2019 (7) TMI 1402 - AT - Central Excise

Clandestine manufacture and removal - excess of raw-material/difference in stock - mis-representation/suppression of facts on part of the appellant - Time Limitation - HELD THAT - Apparently and admittedly, the impugned demand is solely based upon the letter as was received by the Revenue Department from Income Tax Department on 4th December, 2009. Admittedly no investigation in furtherance of said information has been conducted by the Revenue Department except for recording the statement of the Director of assessee, namely, Shri Sharat Jain on 17th January, 2014. There is no explanation on the part of the Department about the delay of almost 5 years in acting upon the information, which they had since the year 2009. It is also an apparent-admitted fact that the Revenue Department was regularly conducting the audit of the respondent even after receiving the said information till the year 2012-2013 that too without noticing any short coming as was informed by Income Tax Department in the year 2009. Also in absence of no investigation by the Department, there is no positive evidence on record, which may prove any mis-representation or suppression of facts on part of the assessee - the Commissioner (Appeals) has committed no error while denying the Department the entitlement to invoke the extended period of limitation. It has been observed by the Commissioner (Appeals) that there is no admission of the alleged guilt by said Shri Sharat Jain except for the mention that the stock difference as has been noticed by the Income Tax Department, has been challenged by the assessee-respondent before Commissioner (Appeals), Income Tax, and outcome has not yet been finalized. The Commissioner (Appeals) has gone observing that Commissioner of Income Tax (Appeals) has categorically set aside the findings of the excess stock - once the inventory is found defected, its reliability for estimating the income also becomes doubtful. This decision shatters the sole basis of reliance for the present adjudication as admittedly, the Revenue Department had no other information than the said inventory. This amounts to having no evidence. Appeal dismissed - decided against Revenue.

Summary

Issues:
1. Time limitation for issuance of show cause notice
2. Merits of the case regarding alleged clandestine manufacture/clearance

Analysis:

Issue 1: Time limitation for issuance of show cause notice
The appeal was filed by the Department against the Order-in-Appeal allowing the appellant's appeal on the ground of the demand being barred by limitation. The Revenue Department received information from the Income Tax Department in 2009 regarding discrepancies in the raw material of the assessee. The show cause notice was issued in 2014 proposing recovery of Central Excise duty. The Department argued that the notice was not barred by time as it was based on a statement made by a Director of the assessee in 2014 admitting to clandestine removal. However, the appellant contended that since the facts were known to the Revenue Department since 2009 and no action was taken until 2014, the notice was indeed barred by time. The Tribunal held that the notice should have been issued within one year of receiving the information in 2009, as per relevant case law, and since there was no explanation for the delay, the notice was time-barred.

Issue 2: Merits of the case regarding alleged clandestine manufacture/clearance
Regarding the merits of the case, the Department had relied on the statement of a Director admitting to discrepancies in stock. However, the Commissioner (Appeals) found that there was no independent evidence against the assessee and the reliance on the Income Tax Department's search proceedings was insufficient. The Tribunal noted that the Income Tax Appellate Tribunal had found the inventory prepared by the Income Tax Department to be defective, casting doubt on its reliability. Without corroborative evidence of clandestine manufacture, the Tribunal held that there was no basis for the allegations. The Tribunal also cited a case where details provided by the assessee were considered valid despite admissions made before the Income Tax Authorities. Consequently, the Tribunal upheld the Commissioner (Appeals)'s decision, rejecting the Department's appeal.

In conclusion, the Tribunal upheld the decision of the Commissioner (Appeals) on both issues, ruling in favor of the assessee and dismissing the Department's appeal.