2006 (11) TMI 86 - AT - Central Excise

Demand Cenvat/Modvat Alleged that appellants diverted Plastic Granules purchased by them and accordingly Cenvat credit interest and penalty demanded Authority after considering all the details allow the appeal with consequential relief.

Issues Involved:
1. Demand of Cenvat credit on alleged diversion of plastic granules.
2. Imposition of interest under Section 11AB.
3. Imposition of penalty under Section 11AC.
4. Personal penalties on company directors.
5. Confiscation of seized cash under Section 121 of the Customs Act, 1962.
6. Validity of extended period invocation for demand.
7. Justification for penalties under Rule 209A of Central Excise Rules, 1944/Rule 26 of Central Excise Rules, 2002.

Issue-wise Detailed Analysis:

1. Demand of Cenvat credit on alleged diversion of plastic granules:
The appellants were accused of diverting plastic granules purchased between July 1999 and March 2003, resulting in a demand for Rs. 50,05,465/- in Cenvat credit. The demand was based on the assumption that wastage beyond 7.5% to 7.7% was due to clandestine removal. The appellants argued that no standard norms for wastage were prescribed under Central Excise Laws and that wastage varied significantly across similar factories. They also contended that various operational factors could contribute to wastage and that the burden of proving clandestine clearance lay with the Revenue. The Tribunal found that the demand was based on theoretical calculations without concrete evidence of diversion, and thus, the demand was not sustainable.

2. Imposition of interest under Section 11AB:
The interest under Section 11AB was imposed along with the duty demand. Since the duty demand itself was found unsustainable, the imposition of interest under Section 11AB was also not justified.

3. Imposition of penalty under Section 11AC:
The penalty under Section 11AC was imposed equal to the duty demand. Given that the duty demand was not upheld, the penalty under Section 11AC was also deemed unjustified.

4. Personal penalties on company directors:
Personal penalties of Rs. 5,00,000/- each were imposed on the Managing Director and another Director, and Rs. 20,000/- on a proprietor of another company. The Tribunal noted that the Commissioner did not provide specific findings on how these individuals personally dealt with excisable goods with knowledge of their liability to confiscation. Therefore, the personal penalties were not justified.

5. Confiscation of seized cash under Section 121 of the Customs Act, 1962:
The seized cash of Rs. 10,04,000/- was confiscated on the grounds that it represented sale proceeds of diverted granules. The appellants provided an account for the major portion of the cash, and there was no evidence of any customer purchasing the diverted granules. The Tribunal found the confiscation unsustainable.

6. Validity of extended period invocation for demand:
The demand covered the period from 1-7-1999 to 31-3-2003, but the Show Cause Notice was issued on 19-7-2004, invoking the extended period. The appellants regularly filed ER-1 and RT-12 returns, indicating wastage details, and the Audit Party had visited the unit without adverse observations. Thus, the Tribunal found no justification for invoking the longer period due to the lack of willful suppression or misstatement.

7. Justification for penalties under Rule 209A of Central Excise Rules, 1944/Rule 26 of Central Excise Rules, 2002:
The Tribunal noted that the Commissioner did not provide specific findings on how the appellants personally dealt with excisable goods with knowledge of their liability to confiscation. Therefore, the penalties under Rule 209A of Central Excise Rules, 1944, and Rule 26 of Central Excise Rules, 2002, were not justified.

Conclusion:
The Tribunal set aside the impugned order, finding the demand of Cenvat credit, interest, penalties, and confiscation of cash unsustainable due to lack of concrete evidence and improper investigation. The appeals were allowed with consequential relief.

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