2019 (7) TMI 148 - AT - Central Excise

100% EOU - Clandestine removal - case of the Revenue is based on the fact that the EOU to which the appellants were supplying the goods were not having manufacturing capacity and electricity connnection and was not in a position to use the goods supplied by the appellant - HELD THAT - The appellants are manufacturer of polyester yarn and they were clearing the said yarn under valid CT-3 certificates to a 100% EOU located in Maharashtra. The appellants were also receiving AR-3s duly verified by Jurisdictional Superintendent. It is also noticed that CT-3 and AR-3 has not been challenged by Revenue as being false or fabricated. From the above set of facts, it is apparent that so far as appellants are concerned, they have discharged their responsibility cast upon them by the law. In this entire course of events, there is hardly any evidence to link the appellants with any activity after the goods were cleared. The law requires the appellant to clear the goods against the valid CT-3 and obtain the duly verified rewarehousing certificate. The appellant have done both and the same has not been challenged. In these circumstances unless specific involvement or knowledge of the appellant is established, no liability can be fixed on the appellants. The impugned order seeks to rely on circular no. 88/98 dated 02.12.1998 to hold that no physical verification of the goods were done at the recipient s end and therefore, AR-3 certificates evidencing re-wareshousing of the goods can be discarded. It is not the responsibility of the appellant to get the physical verification conducted. Even if no physical verification was done, it cannot be alleged that appellants were wrong in their belief that their goods were re-warehoused at the EOU at Maharashtra. Whether to check physically or otherwise is entirely a 4 E/201-202/2011 prerogative of Revenue. The failure to check physical receipt of goods cannot be used against the appellant who has received duly signed re-warehousing certificates. Demand and penalty are set aside - Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Demand of Central Excise duty, interest, and penalty against M/s Shalu Synthetics
- Imposition of penalty against Shri Sanjay Mahajan, Director of M/s. Shalu Synthetics

Analysis:
1. Demand of Central Excise Duty, Interest, and Penalty:
- The appeal was filed against the demand of Central Excise duty, interest, and penalty by M/s Shalu Synthetics. The Revenue alleged that the goods supplied to a defunct EOU were diverted, leading to the imposition of duty amounting to ?12,33,800. Additionally, a penalty of ?10 lakhs was imposed on the Director of M/s Shalu Synthetics.
- The appellant argued that they complied with the procedure by clearing goods against valid CT-3 certificates and receiving re-warehousing certificates. They contended that the case lacked substantial evidence linking them to any wrongdoing after clearance of goods.
- The Tribunal noted that the appellants fulfilled their obligations by clearing goods under valid certificates and obtaining verified re-warehousing certificates. The lack of evidence connecting the appellants to any misconduct post-clearance led to the setting aside of the demand and penalty.

2. Imposition of Penalty on Director:
- The penalty imposed on the Director of M/s Shalu Synthetics was also contested. The appellant highlighted that the entire payment was received by cheque from the account of the EOU and that the transporter was not engaged by them. Moreover, crucial details such as the payer for transport and consignees were not investigated.
- The Tribunal emphasized that the responsibility of physical verification rested with the Revenue, not the appellant. Despite the absence of physical verification at the recipient's end, the appellants acted in good faith based on the received re-warehousing certificates. As a result, the penalty against the Director was set aside, and the appeals were allowed.

In conclusion, the Tribunal found that the appellants had fulfilled their legal obligations in the transaction and were not directly implicated in any wrongdoing related to the diversion of goods. The lack of concrete evidence linking them to misconduct post-clearance led to the setting aside of the demand of Central Excise duty, interest, and penalty, as well as the penalty imposed on the Director. The judgment was pronounced on 20.06.2019.