TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
When case Id is present, search is done only for this
of 
of 
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of of 
All Case Laws
of of All Case Laws
Note
Bookmark
Share
Don't have an account? Register Here
of <h1>Revenue fails to prove clandestine removal of polyester textured yarn; demand limited to Section 3(1), confiscation power restricted</h1> <h3>Chandralon Texturising Pvt. Limited Versus Commissioner of CGST & Central Excise, Surat</h3> Chandralon Texturising Pvt. Limited Versus Commissioner of CGST & Central Excise, Surat - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether demands of excise duty for clearances by a 100% EOU during the period 01.04.1999 to 23.10.1999 are payable under main Section 3(1) of the Central Excise Act, 1944 or under the proviso to Section 3(1). 2. Whether the departmental demand based on alleged clandestine/illicit clearance of finished goods is sustainable in absence of corroborative evidence and adequate investigation. 3. Whether confiscation of marginal excess stock (shortages/excesses measured in hundreds or thousands of kilograms) is sustainable where explanation of accounting error or negligible variation is offered. 4. Whether penalties linked to the confirmed demand survive where the substantive demand is found unsustainable. ISSUE-WISE DETAILED ANALYSIS - ISSUE 1: NATURE OF CHARGE (SECTION 3(1) VS. PROVISO) Legal framework: Section 3(1) is the charging section levying excise duties on all excisable goods produced or manufactured in India. The proviso to Section 3(1) prescribes an alternative rate (aggregate of customs duties) for goods produced in FTZs or by 100% EOUs and 'allowed to be sold in India' (language prior to amendment effective 11.05.2001). Precedent treatment: The Court applied Supreme Court rulings (including SIV Industries and subsequent apex decisions) and Board circulars (Circular No. 618/9/2002-CX dated 13.02.2002) as authoritative. Decisions of various Benches that suggested otherwise were treated as distinguishable or overruled by higher judicial decisions (notably the Supreme Court in NCC Blue Water and Sarla Performance Fibers affirming SIV Industries and validating the Board circular insofar as pre-11.05.2001 transactions are concerned). A Larger Bench decision inconsistent with the Supreme Court was held to be not binding. Interpretation and reasoning: For transactions prior to 11.05.2001, where a 100% EOU sold/removed goods into DTA without permission, the proviso to Section 3(1) (which applies where goods are 'allowed to be sold in India' with permission) is inapplicable. The charging section (main Section 3(1)) remains applicable and excise duty under that section is leviable. The Court relied on the principle that the proviso only prescribes the rate applicable to permitted sales and does not grant immunity from the charging provision where sales occurred clandestinely without requisite permission. Ratio vs. Obiter: Ratio - Transactions by EOUs to DTA without permission (pre-11.05.2001) attract duty under main Section 3(1), not under the proviso. Obiter - commentary on the scope and effect of post-11.05.2001 amendment language ('brought to any other place') used for contextual interpretation. Conclusion: The impugned order erred in applying the proviso to Section 3(1) for the relevant period; demands, if any, must be assessed under main Section 3(1). The Commissioner (Appeals) misapplied binding precedents and contrary circular guidance for the pre-amendment period. ISSUE-WISE DETAILED ANALYSIS - ISSUE 2: BURDEN OF PROOF AND CORROBORATIVE EVIDENCE FOR CLANDESTINE CLEARANCE Legal framework: Revenue bears the burden of proof to establish clandestine manufacture/clearance and must do so by credible, corroborative evidence beyond mere statements of interested persons. Precedent treatment: Reliance on Tribunal decisions (e.g., parameters laid down in Arya Fibres and Vikram Cements) and subsequent High Court confirmation highlighting that clandestine clearance requires tangible corroboration (raw material excess, discovery of finished goods, buyer/ transporter statements, proof of transportation, receipt of sale proceeds, electrical consumption anomalies, links between recovered documents and factory activities, etc.). The Tribunal's decision in a recent Final Order (Indian Polyfins & Ors.) was cited to support the principle that absence of corroboration defeats clandestine removal allegations. Interpretation and reasoning: The Court found the department failed to produce corroborative evidence - no transporter or buyer corroboration, no discovery of goods at buyer's premises, and reliance essentially on statements of a director/admissions without independent verification. The court applied the established multi-factor test and concluded these criteria were not adequately satisfied. Ratio vs. Obiter: Ratio - Where clandestine clearance is alleged, revenue must discharge an evidentiary burden by producing corroborative, tangible evidence; mere statements do not suffice. Obiter - illustrative list of factors (from prior Tribunal jurisprudence) highlights non-exhaustive criteria for proof. Conclusion: The demand premised on clandestine/illicit clearance is unsustainable due to Revenue's failure to discharge its burden by independent corroborative evidence; the substantive demand must therefore fall. ISSUE-WISE DETAILED ANALYSIS - ISSUE 3: CONFISCATION OF EXCESS STOCK AND ACCOUNTING ERRORS Legal framework: Confiscation under customs/excise provisions requires violation of conditions of exemption or other statutory breach; mere discrepancy between book and physical stock does not ipso facto justify confiscation, especially for duty-free inputs of EOUs. Precedent treatment: Tribunal authorities (Prime Polyweave; Uniworth Textiles) were followed for the proposition that marginal stock variances may be explicable by accounting error and that confiscation under Section 111(o) (customs) requires violation of exemption notification conditions, not merely stock mismatch. Larger Bench holdings inconsistent with these were treated as distinguishable. Interpretation and reasoning: Given that the units were EOUs entitled to duty-free inputs, an explanation that excess/shortage arose from accounting error and is marginal was held reasonable; confiscation without a finding of violation of notification conditions is improper. The Court emphasized ejusdem generis reading of confiscation provisions and the need for a specific breach of exemption conditions. Ratio vs. Obiter: Ratio - Confiscation requires specific breach of exemption conditions; marginal stock variances explained plausibly by accounting error do not warrant confiscation. Obiter - observations on the degree of variation constituting 'marginal' are factual and case-specific. Conclusion: Confiscation of the measured excess/shortage is not sustainable where a plausible accounting error explanation exists and no condition of the exemption notification is shown to have been breached. ISSUE-WISE DETAILED ANALYSIS - ISSUE 4: PENALTY ATTENDANT TO AN UNSUSTAINABLE DEMAND Legal framework: Penalty provisions are ancillary to a valid demand; when the substantive demand is invalidated, related penalties cannot survive unless separately sustainable on independent findings. Precedent treatment: The Court applied standard principle that penalty tied to an unsustainable demand falls with the demand unless independently established; prior authorities cited to this effect were followed. Interpretation and reasoning: Since the Court concluded the substantive demand (excise duty and confiscation) is unsustainable (for reasons above), associated penalties imposed under the rules and sections cited cannot stand. Ratio vs. Obiter: Ratio - Penalties linked to quashed demands are liable to be set aside absent independent justification. Obiter - none. Conclusion: Penalties imposed in connection with the impugned demand are not sustainable and must be set aside along with the demand. Cross-references: Issue 1 decision (applicability of Section 3(1) pre-11.05.2001) informs the legal basis for rejecting the Commissioner (Appeals) finding; Issue 2 (lack of corroboration) supplies independent ground to quash the demand; Issue 3 and Issue 4 follow consequentially from substantive findings. Disposition: The Court set aside the impugned appellate order and allowed the appeals, concluding demands, confiscation and penalties were unsustainable for the reasons above.
TaxTMI 
TaxTMI 
