2025 (11) TMI 1695 - AT - Central Excise

Excise demand for alleged repacking of maize starch set aside for lack of proof and no duty evasion motive

M/s. Manibhadra Food Products, Sumitra Mehta, Suresh Kumar Mehta Versus The Commissioner of Central Excise, Bangalore

Appeal allowed. CESTAT held that the department failed to prove that the appellant undertook repacking of maize starch powder from bulk packs into 1 kg ... Levy of Central Excise duty - process amounting to manufacture or not - re-packing of Maize Starch Powder from bulk packs into smaller packs of one kg - dispute is for the period from 01.08.2010 to 31.03.2015 and the SCN was issued on 20.03.2015 - extended period of limitation - penalty - HELD THAT:- It is an admitted fact that Appellant had undertaken repacking of the goods in the past and availability of the machinery for the same cannot be considered as evidence to reach to a conclusion that the Appellant were carrying out said activity during the impugned period. There is no evidence regarding procurement of packing material of one kg for repacking to allege repacking of any goods which would have been the most important and conclusive evidence to substantiate the allegation. Further there is no attempt made to find out the source of printed packing material or pouches meant for repacking in one kg packs - Further, it is found that the investigation against the Appellant had commenced on 28.02.2014 and the investigation continued till August 2015 to allege repacking as carried out till 31.03.2015. Thus, even if it is assumed that the Appellant had resorted to repacking at any point of time, in the absence of any admissible evidence regarding packing material or any other substantial evidence, no conclusion can be reached that the Appellant was carrying out repacking of the goods as alleged. Extended period of limitation and penalty - HELD THAT:- It is an admitted fact that Appellant had received repacked goods from M/s. MFP, Hugli for trading as evident from the invoices and the statement produced before us. Further it is evident that as per the allegation in the impugned order, Appellant had received Maize starch Power in bulk in registered address and Central Excise Duty was paid duty on the bulk quantity. If appellant had undertaken repacking activity as held in the impugned order, they would have been entitled to CENVAT credit of the duty paid on the bulk goods and adjust the same towards the liability on the repacked goods - the cost of repacking from bulk packs to small packs involves only a meager amount of additional expenses as differential duty payable after adjusting the CENVAT. Thus, there was no deliberate attempt for evasion of excise duty as held by Adjudication Authority to confirm demand duty by invoking extended period of limitation and penalty. There is no evidence to substantiate the finding in the impugned order that the appellant had carried out manufacturing of 1 kg pack in their premises to confirm demand. Further there is no reason or justification to allege fraud, collusion or suppression of facts, willful mis-statement of fact or contravention of statutory provisions with an intension to evade payment of duty to confirm demand by invoking the extended period of limitation and to impose penalty. Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED (1) Whether the appellant had, during the relevant period, undertaken repacking of Maize Starch Powder from bulk packs into 1 kg retail packs amounting to 'manufacture' so as to attract Central Excise duty. (2) Whether the demand of duty and imposition of penalties could be sustained in the absence of cogent evidence of such repacking activity at the appellant's premises. (3) Whether the invocation of the extended period of limitation and the consequential imposition of penalties were justified on the basis of alleged fraud, suppression, or intent to evade duty. 2. ISSUE-WISE DETAILED ANALYSIS Issue (1) & (2): Alleged repacking of Maize Starch Powder into 1 kg packs at appellant's premises and sustainability of demand Interpretation and reasoning The Tribunal noted that it was an admitted fact that the appellant had undertaken repacking activity in the past and had the necessary machinery, but held that mere past activity or availability of infrastructure could not be treated as evidence of repacking during the impugned period. The Tribunal found that there was no evidence of procurement or use of 1 kg printed packing material/pouches in the appellant's Bangalore premises for the relevant period, although such packing material would have constituted the most important and conclusive evidence of repacking. The Tribunal observed that the department did not carry out any effective enquiry to ascertain the source or supply of printed pouches for 1 kg packs to the appellant after 2008, despite it being shown that the regular supplier, a registered unit, had not supplied such pouches to the appellant beyond May 2008 and had subsequently supplied to the Hugli unit. The Tribunal took note that investigation commenced on 28.04.2014 and continued till August 2015, yet no evidence was brought on record to show the existence or seizure of 1 kg retail packs at the appellant's premises at any time, even for the post-detection period for which demand was raised. From the mahazar dated 28.04.2014 and the list of documents seized, the Tribunal observed that no document or material indicated the presence of 1 kg retail packs repacked at Bangalore, and no questions were put to the concerned persons regarding procurement of 1 kg packs bearing the appellant's name, as required by Food Safety Standards. The Tribunal relied, by way of analogy, on the principle in the cited Supreme Court decision that, in the absence of evidence showing bulk goods being sold in retail packs, excise demand on alleged repacking could not be sustained. The Tribunal accepted the appellant's explanation that, from January 2009 onwards, (a) goods in bulk were sold as such in the original manufacturers' packing showing only the manufacturers' name, and (b) 1 kg repacked goods bearing the ATC brand were received from the Hugli unit and traded as such, on which duty had already been discharged by the Hugli unit and accepted by the department in Settlement Commission proceedings. Conclusions The Tribunal held that there was no admissible or conclusive evidence to establish that the appellant had carried out repacking/manufacture of 1 kg Maize Starch Powder packs at its Bangalore premises during the impugned period. Consequently, the confirmation of demand of Central Excise duty and related liabilities on the basis that such repacking took place at the appellant's premises was held to be unsustainable. Issue (3): Validity of invoking extended period of limitation and imposition of penalties Interpretation and reasoning The Tribunal noted it was admitted that the appellant received repacked 1 kg goods from the Hugli unit and traded them, as shown by invoices and statements produced, and that Maize Starch Powder received in bulk at the appellant's premises had already suffered Central Excise duty at the manufacturer's end. The Tribunal reasoned that, if any repacking had actually been undertaken by the appellant, it would have been entitled to CENVAT credit of the duty paid on bulk goods and could have adjusted such credit against the duty on repacked goods, thereby making any alleged evasion economically insignificant and unlikely. The Tribunal relied on the Settlement Commission's order in respect of the Hugli unit, where a substantial portion (over 90%) of the duty demand of Rs. 1,57,56,742/- was discharged through CENVAT credit on bulk Maize Starch Powder and printed pouches, with only a small balance paid in cash, and where only a minor portion of CENVAT credit was found inadmissible and settled. On these facts, the Tribunal held that there was no reasonable basis to allege fraud, collusion, willful misstatement, suppression of facts, or contravention with intent to evade duty so as to justify invocation of the extended period or imposition of penalties under the Central Excise law. Conclusions The Tribunal held that the extended period of limitation was not invocable in the absence of evidence of suppression, fraud, or intent to evade duty. The imposition of penalties, including those on the proprietress and the person in charge under Rule 26, was held to be unjustified and unsustainable. On the above findings, the Tribunal allowed the appeals with consequential relief in accordance with law.