1991 (10) TMI 166 - AT - Central Excise

Summary

Issues Involved:
1. Alleged clandestine removal of plywood.
2. Applicability of extended period of limitation under proviso to Section 11A(1) of the Central Excises and Salt Act, 1944.
3. Imposition of penalty under Rule 173Q of Central Excise Rules, 1944.
4. Validity of evidence used by the Department.

Detailed Analysis:

1. Alleged Clandestine Removal of Plywood:
The Department alleged that the appellants were evading Central Excise duty by mis-declaring higher-grade plywood as lower-grade "superply III." The main evidence relied upon was a letter seized from Woodcraft Products Ltd. (WCPL), which suggested that "superply III" from the appellants was actually of higher quality Venus grade. The appellants contended that this letter was unsigned, not seized from their premises, and clarified by WCPL as being misunderstood. They argued that the letter was not written by them and that their products were sold at ex-factory prices without any motive to evade duty. The Tribunal found that the letter alone could not be used as evidence against the appellants without further investigation or corroboration. The Tribunal emphasized that the Department should have summoned and cross-examined the officers of WCPL or conducted further investigations with other buyers to substantiate the allegations. The Tribunal concluded that the evidence was insufficient to prove clandestine removal.

2. Applicability of Extended Period of Limitation:
The Department applied the extended period of five years for the demand of duty under the proviso to Section 11A of the Central Excises and Salt Act, 1944, alleging suppression of facts and wilful mis-statement by the appellants. The appellants argued that the Show Cause Notice issued on 6-10-1988 was barred by limitation for the period from September 1983 to September 1985. The Tribunal agreed with the appellants, stating that the Department failed to establish suppression of material facts or wilful mis-statement. Therefore, the demand was barred by limitation.

3. Imposition of Penalty under Rule 173Q:
The Additional Collector imposed a penalty of Rs. 5,00,000 on the appellants under Rule 173Q of the Central Excise Rules, 1944, for allegedly removing excisable goods in contravention of the rules. The Tribunal found that the Department could not justify the allegation of clandestine removal or prove any contravention of rules with intent to evade duty. Consequently, the imposition of the penalty was deemed not in accordance with the law and was set aside.

4. Validity of Evidence Used by the Department:
The Department's case heavily relied on an unsigned letter from WCPL, which was not seized from the appellants' premises. The Tribunal noted that the letter's contents were clarified by WCPL, stating that the appellants' "superply III" was of the same quality as WCPL's Venus grade, both being inferior and defective. The Tribunal held that the Department should have further investigated or cross-examined the concerned officers to validate the letter's contents. The Tribunal also noted that the Department did not find any incriminating evidence during searches at the appellants' premises or from other buyers. The Tribunal ruled that the evidence was insufficient and based on assumptions and conjectures, which could not form a legal basis for the demand of duty.

Conclusion:
The Tribunal allowed the appeal, setting aside the impugned order confirming the demand and imposing the penalty on the appellants. The Tribunal concluded that the Department failed to provide sufficient evidence to prove clandestine removal, justify the extended period of limitation, or validate the imposition of the penalty.