2013 (12) TMI 224 - AT - Central Excise

Confiscation of the White Sugar - unaccounted stock - revenue allege that they manufacture white sugar on which duty is liable to be discharged but cleared the same as Khandsari Sugar claiming exemption - Proper Examination of evidences not made - Held that - The appellants had submitted Form No.11 prescribed under Rule 61 of the Gujarat Factories Rules, 1967 the open pressure pan was not insulated - The certificates up to 2004 were of open pressure pan - from the year 2005, Form No. 11 specifically talks about vacuum pans which were insulated vessels and undisputedly can be used for manufacture of White Sugar - If the appellant s factory did not have vacuum pan during the period 2002 to December 2004, the appellant cannot manufacture White Sugar - The evidence has been totally over looked by the adjudicating authority and hence the findings that the appellant were manufacturing White Sugar from 2002 to 2005 seems to be incorrect and misdirected. Mere perusal of the process flow sheet of machineries installed in the factory premises at the time of taking the consent indicated that there was manufacturing of only Khandsari Sugar and nowhere had it indicated that there was intention to manufacture White Sugar - All these evidences which were on the file were over looked by the adjudicating authority while coming to a conclusion that appellant had manufactured White Sugar and not Khandsari Sugar - the appellant had in fact, in the application made to GPCB indicated that there was cooling pan in the ATP unit of the appellant - there was nothing on record to indicate that cooling pan which was there in the factory premises of the appellant when they applied for consent from GPCB or can be used with machineries like vacuum pressure pan. The appellant had produced various certificates from the purchasers of Khandsari Sugar during the material period - the purchasers have specifically stated that they were regularly procuring Khandsari Sugar from the appellant and were also dealing in sugar from various manufacturers - The certificates specifically note and record that the purchases made from the main appellant SGSI were of Khandsari Sugar the attitude of brushing aside of evidence produced by the assessee in his support is incorrect Following COMMISSIONER OF C. EX., CUS. & SERVICE TAX Versus VISHWA TRADERS P. LTD. 2013 (4) TMI 55 - GUJARAT HIGH COURT - the order confirming demand of Central Excise duty from the appellant for the period 2002 to 2005, holding that appellant had manufactured and cleared White Sugar, is without any evidence and unsupported reasoning - The order, to that extent set-aside. Duty on molasses - Unaccounted stock Held that - The records indicate that the appellant has produced only Khandsari Sugar and it is also brought on record that molasses arising out of manufacturing of Khandsari Sugar has been consumed by main appellant for manufacture of Rotan Gur - the benefit of General Exemption No. 52 (Notification No. 6/2002) as extended at Serial No. 6, will be applicable and duty liability will be Nil as the molasses arising and captively consumed out of manufacture of Khandsari Sugar - the confiscation of the White Sugar upheld which was found in the factory premises during the visit of investigating officers, the appellant should be penalised for non-recording White Sugar in their books of account Decided partly in favour of Assessee.

Summary

Issues Involved:
1. Confiscation of unaccounted sugar.
2. Demand of Central Excise duty on white sugar.
3. Demand of Central Excise duty on molasses.
4. Interest and penalties on the appellants.
5. Violation of principles of natural justice.

Detailed Analysis:

1. Confiscation of Unaccounted Sugar:
The factory of the appellant was found with 13,847 quintals of unaccounted sugar, which included 3,500 quintals of white sugar. The adjudicating authority ordered the confiscation of these goods under Rule 25 of the Central Excise Rules, 2002, and imposed a redemption fine of Rs. 25 Lakhs, appropriating the Rs. 3,00,000/- deposited as cash security. The Tribunal upheld the confiscation of the 3,500 quintals of white sugar due to its unaccounted nature but reduced the redemption fine to Rs. 1,00,000/- considering the proportionality to the value of the goods.

2. Demand of Central Excise Duty on White Sugar:
The adjudicating authority confirmed a demand of Rs. 89,42,852/- for the period 2002-2005 on the grounds that the appellant had clandestinely manufactured and cleared white sugar. The Tribunal found that the evidence did not support the claim that the appellant manufactured white sugar during this period. The appellant had only started manufacturing white sugar in January 2005 and had applied for Central Excise registration on 05.01.2005. The Tribunal noted that the factory was equipped with open pressure pans until 2004, which were unsuitable for manufacturing white sugar. The Tribunal concluded that the adjudicating authority's findings were incorrect and set aside the demand for the period 2002-2005.

3. Demand of Central Excise Duty on Molasses:
The adjudicating authority confirmed a demand of Rs. 8,53,500/- on molasses. The Tribunal found that the molasses were a by-product of manufacturing Khandsari sugar and were consumed to produce 'Rotan Gur', which was exempt under Notification No. 6/2002. However, the Tribunal upheld the duty liability on molasses arising from the manufacture of 3,500 quintals of white sugar.

4. Interest and Penalties on the Appellants:
The adjudicating authority imposed penalties on the main appellant and its partners under various sections of the Central Excise Act, 1944, totaling Rs. 1,27,96,352/-. The Tribunal, having set aside the primary demands, also set aside the associated interest and penalties, except for a penalty of Rs. 1,00,000/- on the main appellant for not recording the white sugar in their books.

5. Violation of Principles of Natural Justice:
The appellants argued that the adjudicating authority violated principles of natural justice by denying cross-examination of witnesses. The Tribunal agreed that the adjudicating authority overlooked crucial evidence, such as the test reports and certificates from purchasers, and failed to properly consider retracted statements. The Tribunal emphasized the need for corroborative evidence in cases of alleged clandestine manufacture and removal of goods.

Conclusion:
The Tribunal set aside the majority of the adjudicating authority's order, including the demands for duty on white sugar and molasses (except for molasses from white sugar production) and the associated penalties and interest. The Tribunal upheld the confiscation of unaccounted white sugar and imposed a reduced redemption fine and penalty. The appeals were disposed of accordingly.