2022 (12) TMI 902 - AT - Central Excise

Clandestine removal - Leviability of duties of central excise on product deemed by law to have been manufactured - short-payment of duty on another product by misdeclaration of quality - packing and labelling - process amounting to manufacture or not - HELD THAT - It is seen from the impugned order that the adjudicating Commissioner has, instead of subjecting the impugned activity to the test of conformity to note 9 of chapter 28 of Schedule to Central Excise Tariff Act, 1985 and noticeably so in the sparse findings therein, merely taken up the reliance placed upon the decision in re Ammonia Supply Company and other decisions following therefrom for disputation, by contriving a test derived by him from the findings therein which the impugned activity has been held to have not passed muster, and found sufficing to confirm liability to duties of central excise. It is akin to a step-down transformer that brings high tension electrical energy to the homes of consumers. Being a hazardous substance, there is legal requirement of affixing labels detailing source and handling instruction. There is, thus, packing and labelling and it was to be determined if these conform to the prescriptive threshold envisaged by the impugned note that is composed of four process with each of them standing on their own for manufacture to be deemed. We fail to see any finding that, with reference to the facts, narrows the impugned activity to one of the four alternatives. It is regrettable that adjudication is, at times, perceived as response to resistance put up by noticee instead of as a responsible exercise of determining, from established fact, either breach of statutory boundaries or inapplicability of context for escapement. That deficit must be made good before appellate determination can commence. The determination of breach as far as the liquid bromine seized from the manufacturing entity is concerned has been influenced by the finding of the adjudicating Commissioner and the taint therein infects the outcome before the first appellate authority in the second set of appeals requiring fresh determination. The tax liability has been fastened by resort to assumptions driven by absence of satisfactory explanation. Clandestine clearance, being provable only by circumstantial evidence, should be determined by reference to circumstances including complexion of the transactional engagement in which the submissions made in defence are required to be dealt with. The lack thereof in the adjudication order impugned here must be made good. Matters remanded back to the respective adjudicating authorities for proper discharge of statutory obligation - Appeal disposed off by way of remand.

Summary

Issues Involved:
1. Leviability of duties of central excise on products deemed to have been manufactured.
2. Short-payment of duty on another product by misdeclaration of quality.
3. Confiscation of unaccounted goods under rule 25 of Central Excise Rules, 2002.
4. Imposition of penalties under rule 26 and rule 27 of Central Excise Rules, 2002.

Issue-wise Detailed Analysis:

1. Leviability of Duties of Central Excise on Products Deemed to Have Been Manufactured:
The central issue revolves around the definition of 'manufacture' under section 2(f)(ii) of the Central Excise Act, 1944, and note 9 to chapter 28 of the Schedule to the Central Excise Tariff Act, 1985. The dispute concerns whether the repacking of 'liquid bromine' from ISO tanks into smaller retail packs constitutes 'manufacture' and thus attracts excise duties. The appellant, M/s Mody Chemi Pharma Pvt Ltd, utilized its facility to repackage imported 'liquid bromine' for M/s Mody Chemical Industries. The central excise authorities argued that this repacking process amounted to 'manufacture' as per the chapter note, thereby attracting excise duties. The adjudicating Commissioner confirmed this liability, resulting in a demand for recovery of duties along with interest and penalties.

2. Short-Payment of Duty on Another Product by Misdeclaration of Quality:
The second issue pertains to the sale of '2.2 azobisisisobutyronitrile (AIBN)' at lower prices, allegedly due to deterioration, without proper documentation. The show cause notice demanded recovery of duties for the short-paid amount. The adjudicating Commissioner confirmed the liability based on assumptions and the lack of satisfactory explanation from the manufacturing entity. The judgment highlighted the need for proper consideration of the submissions made by the manufacturer and the necessity to determine clandestine clearance based on circumstantial evidence.

3. Confiscation of Unaccounted Goods Under Rule 25 of Central Excise Rules, 2002:
During investigations, repacked 'liquid bromine' valued at Rs. 19,98,200 was seized for not being accounted for. The jurisdictional Deputy Commissioner of Central Excise proposed confiscation under rule 25 with attendant penalties under rule 26 and rule 27. The first appellate authority upheld the confiscation with an option to redeem on payment of a fine and imposed penalties. The judgment noted that the determination of breach concerning the seized 'liquid bromine' was influenced by the findings of the adjudicating Commissioner, necessitating fresh determination.

4. Imposition of Penalties Under Rule 26 and Rule 27 of Central Excise Rules, 2002:
Penalties were imposed under rule 26 and rule 27 for the unaccounted goods and the alleged short-payment of duties. The judgment emphasized the need for proper adjudication based on established facts and statutory obligations. The lack of proper consideration of the submissions and the reliance on assumptions in the adjudication order were highlighted as deficiencies that needed to be addressed.

Conclusion:
The judgment set aside the impugned orders and remanded the matters back to the respective adjudicating authorities for proper determination. It emphasized the need for a responsible exercise of determining breaches of statutory boundaries based on established facts. The judgment also highlighted the importance of considering the submissions made by the parties and the necessity of proper documentation and evidence in determining tax liabilities and penalties.