2018 (7) TMI 1360 - AT - Central Excise

Production capacity based duty u/s 3A - Clandestine manufacture and removal - Banarsi Ashiq brand Deshi Pan Samigri - non-notified goods - excess of stock - Whether the duty of 1, 40, 82, 789/- have been rightly demanded on 8, 17, 75, 733 pouches of Banarsi Ashiq Brand Deshi Pan Samigri manufactured and removed without payment of appropriate Central Excise Duty under Section 11A(4) of the Act alongwith equal amount of penalty under Section 11AC of the Act read with Rule 25 of CER 2002 on the appellant K.K. Tobacco Company? - whether penalty has been rightly imposed under Rule 26 of CER 2002 on the other two appellants? Held that - It is an admitted fact that the goods manufactured by the appellant namely Banarsi Ashiq brand Deshi Pan Samigri is not a notified goods under the notifications under Section 3A of the Act - Although the learned Commissioner have not referred to Section 3A but evidently the duty have been worked out and confirmed on the basis of the production capacity based levy which is untenable and is fit to be set aside. SCN not sustainable - appeal allowed - decided in favor of appellant.

Issues Involved:

1. Whether the demand of ?1,40,82,789/- on 8,17,75,733 pouches of Banarsi Ashiq Brand Deshi Pan Samigri was rightly imposed under Section 11A(4) of the Central Excise Act along with an equal amount of penalty under Section 11AC of the Act read with Rule 25 of CER, 2002.
2. Whether the penalty of ?5 lakhs each imposed under Rule 26 of CER, 2002 on the other two appellants was justified.

Detailed Analysis:

1. Demand of ?1,40,82,789/- and Penalty on K.K. Tobacco Company:

The central issue in this case was whether the duty of ?1,40,82,789/- had been rightly demanded for the clandestine manufacture and removal of 8,17,75,733 pouches of Banarsi Ashiq Brand Deshi Pan Samigri. The authorities visited the premises of K.K. Tobacco Company and found excess pouches and machinery used for manufacturing without proper registration and payment of Central Excise Duty. The proprietor admitted to manufacturing in unregistered premises without paying duty. The Revenue calculated the duty based on the production capacity of the machines, assuming continuous operation since their purchase.

The tribunal found that Deshi Pan Samigri does not fall under the compounded levy scheme as per Section 3A of the Central Excise Act, meaning duty cannot be demanded on the basis of production capacity. The tribunal emphasized that excise duty cannot be demanded on assumptions and presumptions without concrete evidence of clandestine manufacture and removal. The Assistant Commissioner’s earlier order, which was not challenged, indicated that there was no evidence of manufacture and clearance beyond the seized quantity of 110,160 pouches. Thus, the tribunal concluded that the demand and penalties were based on arbitrary assumptions and were not sustainable.

2. Penalty of ?5 Lakhs Each on the Other Two Appellants:

The penalties on the other two appellants, Shashi Kant Pandey and Laxmi Kant Pandey, were imposed under Rule 26 of CER, 2002, for their alleged involvement in the clandestine activities. The tribunal noted that there was no substantial evidence to prove their involvement in the clandestine manufacture and clearance of the goods. The statements and the presence of machinery alone were insufficient to establish their complicity without corroborative evidence of clandestine removal, such as records of raw material purchase, transportation, or identification of buyers.

Conclusion:

The tribunal held that the show cause notice and the impugned order were not sustainable as the demand was based on the production capacity of machines, which is not applicable to the goods in question. The tribunal set aside the impugned order, allowing the appeals and entitling the appellants to consequential benefits in accordance with the law. The penalties imposed on the other two appellants were also set aside due to the lack of substantial evidence.

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