2010 (1) TMI 521 - AT - Central Excise

Demand Audit objection Without preceding investigation they cannot sustain SCN. It is more so as internal auditors of department can not act as investigating agency jurisdictions of both being distinct. Demand Arithmetical blunders addition to figure shown as closing balance of inputs issued to factory floor held to be arithmetical mistake. 2312 Kg chose to be added to (-) 11, 412 Kg to arrive a total figure of 13, 724 Kg. Demand not sustainable. Cenvat/Modvat burden of proof regarding admissibility of Cevat Credit is not on assessee when they consistently denied taking credit and department had not produced Cenvat account.

Summary

Issues:
1. Demand of duty on certain quantity of inputs for the period 2005-06 and imposition of penalty on the assessee.

Analysis:
The appeal before the Appellate Tribunal CESTAT, Mumbai raised the question of the sustainability of the decision by lower authorities to demand duty on a specific quantity of inputs for the period 2005-06 and to impose a penalty on the assessee. The department issued a show-cause notice to recover duty and impose a penalty based on an audit report by a senior auditor. The assessee presented their own worksheet, supported by a certificate from their Chartered Accountant and a print-out of the computerized Cenvat Account of inputs for the relevant period. The original authority and the Commissioner (Appeals) upheld the demand and penalty. However, the Tribunal found the demand unsustainable on facts and in law, leading to the setting aside of the penalty as well.

The Tribunal highlighted several reasons for its decision. Firstly, it noted that the show-cause notice was issued solely based on audit objections without the necessary investigation required before taking action under Section 11A of the Act. Citing relevant case law, the Tribunal emphasized the importance of investigations preceding such demands. Secondly, it pointed out arithmetical errors in the show-cause notice and the auditor's report, which led to an incorrect excess quantity calculation. Thirdly, the Tribunal criticized the lower authorities for presuming the burden of proof regarding the admissibility of Cenvat Credit on the assessee. The department failed to establish a fool-proof case of the credit being actually taken by the assessee, and the Tribunal found it premature for the department to raise such a demand without proper evidence.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal of the assessee. The judgment emphasized the importance of proper investigation before demanding duty and imposing penalties, highlighting the need for a strong evidential basis for such actions in excise matters.