2022 (9) TMI 126 - AT - Central Excise

Clandestine manufacture and removal - chewing tobacco - cross-examination of various persons - applicability of Compounded Levy Scheme - extended period of limitation - HELD THAT - Section 3A of the Act read with the Chewing Tobacco Rules is a complete code in itself. It provides for the detailed procedure for determination of duty on the basis of capacity of production. Further, the said Rules also provides for detailed procedure for determination of duty payable and also provides for penalty in case of violation or mis-declaration by the assessee. It also provides that if any undeclared packing machines are found by the Department, the manner of determination of duty on such machines and the penalty imposable. Admittedly, in the facts of the present case, Revenue have not found any undeclared machine(s) in manufacturing premises/ factory. Further, no such undeclared machine(s) was found at any undisclosed premises. It is further found that duty has been demanded on the basis of assumptions and presumption, which is not permissible under the scheme of compounded levy on the product manufactured by the appellant. The appellant have regularly filed declarations for capacity determination under Rule 6(1) of the Chewing Tobacco Rules, and the said declarations were adjudicated upon and duty payable determined (assessment order) by the Adjudicating Authority. Such adjudication orders have attained finality, as these have not been appealed against by the Department - the factory of the appellant was regularly visited from time to time by the Officers of the Department and they have never found any undeclared packing machine being operated by the appellant. In the facts and circumstances (Compounded Levy Scheme), undisclosed income declared before the Income Tax Department has no bearing on the duty payable under Central Excise Act. Further, it is undisputed that the amount of Rs.92,14,154/-, which was voluntarily offered to Income Tax and was confirmed in the Assessment order as undisclosed income, on appeal by the appellant, the ld. Commissioner of Income Tax (Appeals) vide Appellate Order dated 05.10.2016 have set aside the said amount - the appellant has given a cogent explanation with regard to the sheet/ survey report found from the premises of Sh. Purohit, which have been arbitrarily rejected by the Adjudicating Authority. Extended period of limitation - HELD THAT - The invocation of extended period of limitation is bad and not available to Revenue, as no case of suppression or contumacious conduct is made out. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether Central Excise duty along with an equal amount of penalty has been rightly demanded from the appellant company.
2. Whether the penalty has been rightly imposed on the Managing Director on the allegation of clandestine manufacture and clearance of chewing tobacco.

Issue-Wise Detailed Analysis:

1. Demand of Central Excise Duty and Penalty on the Appellant Company:

The appellant company, engaged in packing and clearance of branded lime mixed chewing tobacco, was operating under the compounded levy scheme during the period of dispute (April 2012 to April 2013). The Central Excise Department issued a Show Cause Notice (SCN) proposing to recover Central Excise duty amounting to Rs. 163,06,00,000/- along with interest and penalty, based on the data in the 'Red' column of a survey sheet recovered by the Income Tax Department, alleging it depicted clandestine clearances by the appellant.

The appellant argued that under the Compounded Levy Scheme, duty is payable based on the number of packing machines operating/installed, not on actual production. The appellant contended that no undeclared machines were found during the investigation, and the duty demand based on presumed undeclared machines is not sustainable. The appellant relied on several judicial precedents, including Hans Steel Rolling Mill v. Commissioner of C. Ex., Chandigarh, and Goyal Tobacco Co. Pvt. Ltd. v. Commissioner of C. Ex. & ST, Jaipur-I, to support their argument.

The Tribunal found that Section 3A of the Central Excise Act, 1944, read with the Chewing Tobacco Rules, is a self-contained code. The duty is levied based on the capacity of production determined by the number of packing machines. The Tribunal noted that no undeclared machines were found in the appellant's premises or elsewhere, and the duty demand based on assumptions and presumptions is not permissible under the scheme of compounded levy. The Tribunal held that once an assessee is assessed under the compounded levy scheme, there is no scope for assessment of duty based on actual production.

2. Penalty on the Managing Director:

The penalty was imposed on the Managing Director, Sh. Prakash Chand Purohit, based on the allegation of clandestine manufacture and clearance of chewing tobacco. The Tribunal observed that the duty demand and penalty were based on the survey sheet recovered by the Income Tax Department, which was explained by the appellant as a market survey report. The Tribunal found that the explanation provided by the appellant was cogent and arbitrarily rejected by the Adjudicating Authority.

The Tribunal further held that the invocation of the extended period of limitation was not justified as no case of suppression or contumacious conduct was made out. The Tribunal set aside the impugned order, allowing the appeals with consequential benefits to the appellants.

Conclusion:

The Tribunal allowed the appeals filed by the appellant company and the Managing Director, setting aside the impugned order. The demand of Central Excise duty and the penalty imposed were found to be based on assumptions and presumptions, not permissible under the compounded levy scheme. The Tribunal emphasized that duty under the compounded levy scheme is based on the number of packing machines, not on actual production, and no undeclared machines were found during the investigation. The Tribunal also found the invocation of the extended period of limitation to be unjustified.