2001 (3) TMI 787 - AT - Central Excise

Summary

Issues Involved:
1. Alleged clandestine removal of cut-tobacco without payment of duty.
2. Validity of demand and penalty imposed under Rule 9(2) and Section 11A(1) of the Central Excise Act.
3. Application of theoretical weight versus actual weight variance.
4. Invocation of proviso to Section 11A(1) for extended period of limitation.
5. Imposition of mandatory penalty under Section 11AC and interest under Section 11AB.

Issue-wise Detailed Analysis:

1. Alleged Clandestine Removal of Cut-Tobacco:
The appellant is engaged in the manufacture of cut-tobacco and cigarettes and also gets cigarettes manufactured on a job work basis. The Excise Department issued seven show cause notices (SCNs) alleging that 4,22,365 Kgs. of cut-tobacco had been cleared without payment of duty or at a concessional rate for captive consumption, based on the variance between theoretical and actual weights. The SCNs demanded Rs. 3,24,51,134/- and imposed a penalty and interest.

2. Validity of Demand and Penalty:
The Commissioner confirmed the demand and imposed penalties without considering the evidence presented by the appellant. The appellant argued that the entire case was based on hypothetical non-accountal and assumed clandestine removal of cut-tobacco, which was under constant scrutiny and verification by the Departmental authorities. The appellant also cited previous SCNs and adjudications where similar allegations were dropped.

3. Theoretical Weight vs. Actual Weight Variance:
The Departmental Instructions on Cigarettes and Cigarette factory recognize the difference between theoretical output and actuals as an established feature. The instructions admit that no norms of permissible variation could be prescribed and mandate a solution to determine the 'normal working difference.' The Tribunal found no material indicating physical verification of the declared formula or any unaccounted stock during the Anti Evasion officers' surprise visit. Thus, the variance alleged was not abnormal, and the proceedings lacked foundation.

4. Invocation of Proviso to Section 11A(1):
The Tribunal found that the fact of 'variance' was well known to the Department and had been agitated from time to time. The SCNs were barred by limitation as the variance was an accepted industry feature, and no special revelation warranted invoking the proviso to Section 11A(1).

5. Imposition of Mandatory Penalty and Interest:
The Tribunal noted that the major portion of the demand was for the period before the introduction of mandatory penalty clauses under Sections 11AC and 11AB. Since the demand was based on assumptions and presumptions without direct evidence, the penalty and interest could not be sustained.

Conclusion:
The Tribunal set aside the orders demanding duties and penalties, allowing the appeal. The findings emphasized the lack of direct evidence, the accepted industry practice of variance, and the improper invocation of extended limitation and penalties.