1999 (11) TMI 175 - AT - Central Excise

Issues Involved:

1. Legitimacy of the duty demand and penalties imposed on the appellant.
2. Validity of the refund granted erroneously and its recoverability.
3. Determination of the actual manufacturer and the nature of the agreement between the appellant and ASPL.
4. Allegations of suppression of facts and evasion of duty.
5. Validity of the show cause notices and the findings of the adjudicating authority.

Detailed Analysis:

1. Legitimacy of the duty demand and penalties imposed on the appellant:

The Commissioner of Central Excise, Mumbai-II, confirmed the show cause notice and demanded a duty of Rs. 30,85,894/- and imposed penalties of Rs. 20 lakhs on the appellant and Rs. 15 lakhs on ASPL. The adjudicating authority held that the appellant suppressed vital facts from various departments, leading to the evasion of Central Excise duty. The goods were allegedly exported by GSL, with ASPL merely performing job work. The adjudicating authority concluded that ASPL acted as hired labor under the control of GSL, and the agreement was not on a principal-to-principal basis but rather a principal/capital manufacturer-hire laborer relationship.

2. Validity of the refund granted erroneously and its recoverability:

The Commissioner confirmed that the refund amount of Rs. 37,84,783/- was granted erroneously and recoverable from GSL and ASPL under Section 11A(1) of the Central Excise Act. The adjudicating authority found that ASPL, functioning purely as hired labor, could not have availed Modvat credit. The refund was sanctioned to ASPL, but the amount was transferred to GSL, misleading the department and fraudulently obtaining the refund.

3. Determination of the actual manufacturer and the nature of the agreement between the appellant and ASPL:

The facts reveal that ASPL was engaged to manufacture DYNO detergent powder under an agreement with GSL. The raw materials and packing materials were provided by GSL, and ASPL was responsible for the factory, workers, and compliance with laws. The agreement specified that the ownership of the raw materials and finished products remained with GSL. The adjudicating authority found that ASPL acted as hired labor, manufacturing goods on behalf of GSL.

4. Allegations of suppression of facts and evasion of duty:

The show cause notice charged both parties with evading Central Excise duty by willful suppression of facts and defrauding government revenue. The adjudicating authority concluded that the appellant suppressed vital facts, leading to the evasion of duty. However, the Tribunal found that the show cause notice did not explicitly charge GSL with manufacturing the goods, and there was no evidence of suppression or collusion.

5. Validity of the show cause notices and the findings of the adjudicating authority:

The Tribunal found that the adjudicating authority's findings went beyond the show cause notice. The notice did not charge GSL with manufacturing the goods or acting as hired labor. The Tribunal emphasized that adjudication orders should not go beyond the show cause notice without notifying the noticee of the charges. The Tribunal concluded that the refund was wrongly given to ASPL, and the appellant could not be held liable for the amount.

Conclusion:

The Tribunal set aside the impugned orders relating to the appellant, finding that the adjudicating authority's conclusions went beyond the show cause notice and there was no suppression of facts or collusion. The appeals were allowed in favor of the appellant.

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