2007 (11) TMI 47 - AT - Central Excise

Final product was diverted to DTA by 100%EOU So exemption under Not. 125/84 is not available, duty & interest payable on clandestinely removed goods Goods liable for confiscation & penalty - Here duty will be paid on final product so demand on duty free inputs is unjustified

Issues Involved:
1. Clandestine removal of goods by a 100% EOU.
2. Eligibility for exemption under Notification No. 125/84-C.E.
3. Assessment under Section 3(1) of the Central Excise Act.
4. Treatment of sale price as cum-duty value.
5. Confiscation of goods and demand of differential duty.
6. Imposition of penalties on various individuals and entities.

Detailed Analysis:

1. Clandestine Removal of Goods by a 100% EOU:
The Commissioner confirmed the clandestine removal of goods by SPL using invoices of Hindustan Cotton Co. and M.M. Sanghavi. This was supported by seized private records, documents from Hindustan Cotton Co. and M.M. Sanghavi, and confessional statements. The Tribunal upheld this finding, rejecting the contention that the demand was based solely on computer-generated production sheets.

2. Eligibility for Exemption under Notification No. 125/84-C.E.:
The main issue was whether goods clandestinely removed by a 100% EOU without permission were eligible for exemption under Notification No. 125/84-C.E. The Tribunal referred to the Larger Bench decision, which held that such goods are not eligible for exemption and must be assessed under the proviso to Section 3(1) of the Central Excise Act. The Tribunal upheld the Commissioner's adoption of the duty rate.

3. Assessment under Section 3(1) of the Central Excise Act:
The Tribunal confirmed that goods cleared clandestinely by a 100% EOU should be assessed under the proviso to Section 3(1) of the Central Excise Act. This was based on the Larger Bench's decision, which clarified that such goods are not entitled to exemption under Notification No. 125/84-C.E.

4. Treatment of Sale Price as Cum-Duty Value:
The Tribunal considered whether the sale price of clandestinely removed goods should be treated as cum-duty value. Citing the case of Asian Alloys Ltd., it was held that since the sales were clandestine and no duty was claimed to be included in the price, the sale price cannot be treated as cum-duty. The Tribunal upheld the Commissioner's decision on the valuation for duty demand.

5. Confiscation of Goods and Demand of Differential Duty:
The Tribunal upheld the confiscation of nylon covered yarn weighing 245.980 Kgs. valued at Rs. 1,72,186/-. The goods were cleared without duty and seized from the transport company's godown. The demand of differential duty amounting to Rs. 55,202.96 was also justified, as the goods were not eligible for exemption under Notification No. 125/84-C.E.

6. Imposition of Penalties on Various Individuals and Entities:
Penalties were imposed on several individuals and entities involved in the clandestine removal. The Tribunal upheld the penalties but reduced the amounts for certain individuals, considering their roles:
- Penalty on Shri Madhusudan Jhunjhunwala reduced from Rs. 5 lakhs to Rs. 2 lakhs.
- Penalty on Shri Satish Kumar Sharma reduced from Rs. 5 lakhs to Rs. 50,000/-.
- Penalty on Shri Dinesh Chandra Pandey reduced from Rs. 2 lakhs to Rs. 25,000/-.
- Penalty on Shri Gopal Bhagwan Dutt Sharma reduced from Rs. 1 lakh to Rs. 25,000/-.
- Penalty on M/s. M.M. Sanghavi set aside, and penalty on M/s. Hindustan Cotton Co. reduced to Rs. 2 lakhs.
- Penalty on M/s. Jaipur Golden Transport Co. set aside, as there was no reliable evidence of their knowledge or intention regarding the offending goods.

Department's Appeal:
The department's appeal regarding the demand of duty on "duty-free inputs" used in the manufacture of final products was rejected. The Tribunal cited precedent decisions, holding that raw materials used in excess clearances do not warrant duty demand if the finished goods were diverted.

Conclusion:
The appeals were disposed of as per the above terms, with the Tribunal upholding the majority of the Commissioner's findings and orders, while providing some relief in penalties for specific individuals and entities.

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