2016 (2) TMI 329 - AT - Central Excise

100% EOU - diversion of imported material - Revenue has concluded that the suppliers were engaged in diversion of imported goods without payment of duty and appellant also issued CT 3 certificate to the suppliers to procure goods without payment of duty which have been diverted to the open market on the instructions of the appellants by the supplier. Therefore, the appellants are liable to pay duty along with interest and penalties on both the appellants have been imposed. - The defense of the appellants is that yarn in question i.e. PTY/PFY is an input for them to manufacture terry towel which have been used in manufacture of export goods which were ultimately exported which is not in dispute. Held that - The Revenue has decided the case against the appellants on wrong premise that PFY/PTY is not the raw material to manufacture of export goods by the appellants. We find that evidence produced and a defense taken by the appellant is having evidentiary value over the evidence relied by the Revenue which are oral statements only. - in the absence of any corroborative evidence produced by the Revenue, the case of the Revenue is not sustainable. Appellants have been able to prove that PFY/PTY is the raw material and they have procured these raw materials on the strength of CT 3 issued by appellant for procurement of the same, therefore, the duty cannot be demanded from the appellants. - Decided in favor of assessee.

Issues Involved:
1. Demand of duty along with interest and imposition of penalty on M/s. Riba Textiles Ltd. (RTL).
2. Imposition of penalty on Shri Ravinder Garg, Managing Director of RTL.
3. Allegation of diversion of imported polyester texturised yarn (PTY) and polyester filament yarn (PFY) by 100% EOUs.
4. Violation of principles of natural justice due to non-supply of relied upon documents.
5. Whether PTY/PFY was used in the manufacture of terry towels by RTL.
6. Responsibility for duty payment in case of diversion of goods.

Issue-wise Detailed Analysis:

1. Demand of Duty and Imposition of Penalty on M/s. RTL:
The case against RTL involved allegations of diversion of PTY/PFY without payment of duty. The Revenue's case was based on statements from suppliers, transporters, and employees of RTL, suggesting that RTL procured PTY/PFY under CT 3 certificates but diverted them to the local market instead of using them in manufacturing. The Tribunal found that the Revenue's case was based on assumptions and lacked corroborative evidence. The Tribunal noted that RTL had maintained proper records, and physical stock of PTY was found during the investigation, supporting RTL's claim that PTY/PFY was used in manufacturing export goods. The Tribunal concluded that the demand for duty and penalties on RTL was not sustainable.

2. Imposition of Penalty on Shri Ravinder Garg:
The Tribunal set aside the penalties imposed on Shri Ravinder Garg, Managing Director of RTL, as the primary allegations against RTL were not substantiated by sufficient evidence. The Tribunal found that the statements of employees of RTL supported the company's defense that PTY/PFY was used in manufacturing export goods.

3. Allegation of Diversion of Imported PTY/PFY:
The Revenue alleged that RTL, along with suppliers SPL and APL, was involved in a conspiracy to divert imported PTY/PFY without payment of duty. The Tribunal found that the Revenue's case relied heavily on statements from suppliers and transporters, but no concrete evidence was provided to prove the diversion of goods. The Tribunal noted that the suppliers were not made parties to the show cause notices, and no proceedings were initiated against the transporters, creating doubts about the reliability of the statements.

4. Violation of Principles of Natural Justice:
RTL argued that the non-supply of relied upon documents violated the principles of natural justice, as they could not properly defend their case. The Tribunal did not delve deeply into this issue, as RTL succeeded on merits. However, it acknowledged that the appellants were not provided with all the necessary documents, which could have impacted their ability to cross-examine witnesses and defend their case effectively.

5. Use of PTY/PFY in Manufacturing Terry Towels:
RTL contended that PTY/PFY was used in manufacturing the borders of terry towels. The Tribunal found that RTL had provided evidence of using PTY/PFY in export goods and that physical stock of PTY was found during the investigation. The Tribunal also noted that the Revenue did not provide any evidence to show that RTL procured PTY/PFY from sources other than those mentioned in the CT 3 certificates. The Tribunal concluded that PTY/PFY was indeed used as raw material by RTL in manufacturing export goods.

6. Responsibility for Duty Payment:
The Tribunal discussed the responsibility for duty payment in case of diversion of goods. It noted that if the suppliers were involved in diverting PTY/PFY without payment of duty, the duty liability should be fastened on the suppliers, not RTL. The Tribunal referred to previous decisions, including VVN Mfg. and Investors Ltd. and Skyron Overseas, to support its conclusion that duty cannot be demanded from RTL if the suppliers were responsible for the diversion.

Conclusion:
The Tribunal set aside the duty demand along with interest and penalties imposed on RTL and Shri Ravinder Garg. The appeals were disposed of in favor of the appellants, as the Revenue's case was found to be based on assumptions without sufficient corroborative evidence. The Tribunal emphasized the importance of concrete evidence in proving allegations of diversion and duty evasion.

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