2009 (6) TMI 485 - AT - Central Excise

CESTAT Upholds Duty Demand on Samples Cleared as Waste; Emphasizes Compliance with CBEC Manual

The Appellate Tribunal CESTAT, Mumbai, upheld lower authorities' orders and rejected the appeals concerning duty demand on samples cleared as waste and ... Limitation- The appeal is filed by the appellant against the order of commissioner (Appeals). The issue involved in the instant appeals is regarding the duty demand on the samples, which were cleared by the appellants as waste and scrap. The appellants are the manufacturers of Flexible packaging material falling under chapter 39 and clearing the samples drawn, as waste & scrap on payment of duty. Consequent to EA 2000 audit, the duty is now demanded on the cost of production (CAS4) and in the last show cause notice on the sale price of the final product. The appellant assessee submits that demand is time barred. Held that- As regards invoking of the extended period of limitation is concerned, the appellants never informed the Department about drawl and manner of disposal of samples on or before this issue was raised by the Department during EA 2000 audit. Acquiring knowledge by the Department does not take away the period of five years provided by the Law Makers in the Act itself. They have suppressed the fact with intent to evade payment of duty on such samples. We also note that subsequently the appellants intentionally misrepresented the issue and avoided payment of duty on the samples. We do not find any ground to interfere with the impugned orders passed by the lower authorities below. Accordingly, we uphold the same and reject the appeals. Issues involved:Duty demand on samples cleared as waste and scrap, time-barred demand, interpretation of Boards' supplementary instructions, applicability of previous judgments, extended period of limitation.Analysis:1. Duty demand on samples cleared as waste and scrap:The issue in the appeals pertains to the duty demand on samples cleared as waste and scrap by the appellants, who are manufacturers of Flexible packaging material. The duty is demanded on the cost of production and sale price of the final product following an audit. The appellants argue that the demand is time-barred, as the show cause notice was issued after a significant delay. They also contend that the samples were cleared as waste and scrap on payment of duty, as per CBEC Manual instructions, and no additional duty is payable.2. Time-barred demand:The appellants argue that the demand is time-barred as the show cause notice was issued after a considerable delay, beyond the statutory period. They claim that they disclosed all relevant details regarding the samples in a timely manner, and the delayed notice is unjustified. However, the tribunal notes that the appellants failed to inform the Department about the samples' drawl and disposal, indicating an intent to evade duty payment.3. Interpretation of Boards' supplementary instructions:The tribunal examines the relevant provisions of the Boards' supplementary instructions under Rule 31 of the Central Excise Rules. It highlights that samples drawn for testing quality and preservation for complaints are subject to duty payment before removal for test purposes. The tribunal emphasizes that appropriate duty must be paid on samples as per the instructions, supported by a Supreme Court judgment regarding liability on samples removed for quality control tests.4. Applicability of previous judgments:The appellants rely on previous judgments, such as the case of Bhansali Engineering Polymers Ltd., to support their argument. However, the tribunal distinguishes the facts of those cases from the present situation. It notes that in the current case, the samples were not brought back to production after testing but were cleared without paying the appropriate duty, making the circumstances different.5. Extended period of limitation:Regarding the extended period of limitation, the tribunal finds that the appellants failed to inform the Department about the samples' drawl and disposal in a timely manner. This intentional suppression of facts and misrepresentation led to the evasion of duty payment on the samples. Consequently, the tribunal upholds the lower authorities' orders and rejects the appeals, along with disposing of the stay petition.This detailed analysis covers the various issues involved in the legal judgment delivered by the Appellate Tribunal CESTAT, Mumbai, providing a comprehensive understanding of the arguments presented and the tribunal's findings on each issue.