2017 (7) TMI 392 - AT - Central Excise

Clandestine removal - manufacture of mild steel drums on job work basis - The steel drums manufactured by the appellant is meant for use by the HPCL for packaging of their final product namely asphalt. Being adjacent factory the appellant clears the finished goods through conveyor belt to HPCL - Held that - the MRR is prepared on quantity of drums filled with asphalt due to which there was a mismatch and the same was pointed out by appellant. With this fact without any other tangible evidence merely on the basis of difference between the MRR and GP1 quantity the charge of clandestine removal cannot be accepted. There is a force in the argument of the Ld. Counsel that when excise duty paid by the appellant is available to the HPCL as modvat credit there is no gain or loss either to the appellant or to the HPCL. Therefore no purpose would have been served to the appellant and/or HPCL for clandestine transaction of the drums. The exercise of payment duty of by the appellant and taking credit by the HPCL is of revenue neutrality for this reason also the demand is not sustainable. In case of revenue neutrality demand is not sustainable. The revenue could not establish beyond doubt the charge of clandestine removal against the appellant. Therefore the demand of duty penalty and interest confirmed against the appellant is not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Alleged clandestine removal of mild steel drums without payment of duty.
2. Validity of the statement given by the appellant under duress.
3. Mismatch between the quantity of drums shown in GP1 and MRR.
4. Revenue neutrality of the duty demand.
5. Imposition of penalty under Rule 173Q(1) and Rule 209A.

Issue-wise Detailed Analysis:

1. Alleged Clandestine Removal of Mild Steel Drums Without Payment of Duty:
The appellant, engaged in manufacturing mild steel drums for HPCL, was accused of clandestine removal of 1,45,743 drums without paying excise duty. The Central Excise officers conducted an enquiry and found discrepancies between the drums cleared as per GP1 (9,10,306) and the drums received by HPCL as per MRR (10,37,408). The Tribunal remanded the matter for de novo adjudication, and the Commissioner confirmed the demand. However, the High Court set aside the Tribunal's order and remanded the case back for fresh consideration.

2. Validity of the Statement Given by the Appellant Under Duress:
The appellant argued that the statement of Shri Ashok Patel, admitting to clandestine removal, was given under duress and retracted later. The High Court noted that the statement was made under threat of arrest and was retracted, thus questioning its validity as evidence. The Tribunal considered this and found that the statement, given under threat and subsequently retracted, could not be relied upon as evidence of clandestine removal.

3. Mismatch Between the Quantity of Drums Shown in GP1 and MRR:
The appellant explained that the mismatch between GP1 and MRR was due to HPCL accounting only for drums filled with asphalt, not the actual quantity cleared. The Tribunal found this explanation plausible, noting that the MRR did not reflect the actual quantity of drums received but only those used for filling asphalt. The Tribunal observed that the discrepancy alone could not substantiate the charge of clandestine removal.

4. Revenue Neutrality of the Duty Demand:
The appellant contended that the duty demand was revenue-neutral as the excise duty paid by them would have been availed as modvat credit by HPCL. The Tribunal agreed, citing case laws that support the principle of revenue neutrality, making the demand unsustainable. The Tribunal noted that since HPCL, a public sector undertaking, would claim the credit, there was no gain or loss to either party, further weakening the case for clandestine removal.

5. Imposition of Penalty Under Rule 173Q(1) and Rule 209A:
The Tribunal found no mens rea or intent to evade duty on the appellant's part, given the revenue-neutral nature of the transaction. Consequently, the penalty under Rule 173Q(1) was deemed unjustifiable. Similarly, the personal penalty on Shri Ashok Patel under Rule 209A was set aside, as the main demand against the appellant was not sustained.

Conclusion:
The Tribunal concluded that the revenue failed to establish the charge of clandestine removal beyond doubt. The demand of duty, penalty, and interest against the appellant was set aside. The Tribunal also quashed the personal penalty on Shri Ashok Patel, allowing the appeals with consequential relief in accordance with the law. The Tribunal emphasized that the mismatch between GP1 and MRR, the revenue-neutral nature of the duty demand, and the retracted statement under duress could not substantiate the allegations of clandestine removal.