2018 (9) TMI 85 - AT - Central Excise

100% EOU - Clandestine manufacture and removal - suppression of production - copper ingots - Department has entertained a doubt that appellants are under-reporting the recovery of copper from copper scrap procured by them and by indulging into lower recovery, they are suppressing the manufacturing and clearance of copper ingots and thereby evading central excise duty - Held that - For establishing the clandestine manufacture and clearance, the department has not made any sincere efforts to establish that appellant-assessee have manufactured and clandestinely cleared the copper ingots over and above what was declared by them in their statutory records. The law is fully settled that in every case of alleged clandestine manufacture and clearance, the onus is on the revenue to prove what it alleges with positive and concrete evidences - the average recovery of copper from five consignments of copper scrap cannot form concrete evidence to demand duty over and above the declared quantities of clearances of copper ingots. The department should have gathered some more precise evidences to prove unrecorded manufacture of copper ingots and sale of same. If there were excess sale of copper ingots other than what is provided in the statutory records of the appellant-assessee then some investigations should have been done to prove it but here the department has not even bothered to undertake any investigations on this side to prove that the assessee has manufactured and cleared certain quantities of copper ingots which are not recorded in the bookds of accounts - the charges of clandestine manufacture and clearance is not established on the basis of available evidences. There is no merit in demand of duty and same is not sustainable and accordingly the order in original is set aside - Since the demand itself is not sustainable on merit and therefore, question of imposition of penalties under Section 11AC of the Act on the firm and under Rule 26 of Central Excise Rules on the partners does not arise and thus, same are also set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Alleged under-reporting of copper recovery, Comparative study of like factories, Failure to provide comparative study findings, Allegations of clandestine manufacture and clearance, Burden of proof on revenue, Lack of concrete evidence, Failure to establish excess manufacture and clearance, Legal principles on suppressed production, Imposition of penalties.

Alleged under-reporting of copper recovery:
The case involved a 100% EOU engaged in manufacturing copper ingots from various copper scraps. The department suspected under-reporting of copper recovery, leading to evasion of central excise duty. Central Excise officers supervised consignments and found discrepancies in reported copper recovery percentages.

Comparative study of like factories:
In the initial round of litigation, the Tribunal ordered a comparative study of like factories to determine copper recovery standards. However, upon re-adjudication, it was found that no such study had been conducted as directed by the Tribunal. The absence of comparative data was highlighted as a procedural flaw.

Allegations of clandestine manufacture and clearance:
The department alleged clandestine manufacture and clearance of copper ingots beyond declared quantities. The Tribunal emphasized that the burden of proof lies with the revenue to substantiate such claims with concrete evidence. Lack of efforts to establish excess manufacture and clearance was noted.

Legal principles on suppressed production:
Citing legal precedents, the Tribunal emphasized the need for conclusive evidence to prove suppressed production and clandestine clearance. Mere approximations and statements without corroborative evidence were deemed insufficient to support allegations of excess production. The Tribunal stressed the importance of thorough investigations and concrete proof in such cases.

Imposition of penalties:
Given the lack of concrete evidence to support allegations of suppressed production and clandestine clearance, the Tribunal set aside the duty demand and penalties imposed under Section 11AC of the Act and Rule 26 of Central Excise Rules. The appeals were allowed, and penalties were revoked due to the unsubstantiated nature of the allegations.

This comprehensive analysis of the legal judgment highlights the key issues, procedural lapses, burden of proof requirements, and the application of legal principles in determining the outcome of the case.