2006 (7) TMI 563 - AT - Central Excise

Summary

Issues Involved:
1. Demand and penalties related to the consumption of High Speed Diesel (HSD) from another EOU.
2. Alleged clandestine removal and subsequent demand of duty on Guar Gum Powder seized from the godown of a group company.

Issue-wise Detailed Analysis:

1. Demand and Penalties Related to the Consumption of High Speed Diesel (HSD):
The appellants were found using duty-free High Speed Diesel (HSD) in their dryer machine, which was supplied from another EOU against CT-3 form as per Notification 1/95-C.E., dated 4-1-1995. The appellants accepted their mistake and reversed the entire duty amount on 6-2-2002. The adjudicating authority confirmed the demand of duty and imposed penalties for this violation. The appellants contested only the penalty, not the duty amount. The Tribunal found that since the appellants had deposited the entire duty amount before the issuance of the show cause notice, the penalty under Section 11AC of the Central Excise Act, 1944, was not imposable. This conclusion was based on precedents from the Hon'ble High Court of Bombay in the case of Commissioner of Central Excise-I v. Gaurav Mercantiles Ltd. and the Larger Bench of the Tribunal in Commissioner of Central Excise, Delhi-III v. Machino Montell (I) Ltd.

2. Alleged Clandestine Removal and Subsequent Demand of Duty on Guar Gum Powder:
The anti-evasion officers seized 21,828 bags from the godown of Vikas Chemi Gums India Private Ltd. (VCGIPL), suspecting them to contain Guar Gum Powder clandestinely removed by the appellant, a 100% EOU. Initial and retest reports from the CRCL laboratory indicated the presence of Guar Gum Powder. However, the appellants contested these findings, arguing that the samples did not conform to ISI specifications for Guar Gum Powder. The Tribunal scrutinized the analytical reports, noting significant inconsistencies and deviations from ISI specifications, particularly regarding viscosity and galactomanan content, which are crucial for identifying Guar Gum Powder. The Tribunal found that the initial report dated 6-5-2002 did not test these crucial parameters, and the retest report dated 27-8-2003 showed significant variations, particularly an unexplained increase in protein content. Based on these discrepancies, the Tribunal concluded that the analytical reports were not reliable, and the department's case that the seized goods were Guar Gum Powder failed. Consequently, the demand, confiscation, and penalties related to the alleged clandestine removal were set aside.

Conclusion:
The appeal succeeded, resulting in the setting aside of the demands and penalties related to both issues. The Tribunal allowed the appeal with consequential relief to the appellants. The operative part of the order was pronounced in open court at the end of the hearing on 28-7-2006.