2009 (6) TMI 519 - AT - Central Excise

Cenvat Credit- Commissioner (Appeals) found that the respondents had raised two Central Excise invoices covering clearances of bright bars involving duty of Rs.58,465/- to M/s. Lakshmi Machine Works but failed to debit the Cenvat account by the duty amount owing to clerical error. Commissioner by the impugned order vacated demand of duty of Rs. 58,465/- found due on clearance of finished goods by the respondent without payment of duty, demand of MODVAT credit of Rs. 5,83,507/- under rule 57I(ii) and penalty. Thus the appeal filed by revenue. Held that-challenge of revenue for the amount of Rs. 58,465 is without merit. Further held that- However, in this exercise the assessee was handicapped for the reason that the documents evidencing movement of materials to adjacent unit for conversion to bright bars had not been furnished to them by the Revenue before the allegations were decided. The assessee was not furnished with these material documents; they were also denied cross-examination of mahazar witnesses. I find that the adjudication also involved failure to comply with the principles of natural justice by the authority who confirmed demands against the respondents and imposed a penalty on them. Thus, there is no reason to interfere with the impugned order vacating the demands and penalty made on sound grounds. The appeal filed by the Revenue is dismissed as devoid of merit.

Issues:
1. Demand of duty on clearance of finished goods without payment.
2. Demand of MODVAT credit and penalty imposition.
3. Reconciliation of stock and limitation on demand of duty.
4. Intention to evade payment of duty and clerical error.
5. Compliance with principles of natural justice.

Issue 1 - Demand of Duty on Clearance of Finished Goods:
The impugned order vacated a duty demand of Rs.58,465/- on clearance of finished goods by the respondents without payment, citing a clerical error for not debiting the Cenvat account. The Commissioner (Appeals) accepted the plea of clerical error due to the absence of habitual offense and sufficient credit balance. The Tribunal upheld this finding, noting the absence of intention to evade payment.

Issue 2 - Demand of MODVAT Credit and Penalty Imposition:
The demand of MODVAT credit of Rs.5,83,507/- and a penalty of Rs.3 lakhs were imposed on the respondents. The Commissioner (Appeals) found the demand based on a shortage ascertained during a visit to the factory. However, the demand was held to be barred by limitation, citing case law precedent. The Revenue challenged this, alleging intention to evade payment, but the Tribunal upheld the limitation finding.

Issue 3 - Reconciliation of Stock and Limitation on Demand of Duty:
The respondents claimed that the stock was not properly ascertained and that the demand of Rs.5,83,507/- was time-barred. The Commissioner (Appeals) agreed, relying on case law regarding limitation periods for such demands, which the Tribunal upheld. The Revenue argued against this, citing cases inferring evasion from physical shortage, but the Tribunal dismissed this argument.

Issue 4 - Intention to Evade Payment of Duty and Clerical Error:
The Revenue contended that the failure to debit the Cenvat account for duty on finished goods showed an intention to evade payment. However, the Tribunal found that the clerical error was not deliberate, as the respondents rectified the omission promptly. The Tribunal upheld the Commissioner (Appeals)'s decision on this issue.

Issue 5 - Compliance with Principles of Natural Justice:
The cross-objection raised concerns about the failure to provide documents and cross-examination opportunities, alleging a lack of compliance with natural justice principles. The Tribunal agreed, noting the denial of essential documents to the respondents, leading to a lack of opportunity for proper reconciliation. The Tribunal dismissed the appeal by the Revenue, emphasizing the importance of adhering to natural justice principles in such proceedings.

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