floating the fictitious units and instrumental in clearing the finished goods clandestinely without payment of duty under the guise of job work. Since the allegation of clandestine removal of the goods without payment of duty has not been established, it is held that no penalty imposable on the Director/Appellant No. 2. Accordingly, the penalty imposed on Appellant No. 2 is set aside. The impugned order is set aside - appeal allowed. Issues Involved:1. Confirmation of duty liability and penalties imposed on the appellant-company and its Director.2. Alleged clandestine manufacture and removal of excisable goods without payment of duty.3. Validity of job work undertaken by the appellant and its classification under 'manufacture'.4. Existence and authenticity of the principal manufacturers for whom job work was undertaken.5. Appropriateness of the documentary evidence and statements relied upon by the adjudicating authority.6. Penalties imposed on the appellant-company and its Director.Issue-wise Detailed Analysis:1. Confirmation of Duty Liability and Penalties Imposed:The appeals were filed against the Order-in-Original dated 30.10.2012, confirming a duty liability of Rs. 1,62,71,224/- and Rs. 2,307/- along with interest, and imposing penalties under Section 11AC of the Central Excise Act and Rule 15(2) of the CENVAT Credit Rules, 2004. Additionally, a penalty of Rs. 10,00,000/- was imposed on the Director under Rules 26(1) & (2)(ii) of the Central Excise Rules, 2002.2. Alleged Clandestine Manufacture and Removal:The Department alleged that the appellant surreptitiously manufactured excisable goods and removed them without payment of duty under the guise of job work. This was based on findings that some principal manufacturers did not exist or lacked infrastructure for processing/manufacture. The Tribunal observed that the appellant had informed the Department about job work activities through a letter dated 02.04.2007, specifying that they undertook activities such as 'Printing, Lamination/Vernish/Punching & Pasting,' which do not amount to 'manufacture' under Section 2(f) of the Central Excise Act, 1944.3. Validity of Job Work and Classification Under 'Manufacture':The Tribunal noted that the appellant's job work primarily involved 'printing,' which is an exempt activity and does not constitute 'manufacture.' The appellant provided evidence that semi-processed goods were returned to principals for further processing. The Department failed to substantiate that the appellant's activities amounted to 'manufacture' or that the goods were fully finished when cleared.4. Existence and Authenticity of Principal Manufacturers:The Department questioned the existence of some principal manufacturers, alleging they were fictitious. However, the Tribunal found that the appellant had provided sufficient intimation and evidence of these units' existence and their job work activities. The Department did not conduct timely verification or produce evidence to counter the appellant's claims.5. Appropriateness of Documentary Evidence and Statements:The Tribunal observed that the adjudicating authority relied heavily on statements without corroborative evidence. The appellant's documentary evidence, including reconciliation charts and job work challans, was ignored. The Tribunal emphasized that clandestine removal must be proven with affirmative evidence, which was lacking in this case.6. Penalties Imposed on the Appellant-Company and Its Director:Since the demand of duty was not sustainable, the Tribunal held that the penalties imposed on the appellant-company and its Director were also not justified. The allegation of clandestine removal was not established, and thus, no penalty could be imposed.Conclusion:The Tribunal set aside the impugned order, holding that the demands of central excise duty were not sustainable. Consequently, the penalties imposed on the appellant-company and its Director were also set aside. The appeals were allowed with consequential relief as per law.