2017 (2) TMI 304 - AT - Central Excise

Clandestine removal - the quantity of Ethyl Acetate that should have been manufactured by them during the year 2005-06 should have been 1887825 kg., wheras the actual quantity manufactured was 1985245 kg. - whether demand of duty on differential quantity of goods justified? Held that - input/output data in ER-5 return for the year 2007-08 is used to estimate quantum of goods manufactured in the year 2005-06. This estimated manufacture is not covered by any of the provisions of Central Excise Act or Rules made thereunder. The said Show Cause Notice has not invoked any enabling provisions which enables Revenue to use input/output data given in ER-5 return for charging Central Excise duty on estimated goods that should have been manufactured by the appellant. The principle laid down is that if the provisions of erstwhile Rule 173E of Central Excise Rules, 1944 are invoked then it was mandatorily required to fix norm for electricity consumption, notify them to manufacturers and thereafter ascertain reasons for deviations, and after taking into account the consumption of various inputs, requirements of labour, material, power supply and conditions for running the plant together determine the goods manufactured and demand duty on the differential quantity of goods. Since such exercise was not carried out, therefore, I find that the impugned Show Cause Notice is not sustainable in law - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Central Excise duty demand based on estimated manufacture.
2. Invocation of enabling provisions for charging Central Excise duty.
3. Application of principles from the Hon'ble High Court of Allahabad's ruling.

Analysis:
1. The case involved a dispute regarding the Central Excise duty demand on the appellants, who were engaged in the manufacture of Ethyl Acetate. The Revenue issued a Show Cause Notice based on data discrepancies in the ER-5 return filed by the appellants for the year 2007-08, estimating the quantity of Ethyl Acetate that should have been manufactured in 2005-06. The Original Authority upheld the demand, imposing penalties. The appellants contended that production was affected due to maintenance issues and that the Show Cause Notice was presumptive, not proving clandestine removal. The Commissioner (Appeals) rejected the appeal, leading to the appeal before the Tribunal.

2. The Tribunal considered the contentions and found that the Show Cause Notice did not invoke any enabling provisions to charge Central Excise duty on the estimated goods manufactured by the appellant based on the input/output data. The Tribunal noted that the use of input/output data from the ER-5 return for estimating manufacture was not covered by any provisions of the Central Excise Act or Rules. Referring to a ruling by the Hon'ble High Court of Allahabad, the Tribunal emphasized the necessity of following specific procedures, such as fixing norms for consumption and determining reasons for deviations, before demanding duty on differential quantities of goods. As these procedures were not followed in the present case, the Tribunal ruled that the Show Cause Notice was not legally sustainable.

3. The Tribunal relied on the principle established by the Hon'ble High Court of Allahabad, as cited by the appellants' counsel, emphasizing the mandatory requirements for invoking provisions related to determining goods manufactured and demanding duty on differential quantities. By applying the principles from the High Court's ruling, the Tribunal concluded that the impugned Show Cause Notice lacked legal sustainability. Consequently, the Tribunal set aside the Order-in-Appeal and allowed both appeals, granting the appellants entitlement to consequential relief, if any, in accordance with the law.