2009 (9) TMI 791 - AT - Central Excise

Summary

Issues:
1. Duty liability on imported raw materials
2. Shortage of grey fabrics and shrinkage claims
3. Compliance with principles of natural justice
4. Financial hardship and balance sheet analysis
5. Justification for waiver of dues

Duty liability on imported raw materials:
The appellant, a 100% EOU engaged in fabric manufacturing, imported grey fabrics without paying excise and customs duties. The duty liability was based on square meter measurement. The appellant sent the grey fabrics for processing to a third party and received back processed material. The Department alleged a significant unexplained shortage in square meters of fabric, leading to a demand for duty payment of Rs. 9,45,39,374 along with interest and penalties.

Shortage of grey fabrics and shrinkage claims:
The Tribunal noted that the matter was before them for the second time after remand. The appellant failed to satisfactorily explain the high percentage of shrinkage claimed on the width side. While the job work challans indicated a 3% shrinkage in linear meters, the appellant could not provide valid reasons for the higher shrinkage claimed. The Department relied on the job work challans received after the appellant's submissions, indicating no violation of natural justice principles.

Compliance with principles of natural justice:
The appellant argued that the Commissioner did not comply with the Tribunal's directions and did not appreciate their submissions adequately. They claimed a violation of natural justice due to the reliance on job work challans without disclosure. However, the Tribunal found no violation, as the Department relied on the challans only after the appellant had submitted them.

Financial hardship and balance sheet analysis:
The appellant presented a balance sheet showing significant losses, indicating financial hardship. The Department argued that the balance sheet was incomplete and highlighted substantial financial flows within the company. The Tribunal observed that the inability to explain the shortage of raw materials could lead to heavy losses, emphasizing the obligation to account for duty-free raw materials properly.

Justification for waiver of dues:
Despite the appellant's financial difficulties, the Tribunal held that they did not make a case for a full waiver of dues. The appellant was directed to deposit Rs. 5 crores within 12 weeks, with a waiver of the remaining duty, interest, and penalties subject to compliance. The Tribunal emphasized the consequences of failing to account for duty-free raw materials and the need to fulfill obligations under the bond.

This detailed analysis of the judgment addresses the duty liability on imported raw materials, the shortage of grey fabrics and shrinkage claims, compliance with principles of natural justice, financial hardship and balance sheet analysis, and the justification for the waiver of dues. The Tribunal's decision reflects a balance between the appellant's financial challenges and the obligation to properly account for duty-free raw materials.