2018 (12) TMI 1234 - AT - Central Excise

Recovery of Refund claim - area based exemption under N/N. 56/2002-CE dated 14.11.2002 availed - demand on the grounds that the farmers are non existence ensuring non supply of raw material by commission agents to J&K based units and absence of evidence of power by the appellant - Held that - The commission agents never supplied inputs to the appellant and the appellant did not manufacture the goods. Consequently, they have not sold the goods and it was alleged that the appellant has not manufactured the goods at all. The investigation was not conducted at the end of the appellants and whole case has been based on the investigation conducted at Commissioner Central Excise, Merrut-II. Without investigation, it cannot be held that the appellants were not manufacturer of the finished goods during the impugned period. Moreover, the entries of vehicles at the toll barriers also certified that the movements of raw material and finished goods - the allegation is only on the basis of the assumption and presumption, therefore, it cannot be held that the appellants had not manufactured the goods during the impugned period. The appellants are manufacturers during the impugned period and paid the duty on the goods manufactured by them, therefore, duty on account of erroneous refund cannot be demanded on the allegation that the appellants were not manufacturers - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Refund claim recovery along with interest and penalty.
2. Allegation of non-manufacture and issuance of cenvatable invoices.
3. Investigation and evidence regarding the existence of manufacturing activity.
4. Contradiction between under-valuation and non-manufacture allegations.
5. Validity of contingent demands based on uncertain future events.

Detailed Analysis:

1. Refund Claim Recovery Along with Interest and Penalty:
The appellants contested the impugned orders which sought to recover the refund claim sanctioned under Notification No. 56/2002-CE dated 14.11.2002 along with interest and equivalent penalty. The basis for this recovery was the allegation that the appellants had not manufactured the goods but merely issued cenvatable invoices, enabling buyers to avail inadmissible Cenvat credit.

2. Allegation of Non-Manufacture and Issuance of Cenvatable Invoices:
The investigation by the Commissioner of Central Excise, Meerut-II, concluded that the J&K based units did not purchase raw materials and thus did not manufacture the finished goods. Consequently, the goods sold to UP-based manufacturers were alleged to be non-existent, leading to the issuance of show cause notices to deny Cenvat credit and demand duty refunds.

3. Investigation and Evidence Regarding the Existence of Manufacturing Activity:
The appellants provided evidence including toll tax authority reports, DIC officer verifications, and regular factory checks by range officers, confirming the receipt of raw materials and manufacturing activities. The Commissioner of Central Excise, Jammu, also supported the appellants by stating that the manufacturing activities were verified and no adverse reports were found. The Tribunal noted that the investigation was not conducted at the appellants' premises and was based on assumptions and presumptions.

4. Contradiction Between Under-Valuation and Non-Manufacture Allegations:
In cases involving Fine Aromatics and Ambika International, earlier show cause notices alleged under-valuation, which contradicts the later allegations of non-manufacture. The Commissioner had dropped the demands on under-valuation but passed an unprecedented order stating that the demand would revive if the non-manufacture allegation was dropped. The impugned orders lacked discussion on how the buyers were related to the appellants and failed to provide evidence of mutual interest.

5. Validity of Contingent Demands Based on Uncertain Future Events:
The Tribunal highlighted that contingent demands based on uncertain future events are contrary to the rule of certainty governing tax adjudication. The decision in Commissioner of Customs V/s GKB Vision Ltd. supported this view, emphasizing that such demands cannot be sustained.

Conclusion:
The Tribunal found that the sole allegation against the appellants was based on an investigation by the Commissioner of Central Excise, Meerut, which lacked concrete evidence. The entries at toll barriers confirmed the movement of raw materials and finished goods. The Tribunal concluded that the appellants were manufacturing units entitled to the exemption under Notification No. 56/2002-CE dated 14.11.2002. The show cause notices were based on assumptions and without proper investigation at the appellants' end. Consequently, the orders demanding erroneous refunds and penalties were set aside, and the appeals were allowed with consequential relief.

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