2010 (1) TMI 1012 - AT - Central Excise

Summary

Issues:
1. Calculation of scrap and processing loss in manufacturing process.
2. Duty demand on excess loss shown by job worker.
3. Reliance on audit objection for raising show cause notices.

Issue 1: Calculation of scrap and processing loss in manufacturing process:
The appellants, in two appeals, were involved in manufacturing galvanized wire from wire rods on their account and on job work basis. The audit revealed discrepancies in the wastage accounted for in products manufactured on job work basis. The Department demanded duty on the excess scrap and processing loss, alleging clandestine manufacturing and removal of finished goods. The Commissioner (Appeals) upheld the duty demand. The appellants argued that the higher wastage in job work products was due to the nature of materials used, citing the Supreme Court decision in Oudh Sugar Mills Ltd. v. Union of India. The Tribunal noted the lack of investigation by the Department into the nature of materials used and the differences in raw materials for job work and self-manufactured goods. It held that demands based solely on audit objections without proper investigation and evidence were unsustainable. Consequently, the orders of the lower authorities were set aside, and the appeals were allowed.

Issue 2: Duty demand on excess loss shown by job worker:
In one of the appeals, the appellants faced duty demand due to excess loss shown by the job worker to whom they had sent inputs for job work. The Tribunal considered the submissions made by both sides, where the appellants argued that the duty demand was based on presumption and assumption without concrete evidence of clandestine removal. The Jt. CDR reiterated the findings of the Commissioner (Appeals) based on shortages calculated from raw materials received and finished goods returned by the job worker. The Tribunal found that the demand lacked investigation into the differences in materials used for job work and self-manufactured goods. It concluded that the demand solely relying on audit objections was unsustainable, leading to the setting aside of the lower authorities' orders and allowing the appeal.

Issue 3: Reliance on audit objection for raising show cause notices:
The show cause notices were raised by the Department based on audit objections regarding the higher wastage claimed in job work products compared to self-manufactured goods. The Tribunal noted that the Department failed to conduct a detailed investigation into the nature of materials used for job work and self-manufactured goods. It highlighted the absence of evidence supporting the allegations of clandestine removal and emphasized that demands based solely on audit objections without proper investigation could not be sustained. The Tribunal, therefore, set aside the orders of the lower authorities and allowed the appeals, providing consequential relief as per law.

This comprehensive analysis of the judgment highlights the issues related to the calculation of scrap and processing loss, duty demand on excess loss shown by job workers, and the reliance on audit objections for raising show cause notices. The Tribunal's decision focused on the lack of investigation by the Department, the absence of concrete evidence supporting the duty demands, and the unsustainable nature of demands based solely on audit objections.