2014 (12) TMI 991 - AT - Central Excise

Clandestine manufacture and clearance of their final product - Held that - There is no other evidence to show clandestine removal of the goods. It is a well settled that the charges of clandestine removal cannot be upheld on the basis of such theoretical productions calculated on the basis of chemical formula. Manufacturing of formulates is not mechanical process. The same is chemical process where oxygen react with methanol under presence of silver catalyst and resultantly formaldehyde is produced. There are various factors such as purity of water & air, voltage fluctuation, impurity in catalyst, etc. which directly or indirectly affect on and cause variation in the production of formaldehyde. The revenue has not conducted any physical experiment to arrive at the actual production. Otherwise also I find that in the absence of the corroborative evidence, the confirmation of demand stands rightly set aside by Commissioner (Appeals) - Decided against Revenue.

Summary

Issues:
1. Alleged clandestine manufacture and clearance of formaldehyde.
2. Calculation of production based on chemical formula.
3. Lack of corroborative evidence for excess production and clandestine removal.

Issue 1: Alleged Clandestine Manufacture and Clearance of Formaldehyde
The case involved the appellant, engaged in the manufacture of formaldehyde, facing allegations of suppressing production and clandestine clearance. The revenue initiated proceedings proposing a confirmation demand and penalties. The original adjudicating authority confirmed the demand and penalties, leading to an appeal by the revenue. The Commissioner (Appeals) considered various factors affecting production, such as purity of air, voltage availability, water purity, and catalyst purity, which impact the formation of formaldehyde from methanol. The Commissioner observed that production cannot always align with theoretical precision due to these factors, highlighting the difference between science and technology. The Commissioner found no physical tests conducted to substantiate the claim for production as per the chemical formula. As a result, the Commissioner held that no duty was payable on the alleged clandestine manufacture and removal of formaldehyde, setting aside the demand and penalties.

Issue 2: Calculation of Production Based on Chemical Formula
The revenue appealed against the Commissioner's decision, arguing that apart from the chemical formula, there was no evidence of clandestine removal. The revenue acknowledged that charges of clandestine removal cannot be upheld solely based on theoretical productions calculated from a chemical formula. The revenue emphasized that formaldehyde production is a chemical process influenced by factors like water and air purity, voltage fluctuations, and catalyst impurities. No physical experiments were conducted by the revenue to determine actual production. The absence of corroborative evidence led to the confirmation of demand being rightfully set aside by the Commissioner (Appeals). Consequently, the appeal filed by the revenue was rejected.

Issue 3: Lack of Corroborative Evidence for Excess Production and Clandestine Removal
The judgment highlighted the importance of considering practical factors influencing production rather than relying solely on chemical formulas. It emphasized the need for corroborative evidence to substantiate claims of excess production and clandestine removal. The lack of physical tests and supporting evidence led to the dismissal of the revenue's appeal. The judgment underscored that theoretical calculations alone are insufficient to prove clandestine activities in manufacturing processes, especially in complex chemical reactions like formaldehyde production.