2024 (10) TMI 894 - AT - Central Excise

Recovery of refund claim - allegation of non-manufacturing activities and manipulation of records - appellant did not have the capacity of deterpenation/fractionation of either the Crude Pipertia Oil or Crude Mentha Oil (Shivalik) or any Mint Oil and so no manufacturing process took place in the manufacturing unit of the appellant in respect of the goods cleared as Fractionated/ Deterpenated/ Distilled Pipertia Oil and Fractionated/ Deterpenated/ Distilled Menthe Oil (Shivalik)/Spearmint Oil or Terpene - extended period of limitation - denial of right of cross-examination - violation of principles of natural justice - HELD THAT - The Commissioner found that since the departmental officers had verified the facts which had been declared by the appellant in the statutory records and the test reports also indicated that the goods would be Crude Mint Oils, the genuineness of test report conducted after receipt of the goods from the appellant, cannot be doubted and so the request for cross examination of departmental officers and other persons should not be granted. The Commissioner also observed that the case against the appellant is not only on the basis of statements of employees of the appellant, but also on circumstantial test reports and, therefore, denying the right of cross examination would not be violative of principle of natural justice. These observations made by the Commissioner in the impugned order are clearly contrary to the principles enunciated by the Allahabad High Court in Parmarth Iron 2010 (11) TMI 109 - ALLAHABAD HIGH COURT and the Punjab and Haryana High Court in Jindal Drugs 2016 (6) TMI 956 - PUNJAB HARYANA HIGH COURT . In the first instance, under section 9D of the Central Excise Act it is clear that a statement made during investigation/enquiry before a central excise officer cannot be relied upon unless it is first admitted and for this the person who made the statement has to be summoned and examined as a witness in adjudication proceedings. Failure to do so would mean that the adjudicating authority has relied upon an irrelevant material and, therefore, the order would be vitiated. The question of cross examination would arise only after examination of the person who makes statement before the central excise officer. The Commissioner has placed reliance upon the statements without following the procedure prescribed under section 9D of the Central Excise Act. The order passed by the Commissioner deserves to be set aside for this reason also - The penalties imposed upon the Partner and Managing Director of the appellant cannot also, for the same reasons, be sustained. The impugned order dated 17.05.2010 passed by the Commissioner so far as it concerns the three appellants deserves to be set aside and is set aside - appeal allowed.

Issues Involved:

1. Denial of refund and recovery of excise duty invoking the extended period of limitation under Section 11A of the Central Excise Act.
2. Imposition of penalties on partners under Rule 26 of the Central Excise Rules 2002.
3. Allegation of non-manufacturing activities and manipulation of records.
4. Validity of CENVAT credit availed by the appellant.
5. Denial of cross-examination and reliance on statements without compliance with Section 9D of the Central Excise Act.
6. Invocation of extended period of limitation and imposition of interest and penalties.

Detailed Analysis:

1. Denial of Refund and Recovery of Excise Duty:

The appellant challenged the denial of a refund amounting to Rs. 10,14,57,998/- and the recovery of the same under Section 11A of the Central Excise Act. The order from the Commissioner invoked the extended period of limitation, alleging that the appellant did not engage in any manufacturing process as claimed. The Tribunal found that the appellant was entitled to the refund since the duty paid was accepted by the department, and the refund orders were not challenged, thus attaining finality. The Tribunal relied on precedents such as "Commissioner of C. Ex., Shillong vs. Jellalpore Tea Estate" to conclude that collateral proceedings could not be initiated under Section 11A when the department had not challenged the original refund orders.

2. Imposition of Penalties on Partners:

The penalties imposed on the partners under Rule 26 of the Central Excise Rules were also contested. The Tribunal found that the penalties could not be sustained as the basis for their imposition was flawed due to the improper reliance on inadmissible statements and lack of compliance with procedural requirements. Consequently, the penalties were set aside.

3. Allegation of Non-Manufacturing Activities:

The department alleged that the appellant did not have the capacity to manufacture the goods and manipulated records to claim exemptions. However, the Tribunal noted the presence of machinery and workers at the appellant's premises, supporting the claim of manufacturing activities. The Tribunal found that the department's case was based on assumptions and lacked substantive evidence, thereby favoring the appellant's position.

4. Validity of CENVAT Credit:

The appellant argued that the CENVAT credit availed was valid as the duty paid on inputs was accepted by the department. The Tribunal agreed, referencing cases like "Nestle India Ltd." and "Ajinkya Enterprises," which held that once duty is accepted, the credit cannot be denied even if the activity does not amount to manufacture. The Tribunal concluded that the credit was rightfully availed by the appellant.

5. Denial of Cross-Examination and Reliance on Statements:

The appellant contended that the denial of cross-examination and reliance on statements without adhering to Section 9D of the Central Excise Act vitiated the order. The Tribunal supported this view, citing decisions like "Parmarth Iron Pvt. Ltd." and "Jindal Drugs Pvt. Ltd.," which emphasized the necessity of following procedural requirements for statements to be admissible. The failure to adhere to these requirements led to the Tribunal setting aside the order.

6. Invocation of Extended Period of Limitation and Imposition of Interest and Penalties:

The Tribunal found that the invocation of the extended period of limitation was unjustified, as the department failed to establish suppression or misrepresentation by the appellant. Additionally, the imposition of interest and penalties under Section 11AC was deemed inappropriate due to the procedural lapses and lack of evidence of wrongdoing by the appellant.

Conclusion:

The Tribunal set aside the impugned order dated 17.05.2010 concerning the three appellants, allowing the appeals with consequential reliefs. The judgment underscored the necessity of adhering to procedural norms and the inadmissibility of evidence obtained through non-compliance, thereby favoring the appellants' claims for refunds and credit.

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