2018 (9) TMI 21 - AT - Central Excise

Area Based Exemption - N/N. 56/2002-CE - It appeared that the appellant without carrying out any actual manufacturing activity were just showing the production of PVC/PE granules and while availing the duty exemption under N/N. 56/2002-CE - refund of duty on goods exempted by N/N. 4/2006 dated 01.03.2006. Manufacture of goods taking place or not? - Held that - The sole case has been made out by the Revenue on the basis of statements of Shri Hemraj Takasia, Shri Ramesh Kumar and Shri Jodhraj Sharma the employees of the appellant who retracted their statements on the very next day, stating that statements were taken under threat and pressure. Further, these statements were never examined in terms of Section 9D of the Act - on the basis of statements recorded and without following the procedure of Section 9D of the Act, the said statements are not reliable - it cannot be alleged that appellant was not doing manufacturing activity. Whether the goods manufactured by the appellant were exempt from payment of duty in terms of N/N. 4/2006-CE dated 01.03.2006? - Held that - Admittedly, it is taken on record that appellant was not required to pay duty and whatever amount has been paid by the appellant was not duty. If the said amount is not a duty, then the provisions of Section 11A of the Act are not applicable to the facts of this case as the said provisions are invokable only in case of non-payment of duty, short payment of duty or erroneously refund of duty. But, in this case no duty is involve, therefore provisions of Section 11A of the Act are not invokable - the amount already refunded to the appellant is not recoverable under Section 11A of the Central Excise Act, 1944. Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
1. Allegation of not carrying out genuine manufacturing activity and fraudulent refund claim.
2. Interpretation of Notification No. 4/2006-CE and its impact on refund claims.

Analysis:

Issue 1: Allegation of not carrying out genuine manufacturing activity and fraudulent refund claim:
The case involved a partnership firm manufacturing PVC compound granules and PE compound granules chargeable to Central Excise duty. The firm was accused of not engaging in actual manufacturing activity but showing production on paper to claim duty exemption and sell goods under cenvatable invoices. The investigation revealed discrepancies in raw material and finished goods stock, with employees admitting to not carrying out actual manufacturing. However, the employees retracted their statements later, claiming they were coerced. The Tribunal held that statements not examined as per Section 9D of the Act were inadmissible, and without proper examination, allegations of non-manufacturing activity could not be sustained. Additionally, the firm claimed exemption under Notification No. 4/2006-CE, arguing that the duty paid was not recoverable as it was not considered duty under Section 11A of the Act. The Tribunal found in favor of the appellant, stating that the refunded amount was not recoverable under Section 11A as it did not involve duty payment.

Issue 2: Interpretation of Notification No. 4/2006-CE and its impact on refund claims:
The Tribunal analyzed the applicability of Notification No. 4/2006-CE, which exempted goods from duty payment. The firm contended that since the goods were exempted under this notification, they were not liable to pay duty and subsequently not entitled to claim a refund of duty paid. The adjudicating authority had confirmed duty demand, imposed penalties, and upheld the refund claim. However, the Tribunal ruled that if the amount paid was not considered duty, Section 11A of the Act, dealing with non-payment, short payment, or erroneous refund of duty, was not applicable. As the goods were exempted under the notification, the refund claimed was not recoverable under Section 11A. The Tribunal set aside the impugned order, allowing the appeals with consequential relief.

In conclusion, the Tribunal found no merit in the allegations of non-manufacturing activity and fraudulent refund claim, citing procedural lapses in statements' examination and the exemption under Notification No. 4/2006-CE as reasons for setting aside the impugned order and allowing the appeals.