2011 (3) TMI 332 - AT - Central Excise

Penalty - Rule 26 of the Central Excise Rules, 2002 - 100% EOUs - Facts of diversion are sought to be supported from the RTO reports indicating some of the vehicles as incapable of transporting the goods shown to have been dispatched to the consignee 100% EOUs - The findings of the adjudicating authority as regards diversion of raw materials by the said M/s. Marvel Fashions, instead of using the same in the manufacture of the final products, are based upon the statements of partner and the excise incharge and authorized signatory of M/s. Marvel Fashions - Surprisingly, the officers conducting investigations at the end of Marvel Fashion have not extended their investigation at the end of recipient 100% EOU. No statement of their representative was recorded and they were not permitted to establish the receipt of the goods by them - Board Circular No. 24/91-CX.8 dated 1-7-1991 and 504/70/99-C.E., dated 30-12-1999 - it becomes clear that the rewarehousing certificate is required to be issued by the department after verifying the fact of receipt of goods in the recipient unit. The said certificate having been issued, the benefit of the same is required to be extended to the recipient 100% EOU - Decided in favour of the assessee

Issues Involved:
1. Imposition of penalties on various companies under Rule 26 of the Central Excise Rules, 2002.
2. Allegations of diversion of goods by M/s. Marvel Fashions.
3. Validity of rewarehousing certificates and statutory records.
4. Reliance on statements and evidence for penalties.
5. Previous Tribunal decisions affecting current cases.

Issue-wise Detailed Analysis:

1. Imposition of Penalties:
The Commissioner imposed penalties on various companies under Rule 26 of the Central Excise Rules, 2002, with amounts as follows:
- Rs. 15 Lakhs on M/s. Sunshine Overseas
- Rs. 25 Lakhs on M/s. Al-amin Exports
- Rs. 10 Lakhs on M/s. Cosmos Trading Company
- Rs. 12 Lakhs on M/s. Goodluck Garments Pvt. Limited
- Rs. 4 Lakhs on M/s. The New Era Exports

2. Allegations of Diversion of Goods by M/s. Marvel Fashions:
M/s. Marvel Fashions was accused of diverting goods intended for 100% Export Oriented Units (EOUs) into the local market to evade duty. The allegations included:
- Showing supplies to 100% EOUs only in records to avail duty exemption.
- Diverting imported and processed fabrics into the local market.
- Importing fully finished fabrics and diverting them without payment of duties.
- Misrepresentation in transport documents and using fictitious transport companies.
- Fabricating records to evade Central Excise and Customs duty.

3. Validity of Rewarehousing Certificates and Statutory Records:
The appellants argued that they maintained all statutory registers and filed periodical returns, which were verified by Central Excise Officers. They contended that:
- They received goods from M/s. Marvel Fashions, duly entered in statutory records.
- Rewarehousing certificates were issued by jurisdictional Central Excise officers, confirming receipt of goods.
- No investigations or statements were recorded from their end to dispute these claims.

4. Reliance on Statements and Evidence for Penalties:
The Commissioner relied on statements from M/s. Marvel Fashions' partner and excise incharge, and reports from the RTO and ATIRA. However, the Tribunal found:
- No corroborative evidence from the recipient 100% EOUs.
- The reliance on statements of a co-noticee (M/s. Marvel Fashions) without further investigation at the recipient's end was unjustified.
- The assumption that inferior quality fabrics were used to cover records was based on surmises and conjectures without concrete evidence.

5. Previous Tribunal Decisions Affecting Current Cases:
In the case of M/s. Cosmos Trading Company, the Tribunal had previously set aside penalties, finding no evidence of their involvement in diverting goods. The reasoning adopted in the earlier case was applied to the current case, leading to the conclusion that:
- The appellants supplied goods against legal documents issued by the Department.
- There was no evidence of their knowledge or involvement in the diversion of goods by M/s. Marvel Fashions.

Conclusion:
The Tribunal found that the benefit of doubt should be extended to the appellants due to the lack of concrete evidence against them. The penalties imposed were set aside, and the appeals were allowed with consequential relief. The Tribunal emphasized the need for corroborative evidence and proper investigation at the recipient's end before imposing penalties.

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