2018 (3) TMI 1125 - AT - Central Excise

Extended period of limitation - suppression of facts - the case of the Revenue is that the appellant is clearing stearic acid in the guise of HRBP flakes and not paying duty - Held that - When the fact of manufacturing and clearance of HRBO was in the knowledge of the department during the relevant time, therefore, no allegation of suppression cannot be alleged against the appellant and the extended period of limitation is not invokable. As the test report of CRCL states that the samples are having characteristics of Hydrogenated material and the stearic acid can be obtained by splitting but not by Hydrogenation, the samples drawn cannot be said of stearic acid. On the basis of the test report and opinion, it cannot be concluded that the samples were drawn are of stearic acid. As these reports are not conclusive, the benefit of doubt goes in favour of the appellants. As the Revenue has not shown any positive evidence to corroborate the statements of the buyers/suppliers to show that the appellants were clearing stearic acid in the guise of HRBO flakes. In that circumstance, the allegations made against the appellants are not sustainable. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Classification of HRBO flakes under the Central Excise Tariff Act, 1985.
2. Invocation of the extended period of limitation.
3. Allegations of suppression and misstatement.
4. Admissibility and reliability of evidence, including test reports and buyer statements.
5. Compliance with Section 9D of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Classification of HRBO Flakes:
The appellants classified HRBO (Hydrogenated Rice Bran Oil) flakes under chapter heading 15.04, attracting nil duty, while the Revenue reclassified them under heading 38.23, which attracted duty. The Revenue argued that the appellants were actually manufacturing and clearing stearic acid under the guise of HRBO flakes. The test reports from Shriram Institute indicated the presence of 68% stearic acid, leading to the conclusion that the appellants were manufacturing stearic acid. However, the tribunal found that the test reports were inconclusive as they did not definitively establish whether the product was HRBO flakes or stearic acid. The tribunal emphasized that the classification could not be determined by a naked eye and required conclusive testing, which was not provided by the Revenue.

2. Invocation of the Extended Period of Limitation:
The appellants argued that the demand was barred by limitation since the fact of manufacturing HRBO flakes was known to the department through regular ER-1 returns and classification declarations. The tribunal supported this view, citing that the department had knowledge of the manufacturing activities and failed to act upon it in a timely manner. The tribunal referred to several precedents, including Hindustan Petroleum Corporation Ltd. and Ram Remedies Ltd., to conclude that mere failure of verification by the department does not justify invoking the extended period of limitation.

3. Allegations of Suppression and Misstatement:
The Revenue alleged that the appellants suppressed facts and misdeclared stearic acid as HRBO flakes. The tribunal found no evidence of willful suppression or misstatement. The appellants had been transparent in their declarations and filings. The tribunal noted that the department did not make any conclusive effort to verify the true nature of the products. The tribunal cited the case of Densons Pultretaknik, where it was held that claiming wrong classification does not amount to suppression of facts.

4. Admissibility and Reliability of Evidence:
The Revenue relied on test reports, buyer statements, and manipulated invoices. The tribunal found the test reports from CRCL and SASMIRA inconclusive. The tribunal also noted that the statements of buyers, who comprised only 7-8% of the total production, were not reliable as they were not subjected to cross-examination, except for one buyer who retracted his statement. The tribunal emphasized the importance of cross-examination for the reliability of such statements, citing the case of G-Tech Industries.

5. Compliance with Section 9D of the Central Excise Act, 1944:
The tribunal highlighted the violation of Section 9D, which mandates that statements recorded during investigation must be subjected to cross-examination unless specific conditions are met. The tribunal found that the Revenue did not follow the prescribed procedure, rendering the statements inadmissible. The tribunal referred to the decision in G-Tech Industries, which underscored the necessity of cross-examination to ensure the statements' admissibility and reliability.

Conclusion:
The tribunal concluded that the Revenue's case was based on presumptions and lacked conclusive evidence. The classification of HRBO flakes under heading 15.04 was upheld, and the extended period of limitation was deemed inapplicable. The allegations of suppression and misstatement were rejected due to the lack of substantial evidence. The tribunal set aside the impugned order, allowing the appeals with consequential relief.

← Previous Next →