2017 (9) TMI 71 - AT - Central Excise

Clandestine removal - removal of scrap - job-work - N/N. 214/86-CE dated 25-3-1986 - Held that - department has not made out any case of clandestine removal or any diversion of manufactured ingots either by the job worker or by the appellant. In both the cases the sample of 0.267 gms out of total sample 220 gms - In the present case aluminium waste and scrap is mixed with so many foreign particle therefore every batch of waste and scrap will vary from other batch of waste and scrap. Therefore entire quantity of waste and scrap being not standard goods if any, samples are drawn the same will not represent the composition of the entire waste and scrap therefore test report alone cannot be relied upon to conclude the demand - once the test was conducted and the appellant found that same is not correct while requesting for retest appellant should have asked for the specific parameter for conducting retest such as how much material to be tested and in what manner. I find even in the second test also the composition of the content of aluminium is on higher side. Matter to be reconsidered by the adjudicating authority - appeal allowed by way of remand.

Issues Involved:
1. Alleged clandestine removal of material by suppression and mis-declaration of yield.
2. Dispute over test reports conducted by the departmental laboratory.
3. Legal provisions regarding removal of waste and scrap under job work procedure.
4. Application of test reports to previous consignments.
5. Barred limitation for show cause notices issued beyond six months.
6. Applicability of penalty provisions under Section 11AC and Rule 173Q.
7. Imposition of penalty under Rule 209A on the job worker and proprietor.
8. Consideration of opportunity provided to the appellant by lower authorities.

Analysis:

1. The case revolved around the alleged clandestine removal of material by the appellant through suppression and mis-declaration of yield. The appellant was engaged in manufacturing cast articles of aluminum, with the main raw material being aluminum ingots. The dispute arose from the removal of aluminum waste and scrap under job work procedure, leading to investigations and imposition of penalties.

2. The appellant disputed the test reports conducted by the departmental laboratory, arguing that the sample size was too small to be representative of the entire batch of waste and scrap. The composition of waste and scrap varied, making it challenging to rely solely on test reports for determining the aluminum content accurately. The appellant emphasized the need for proper testing parameters and highlighted discrepancies in the test results.

3. Legal provisions regarding the removal of waste and scrap under job work procedure were crucial in the case. The appellant contended that there was no provision to remove scrap without duty payment under Rule 57F, and permission previously granted for such removal stood canceled. The issue of whether waste and scrap could be cleared for job work without duty payment was supported by various judgments cited by the appellant.

4. The application of test reports to previous consignments was a significant point of contention. The appellant argued that test reports from specific consignments could not be applied to earlier ones, citing legal precedents to support this claim. The timing and accuracy of test reports in relation to the clearances made during the specified period were crucial in determining liability.

5. The appellant raised the issue of barred limitation for show cause notices issued beyond six months, emphasizing the absence of fraud, suppression, or willful misstatement to justify penalties imposed. The applicability of penalty provisions under Section 11AC and Rule 173Q was challenged based on the timeline and circumstances of the alleged offenses.

6. The imposition of penalties under Rule 209A on the job worker and proprietor was disputed by the appellant, citing legal judgments to support their argument against the imposition of penalties. The appellant contended that the penalties were not warranted due to the lack of specific elements like fraud or collusion.

7. The judgment highlighted the need for the adjudicating authority to consider all aspects, including the lack of evidence supporting clandestine removal and the limitations of test reports based on small sample sizes. The authority was directed to reevaluate the case, taking into account the observations made and ensuring a fair assessment of the situation before passing a fresh order.

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