2015 (9) TMI 979 - HC - Central Excise

Demand of differential duty - shortage of stock - 100% Export Oriented Unit - Clandestine removal of goods - Held that - Whatever may be the justification to levy Excise duty by invoking power under Section 3 of the Act, vis- -vis the manufacture, a totally different legal regime exists, when the agency sought to be proceeded is a 100% EOU. What is payable by that unit would be Customs duty. The parameters for levy of Customs duty, on the one hand, and the Excise duty, on the other, are totally different. So much so, the authorities also are not the same. The points, at which the duty leviable is the Excise duty, or the Customs duty, are substantially different. - Tribunal recorded a clear finding to the effect that there was serious defect in the very process of verification of the stock. It was mentioned that the gross area of the slabs was taken into account, though what becomes chargeable is a net area. The substantial quantity goes towards wastage and that was not taken into account. - Though the adjudication undertaken by the High Court happens to be the first by a judicial agency, the one undertaken by the Tribunal cannot be interfered just like that. It is only when substantial question of law raises that an occasion would arise to require the Tribunal to refer the questions to the High Court. - No question of law arises - Decided against Revenue.

Summary

Issues:
Central Excise Reference Case under Section 35H(1) of the Central Excise Act - Interpretation of exemption Notification No. 125/84-C.E. for goods manufactured by a 100% EOU unit and sold clandestinely in India.

Analysis:
The case involves a 100% Export Oriented Unit (EOU) in Granite that had permission to sell 5% of its product within the Domestic Tariff Area (DTA). The Original Authority alleged a shortage of stock and excess finished products, leading to a demand for differential Excise duty. The respondent challenged this demand in Appeal No. E/1463/1998 before the CEGAT, which was allowed in their favor. The reference to the High Court was sought in relation to this order.

During the proceedings, the respondent argued that the calculation of stock was incorrect, emphasizing the difference between gross and net quantity for Excise duty purposes. The CEGAT noted that the levy of Excise duty on a 100% EOU should only occur if instances of sale in the DTA are proven. In this case, no such sales were demonstrated, and discrepancies in stock verification were highlighted.

The Tribunal also pointed out a serious defect in the stock verification process, where wastage was not accounted for, leading to an incorrect demand for duty. It was clarified that Customs duty, not Excise duty, is payable by a 100% EOU, as the legal regimes and parameters for each duty differ significantly.

Regarding the requirement for a reference under Section 35 of the Act, the High Court found no substantial question of law to warrant intervention. The Tribunal's decision was upheld as it correctly identified the factual inaccuracies in the demand for Excise duty. Consequently, the Central Excise Reference Case was rejected by the High Court.