2017 (2) TMI 1028 - AT - Central Excise

Clandestine removal - suppression of production - The Commissioner while adjudicating the matter, has found that the appellant is not having the capacity to produce 50.89 crores of pouches with a short span time of 20 days. He held that only 30.06 crores of pouches could have been manufactured during the said period - Whether the Commissioner is correct in demanding duty on the basis of production capacity which is not alleged in the SCN? - Held that - the impugned order lacks demanding duty on the basis of production capacity as the same is beyond the scope of show cause notice as held by the Hon ble Apex Court in the case of Sun Pharmaceuticals 2015 (12) TMI 670 - SUPREME COURT , wherein it was held that the reasons given by the CESTAT in support of its view clearly reveals that CESTAT has gone beyond the show cause notice inasmuch as this was not even the case set up by the Department in the SCN - decided against Revenue. Whether the Commissioner is correct in demanding duty under the compounded levy scheme as per Masala Packing Machines (Capacity Determination & Collection of Duty) Rules, 2008 or not? - Held that - As the Pan Masala Packing Machines (Capacity Determination & Collection of Duty) Rules, 2008 were not in existence during the relevant time. Moreover, these rules have not been made effective retrospectively, in that circumstance, the duty cannot be demanded under Pan Masala Packing Machines (Capacity Determination & Collection of Duty) Rules, 2008 - method of calculation of demand set aside. Whether the documents resumed from the residence of Sh. Manoj Rajouria can be relied upon to demand duty from M/s. Som? - Whether in the absence of any evidence on record except the documents record from the residence of Sh. Manoj Rajouria, the duty can be demanded or not? - Held that - the department has clubbed together several railway receipts, sometimes of different dates to correspond with the quantity of Gutkha shown as transported in the resumed documents. It is not correct that there are several gutkha manufacturers in and around Delhi who transported their goods through railways but no efforts have been made to ascertain whether the gutkha has been sent by M/s. Som - Therefore, the duty cannot be demanded on the basis of the documents recovered from Shri Manoj Rajouria and the documents recovered from Shri Manoj Rajouria cannot be taken as evidence. Appeal allowed by way of remand.

Summary

Issues Involved:
1. Whether the Commissioner is correct in demanding duty on the basis of production capacity which is not alleged in the show cause notice.
2. Whether the Commissioner is correct in demanding duty under the compounded levy scheme as per Pan Masala Packing Machines (Capacity Determination & Collection of Duty) Rules, 2008.
3. Whether the documents resumed from the residence of Sh. Manoj Rajouria can be relied upon to demand duty from M/s. Som.
4. Whether in the absence of any evidence on record except the documents recorded from the residence of Sh. Manoj Rajouria, the duty can be demanded or not.

Detailed Analysis:

Issue No. 1:
The Commissioner demanded duty based on the production capacity of the machines installed at M/s. Som, which was not alleged in the show cause notice. The Tribunal found that the impugned order lacks demanding duty on this basis as it goes beyond the scope of the show cause notice. The Tribunal cited the Hon'ble Apex Court in the case of Sun Pharmaceuticals, which held that an order cannot go beyond the show cause notice. Similarly, in the case of Manjit Singh, it was held that an order based on erroneous facts beyond the scope of the show cause notice is not sustainable. Therefore, the adjudicating authority's action was found to be unsustainable in law.

Issue No. 2:
The duty was demanded under the Pan Masala Packing Machines (Capacity Determination & Collection of Duty) Rules, 2008, which were not in existence during the relevant period. The Tribunal noted that these rules were not made effective retrospectively. Consequently, the method of calculation of demand in the impugned order was set aside as it was based on rules that were not applicable during the relevant time.

Issues No. 3 and 4:
The documents resumed from the residence of Sh. Manoj Rajouria were the sole basis for the show cause notice. Sh. Manoj Rajouria, a third party with enmity towards M/s. Som and its directors, admitted during cross-examination that he prepared these documents to take revenge. The Tribunal found that these documents lacked evidentiary value as they were not independent evidence. The Tribunal also noted discrepancies in the entries of dispatch through various railway stations and transporters, and the lack of corroboration between the documents and actual production records. Furthermore, the Tribunal highlighted that there was no investigation into the unaccounted purchase of raw materials necessary for such large-scale production. The Tribunal concluded that the duty could not be demanded based on these documents alone.

Conclusion:
The impugned order was set aside, and the matter was remanded to the Original Authority for a fresh decision. The Tribunal emphasized the need for objective and close scrutiny of the evidence before arriving at the final quantification of duty not paid by M/s. Som during the impugned period. The appellants were to be provided sufficient opportunity to present their case.

(Pronounced in the open court on 08.11.2016)