2009 (10) TMI 573 - AT - Central Excise

Demand and penalty - whether the cast articles were subjected to machining or not during the relevant period - no other material on record to establish - no investigation done in this regard by the Department - findings arrived at by the Commissioner to justify the denial of benefit to the appellants under Notification No. 223/88 in relation to the product in question for the relevant period cannot be sustained and liable to be set aside - demand for duty cannot be sustained - penalty does not arise

Summary

Issues Involved:
1. Entitlement to concessional rate of duty under Notification No. 223/88.
2. Validity of show cause notices issued during the pendency of provisional assessment.
3. Sufficiency of evidence provided by the Department.
4. Invocation of extended period of limitation.

Issue-wise Detailed Analysis:

1. Entitlement to Concessional Rate of Duty:
The appellants were engaged in manufacturing steel castings and claimed a concessional rate of duty under Notification No. 223/88. The Commissioner denied this benefit, asserting that the products were subjected to machining (boring, welding, pencil grinding, and gauging). The appellants contested this, arguing that the Department failed to provide cogent materials proving that the cast articles were machined as alleged. The Tribunal found that the Department's reliance on the statement of Shri B.S. Bhadoria was insufficient to establish that all cast articles were subjected to machining. The Tribunal determined that Bhadoria's statement, when read in its entirety, did not support the Department's allegations, and thus, the denial of the benefit under Notification No. 223/88 was unjustified.

2. Validity of Show Cause Notices During Provisional Assessment:
The appellants argued that show cause notices could not be issued before the finalization of the provisional assessment. The Tribunal referred to several judgments, including the Supreme Court's decisions in Serai Kella Glass Works Pvt. Ltd. and ITC Ltd., which clarified that a show cause notice under Section 11A could not be issued without completing the assessment proceedings. However, the Tribunal distinguished these cases, noting that the provisional assessment in question related to the non-inclusion of Modvat credit in the assessable value, which was unrelated to the issues in the show cause notices. Thus, the Tribunal held that the Department was not barred from issuing the show cause notices.

3. Sufficiency of Evidence Provided by the Department:
The Tribunal found that the Department failed to provide sufficient evidence to support the allegations. Apart from Bhadoria's statement, no other material evidence was presented to prove that all cast articles were subjected to machining. The Tribunal emphasized that an admission must be clear and unequivocal, and Bhadoria's statement did not meet this standard. The Tribunal also noted that the Department did not take necessary steps to ensure compliance with inspection requirements, further weakening their case.

4. Invocation of Extended Period of Limitation:
Given the Tribunal's findings on the insufficiency of evidence and the unjustified denial of the benefit under Notification No. 223/88, it was unnecessary to address the issue of the extended period of limitation. The Tribunal concluded that the demand for duty and the imposition of penalties could not be sustained.

Conclusion:
The appeal was allowed, and the impugned order was set aside with consequential relief to the appellants. The Tribunal held that the Department failed to provide sufficient evidence to justify the denial of the concessional rate of duty and that the show cause notices were valid despite the pending provisional assessment.