2018 (12) TMI 1575 - AT - Central Excise

Clandestine manufacture and removal - failure on the part of Revenue to establish manufacture of goods in respect of which demand was raised - Held that - There is no evidence brought forwarded by revenue to establish manufacture - Through the impugned show cause notice Central Excise duty is demanded and the duty of excise is on the activity of manufacture. We note that unless the manufacture is established Central Excise duty cannot be demanded. The case of revenue is that since the transactions of trading cannot be establish, the entire sales value is treated as value of clearance of goods manufactured by the appellants. We find the same to be pure presumption. Tribunal in the case of M/s Arya Fibres Pvt. Ltd. 2013 (11) TMI 626 - CESTAT AHMEDABAD has held that there are certain fundamental criteria to establish clandestine manufacture and removal. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Classification of goods.
2. Demand of Central Excise duty.
3. Confiscation of goods and vehicles.
4. Imposition of personal penalties.

Issue-wise Detailed Analysis:

1. Classification of Goods:
The primary issue involved the classification of Organic Composite Solvents (OCS) and Thinners manufactured by the appellant. The appellant classified these products under Chapter 38 of the Central Excise Tariff Act, 1985, attracting a duty of 16% Ad-valorem. However, the Revenue disputed this classification and proposed classification under Sub-heading 271011, attracting a combined duty of 32%. The Tribunal had previously settled that the goods manufactured by the appellant were properly classifiable under Chapter 38, attracting a 16% duty. This classification dispute was crucial as it determined the applicable duty rate.

2. Demand of Central Excise Duty:
The Revenue raised multiple demands based on alleged discrepancies in the appellant's records. A significant demand of ?3,90,51,589/- was made on the basis that the sales value reflected in the appellant's books was due to clandestine removal of goods. The Original Authority confirmed demands totaling ?3,79,67,279/-, ?10,61,000/-, and ?7,00,428/- under Section 11A(1) along with interest under Section 11AB. However, demands of ?1,10,400/- and ?10,84,320/- were dropped. The Tribunal found that the Revenue's case was based on presumptions without tangible evidence of manufacture or clandestine clearance. The Tribunal emphasized that Central Excise duty is on the activity of manufacture, which the Revenue failed to establish.

3. Confiscation of Goods and Vehicles:
The Original Authority ordered the confiscation of seized goods (OCS-II and OCS P-I) valued at ?3,45,000/- and imposed a redemption fine of ?86,250/-. Additionally, two tankers valued at ?7,00,000/- each were confiscated, with redemption fines equal to their values. The Tribunal noted that the appellant had already deposited the duty, questioning the justification for confiscation.

4. Imposition of Personal Penalties:
Personal penalties were imposed under Rule 26 of the Central Excise Rules, 2002, on various individuals associated with the appellant:
- ?1,00,000/- each on Shri N.K. Agarwal and Shri Ambrish Kumar.
- ?50,000/- on Shri Raj Narain Shukla.
- ?10,000/- each on Shri Vishnu Dubey and Shri Ram Narain Yadav.
The Tribunal found that the Revenue did not provide sufficient evidence to justify these penalties, as the allegations of clandestine manufacture and clearance were not substantiated.

Conclusion:
The Tribunal set aside the impugned order, allowing all appeals and entitling the appellants to consequential relief as per law. The judgment highlighted the need for tangible evidence to support allegations of clandestine manufacture and clearance, emphasizing that mere presumptions or unwarranted assumptions are insufficient to demand Central Excise duty. The Tribunal reiterated that the duty of excise is on the activity of manufacture, which must be clearly established by the Revenue.