2023 (9) TMI 61 - AT - Central Excise

Clandestine removal - removal of scrap from manufacturing premises - Non-payment of Central Excise Duty - violation of Section 6 of the Central Excise Act 1944 read with Rule 9 (1) and( 2) of Central Excise Rules, 2002 - HELD THAT - Department has not come out with any proof to show that the said scrap was not purchased by the appellant or to show that the scarp was generated in the factory. As Central Excise duty is on the manufacture of scrap, it is incumbent on the part of the department to show proof that the said scrap has been manufactured in the factory. No investigation was conducted to show the purchase of raw material, deployment of labour, consumption of electricity etc. to prove the production of the scrap. Understandably, huge quantities of scrap, involving a duty of about Eighty Lakhs cannot be done without commensurate production of primary materials i.e. bars, rods, etc; no such discussion is seen either in the show cause notice or in the Order-in-Original - It is found that not even a simple stocktaking of the raw material, finished product, the scrap generated was undertaken. The Department has failed to substantiate the allegation of clandestine removal of scrap by the appellants. In fact, the show-cause notice makes a bare averment that the appellants have violated Section 6 of the Central Excise Act 1944 read with Rule 9 (1) and (2) of Central Excise Rules, 2002 and for the reason, Excise Duty payable is demanded under the proviso to Section 11A of Central Excise Act 1944. As no other penalty, for violation of the provisions of the Act and the rules, if any, is proposed in the show cause notice, imposition of penalty even for not obtaining registration cannot be considered at this stage. Such a show-cause notice bereft of any investigation and proof thereof cannot be sustained; for the reasons, the show-cause notice and the impugned order are liable to be set aside - Appeal allowed.

Summary

Issues involved:
The issues involved in the judgment are violation of Section 6 of the Central Excise Act 1944 read with Rule 9 (1) and (2) of Central Excise Rules, 2002, demand for Central Excise duty, interest, and penalty based on a show cause notice, and the appellant's trading activities in steel scrap.

Details of the Judgment:

Issue 1: Allegation of violation of Central Excise Act and Rules
The appellants, engaged in manufacturing bars, rounds, and rods, were alleged to have traded in steel scrap similar to that generated in their factory, without paying Central Excise duty. The show cause notice demanded duty, interest, and penalty, which were confirmed in the Order-in-Original. The appellant argued that the trading was conducted from their head office and not the factory premises. They provided invoices showing purchase of scrap from various manufacturers across India.

Issue 2: Lack of investigation by Revenue
The appellants contended that the Revenue failed to conduct any investigation to prove that the scrap was not purchased by them or that it was generated in their factory. The appellant maintained records of VAT payment and argued that scrap purchased was directly delivered to buyers' premises, which is a common practice in the scrap trade. The absence of evidence regarding production of scrap in the factory, including raw material purchase, labor deployment, and electricity consumption, was highlighted as a flaw in the Revenue's case.

Issue 3: Failure to substantiate clandestine removal
The Tribunal noted that the Revenue did not provide sufficient evidence to support the allegation of clandestine removal of scrap by the appellants. The show cause notice lacked detailed investigation and proof of the alleged violations. The Tribunal emphasized the necessity of tangible evidence to confirm demands based on presumptions and assumptions, citing a previous judgment by the Allahabad High Court.

Conclusion
The Tribunal found that the show cause notice and the impugned order were not legally sustainable due to the lack of substantial evidence and investigation by the Revenue. As a result, the order was set aside, and the appeal was allowed.

This summary provides a detailed overview of the judgment, highlighting the key issues, arguments presented by both parties, and the Tribunal's findings in each aspect of the case.