2010 (1) TMI 688 - AT - Central Excise

Demand - Clandestine removal - Mis-declaration - Undervaluation - It was submitted during the hearing by the learned Advocate for the respondents that the Department has not really challenged the findings of the Commissioner with regard to under-valuation - it is also necessary to draw samples of decorative plywood if the same were to be found in the factory either of the respondents which would have strengthened the case of the Department and it would have shown atleast that the respondents did indeed undertake manufacturing of decorative plywood - merely because one dealer admitted having paid additionally could not justify the determination of differential duty on the ground of under-valuation on the basis of highest price according to the provision of Section 4 of Central Excise Act, 1944 on all clearances without even ascertaining quantum of such additional consideration It was necessary for the officers to workout the actual assessable value on the basis of the provisions of Section 4 on the evidences gathered. In this case testing of samples and expert opinion and trade enquiry if were to be made as part of investigation would have helped the case of the Department - As rightly observed by the Commissioner while the Department seems to have made out a case that there was undervaluation, it was necessary for the Department to quantify the same and also quantify as per law. In the absence of any effort to quantify and in the absence of effort to use all the evidences gathered properly, it is not possible to sustain the allegations made in the show cause notice - Appeal is rejected

Issues Involved:
1. Mis-declaration and under-valuation of decorative plywood as repressed plywood.
2. Clandestine removal of decorative plywood.
3. Eligibility for small scale exemption.
4. Validity of the evidence used by the Commissioner.
5. Application of the highest price for valuation.
6. Maintenance of production and clearance records.
7. Admission statements and their implications on the case.

Detailed Analysis:

1. Mis-declaration and Under-valuation of Decorative Plywood:
The respondents were accused of mis-declaring decorative plywood as repressed plywood to show lower prices. The Commissioner noted that although goods were seized from dealers, no samples were tested to confirm if they were decorative plywood. The Tribunal in B.C. Plywood Ind. P. Ltd. held that untested samples and catalogues cannot determine classification. The Commissioner observed that both types attracted the same duty rate, and no evidence was presented to show that decorative plywood commanded higher prices. The show cause notice adopted the highest price for the same thickness without proving all clearances were of decorative plywood. The Department failed to provide evidence or test samples, weakening the under-valuation charge.

2. Clandestine Removal of Decorative Plywood:
The Commissioner confirmed clandestine removal based on dealer statements but rejected the same evidence for under-valuation. The Tribunal noted that the Department did not challenge the Commissioner's findings on under-valuation but focused on clandestine removal. The Commissioner's detailed analysis of each piece of evidence led to the conclusion that the under-valuation charge could not be sustained.

3. Eligibility for Small Scale Exemption:
In the case of Palghar Plywood Products (P) Ltd., the issue of eligibility for small scale exemption was raised due to the clearance of Durian brand decorative plywood. The Tribunal did not specifically address this issue in the detailed analysis, focusing instead on the broader issues of under-valuation and clandestine removal.

4. Validity of the Evidence Used by the Commissioner:
The Commissioner's decision was based on a thorough analysis of the evidence, including the lack of sample testing and the reliance on catalogues. The Department's failure to test samples or find decorative plywood in the factory further weakened their case. The Commissioner's reliance on the Tribunal's decision in B.C. Plywood Ind. P. Ltd. was deemed appropriate.

5. Application of the Highest Price for Valuation:
The Department's method of applying the highest price for the entire year was criticized. The Commissioner and the Tribunal found this approach inappropriate without evidence that all clearances were of decorative plywood. The Tribunal agreed that plywood of the same thickness could have different prices, and the Department's method did not justify the differential duty demand.

6. Maintenance of Production and Clearance Records:
The respondents did not maintain detailed records of production and clearance. The Commissioner noted that valid documents accompanied invoices to dealers, questioning the Department's choice to calculate differential duty based on the highest price. The Tribunal agreed with the Commissioner's observation that improper maintenance of records alone did not justify the under-valuation charge.

7. Admission Statements and Their Implications on the Case:
The Department relied on admission statements, but the Commissioner found these insufficient to justify the under-valuation charge. The Tribunal noted that the Department did not fully utilize the evidence to quantify the alleged under-valuation. The Commissioner's conclusion that the evidence did not support the show cause notice's allegations was upheld.

Conclusion:
The Tribunal upheld the Commissioner's decision to drop the under-valuation charge, agreeing that the Department failed to provide sufficient evidence. The appeals filed by the Revenue were rejected, and the cross-objections by the respondents were disposed of. The Tribunal emphasized the need for proper investigation and evidence to support allegations of under-valuation and clandestine removal.

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