2015 (2) TMI 655 - AT - Central Excise

Waiver of pre deposit - discrepancy in ER-2 returns and RG-1 register - Debonding of unit - Conversion to DTA unit - Held that - The duty demand of ₹ 32,83,532/- has been confirmed on the stock of the material valued at ₹ 92 lakhs alleged to be the stock as on 1.4.2009 when the unit was 100% EOU. These stock of material shown in trial balance sheet for the period from 1.4.2009 to 31.7.2009 has been assumed by the Department to be the stock of finished goods. Accordingly the duty has been demanded on this stock on the ground that at the time of de-bonding, duty on the entire stock of finished goods was payable. However, it is seen that as per Superintendent s verification report submitted to the jurisdictional Assistant Commissioner, there was no stock of finished goods in the factory as on 31.3.2009 and also there was no stock of raw materials procured without payment of duty as on 31.3.2009.The trial balance sheet placed on record simply mentions the stock of material valued at ₹ 92 lakhs as on 1.4.2009. Thus, from this entry in the trial balance sheet, it cannot be presumed that this stock entry was of finished goods, as the same could be duty paid raw materials or packing materials etc. The appellant s plea is that prior to de-bonding, they had started procuring packing material adhesives from domestic services etc. and had stopped procuring duty free raw materials. We are , therefore, of the view that pre-deposit of 25% of the duty demand was not justified. Matter remanded back - Decided in favour of assessee.

Summary

Issues:
1. Duty demand on stock of finished goods during de-bonding.
2. Discrepancy in stock records leading to duty demand.
3. Pre-deposit requirement for appeal proceedings.

Issue 1: Duty demand on stock of finished goods during de-bonding

The appellants, a 100% EOU manufacturing wooden handicrafts, faced a duty demand issue when converting into a DTA unit. The Department alleged duty of Rs. 16,89,759 on finished goods stock as of 1.4.2009 and Rs. 32,83,532 on material valued at Rs. 92 lakhs as of 1.4.2009. The Additional Commissioner dropped the first demand but confirmed the second, imposing interest and penalty. The Commissioner (Appeals) directed a 25% pre-deposit, leading to dismissal of the appeal. The Tribunal found discrepancies in the stock records and remanded the matter for further decision without pre-deposit, as the stock entry could be of duty-paid raw materials.

Issue 2: Discrepancy in stock records leading to duty demand

The Department based duty demands on trial balance sheets showing stock values, assuming them to be finished goods. However, a Superintendent's report indicated no finished goods or duty-free raw materials as of 31.3.2009. The appellants argued that the stock mentioned in the balance sheet included duty-paid raw materials and packing materials, not just finished goods. The Tribunal agreed, noting the lack of evidence supporting the assumption that the stock was solely finished goods, leading to the rejection of the pre-deposit requirement.

Issue 3: Pre-deposit requirement for appeal proceedings

The Commissioner (Appeals) initially directed a 25% pre-deposit, which the appellants contested due to the lack of consideration for their arguments regarding the stock composition. The Tribunal waived the pre-deposit requirement, allowing for a final disposal of the matter. The Tribunal found the pre-deposit unjustified and set aside the impugned orders, remanding the case for a decision on merits without insisting on any pre-deposit amount, emphasizing the importance of a thorough review of the stock composition before imposing duty demands.

This comprehensive analysis of the judgment highlights the duty demand issues, discrepancies in stock records, and the pre-deposit requirement, providing a detailed understanding of the case's legal complexities and the Tribunal's decision.