2006 (5) TMI 513 - AT - Central Excise

Summary

Issues:
Demand of duty confirmation against the appellant for undervaluation of grey fabrics received from merchant manufacturers, imposition of penalties, invocation of extended period of limitation, appellant's knowledge of undervaluation by merchant manufacturers.

Analysis:
The judgment by the Appellate Tribunal CESTAT, Mumbai dealt with the confirmation of duty demand against an appellant engaged in processing grey fabrics received from merchant manufacturers. The demand was upheld due to undervaluation of the grey fabrics, as revealed during a search at the merchant manufacturer premises where duplicate bills showing higher values were seized. The proceedings initiated based on this led to the confirmation of duty demand and imposition of penalties on the appellant.

The appellant, represented by a Chartered Accountant, argued that while they should have discharged duty based on correct values, they were not aware of the fraud committed by the merchant manufacturers. The appellant claimed reliance on the price declarations made by the merchant manufacturers and argued against the invocation of extended period of limitation, citing lack of evidence of their involvement in any fraudulent activities.

The Revenue contended that the appellant, as a processor, was responsible for verifying the correctness of values declared by the merchant manufacturers. Failure to do so resulted in the correct demand of differential duty being raised against the appellant within the extended period of limitation.

Upon examination, the Tribunal found that the appellant had accepted the grey bills provided by the merchant manufacturers in good faith, without knowledge of any undervaluation. Referring to previous judgments, the Tribunal held that the extended period of limitation cannot be invoked unless there is evidence of the appellant's knowledge or deliberate failure to declare correct values. Since there was no proof of the appellant's involvement in fraudulent activities, the demand was deemed barred by limitation, and the impugned order was set aside in favor of the appellant.

In conclusion, the Tribunal ruled in favor of the appellant, highlighting the lack of evidence indicating their knowledge of undervaluation by the merchant manufacturers, thereby rejecting the invocation of the extended period of limitation and allowing the appeals by setting aside the demand confirmation and penalties imposed.