2016 (5) TMI 609 - AT - Central Excise

100% EOU - shortage of 7734.79 meters of fabrics noticed when the fabrics cleared was received after job work - shortage is approximately 3% of the total quantity of fabrics sent for job work and the shrinkage in the fabrics of the type sent for job work ranges from 2.01% to 8.49% - Held that - it is evident that there has been no illegal diversion of the goods sent for job work and the goods sent for job work were duly processed by the job workers and the resultant product (i.e. the processed fabrics) was either exported or sent back to the appellant; indeed there is no allegation of illegal diversion either. Therefore, there is no question of recovery of any differential duty on the shrinkage in this case. As a result, the impugned demand is not sustainable. When the impugned demand itself is not sustainable, the question of penalty in relation thereto under Rule 25 of Central Excise Rules, 1944 would not arise. Imposition of penalty under Rule 25 - Contravention of the provisions of Notification 52/2003-Cus dated 31.03.2003 and Notification 22/2003 date 31.03.2003 - Held that - the foremost consequence of contravention of provisions of an exemption notification is denial of benefit thereof. It is found that the adjudicating authority has allowed benefit of the said notification to the appellant. It means that the so called contravention of the provisions of the said notifications were treated to be so insignificant as not to result in denial of the benefit thereof. In these circumstances, to impose penalty for the said contravention of the provisions of the said notifications cannot be called reasonable by any stretch of imagination. Therefore, the impugned order is not sustainable and set aside. - Decided in favour of appellant

Summary

Issues:
Central Excise duty demand confirmation with penalties for non-receipt of goods sent for job work within 90 days and shortage in received quantity due to shrinkage.

Analysis:
The appellant, a 100% EOU manufacturing fabrics, sent goods for job work under 164 challans. The Central Excise duty demand of ?25,63,536/- was confirmed due to non-receipt of goods within 90 days and a shortage of 7734.79 meters. The adjudicating authority held duty recoverable on the short-received quantity. The appellant argued that all goods were either exported or received back. The verification report noted a shortage due to shrinkage of approximately 3%, within the reasonable range based on a Textile Committee report. The Tribunal observed that shrinkage during job work was natural, causing the shortage, and no illegal diversion occurred.

The Tribunal found no illegal diversion of goods sent for job work, which were duly processed and either exported or returned. As there was no illegal diversion, recovery of duty on shrinkage was deemed unjustified. Consequently, the impugned demand was deemed unsustainable, precluding the imposition of penalties under Rule 25 of Central Excise Rules, 1944.

Regarding the penalty imposed for contravention of specific notifications, the Tribunal noted that the benefit of the notifications was allowed to the appellant despite the alleged contravention. Therefore, penalizing the appellant for insignificant contraventions that did not result in denial of benefits was deemed unreasonable. The impugned order was set aside, and the appeal was allowed, as the demand and penalties were found unsustainable based on the analysis provided.