2007 (6) TMI 111 - AT - Central Excise

Demand - Department raised demand along with penalty and interest on the ground of non-payment of duty on excisable goods and clandestine removal of goods - Held that contention is not valid and set aside demand, penalty and interest

Issues Involved:
1. Duty liability on welding electrodes removed for repacking and subsequently destroyed.
2. Allegation of clandestine removal of flux.
3. Reversal of Modvat/Cenvat credit on packing material and inputs.
4. Demand of duty on intermediate goods (flux).
5. Penalties imposed under various sections and rules.
6. Validity of extended period for demand under Section 11A(1) of the Central Excise Act.

Detailed Analysis:

1. Duty Liability on Welding Electrodes Removed for Repacking and Subsequently Destroyed:
The appellants argued that welding electrodes, which have a shelf life of six months, were subjected to re-inspection and repacking. They maintained proper records and reversed Modvat credit for inputs used in repacking. The department contended that the electrodes were destroyed during reprocessing, attracting duty. The Tribunal found that the appellants had followed due procedures, including obtaining permission from the Superintendent of Central Excise and reversing Modvat credit, and thus, the demand of Rs. 1,13,25,157/- was set aside. The Tribunal noted that the finished goods removed for repacking were not marketable, and therefore, no duty liability arose.

2. Allegation of Clandestine Removal of Flux:
The department alleged that the appellants had clandestinely removed flux, leading to a demand of Rs. 15,19,441/-. The Tribunal observed that the difference between the quantity of flux consumed as per ER-1 returns and daily production plans was due to different sources of records. The appellants' explanation that the ER-1 returns showed the quantity manufactured while the daily production plan showed the quantity consumed was accepted. In the absence of evidence of clandestine removal, the demand was set aside.

3. Reversal of Modvat/Cenvat Credit on Packing Material and Inputs:
The appellants reversed Modvat credit on inputs used in repacking, including flux, on a monthly basis and informed the Range Superintendent. The Tribunal found that the appellants had maintained proper records and reversed the credit appropriately. Therefore, no additional duty was demandable on this account.

4. Demand of Duty on Intermediate Goods (Flux):
The demand of Rs. 15,19,441/- on flux was based on alleged discrepancies between ER-1 returns and daily production plans. The Tribunal found that the appellants had provided a reasonable explanation for the differences and that there was no evidence of clandestine removal. Consequently, the demand was set aside.

5. Penalties Imposed Under Various Sections and Rules:
Penalties were imposed on the company officials under Section 11AC, Rule 13(2) of Cenvat Credit Rules, 2002, and Rule 25 of Central Excise Rules, 2002. Since the duty demands were set aside, the Tribunal also set aside the penalties, finding no justification for their imposition.

6. Validity of Extended Period for Demand Under Section 11A(1) of the Central Excise Act:
The Tribunal noted that the appellants had followed established procedures, including obtaining permissions and maintaining records, and there was no suppression of facts with intent to evade duty. Therefore, the invocation of the extended period for demand was not justified, and the demand was barred by limitation.

Conclusion:
The Tribunal set aside all demands of duty, interest, and penalties, allowing the appeals with consequential relief. The judgment emphasized the importance of proper record-keeping, adherence to procedural requirements, and the necessity of marketability for duty liability.

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