2016 (8) TMI 938 - AT - Central Excise

Demand in terms of Notification No. 22/03-CE dated 31.03.2003 - Invokation of extended period of limitation - willful misstatement/ suppression of facts - waste and scrap arisen in the course of production processing or in connection therewith - Held that - the appellant had all along held that it considered the impugned waste and scrap as not subject to duty. Further the SCN itself concedes that the Revenue was not confirmed whether such waste and scrap was out of indigenous or imported material and therefore, it is to be treated as generated imported material on which higher rate of duty is applicable but this observation is unsustainable as the onus to establish that such waste and scrap was generated out of the imported raw material is clearly on Revenue. Also in view of the decision of Hon ble Apex court in the case of Uniworth Textiles Ltd. 2013 (1) TMI 616 - SUPREME COURT , the Supreme Court held that mere non-payment to duty is not equivalent to collusion or willful misstatement or suppression of facts. The main body of the Section, in fact, contemplates ordinary default in payment of duties and leaves cases of collusion or wilful mis-statement or suppression of facts, a smaller, specific and more serious niche, to the proviso. Therefore, something more must be shown to construe the acts of the appellant as fit for the applicability of the proviso. Hence, the demand is unsustainable and extended period of limitation is not invokable. - Decided in favour of appellant

Summary

Issues:
1. Whether the waste and scrap generated by the appellant are liable for duty under Notification No. 22/03-CE dated 31.03.2003.
2. Whether there was willful misstatement/suppression of facts justifying the extended period for demand.

Analysis:
1. The appellant, an EOU, was charged with a demand of ?76,28,626/- for waste and scrap generated during production. The contention was that the waste did not arise during the manufacturing process. The appellant argued that the waste from packing materials and electrical fittings did not originate from the duty-free inputs received. Citing legal precedents, it was emphasized that waste and scrap should be directly linked to the duty-free inputs for duty liability. The Tribunal noted that the waste from packing materials did not arise from duty-free inputs, as established in a Supreme Court case. Similarly, waste from electrical fittings and other items did not have a direct connection to the duty-free inputs. The Tribunal also highlighted the lack of evidence regarding willful misstatement/suppression of facts, as the appellant maintained that the waste was not subject to duty. The onus to prove that waste originated from duty-free inputs was on the Revenue. The Tribunal concluded that the waste and scrap were not chargeable under the Notification, setting aside the impugned order.

2. The Tribunal examined whether there was willful misstatement/suppression of facts to justify the extended period for demand. Citing a Supreme Court case, it was established that mere non-payment of duties does not equate to willful misstatement or collusion. The Tribunal emphasized that a deliberate default with a negative intention is required for invoking the extended period and mandatory equal penalty. Since there was no evidence of willful misstatement or suppression of facts, the Tribunal held that the extended period and mandatory equal penalty were not applicable in this case. Consequently, the impugned order was deemed unsustainable and set aside.