2010 (2) TMI 416 - AT - Central Excise

Demand Clandestine removal - The appellants are engaged in the manufacture of V.P. sugar/molasses falling under chapter 17 of the Schedule to the Central Excise Tariff Act, 1985. Demand has been confirmed on the ground that the appellants had declared excess quantity of molasses in their storage tanks well after the expiry of period of the cane supply season for the years 2001-02, 2004-05 and 2005-06. Assessee s contention regarding the mixing of water with the molasses being the reason for increase in weight thereof, there was no material of any type produced on record in support of such contention. Held that- appeal partly succeeds, demand of duty under the impugned order with reference to the period beyond one year prior to issuance of the show cause notice dated 27th June, 2007 cannot be sustained, as it is barred by limitation. The rest of the demand cannot be interfered with.

Issues Involved:
1. Validity of the Commissioner's findings.
2. Invocation of the extended period of limitation.
3. Allegations of clandestine production and removal of sugar.
4. Calculation and evidence of excess molasses.
5. Compliance with statutory requirements.
6. Imposition of penalty and interest.

Detailed Analysis:

1. Validity of the Commissioner's Findings:
The appellants challenged the order dated 23rd November 2007, which confirmed a demand of duty of Rs. 75,85,328/- along with interest and an equal amount of penalty under Section 11AC and Rule 25 of the Central Excise Rules 2002. The grounds for the challenge were that the findings were based on assumptions and not on records, and there was no basis for invoking the extended period of limitation.

2. Invocation of the Extended Period of Limitation:
The appellants argued that the demand was barred by limitation since the show cause notice was issued on 26th June 2007, covering the years 2001-02, 2004-05, and 2005-06. The Commissioner observed that the appellants did not file revised RT-8(c) statements despite declaring excess molasses, which indicated willful misstatement to evade duty. The Tribunal found that the department had sufficient knowledge of excess molasses due to periodic declarations and duty payments, thus invalidating the extended period of limitation. Consequently, the demand for the period beyond one year prior to the issuance of the show cause notice was barred by limitation.

3. Allegations of Clandestine Production and Removal of Sugar:
The department alleged that the appellants clandestinely produced and cleared V.P. sugar without paying duty, based on the excess quantity of molasses declared. The appellants contended that the demand was based on assumptions without evidence of excess cane procurement or sugar sales. The Tribunal noted that the department did not produce evidence of excess cane procurement or sugar sales but found the appellants' explanation for excess molasses (seepage and mixing of water) unconvincing due to a lack of contemporaneous records.

4. Calculation and Evidence of Excess Molasses:
The Commissioner used a formula to calculate the excess production of molasses, which corresponded to the quantity of sugar allegedly manufactured clandestinely. The Tribunal upheld the formula used by the Commissioner, noting that the appellants failed to provide evidence to explain the excess molasses after the factory closure. The Tribunal referenced the Supreme Court's decision in Oudh Sugar Mills Ltd. vs. Union of India, emphasizing that findings based on assumptions without tangible evidence are invalid. However, in this case, the Tribunal found the department's calculations reasonable and supported by the facts.

5. Compliance with Statutory Requirements:
The appellants argued that they regularly informed the department about excess molasses through letters and paid the corresponding duty. The Commissioner noted that the appellants did not file revised RT-8(c) statements, which was a statutory requirement. The Tribunal found that the appellants' failure to comply with this requirement and the absence of records supporting their explanation for excess molasses justified the department's allegations.

6. Imposition of Penalty and Interest:
The Tribunal upheld the imposition of penalty and interest under Section 11AC, finding that the appellants' actions justified the penalty. However, the Tribunal modified the order by removing the penalty under Rule 25 of the Central Excise Rules.

Conclusion:
The Tribunal partially allowed the appeal, setting aside the demand for the period beyond one year prior to the issuance of the show cause notice due to the bar of limitation. The rest of the demand, along with interest and penalty under Section 11AC, was upheld. The Tribunal directed the Registrar to forward copies of the order to the Hon'ble Minister of Finance, the Revenue Secretary, and the Chairman of the Board for appropriate action.

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