2006 (6) TMI 303 - AT - Central Excise

Issues Involved:
1. Alleged clandestine manufacture and clearance of acid slurry by M/s. Jaya Soap Works.
2. Eligibility for SSI exemption under Notification No. 175/86-C.E. for M/s. Jaya Soap Works and other respondents.
3. Department's failure to provide basic records as directed in the remand order.
4. Validity of evidence based on procurement of raw materials (sulphuric acid and LAB).
5. Impact of findings on sister concerns and their eligibility for SSI exemption.

Detailed Analysis:

1. Alleged Clandestine Manufacture and Clearance of Acid Slurry:
The primary issue was whether M/s. Jaya Soap Works clandestinely manufactured and cleared acid slurry without paying duty. The adjudicating authority initially found against M/s. Jaya Soap Works based on evidence from suppliers of sulphuric acid and LAB. However, the Tribunal in its remand order (Final Order No. 608/94) found the evidence unreliable due to the department's failure to provide basic records. The Tribunal emphasized that the onus was on the department to supply these records to establish clandestine manufacture. Since the department could not provide the necessary records, the Tribunal concluded that the evidence on record did not support the allegation of clandestine manufacture of acid slurry by M/s. Jaya Soap Works.

2. Eligibility for SSI Exemption under Notification No. 175/86-C.E.:
The department alleged that M/s. Jaya Soap Works exceeded the aggregate value of clearances, disqualifying them from SSI exemption for subsequent years. However, the Tribunal found that without evidence of clandestine manufacture, the aggregate value of clearances was within the prescribed limit, making M/s. Jaya Soap Works eligible for SSI exemption. Consequently, other respondents who cleared goods under the brand name of M/s. Jaya Soap Works were also eligible for SSI exemption, as the brand name owner was eligible for the benefit.

3. Department's Failure to Provide Basic Records:
The Tribunal's remand order directed the department to supply basic records seized from suppliers to M/s. Jaya Soap Works. The department's failure to provide these records rendered the evidence unreliable. The Tribunal highlighted the importance of these records for a fair adjudication and noted that the department could not embark on further investigations or collect new evidence. The lack of basic records led to the dismissal of the department's appeals.

4. Validity of Evidence Based on Procurement of Raw Materials (Sulphuric Acid and LAB):
The Tribunal scrutinized the evidence related to the procurement of sulphuric acid and LAB. It found that the evidence of sulphuric acid procurement was unreliable without the basic records. Additionally, the Tribunal ruled that acid slurry could not be manufactured from LAB alone, referencing several case laws that required evidence of all essential raw materials for establishing clandestine manufacture. The absence of such comprehensive evidence led to the conclusion that the department failed to prove clandestine manufacture based on LAB consumption alone.

5. Impact on Sister Concerns and Their Eligibility for SSI Exemption:
The Tribunal noted that the proceedings against sister concerns were contingent on the findings against M/s. Jaya Soap Works. Since the allegation of clandestine manufacture was not established, the sister concerns were also found eligible for SSI exemption. The Tribunal dismissed the department's appeals against these entities, upholding the orders vacating the demand of duty.

Conclusion:
The Tribunal dismissed the department's appeals, sustaining the orders in favor of M/s. Jaya Soap Works and other respondents. It concluded that the department failed to provide necessary evidence to establish clandestine manufacture and clearance of acid slurry. Consequently, all respondents were found eligible for SSI exemption under Notification No. 175/86-C.E. during the relevant period.

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