2012 (9) TMI 858 - AT - Central Excise

Penalty - Whether in a process involving heating/melting there can be a process-loss or not especially when the raw material is a scrap - Held that - I am not aware of any technology available at present which eliminates process-loss. In any manufacturing activity process-loss occur and so long as the losses are within reasonable limits they have to be permitted. In the case before me the loss is only to the extent of 5.4% which is very reasonable and therefore it cannot be held that there was any unreasonable loss. Further the department has not adduced any evidence whatsoever to show that the appellant diverted a part of the material for some other purpose. In the absence of such evidence the action on the part of the department in imposing a penalty that too on alleged ground of suppression is bad in law - Decided in favour of assessee.

Summary

Issues:
1. Duty demand on short-receipt of copper cathodes within 180 days.
2. Imposition of penalty on the appellant.

Analysis:

Issue 1: Duty demand on short-receipt of copper cathodes within 180 days
The case involved the appellant, a company that sent copper waste and scrap for the manufacture of copper cathodes to their job worker but failed to receive the full quantity back within the stipulated 180 days. This led to a duty demand issued by the department, which the appellant settled along with interest. However, the duty demand was confirmed, and an equivalent penalty was imposed. The appellant contended that the short-receipt was due to process loss, which is inevitable in manufacturing processes involving heating and melting. The department failed to provide evidence that the material was not utilized for manufacturing or that there was any diversion. The judge noted that process losses are common in manufacturing activities and as long as they are within reasonable limits, they should be permitted. The loss in this case was deemed reasonable at 5.4%, and without evidence of diversion, the penalty imposition was considered unjustified. Consequently, the penalty was set aside, and the appeal was allowed.

Issue 2: Imposition of penalty on the appellant
The appellant argued that the penalty imposed by the department was unjust as the short-receipt of copper cathodes was due to process loss during manufacturing, a common occurrence in such processes. The appellant highlighted the absence of evidence proving any diversion of materials. The judge agreed that process losses are inherent in manufacturing activities, especially involving scrap materials, and as long as they are reasonable, they should be allowed. Since the department failed to provide evidence of diversion or misuse of materials, the penalty imposition was deemed unlawful. Consequently, the penalty imposed on the appellant was set aside, and the appeal was allowed with any consequential relief.

This judgment underscores the importance of considering process losses in manufacturing activities and the necessity of providing evidence before imposing penalties. It also emphasizes the need for reasonableness in assessing losses and the consequences of unjustified penalty imposition.