2017 (3) TMI 1446 - AT - Central Excise

Clandestine manufacturing and removal - manufacturer of Pan Masala & Gutkaha - the appellant was operating their factory for about 12 hours instead of the stated 10 hours in the declaration and accordingly could have estimated the production or excess production during the additional 110 minutes - demand - Held that - the whole demand have been raised by way of wild guesswork. The SCN does not disclose finding of any excess stock, than declared stock in the statutory records. The whole demand has been raised on the basis of estimated extra minutes of production per day, which is beyond the scope of the scheme of Act and the Rules - demand set aside - appeal allowed - decided in favor of assessee.

Summary

Issues:
1. Whether the Revenue could estimate clandestine production based on the appellant operating their factory for additional hours beyond the declared working hours.
2. Whether the demand raised by the Revenue on the appellant for excess production and duty payment was justified.
3. Whether the penalty imposed on the appellant and its partners was appropriate.

Analysis:
Issue 1:
The appellant, engaged in the manufacture of Pan Masala & Gutkha, was under the normal levy scheme under Section 3 of the Central Excise Tariff Act, 1985. The Revenue estimated clandestine production based on the appellant operating their factory for additional hours beyond the declared working hours. The Revenue concluded that the factory was running and manufacturing for 110 minutes more each day than declared. This estimation led to the calculation of excess production and clandestine manufacture, resulting in a demand for duty payment.

Issue 2:
The appellant contested the demand, arguing that there was no scheme of compounded levy in place for Pan Masala & Gutkha at the relevant time. They claimed that the demand was based on guesswork and without any discrepancy in stock records. The appellant argued that Circular No. 854/12/2007/CX did not establish a compounded levy scheme and that the demand was misconceived. The appellant further highlighted that a compounded levy scheme was introduced by the Revenue after the relevant period, indicating that no such scheme was in force earlier. The Tribunal found the demand to be based on guesswork and beyond the scope of the Act and Rules, setting aside the impugned order and allowing the appeal.

Issue 3:
The penalty imposed on the appellant and its partners was contested. The Tribunal held that the penalty on the partners was uncalled for and deleted it. However, the penalty on the firm was confirmed. The appellant argued that the penalty was unjustified, emphasizing the lack of a compounded levy scheme during the relevant period. The Tribunal's decision to set aside the impugned order also impacted the penalty imposed, providing relief to the appellant and its partners.

In conclusion, the Tribunal found the Revenue's estimation of clandestine production to be unfounded and beyond the legal framework, leading to the setting aside of the demand and penalties imposed. The appellant was granted consequential benefits in accordance with the law.