1986 (7) TMI 254 - AT - Central Excise

Issues Involved:
1. Limitation period for the show cause notice.
2. Applicability of Rule 9 of the Central Excise Rules.
3. Evidence of clandestine removal and surreptitious manufacture.
4. Validity of the show cause notice and the basis of duty demand.
5. Justification for the penalty imposed.

Summary:

1. Limitation Period for the Show Cause Notice:
The appellants argued that the show cause notice issued on 12th May 1975 was incomplete and only finalized with the corrigendum issued on 10th February 1977. They contended that the limitation period should count from the date of the corrigendum, making the demand for the entire period barred. The Department, however, maintained that the first show cause notice was complete and self-contained, with only minor changes in the subsequent notice.

2. Applicability of Rule 9 of the Central Excise Rules:
The appellants questioned the applicability of Rule 9, arguing that it does not apply to manufacturers working under the self-removal procedure governed by Chapter VIIA of the Central Excise Rules, 1944. The Department countered that Rule 9(1) refers to "these Rules," which includes rules under Chapter VIIA.

3. Evidence of Clandestine Removal and Surreptitious Manufacture:
The appellants contended that there was no evidence of clandestine removal and that the case rested on surmises and conjectures. They cited the Supreme Court decision in the case of Oudh Sugar Mills v. Union of India, which held that average production cannot be the basis for issuing a show cause notice. The Department argued that it is not required to prove with mathematical precision the extent of clandestine manufacture and removal, and once evidence of non-accountal is shown, the onus shifts to the manufacturer.

4. Validity of the Show Cause Notice and the Basis of Duty Demand:
The show cause notice alleged short accountal of kraft paper and demanded duty on the presumed quantity of corrugated board manufactured therefrom. The Assistant Collector allowed various deductions for moisture content, reel core weight, packing material, and losses due to poor quality paper. However, the appellants argued that the notice did not allege clandestine manufacture or removal, nor did it provide a basis for the conclusion that short-accounted kraft paper was necessarily manufactured into corrugated board and removed without payment of duty.

5. Justification for the Penalty Imposed:
The appellants argued that no mens rea was established, and the show cause notice did not envisage or give notice regarding the imposition of penalty. The Department maintained that the burden of proof shifted to the appellants once the Department provided evidence of non-accountal.

Judgment:
The Tribunal found that there was no evidence of clandestine manufacture or surreptitious removal of excisable goods. The show cause notice and subsequent communications did not provide a basis for the conclusion that short-accounted kraft paper was manufactured into corrugated board and removed without payment of duty. The Tribunal also noted discrepancies in the figures of goods short-accounted for and the goods on which duty was demanded. The Assistant Collector's deductions for various factors virtually met the total quantity of goods alleged to have been short-accounted for. The Tribunal concluded that the demand for duty and the imposition of penalty were based on unwarranted assumptions and not supported by tangible evidence. Accordingly, the orders of the lower authorities, including the demand for duty and the imposition of penalty, were set aside, and the appeal was allowed.

← Previous Next →