2016 (5) TMI 84 - HC - Central Excise

Clandestine removal - excess quantity of molasses - demand of duty is based on an assumption that declaration of excess quantity of molasses by the appellant is indicative that the appellant must have purchased and crushed the additional quantity of sugar cane and that corresponding quantity of sugar was manufactured and cleared clandestinely. - Held that - mere fact that the volume of molasses has increased after the closure of the factory, i.e., after the manufacturing of sugar comes to an end cannot lead to a presumption of clandestine manufacture of sugar and consequently, removal of sugar without payment of duty nor can it lead to a presumption that a fraud has been played by the appellant. There should also be clinching evidence in the nature of purchase of raw material, i.e., sugarcane, use of electricity, removal of the final product, i.e., sugar and its sale but such evidence is missing. Also no investigation in this regard has been made by the Department. It is a known fact that if there was excess production in which case there would be excess consumption of electricity, which fact was not examined by the Department. Consequently, on the basis of presumption, a serious charge of clandestine manufacture and removal of sugar has been imposed, which is wholly erroneous. The charge of clandestine removal of sugar is required to be discharged by the Department by production of sufficient and tangible evidence, which in the instant case was lacking. In the absence of any evidence of extra consumption of electricity purchase of extra raw material, absence of evidence of extra goods being manufactured, we are of the opinion, that no case is made out for clandestine manufacture of sugar and its removal. By applying the judgment of Division Bench of this court in the case of Continental Cement Company vs. Union of India 2014 (9) TMI 243 - ALLAHABAD HIGH COURT , the demand of duty on the ground of clandestine removal cannot be recovered on the basis of presumptions and assumptions. Clinching evidence is required with regard to purchase of raw materials, use of extra electricity, sale of final products and realisation of sale proceeds before imposing any demand. As in the absence of any such evidence demand cannot be imposed. Therefore, the payment of duty, interest and penalty consequently cannot be sustained and are set aside. Once a finding has been given by the Tribunal that there has been no suppression or misstatement by the appellant under Section 11-A of the Act, consequently, imposition of penalty under Section 11-AC of the Act does not arise. The provision of Section 28(1) and Section 114-A of the Customs Act being pari materia with the provision of Section 11-A and Section 11-AC of the Act by applying the decision of Hon ble Supreme Court in the case of ECE Industries Limited vs. Commissioner of Central Excise, New Delhi 2003 (3) TMI 136 - SUPREME COURT OF INDIA and Commissioner of Customs, Mumbai vs. M.M.K.Jewellers 2008 (3) TMI 5 - SUPREME COURT . - Decided in favour of appellant

Summary

Issues:
1. Duty demand based on excess stock of molasses.
2. Imposition of penalty under Section 11AC.
3. Justification of duty payment with interest.
4. Lack of tangible evidence for clandestine sugar manufacture.
5. Applicability of legal precedents on duty demand and penalty imposition.

Analysis:

1. The appellant, a sugar manufacturing company, faced duty demand due to excess molasses stock. The physical verification revealed 5000 quintals of excess molasses, leading to suspicion of clandestine sugar manufacture without duty payment. The Central Excise Department issued a show cause notice, resulting in a duty demand and penalty imposition by the Commissioner, later partly allowed by the Tribunal.

2. The Tribunal set aside duty demand beyond the limitation period under Section 11-A, but directed duty payment within the period along with interest and imposed penalty under Section 11-AC. The appellant challenged this decision, questioning the imposition of penalty despite the limitation period ruling.

3. The High Court found the duty demand and penalty imposition unjustified, as they were based on assumptions and lacked tangible evidence. The Court emphasized the controlled nature of the sugar industry, highlighting the detailed procedures from raw material procurement to final product clearance, which were meticulously recorded.

4. The Court noted that the mere increase in molasses volume post-factory closure did not warrant a presumption of clandestine sugar manufacture. It stressed the necessity of clinching evidence such as excess raw material purchase, electricity consumption, and product sale, which were absent in this case. The Court cited a legal precedent requiring tangible evidence before imposing duty demand for clandestine removal.

5. Referring to legal precedents, the Court held that duty demand and penalty imposition without willful suppression or misstatement were unjustified. Drawing parallels with similar cases, the Court quashed the original order and the Tribunal's decision, ruling in favor of the appellant. The Court emphasized the need for tangible evidence and dismissed the duty payment, interest, and penalty, setting aside the orders.