2018 (5) TMI 1344 - AT - Central Excise

Undervaluation - on reasonable belief that the appellant was engaged in the production of SS ingots or purchase of SS scrap which was not recorded in their records, the proceedings were initiated against the appellant for the period January to November, 2007 - Held that - The question of MS scrap found in the factory is not disputed, therefore, the SCN were issued to the appellants on assumptions and presumptions without any corroborative evident on record - the proceedings against the appellants are not sustainable merely on suspicion - appeal allowed - decided in favor of appellant.

Issues:
- Appeal against confirmed duty demand for undervaluation of goods
- Allegations of manufacturing stainless steel (SS) ingots but clearing them as mild steel (MS) ingots
- Admissibility of Cenvat credit on MS scrap
- Validity of penalties imposed
- Benefit of doubt in favor of the appellants

Analysis:
1. Confirmed Duty Demand for Undervaluation:
The appellants appealed against the confirmed duty demand on the grounds of undervaluation of goods. The case involved the manufacturing of SS ingots but clearing them as MS ingots, leading to the imposition of duty, interest, and penalties. The investigation revealed discrepancies in the valuation of goods, crossing the Small Scale Industries (SSI) exemption limit, making the appellants liable to pay duty. However, the Tribunal found that there was no concrete evidence to prove that SS ingots were being manufactured exclusively during the impugned period. As a result, the benefit of doubt was given to the appellants, and the impugned order demanding duty was set aside.

2. Allegations of Manufacturing SS Ingots as MS Ingots:
The core issue revolved around the allegation that the appellants were manufacturing SS ingots but clearing them as MS ingots. The Commissioner (Appeals) had upheld this claim based on statements recorded during the investigation. However, upon closer examination, it was revealed that buyers had not confirmed receiving SS ingots but had received goods as per MS ingot invoices. This discrepancy raised doubts about the accuracy of the allegations, leading to the Tribunal setting aside the impugned order due to lack of corroborative evidence.

3. Admissibility of Cenvat Credit on MS Scrap:
The appellants contested the denial of Cenvat credit on MS scrap during a specific period. The Commissioner (Appeals) had allowed this credit, indicating that the appellants were also engaged in manufacturing MS ingots. This allowance, coupled with the presence of MS scrap in the factory, supported the argument that the appellants were not solely manufacturing SS ingots. The Tribunal considered this aspect in favor of the appellants, further weakening the case against them.

4. Validity of Penalties Imposed:
Various penalties were imposed on the appellants along with the duty demand. However, since the primary allegations of undervaluation and misclassification of goods were not substantiated with concrete evidence, the Tribunal found the penalties imposed to be unjustified. The lack of conclusive proof regarding the exclusive production of SS ingots undermined the basis for penalties, leading to the setting aside of the impugned order.

5. Benefit of Doubt in Favor of the Appellants:
In the absence of conclusive evidence proving the exclusive manufacturing of SS ingots during the impugned period, the Tribunal favored the appellants by giving them the benefit of doubt. The lack of corroborative evidence, coupled with the allowance of Cenvat credit on MS scrap and the presence of machinery for both MS and SS ingots, led to the conclusion that the proceedings against the appellants were based on assumptions and presumptions rather than concrete proof. Consequently, the impugned order was set aside, and the appeals were allowed with any consequential relief.

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