2009 (3) TMI 837 - AT - Central Excise

Demand - Clandestine removal - Evidence - Diversion of inputs - declared wastage against the industrial norms of the wastage

Issues Involved:
1. Alleged contravention of Rule 57A/57AB of the Central Excise Rules, 1944 and Rule 3(4) of the Cenvat Credit Rules, 2001-2002.
2. Alleged clandestine removal of HDPE/PP granules without payment of duty.
3. Determination of reasonable wastage percentage.
4. Confiscation of plastic granules.
5. Imposition of penalties on the appellant companies and individuals.
6. Limitation period for issuing show cause notices.

Detailed Analysis:

1. Alleged Contravention of Rules:
The main allegation against the appellants was that they had contravened the provisions of Rule 57A/57AB of the Central Excise Rules, 1944, and Rule 3(4) of the Cenvat Credit Rules, 2001-2002 by not using Cenvat credit availed plastic granules in the manufacture of woven fabrics/sacks but instead, removing them clandestinely without payment of duty. The show cause notices quantified the demand based on a permissible wastage percentage of 7.5%, derived from other factories and the EXIM Policy Handbook.

2. Alleged Clandestine Removal:
The adjudicating authority concluded that the appellants had shown excess wastage and thus cleared the HDPE/PP granules clandestinely. However, the Tribunal found that there was no evidence to support the claim of clandestine removal. The orders were based on assumptions and presumptions, which cannot be the basis for such allegations. The Tribunal cited previous cases, including Sipani Fibres and Nutech Polymers, where similar allegations were dismissed due to lack of concrete evidence.

3. Determination of Reasonable Wastage:
The adjudicating authority pegged the permissible wastage at 7.5%, but the appellants argued that there were no prescribed standard Input-Output norms under Central Excise Law for manufacturing woven fabrics and sacks from plastic granules. The Tribunal noted that the wastage percentage used by the adjudicating authority was based on assumptions and not on any scientific or technical basis. The Tribunal also referenced the CBEC Circular dated 29-8-2000, which clarifies that Cenvat credit is admissible on inputs used in the manufacture of packing materials.

4. Confiscation of Plastic Granules:
The adjudicating authority ordered the confiscation of 323 bags of plastic granules seized at the premises of M/s. Mahalakshmi Plastics. The appellants contended that these bags were not purchased by them. The Tribunal found that there was no evidence to show that the confiscated goods were procured by the main appellant-assesses, and thus, the confiscation order was set aside.

5. Imposition of Penalties:
The adjudicating authority imposed penalties on the appellant companies and individuals under various sections of the Central Excise Act and Rules. However, since the Tribunal found no evidence of clandestine removal or misuse of Cenvat credit, the penalties were deemed unjustified and were set aside.

6. Limitation Period:
The appellants argued that the show cause notice issued on 31-8-2004 was beyond the limitation period, as the Cenvat credit was availed during the period July/August 1999 to March 2003. The Tribunal did not delve deeply into this issue as the appeals were disposed of on merits.

Conclusion:
The Tribunal set aside the orders of the adjudicating authority, finding that the allegations of clandestine removal and misuse of Cenvat credit were based on assumptions and not supported by concrete evidence. Consequently, the confiscation orders and penalties were also set aside, and the appeals were allowed with consequential relief.

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