2018 (9) TMI 454 - HC - Central Excise

Clandestine removal - it was alleged that the assessee had failed to inform the Department about the shortage with a clear intention to evade payment of excise duty - extended period of limitation - Whether larger period under Proviso to Section 11A(1) of the Central Excise Act, 1944, could be invoked alleging suppression of facts when stock discrepancy is explicitly disclosed in the annual report? - Held that - Based on the material available in the annual report, the said show cause notice came to be issued and there was no material placed in the said show cause notice to support the allegation of either willful mis-statement or clandestine removal or suppression of fact or fraud or collusion with an intention to evade payment of duty. Thus, in the absence of such material, the extended period of limitation is not invocable. Whether excise duty can be demanded on the ground of clandestine removal when the Department did not allege clandestine removal at the stage of show cause notice, Order-in-Original and Order-in-Appeal? - Held that - There was no such material with the Original Authority, when the show cause notice dated 20.6.2007 was issued. The well considered order passed by the Commissioner (Appeals) stood reversed by the Tribunal, which, in our considered view, by a cryptic order, without discussing the facts and circumstances of the case, had not properly appreciated as to what was the allegation against the assessee - Tribunal reversed the order of the First Appellate Authority based on a presumption that if there was a shortage, it would amount to a case of clandestine removal. We do not subscribe to the view taken by the Tribunal. The Tribunal has not recorded any finding of fact. In fact, it has not even given proper reasons as to why the order of the Commissioner (Appeals) requires to be reversed, when the same is a very reasoned order. The Tribunal proceeded merely on assumptions and presumptions and ignored the basic requirement of clinching material to prove the clandestine removal. In the instant case, there is not even enough material to presume the clandestine removal. Thus, the finding of the Tribunal is perverse. Appeal allowed - decided in favor of assessee.

Summary

Issues:
1. Invocation of extended period of limitation under Proviso to Section 11A(1) of the Central Excise Act, 1944.
2. Allegation of clandestine removal without prior mention in show cause notice.
3. Reversal of order by Tribunal without proper reasoning.
4. Requirement of clinching material to prove clandestine removal.

Analysis:

1. Invocation of extended period of limitation: The primary issue in this case revolves around whether the extended period of limitation could have been invoked under the Proviso to Section 11A(1) of the Central Excise Act, 1944. The extended period is applicable when there is evidence of fraud, collusion, willful misstatement, or suppression of facts to evade duty payment. The Court emphasized that the Department must establish these elements with reasonable material to invoke the extended period.

2. Allegation of clandestine removal: Another significant issue raised was the allegation of clandestine removal without prior mention in the show cause notice. The Department alleged shortage based on the assessee's annual report without concrete evidence of willful misstatement or evasion. The Court highlighted that the absence of material supporting allegations of clandestine removal rendered the extended period of limitation inapplicable.

3. Reversal by Tribunal: The Tribunal's decision to reverse the Commissioner (Appeals) order without proper reasoning was a crucial point of contention. The Court criticized the Tribunal for basing its decision on assumptions and presumptions rather than concrete evidence. The lack of a factual finding by the Tribunal and failure to provide adequate justification for overturning the lower authority's reasoned decision were significant flaws identified by the Court.

4. Requirement of clinching material: The Court underscored the necessity of clinching material to prove clandestine removal. It emphasized that allegations of clandestine removal should be substantiated with satisfactory and positive evidence, rather than relying on assumptions or presumptions. The Court deemed the Tribunal's decision as perverse due to the absence of sufficient material to support the allegation of clandestine removal.

In conclusion, the Court allowed the appeal, set aside the impugned order, and ruled in favor of the assessee on substantial questions of law related to the invocation of the extended period of limitation and the allegation of clandestine removal. The Court criticized the Tribunal's decision-making process and emphasized the importance of factual findings and concrete evidence in such cases.