2010 (12) TMI 290 - AT - Central Excise

Evasion of duty - Non maintenance of accounts - Valuation of excisable goods with reference to retail sale price - Demand - Penalty - It is the submission that the appellants completely denied the allegation of clandestine removal; submitting details of raw material procured, the input and output ratio etc. and contented that the charge on clandestine removal as set up in the show cause notice was not corroborated by any other evidence - The information of detection of clandestine removal and evasion of duty came to the knowledge of the Department through external sources - Held that The adjudicating authority having not given any positive findings as regards the clandestine manufacturing and clearance of the goods, in itself would indicate that the said charges as alleged against the appellants were not proved. - the suppression of turnover is admitted and can be either on account of undervaluation or on account of volume - As the suppressed turnover is in value terms only, no enquiry need be made for establishing the turnover to the use of raw materials etc. The suppressed turnover, being the excess collection over and above the recorded value or income in their books, is related to the sale value which escaped assessment under the Central Excise Act. Once the suppressed turnover is admitted beyond any doubt and the assessee opts to accept the tax liability under the Income Tax Act, no meaningful purpose would have been served to cause further detailed probing under the Central Excise Act and Rules. - Order travelled beyond the scope of SCN, demand set aside. It is to be noted that the recalculation or re-quantification of an amount received in excess of the MRP declared and collected from the customers has to be done in a prescribed manner - CBEC vide circular No.334/1/2008-TRU dt. 29/2/2008 made it clear that the MRP Valuation rules are effective from 1/3/2008 - his would indicate that prior to 1/3/2008, there was no procedure to revise the MRP and demand the duty even though there being a provision under sub-section (4) of Section 4A of the Central Excise Act, 1944 - Held that In the absence of any legal machinery during the relevant period, re-determination of RSP /MRP by the Department is without any authority of law.

Issues Involved:

1. Allegation of clandestine removal and suppression of production and sales.
2. Reliance on documents and statements from Income Tax authorities.
3. Admissibility and evidentiary value of computer printouts.
4. Determination of duty liability under Section 4A of the Central Excise Act.
5. Quantification of duty based on suppressed turnover.
6. Imposition of penalties on company officials.

Issue-wise Detailed Analysis:

1. Allegation of Clandestine Removal and Suppression of Production and Sales:

The case began with the Central Excise authorities receiving information from the Income Tax Department about undisclosed sales turnover by the appellant companies, RFPL and PFPL, for December 2001 and January 2002. The show-cause notice alleged that the companies had suppressed production and sales, resulting in evasion of Central Excise duty amounting to Rs. 60,93,750/-. The adjudicating authority, however, found no corroborative evidence of clandestine manufacturing and removal of goods. The lack of evidence led to the conclusion that the charge of clandestine removal was not sustainable. The Tribunal held that the proceedings should have been dropped once the charge of clandestine removal was found unsustainable, citing the Supreme Court judgments in CCE, Nagpur Vs. Ballarpur Industries Ltd. and CCE, Bhubaneswar-I Vs. Champdany Industries Ltd.

2. Reliance on Documents and Statements from Income Tax Authorities:

The Central Excise authorities relied on documents and statements obtained by the Income Tax Department during a raid. The Tribunal noted that the statements recorded under Section 132(4) of the Income Tax Act, 1961, were admitted by the company officials as undisclosed sales turnover. However, the Tribunal emphasized that the evidentiary value of such statements is restricted to proceedings under the Income Tax Act and cannot be used for Central Excise purposes without corroborative evidence.

3. Admissibility and Evidentiary Value of Computer Printouts:

The Tribunal addressed the admissibility of computer printouts recovered by the Income Tax Department. It was argued that these printouts were not admissible under Section 36B of the Central Excise Act, 1944, as there was no proof that they were obtained in accordance with the legal requirements. The Tribunal agreed, citing the case of Sri Chakra Ltd. Vs. CCE, and held that the printouts could not be considered reliable evidence without proper authentication and corroboration.

4. Determination of Duty Liability under Section 4A of the Central Excise Act:

The Tribunal examined whether the duty liability could be determined based on the suppressed turnover. It was noted that the provisions of Section 4A of the Central Excise Act, 1944, which deal with valuation based on the retail sale price (RSP), did not provide a mechanism for re-determining the RSP during the relevant period (December 2001 and January 2002). The Tribunal cited the case of Millennium Appliances India Ltd. Vs. CCE, Hyderabad, which held that the rules for determining the RSP came into effect only from 1/3/2008. Therefore, the re-determination of the RSP by the adjudicating authority was without legal authority.

5. Quantification of Duty Based on Suppressed Turnover:

The show-cause notice quantified the duty based on an extrapolation of the suppressed turnover of Rs. 3.75 crores. The Tribunal found that this method of quantification was flawed, as there was no legal provision or machinery to revise the RSP before 1/3/2008. The adjudicating authority's reliance on the suppressed turnover to determine the duty was, therefore, not sustainable.

6. Imposition of Penalties on Company Officials:

The adjudicating authority had imposed penalties on the directors and financial controller of RFPL and PFPL under Rule 26 of the Central Excise (No. 2) Rules, 2001. However, given the Tribunal's findings that the charges of clandestine removal and suppression of production were not substantiated, the basis for imposing penalties was also deemed unsustainable.

Conclusion:

The Tribunal concluded that the impugned order was not sustainable and set it aside. All the appeals were allowed with consequential relief, emphasizing that the lack of corroborative evidence and the absence of legal provisions for re-determining the RSP during the relevant period rendered the demand and penalties unsustainable.

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