2018 (9) TMI 450 - AT - Central Excise

Penalty u/r 25 and 26 of CER - Clandestine removal - Department s case is built on the information which was disclosed to the Income Tax Authorities and no further investigation to corroborate clandestine removal or any suppression of production was done at any stage except for seeking clarification from the appellants - time limitation - Held that - It is evident that the demand in this case is badly time barred, whichever of the tow dates is taken i.e. 01.09.2006, the date of the Income Tax survey or the date 31.03.2007, the ending of the relevant financial year - Since the show cause notice has been issued more than five years after the detection, the same is completely time barred and no penalty is imposable in such circumstances in the absence of demand. On merit too, the Department has not done any investigation to corroborate its charge of clandestine removal and has proposed the penalties without any corroborative evidence of clandestine removal. The entire demand is based on assumptions and presumptions bereft of any evidence. The show cause notice for the penalties solely on the basis of declaration of cash and stock six and half years back without furnishing any corroborative evidence of clandestine removal is clearly not sustainable. The impugned order is liable to be set aside on limitation as well as on merit - appeal allowed.

Summary

Issues:

1. Time-barred show cause notice.
2. Allegations of clandestine removal without demand of duty.
3. Lack of investigation and evidence for penalties.

Issue 1: Time-barred show cause notice

The appellants contested a show cause notice issued by the Department, alleging possession of excisable goods liable to confiscation, resulting in penalties under Rule 25 and Rule 26 of the Central Excise Rules, 2002. The notice was based on a 2006 Income Tax survey where cash and stock were surrendered. The appellants argued that the notice, issued in 2013, was time-barred after a gap of over six years. The advocate cited the Nagpur Alloys Castings Ltd. case to support the time limitation defense. The tribunal found the notice to be completely time-barred, emphasizing that no demand was raised within five years of detection, as per the Nagpur Alloys Castings Ltd. judgment. The adjudicating authority failed to address the limitation issue, leading to the setting aside of the impugned order on this ground.

Issue 2: Allegations of clandestine removal without demand of duty

The Department's case rested on the information disclosed during the Income Tax survey, without further investigation into clandestine removal or duty demand. Despite alleging clandestine removal, no duty demand was raised, only proposing penalties under Rule 25 and Rule 26. The tribunal noted the lack of evidence supporting clandestine removal allegations and the absence of a duty demand. The tribunal emphasized that penalties without corroborative evidence or investigation are unsustainable. The judgment highlighted the Department's reliance on assumptions and presumptions, lacking evidentiary support. The tribunal set aside the impugned order due to the unsubstantiated nature of the penalties.

Issue 3: Lack of investigation and evidence for penalties

The tribunal observed that the Department's case lacked investigative efforts to substantiate charges of clandestine removal. The penalties were proposed solely based on declarations made six and a half years prior, without supporting evidence. Citing the Ravi Foods Pvt Ltd. case, the tribunal emphasized the unsustainability of penalties without concrete evidence. The tribunal concluded that the penalties, devoid of any investigative backing, were not sustainable and set aside the impugned order based on both the limitation issue and the lack of merit in the Department's case.

In conclusion, the tribunal allowed the appeal, setting aside the impugned order due to the time-barred show cause notice, lack of duty demand, and absence of substantive evidence supporting the penalties imposed on the appellants.