2006 (3) TMI 683 - AT - Central Excise

Issues Involved:
1. Allegation of clandestine production and removal of plywood and veneer.
2. Clubbing of clearances of associated companies.
3. Demand of duty based on assumptions and presumptions.
4. Validity of evidence used to support the demand.
5. Imposition of penalties and interest.
6. Allegation of undervaluation.

Issue-wise Detailed Analysis:

1. Allegation of Clandestine Production and Removal:
The main allegation was that M/s. Evergreen Veneers (P) Ltd. engaged in clandestine production and removal of plywood and veneer. The Revenue's case was based on documents recovered during searches and the statement of the Production Manager, which indicated discrepancies in stocks. The Adjudicating Authority confirmed a duty demand of Rs. 1,86,04,469/- for clandestine removal from 1996-97 to 1999-2000. However, the appellants argued that the demand was based on incorrect inferences and lacked material evidence, such as excess electricity consumption or proof of excess raw material purchase.

2. Clubbing of Clearances:
The Revenue proposed to club the clearances of M/s. Evergreen Veneers (P) Ltd. with M/s. Tirupati Veneers (P) Ltd. and M/s. Tirumala Timbers, alleging they were dummy units used to avail irregular SSI benefits. The Adjudicating Authority, however, dropped the demand on account of clubbing, concluding that the evidence was insufficient to prove that these were dummy units.

3. Demand of Duty Based on Assumptions and Presumptions:
The appellants contended that the duty demand was based on assumptions and presumptions, such as 100% output of veneers and highest rate per sq. meter for valuation. They argued that demands cannot be made on assumptions and presumptions, citing case law (Oudh Sugar Mills Ltd. v. UOI). The adjudicating authority's reliance on theoretical calculations and presumptions, such as zero percentage wastage, was criticized.

4. Validity of Evidence Used to Support the Demand:
The appellants argued that there was no concrete evidence to support the huge quantity of goods allegedly manufactured and cleared without payment of duty. They emphasized the lack of evidence such as excess electricity consumption, identification of purchasers, or seizure of goods. The Adjudicating Authority also noted that the case was built on non-accountable raw materials and lacked correlated evidence on other production factors.

5. Imposition of Penalties and Interest:
Penalties and interest were imposed under various sections, including equal penalty under Section 11AC and interest under Section 11AB. Penalties were also imposed on the directors under Rule 209A. The appellants argued against the imposition of penalties, stating that there was no removal from the premises and that the differential duty on undervaluation was not sustainable.

6. Allegation of Undervaluation:
An amount of Rs. 2,84,039/- was demanded on account of undervaluation. The appellants contended that the goods were sold at the same rate at which they were cleared and that the differential amount represented the excise duty element, which is deductible from the sale price. They also pointed out discrepancies in the valuation process adopted by the Commissioner.

Conclusion:
The Tribunal found that the entire demand was based on presumptions and assumptions. The Show Cause Notice and the adjudication order were deemed highly defective, lacking thorough investigation and concrete evidence. The Tribunal noted irregularities in account maintenance but concluded that this alone could not substantiate the allegations of clandestine removal. The appeals of the parties were allowed, and the Revenue's appeal was rejected, as the case against the appellants was not sufficiently proven.

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