2004 (7) TMI 562 - AT - Central Excise

Summary

Issues:
1. Allegation of duty evasion through clandestine manufacturing and under sales of packing materials.
2. Contention regarding excessive wastage presumption and illegal duty demand.
3. Lack of evidence supporting allegations of clandestine production.
4. Computation of water production quantity without considering production capacities.
5. Valuation of packing materials sold to franchisees and sister concern.
6. Claim of time-barred demand due to contemporaneous reporting of wastages.
7. Assessment of penalty against the appellants.

Analysis:

Issue 1: Allegation of Duty Evasion
The case involved an allegation of duty evasion against the appellant for clandestine manufacturing and under sales of packing materials. The appellant, a water manufacturer, was accused of evading duty amounting to Rs. 5.7 Crores. The Commissioner of Central Excise confirmed duty evasion of Rs. 4.3 Crores for clandestine removals and Rs. 1 Crore for removal of packing materials, imposing penalties accordingly.

Issue 2: Contention on Excessive Wastage
The appellant contested the findings, arguing that the duty demand was based on the assumption of excessive wastage, which was deemed illegal citing the Oudh Sugar Mills Ltd. case. The appellant highlighted that the actual wastage reported to authorities was not disputed, and the allegations were based on presumptions rather than concrete evidence.

Issue 3: Lack of Evidence Supporting Allegations
During the hearing, the appellant's counsel presented evidence contradicting the assumptions of excessive waste and clandestine production. The appellant emphasized that the allegations were unfounded as actual wastage reports were accurate and supported by contemporaneous records, challenging the Revenue's claims of clandestine activities.

Issue 4: Computation of Water Production Quantity
The computation of water production quantity was challenged by the appellant, arguing that the demand was calculated based on a fixed production capacity without considering actual production capacities at different times. The appellant highlighted the discrepancy in assuming a fixed capacity of 7000 Ltrs per hour when the actual capacity was lower until June 2000.

Issue 5: Valuation of Packing Materials
Regarding the valuation of packing materials sold to franchisees and sister concern, the appellant argued that there was no under-valuation as the same prices were charged to unconnected buyers. The appellant emphasized that selling at the same price to both connected and unconnected parties negated the allegation of undervaluation.

Issue 6: Claim of Time-Barred Demand
The appellant contended that the demand was time-barred as the actual wastages were reported contemporaneously to authorities, indicating no intent to suppress facts for duty evasion. The appellant argued that the demand did not involve suppression of facts, making the extended period demand unjustified under Section 11A of the Central Excise Act.

Issue 7: Assessment of Penalty
The Tribunal found merit in the appellant's contentions, ruling in favor of the appellant due to lack of concrete evidence supporting the duty evasion allegations. The Tribunal held that the demand was not sustainable, dismissing the penalty considerations against the appellants, including the Director, as the duty demand was deemed unjustified based on assumptions and presumptions without factual basis.

In conclusion, the appeals succeeded, and the impugned order was set aside, vindicating the appellant's position against the duty evasion allegations.