2016 (3) TMI 1048 - AT - Central Excise

Penalty invoking provisions of Section 11AC - willful misstatement of facts - shortages of phosphoric acid and sulphuric acid - Held that - Willful misstatement or suppression of facts with intent to evade payment of duty is not established on the part of the appellants. The special facts of the case that a Government of India Enterprise - a Public Sector Undertaking (and its employees) are part of the proceedings and that willful misstatement of facts with intent to evade duty have not been found proved. Consequently, the demand of duty in both the appeals beyond the period of one year from the date of show-cause notice cannot survive. Revenue , thus has to recalculate the duty liability in respect of only one year period for which the demand has been found lawful as willful misstatement or suppression of facts with intent to evade payment of duty on the part of the appellants have not been found to be existing. The original adjudicating authority is directed to recalculate the duty liability in respect of the said shortages of phosphoric acid and sulphuric acid arrived at by the impugned Orders-in-Original. The demand of duty along with interest at appropriate rate for this said shortage, which is accountable for the period of only preceding one year prior to the date of show-cause notice is hereby sustained under the provisions of Section 11A(1) of Central Excise Act, 1944 read with Rule 6 of Central Excise (RGCRDMEG) Rules, 2011 and Section 11AB of the then Central Excise Act, 1944. In this regard, the appellants are directed to give all the documents if required by the original adjudicating authority and original adjudicating authority will also give the appellants sufficient opportunity by way of personal hearing to produce the data and documents, if any. This process of revision and recovery of demand has to be completed within three months of receipt of this order.

Issues Involved:
1. Notional shortage of sulphuric and phosphoric acid due to weighment differences.
2. Invocation of the extended period of limitation for demanding duty.
3. Applicability of penalties under Section 11AC of the Central Excise Act, 1944.
4. Validity of demands based on commercial transaction documents.

Detailed Analysis:

1. Notional Shortage of Sulphuric and Phosphoric Acid Due to Weighment Differences:
The appellants, a Government of India Public Sector Undertaking, argued that the alleged shortages were not actual but notional due to weighment differences. They procured sulphuric and phosphoric acid from Sterlite Industries at zero duty and claimed that the differences arose from calibration errors in weighing scales and concentration loss. The Department, however, based their demand on the credit notes issued by Sterlite Industries, comparing the quantity for which payment was made with the invoice quantity. The appellants contended that the seals on the tankers were intact, indicating no pilferage or embezzlement, and that the commercial agreements were internal arrangements for price determination, not indicative of actual shortages.

2. Invocation of the Extended Period of Limitation for Demanding Duty:
The Department issued show-cause notices for periods beyond one year, invoking the extended period under Section 11A(1) of the Central Excise Act, alleging suppression of facts with intent to evade payment of duty. The Commissioner (Appeals) dropped the penalties under Section 11AC, which are mandatory for willful misstatement or suppression of facts with intent to evade duty, indicating that such ingredients were not found to exist. This inconsistency led to the conclusion that the extended period could not be invoked if the penalties were not sustained.

3. Applicability of Penalties Under Section 11AC of the Central Excise Act, 1944:
The Commissioner (Appeals) set aside the penalties under Section 11AC, suggesting that the appellants did not willfully suppress facts or evade duty. The Tribunal noted that if the ingredients for imposing penalties under Section 11AC were absent, the extended period for demanding duty could not be justified. This was supported by the CESTAT Delhi decision in M/s. Smart Finance vs. Commissioner of Central Excise, Jaipur, which held that if penalties were dropped due to bona fide belief, the extended period could not be invoked.

4. Validity of Demands Based on Commercial Transaction Documents:
The Tribunal found that the appellants maintained two sets of records: one for Central Excise authorities showing full receipt of goods, and another for commercial transactions showing less receipt due to notional shortages. The argument that commercial transaction documents should not be relied upon was rejected, as these documents indicated actual payments for lesser quantities, contradicting the records submitted to the Department. The Tribunal emphasized that maintaining separate accounts for commercial and regulatory purposes was not justifiable.

Conclusion:
The Tribunal concluded that the demand for duty beyond the normal period of one year could not be sustained due to the absence of willful misstatement or suppression of facts. The original adjudicating authority was directed to recalculate the duty liability for the period within one year prior to the date of the show-cause notices, based on the shortages of phosphoric and sulphuric acid as determined. The recalculated duty, along with interest, was to be recovered within three months, with the appellants given an opportunity to present relevant documents.

Order:
The appeals were decided in the above terms, with the order pronounced in open court on 29/02/2016.

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