2017 (12) TMI 265 - AT - Central Excise

100% EOU - N/N. 53/97 customs dated 3-6-1997 and 1/95-CE dated 4-1-1995 - allegation was made that certain quantity of final product manufactured out of imported input has been cleared to DTA availing exemption under N/N. 8/97. Therefore demand of duty was made - imported Aniline oil used in manufacture. Held that - The report of the Indian Institute of Material Management does not state that all the clearances made to DTA were not out of purely indigenous material. All it says is that imported Aniline oil has been consumed in excess of that which is required for production of exported goods. It does not automatically mean that entire quantity of goods manufactured and cleared in DTA has been manufactured out of mixed or imported Aniline Oil. The order of the commissioner in so far as it relates to fact that imported and indigenous aniline oil not been stored separately is upheld. The Tribunal order which is specifically directed to apply the FIFO method to ascertained the quantity of finished goods manufactured wholly or partly from imported raw material. The fact that Tribunal had directed to apply the principle of FIFO method, just because material got mixed, it cannot be said that entire quantity of finished goods was manufactured out of mixture of imported and indigenous raw material. The FIFO method has been suggested by the Tribunal to segregate the quantity relatable to finished goods manufactured out of indigenous and imported raw material - reference made by IIMM was not proper - matter remanded for getting entire data of aniline oil to arrive at quantity of finished goods manufactured and cleared in DTA wholly or partly from the imported raw material. Appeal allowed by way of remand.

Issues Involved:
1. Entitlement to Notification No. 8/97-CE benefits.
2. Separate storage and usage of imported and indigenous Aniline Oil.
3. Validity of statements and affidavits from employees.
4. Application of FIFO method for determining the use of imported Aniline Oil.
5. Remand for expert analysis by Indian Institute of Material Management (IIMM).

Issue-wise Detailed Analysis:

1. Entitlement to Notification No. 8/97-CE Benefits:
The appellants argued that as a 100% Export Oriented Unit (EOU), they were eligible for duty exemptions under Notification No. 8/97-CE if they manufactured products wholly from indigenous raw materials. The Tribunal acknowledged that the benefit of this notification could be availed if the unit could prove that the goods sold in the Domestic Tariff Area (DTA) were manufactured solely from indigenous raw materials. The Tribunal noted that the Commissioner denied this benefit based on the assumption that the entire quantity of goods cleared to DTA was manufactured using mixed or imported Aniline Oil.

2. Separate Storage and Usage of Imported and Indigenous Aniline Oil:
The appellants contended that they maintained separate storage tanks for imported and indigenous Aniline Oil. They provided detailed descriptions of their storage facilities and the process of managing the oil separately. However, the Commissioner rejected this claim based on employee statements indicating that the oils were not stored separately. The Tribunal upheld the Commissioner’s finding that the imported and indigenous oils were not stored separately, as the employees’ statements were not retracted until years later, which appeared to be an afterthought.

3. Validity of Statements and Affidavits from Employees:
The appellants presented affidavits from employees retracting their earlier statements, claiming that the oils were indeed stored separately. The Tribunal found these retractions unconvincing due to their delayed timing and upheld the Commissioner’s reliance on the original statements made by the employees in 2002. The Tribunal noted that the retractions made in 2006 were afterthoughts and thus could not be taken at face value.

4. Application of FIFO Method for Determining the Use of Imported Aniline Oil:
The Tribunal had previously directed the Commissioner to apply the First-In-First-Out (FIFO) method to determine the quantity of finished goods manufactured using imported Aniline Oil. The Indian Institute of Material Management (IIMM) report indicated excess consumption of imported Aniline Oil based on FIFO principles but did not conclusively state that all DTA clearances were from mixed or imported oil. The Tribunal emphasized that the FIFO method should be used to segregate the quantities of finished goods manufactured from indigenous and imported raw materials.

5. Remand for Expert Analysis by Indian Institute of Material Management (IIMM):
The Tribunal found that the IIMM report did not fully comply with its earlier directions. The report did not consider the separate storage of oils and relied solely on data provided by the appellants. The Tribunal remanded the case back to the Commissioner, directing a thorough re-evaluation using the FIFO method to accurately determine the quantity of finished goods manufactured using imported raw materials. The Commissioner was instructed to refer the matter again to IIMM for a detailed analysis, ensuring compliance with the Tribunal’s specific directions.

Conclusion:
The Tribunal set aside the impugned order and remanded the matter for a detailed re-evaluation by the Commissioner with the assistance of IIMM. The Commissioner was directed to use the FIFO method to accurately determine the quantity of goods manufactured using imported Aniline Oil and confirm the demand based on this analysis. The Tribunal emphasized that the entire DTA clearance could not be assumed to be manufactured from mixed oil without proper segregation using the FIFO method. Appeals were allowed by way of remand.

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