2021 (8) TMI 708 - AT - Central Excise

Clandestine Removal - demand is based on the comparison of the figures reported in the annexure of the tax audit report for the years 2012-13 and 2014-15 to 2015-16 and ER 6 for preforms - Absence of substantive corroborative allegation - 100% conversion of pre form to PET bottles - percentage of wastage of preforms - time limitation - HELD THAT - In the instant case, it is seen that the Adjudicating Authority has confirmed the demand of excise duty only on the ground that there are differences in quantity of consumption of preform as per ER 6 and form 3CD as filed by the Appellant by taking into account 100% conversion of preform into PET bottles. It is the case of the department that the said Appellant has manufactured and cleared the said excess PET bottles without payment of excise duty on the same and resorting to clandestine removal. However, it is seen that such allegation is only on the basis of the figure work of the department without production of any other evidence for demand of excise duty for clandestine removal of manufactured goods. The figures in the reconciliation provided by the Appellant between 3CD and ER 6 clearly account for the wastage during the manufacturing process which ranges from 0.40% to 1.60% percentage in different years and the same is within the normal industry average of two percent as per the Appellant s submission - the lower authority has not at all taken into account the plea of the Appellant as regards wastage of the preform during the manufacturing process whereas the same has been clearly established by the Appellant in its reconciliation provided at all occasions. Hence the order of the adjudicating authority deserves to be set aside as the same is based on assumption and without any cogent evidence for 100% conversion of preform in to PET bottles. The considered view that the Appellant has been able to produce the relevant reconciliations to show that there is no difference in consumption figures as per ER 6 and form 3CD of pre form and the only difference is on account of wastage which has not been considered by the lower authority. Also, for considering 100% conversion of preform into PET bottles, the Ld. Adjudicating authority has not given any basis for the same and has ignored the submission of the Appellant in this regard. Hence, the finding of the Adjudicating authority is devoid of any merits. No investigation has been conducted by the department to prove the allegation of clandestine manufacture and removal of PET bottles in the case and thus the recovery of excise duty merely based on differences in figures of consumption cannot be made by the department. Time Limitation - HELD THAT - The demand has been raised for the period 2012-13 onwards in July 2018 whereas the spot memo was issued by the Department in August 2014 itself. No explanation has been furthered by the Department in respect of such gross delay in proceeding with the matter. Therefore, the invocation of extended period of limitation is not justified. The demand of excise duty only on assumption and presumption without being substantiated by sufficient evidence, cannot be sustained on merits and is accordingly set aside. Since demand of excise duty is set aside, penalty and interest are also not sustainable - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether the demand of excise duty based on the difference in consumption figures of preforms as per ER 6 and Form 3CD is justified.
2. Whether the department erred in considering 100% conversion of preforms to PET bottles without accounting for wastage.
3. Whether the allegation of clandestine removal of goods is substantiated.
4. Whether the demand is barred by limitation due to delay in issuing the Show Cause Notice (SCN).

Detailed Analysis:

1. Justification of Excise Duty Demand Based on Consumption Figures:
The demand of excise duty amounting to ?35,68,644/- was confirmed by the Commissioner based on the difference in consumption figures of preforms as per ER 6 returns and Form 3CD. The department assumed 100% conversion of preforms into PET bottles, leading to the conclusion that the appellant clandestinely removed excess PET bottles without paying excise duty. However, the Tribunal found that the demand was based solely on figure work without any substantive evidence to support the allegation of clandestine removal. The appellant had consistently argued that the department erred in assuming 100% conversion and failed to account for wastage during the manufacturing process.

2. Consideration of Wastage in Conversion of Preforms to PET Bottles:
The appellant provided detailed reconciliations showing wastage during the manufacturing process, ranging from 0.40% to 1.60%, which is within the industry average of 2%. The lower authority did not consider this wastage, leading to an incorrect assumption of 100% conversion. The Tribunal found that the reconciliation provided by the appellant clearly accounted for the wastage, and the lower authority's order was based on assumptions without cogent evidence. Hence, the demand based on 100% conversion was set aside.

3. Allegation of Clandestine Removal of Goods:
The department's allegation of clandestine removal was not substantiated by any evidence other than the consumption figures. The Tribunal cited several judgments, including those in the cases of PENNZOIL QUAKER STATE INDIA LTD. and SHIVALAYA ISPAT & POWER PVT. LTD., which held that the burden of proving clandestine removal lies with the department. The Tribunal noted that no investigation was conducted to prove clandestine manufacture and removal of PET bottles. The absence of corroborative evidence, such as unaccounted cash, statements from buyers or transporters, or extra production, meant that the charge of clandestine removal could not be sustained.

4. Limitation and Delay in Issuing the SCN:
The demand covered the period from 2012-13 to 2015-16, but the SCN was issued on July 27, 2018, well beyond the normal period of limitation. The spot memo was issued in August 2014, indicating that the department was aware of the facts much earlier. The Tribunal found that the invocation of the extended period of limitation was not justified due to the gross delay in proceeding with the matter.

Conclusion:
The Tribunal concluded that the demand of excise duty based on assumptions and without substantive evidence could not be sustained. The lower authority's order was set aside, and the demand of excise duty, along with the imposition of penalty and interest, was quashed. The appeal filed by the appellant was allowed with consequential relief.

Pronouncement:
The judgment was pronounced in the open court on August 13, 2021.

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