2017 (7) TMI 157 - AT - Central Excise

100% EOU - burning loss - difference between the permissible burning loss of 7.5% and actual burning loss of 15% - demand - Held that - It is not the case of revenue that due to burning loss, any quantity of either brass scrap or processed rods has been diverted somewhere else instead of bringing to the factory by the appellant. For such situation, whether there is burning loss of 7.5% or even 15% that alone cannot be reason to demand the duty. The entire demand worked out by taking the difference of SION norms provided in the Foreign Trade Policy is not correct - As far as SION is concerned it provides with the theoretical input output norms that too for the purpose of import and export of the goods. Even when the imports are allowed as per the SION norms the actual consumption of the input in the export goods is always variable as compared to the ratio provided under the SION norms. Therefore there is always difference between the input output norms given in SION and the actual input output ratio in the physical manufacture of the goods. Therefore the SION norms cannot be applied in the facts of the present case. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Calculation of duty liability based on burning loss difference.
2. Applicability of SION norms in job work.
3. Time limitation for raising demand.

Analysis:
1. The appellant, engaged as a 100% EOU in manufacturing Brass Parts, sent Aluminum Brass Scrap to a job worker for conversion into brass rods. Discrepancy in burning loss calculation led to a demand of duty. The appellant contested the demand, arguing it was theoretical and not based on actual diversion of goods. The burning loss difference was the only basis for duty demand, which lacked clarity on the goods involved. The Tribunal emphasized that the duty cannot be demanded solely on burning loss variation without evidence of diversion. Referring to a similar case, the Tribunal ruled in favor of the appellant, stating that demand based on SION norms is incorrect as actual burning loss varies due to multiple factors. The judgment highlighted that SION norms are theoretical and not always reflective of actual manufacturing processes, thus setting aside the demand.

2. The appellant argued against the application of SION norms in job work, stating that the process is beyond their control as it is carried out by an external party. The Tribunal agreed, noting that SION norms are primarily for import and export and may not align with actual burning loss in domestic job work scenarios. Citing a previous ruling, the Tribunal emphasized that demanding duty based on SION norms without evidence of diversion or clandestine activities is unjustified. The judgment highlighted the variability in burning loss across manufacturers and the impracticality of applying theoretical norms to physical manufacturing processes.

3. The appellant contended that the demand was time-barred as they had followed proper procedures and sought permission for sending brass scrap to the job worker. The Tribunal, considering the absence of suppression of facts, supported the appellant's argument, referencing a Supreme Court judgment to emphasize the importance of timely demands. Ultimately, the Tribunal set aside the demand, concluding that without concrete evidence of diversion or wrongdoing, the duty based on burning loss difference and SION norms was not sustainable. The appeal was allowed, emphasizing the need for clarity and evidence in duty demands to prevent unjust outcomes.