2009 (2) TMI 645 - AT - Central Excise

Demand - Limitation - invocation of Extended period of limitation - The appellant s main contention is that the Revenue s case is totally dependent upon the input-output ratio which in turn is based upon the statements made by the Director and the other employees and the experiment conducted by the Revenue themselves - Held that - apart from the input-output ratio which has been made the basis there is no other evidences on record to show that the appellant either did not receive the raw materials on which they have taken the credit or after receiving the same and availing the credit the same stand removed by them in the open market. The statements given by the Director Production In-charge and Lab. Assistant refer to the normal consumption of raw materials for production of one batch of their final product. There is no admission in the said statements to the effect that the raw materials were not actually received by them and they were showing excess consumption of the raw materials to accommodate such non-receipted raw materials. There is also no admission in the said statements to the effect that raw materials stand diverted in the open market. Even the experiments conducted by the Department in the presence of the officers showed variance quantity of used raw materials than the input-output norms. All these factors lead to show that the findings arrived at by the adjudicating authority are on the basis of assumptions and presumptions and in the absence of any independent evidence cannot be upheld. Extended period of limitation - Held that - where demands have been worked out from the RT12 returns furnished by the appellants extended period would not be available to the Revenue as suppression of material facts cannot be attributed to the assessee. Appeal allowed - decided in favor of assessee.

Issues Involved:
1. Confirmation of demand for Modvat/Cenvat credit.
2. Allegations of excess issuance of raw materials.
3. Wrongful availing of Cenvat credit.
4. Suppression of facts and evasion of Central Excise duties.
5. Validity of the show cause notice.
6. Basis of clandestine removal allegations.
7. Admissibility of Modvat credit.
8. Limitation period for demand.

Detailed Analysis:

1. Confirmation of demand for Modvat/Cenvat credit:
The Commissioner of Central Excise, Daman confirmed a demand of Modvat/Cenvat credit amounting to Rs. 1,01,92,446/- with interest and imposed a penalty of an identical amount on M/s. PCL Oil & Solvents Ltd. Separate penalties were also imposed on the Director and Production In-charge under Rule 209A.

2. Allegations of excess issuance of raw materials:
The Revenue alleged that the appellant showed excess issuance of raw materials to cover up raw materials that were not actually received. This was based on the input-output ratio derived from statements and experiments conducted by the officers. The Commissioner concluded that the appellants showed excess issuance of raw materials to evade Central Excise duties.

3. Wrongful availing of Cenvat credit:
The appellant admitted to availing Cenvat credit of Rs. 4,44,445/- on two bills of entries without actually receiving the corresponding inputs. They debited the duty involved immediately upon realizing the mistake.

4. Suppression of facts and evasion of Central Excise duties:
The Revenue held that the Director and Production In-charge knowingly suppressed facts and colluded to maintain misstated records to evade payment of Central Excise duties. This was based on the statements and records scrutinized during the investigation.

5. Validity of the show cause notice:
A show cause notice was issued to the appellant on 25-8-2004, requiring them to explain why the duty wrongly availed should not be confirmed along with interest and penalties. The notice culminated in the impugned order passed by the Commissioner.

6. Basis of clandestine removal allegations:
The Tribunal observed that the Revenue's case was primarily based on theoretical input-output ratios and statements from the Director and other employees. However, it was contended that the actual utilization of raw materials varied from batch to batch due to several factors. The Tribunal emphasized that clandestine activities cannot be upheld solely on theoretical norms without independent evidence.

7. Admissibility of Modvat credit:
The Tribunal noted that Modvat credit cannot be denied based on a one-to-one input-output ratio. The appellant's records showed varying raw material requirements for different batches, and the actual production was accounted for in the RG-1 Register. The Tribunal referred to several precedents where it was held that exact mathematical equations between inputs and finished goods are not essential for Modvat credit eligibility.

8. Limitation period for demand:
The Tribunal found that the entire facts, including the use of raw materials, were disclosed to the Revenue in monthly returns. The figures in the show cause notice were taken from statutory records maintained by the appellant. It was held that when demands are based on statutory records and monthly returns, suppression of material facts cannot be attributed to the assessee, and the extended period of limitation cannot be invoked.

Conclusion:
The Tribunal set aside the balance demand of Rs. 97,48,001/- and the penalties imposed on M/s. PCL Oil & Solvents Ltd., except for the confirmed demand of Rs. 4,44,445/-. The penalties imposed on the Director and Production In-charge were also set aside. The appeals were disposed of accordingly.

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