2017 (3) TMI 1202 - AT - Central Excise

Clandestine removal - shortage of stock - Gutkha - demand - Held that - by violating the Board Circular dated 19.12.2007, the search was conducted and shortage of raw material was made ground for demanding the duty. The Department has converted the number of hours into days and months, and has calculated duty accordingly. It may be mentioned that the said exercise has been carried out for each raw material separately, assuming that gutkha can be manufactured by using only one raw material, but the fact remains that the gutkha is manufactured with the combination of all the raw materials - the search was conducted against the Board Circular dated 19.12.2007 and the duty demand is based on the wrong facts - appeal dismissed - decided against Revenue.

Summary

Issues:
Department's appeal against order-in-original dated 26.03.2010 passed by Commissioner of Central Excise, New Raipur regarding alleged suppression of production and clandestine removal of Gutkha.

Analysis:
The case involved a dispute where the Department alleged suppression of production and clandestine removal of Gutkha by the assessee-Respondent. A search operation was conducted based on intelligence, revealing shortages of raw materials and excess stock of certain items. The Department issued a show cause notice for duty amounting to ?112.50 lakhs. However, the Commissioner, in the impugned order, dropped the proposed duty and penalty, leading the Department to file appeals.

The main contention revolved around the shortage of raw material. The assessee-Respondent was engaged in manufacturing Gutkha under specific provisions of the Central Excise Act and related rules. The Department did not dispute the payment of duty or the number of pouch packing machines used by the assessee. Despite operating under the compounded levy scheme, the Department conducted a search against Board Circular guidelines, converting hours into days and months to calculate duty based on raw material shortages. The judgment highlighted that Gutkha is manufactured using a combination of raw materials, not just one, as assumed by the Department.

The Tribunal, after considering the arguments and evidence, found that the search was conducted against Board Circular guidelines, and the duty demand was based on incorrect facts. Consequently, the Tribunal upheld the impugned order, stating that there was no valid reason to interfere with it. As a result, the appeals filed by the Department were deemed to have no merit and were dismissed. The judgment was pronounced in open court on 16.02.2017.