2017 (2) TMI 192 - HC - Central Excise

Jurisdisction of CESTAT - Reduction of penalty - 209A of Central Excise Act - 100% EOU - it is the case of the Revenue that no raw material (i.e. yarn of different qualities purchased by the Appellant from 14 suppliers) came into the Appellant s EOU for manufacture of fabrics during the period 1995-1998 - We find considerable force in the argument of Mr Shroff that the Revenue and the Tribunal have totally ignored and/or brushed aside all the documentary evidence that was produced by the Appellant to negate the aforesaid contention. On carefully going through the documentary evidence, we find that all the statutory registers which were maintained by the Appellant, were countersigned by the Excise Inspectors. Further, when a detailed panchanama was drawn up at the time of stock verification (during the raid conducted), the same indicates that there was no real discrepancy between the stock and the statutory register. Looking at all this evidence that has been recorded of the Excise Inspectors themselves, what is clear is that the same is in tune with the documentary evidence - We find that no person has given any statement under section 14 of the Act that the goods were diverted nor any such duty free goods were seized by the Revenue outside the factory of the Appellant - the allegation of diversion was not based on any concrete material but rather only on suspicion and without any real basis. In light of this oral and documentary evidence, we find that the allegation / contention of the Department that the raw materials bought by the Appellant from 14 suppliers was diverted and never brought to the Appellant s factory, cannot be sustained. None of these decisions lay down any law which would enable the CESTAT or the authorities below to ignore documentary evidence and only rely upon the oral statements made by the transporters of the 14 suppliers as well as the estranged brother of one of the Directors of the Appellant - Appeal disposed off.

Issues Involved:
1. Sustaining the duty demand and imposition of penalty on the appellant.
2. Liability of the appellant as a buyer of the goods to pay duty.
3. Whether the goods were brought into 100% EOU and used in the manufacture of export.
4. Tribunal's adherence to judgments by co-ordinate benches.
5. Liability of duty payment by consignor or consignee under Notification No.1/95.
6. Imposition of penalty under Rule 209A.
7. Jurisdiction of CESTAT to reduce mandatory penalties.
8. Justification for waiving or reducing penalties on directors and executives.

Detailed Analysis:

1. Sustaining the Duty Demand and Imposition of Penalty:
The Tribunal upheld the duty demand of ?5,26,56,632/- along with interest and a reduced penalty on STML and its director. The appellant argued that the documentary evidence, verified by Excise Inspectors, showed that the raw materials were received and used in manufacturing the final products which were exported. The Tribunal relied on oral statements from transporters and an estranged brother of one of the directors, ignoring the documentary evidence and statements from Excise Inspectors. The High Court found the Tribunal's reliance on oral statements over documentary evidence to be erroneous and set aside the duty demand and penalties.

2. Liability of the Appellant as Buyer to Pay Duty:
The appellant contended that the duty should be payable by the manufacturer EOUs, not by them as buyers. The Tribunal's decision to hold the appellant liable was overturned by the High Court, which ruled in favor of the appellant, stating that the duty could not be imposed on the buyer.

3. Usage of Goods in 100% EOU and Manufacture of Export:
The Tribunal held that the goods were not brought into the 100% EOU for manufacturing export goods. The appellant provided substantial documentary evidence and statements from Excise Inspectors to prove otherwise. The High Court found the Tribunal's conclusion to be unsustainable, ruling that the goods were indeed used in the manufacturing of export products.

4. Tribunal's Adherence to Judgments by Co-ordinate Benches:
The appellant argued that the Tribunal did not follow precedents set by co-ordinate benches in similar cases. The High Court agreed with the appellant, emphasizing the importance of adhering to established judicial precedents.

5. Duty Payment by Consignor or Consignee under Notification No.1/95:
This issue was rendered moot by the High Court's findings on the other issues, particularly the liability of the appellant as a buyer and the usage of goods in the 100% EOU.

6. Imposition of Penalty under Rule 209A:
The Tribunal imposed penalties under Rule 209A despite the appellant's argument that the ingredients of the offense under this rule were not met. The High Court found in favor of the appellant, ruling that the penalties were not justified.

7. Jurisdiction of CESTAT to Reduce Mandatory Penalties:
The Revenue challenged the Tribunal's jurisdiction to reduce mandatory penalties. The High Court ruled that since the duty itself could not be imposed on STML, the question of imposing penalties did not arise, thereby rendering the issue moot.

8. Justification for Waiving or Reducing Penalties on Directors and Executives:
The Revenue argued that penalties on the Managing Director and Director should not have been waived or reduced. The High Court ruled that since the duty imposition was invalid, penalties on the executives were also unjustified.

Conclusion:
The High Court set aside the Tribunal's order, ruling in favor of the appellant on all substantial questions of law. The duty demand and penalties imposed on STML and its director were annulled, and the appeals were disposed of with no order as to costs.

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