2001 (7) TMI 478 - Commission - Central Excise

Issues Involved:
1. Classification of goods under Central Excise Tariff.
2. Allegations of creating dummy companies to evade excise duty.
3. Determination of the correct amount of differential duty.
4. Immunity from prosecution, fine, penalty, and interest.
5. Compliance with principles of natural justice.

Detailed Analysis:

1. Classification of Goods under Central Excise Tariff:
The main applicant, M/s. Fenoplast Ltd., disputed the classification of their manufactured coated cotton fabrics under the erstwhile Central Excise Tariff Item 19-III. They filed a writ petition in the High Court of Andhra Pradesh, which directed the Assistant Collector to dispose of the objections raised by the petitioners. The Assistant Collector confirmed the classification under Tariff Item 19-III.

2. Allegations of Creating Dummy Companies to Evade Excise Duty:
The Directorate of Anti Evasion conducted searches and issued a show cause notice (SCN) alleging that the main applicant created 13 dummy companies to reduce excise duty liability. These companies were shown as consignees and dealers, and the price charged to them was fraudulently suppressed by showing a trade discount of 3%. The SCN proposed a short payment of duty amounting to Rs. 90,20,444.57 and demanded duty applying an extended period of 5 years under Rules 9(2) and 221 of the Central Excise Rules, 1944, read with Section 11A of the Central Excise and Salt Act, 1944.

3. Determination of the Correct Amount of Differential Duty:
The Commissioner, Central Excise, Hyderabad, adjudicated the SCN and confirmed a duty demand of Rs. 34,11,365/-. The CEGAT, upon appeal, observed that the adjudicating authority violated principles of natural justice by not putting the appellant on notice about fresh calculations. The case was remanded to the adjudicating authority. The main applicant admitted to floating dummy companies and agreed to pay additional duty liability of Rs. 20,30,035/-. The Settlement Commission held that the price charged in the invoices to the dealers by the 13 dummy companies is the normal price and from this cum duty value, they are entitled to abatement of the duty already paid plus additionally payable.

4. Immunity from Prosecution, Fine, Penalty, and Interest:
The applicants sought immunity from prosecution, fine, penalty, and interest. The Settlement Commission granted immunity from prosecution and penal liability under the Central Excise Act and Rules, considering the applicants' full cooperation and true disclosure of duty liability. The Commission also held that interest under Section 11AB does not apply as the duty became payable before the Finance (No. 2) Bill, 1996 received the President's assent. Additionally, Section 11AC was not applicable as it is prospective in operation.

5. Compliance with Principles of Natural Justice:
The CEGAT observed that the adjudicating authority violated principles of natural justice by not informing the appellant about the fresh calculation of duty. The Settlement Commission ensured compliance by allowing the applicants to present their case and admitting the revised duty liability.

Conclusion:
The Settlement Commission settled the case by determining the Central Excise duty payable as Rs. 20,30,035.30. The applicants were directed to pay the balance amount within 30 days and were granted immunity from interest, prosecution, and penal liability. The Commission emphasized that the settlement would be void if obtained by fraud or mis-representation of facts.

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