2019 (12) TMI 542 - AT - Central Excise

Clandestine manufacture - absence of any evidence about the alleged manufacture of goods - corroborative evidences or not - detailed examination carried out or not - HELD THAT - For demand of such Central Excise duty, revenue has not produced any evidence about the excess production of Final product nor produced any evidence in respect of procurement of excess raw material - There is no evidence on record about the dispatch of excess quantity of goods through the transporters. Further, customers were also not identified and the consumption of power was also not taken into consideration. The retrieval of data by Government Examiner of questioned documents only establishes that such data was maintained by M/s KIL - such maintenance of data by representative of M/s KIL does not establish actual payment by the appellant. No evidence of actual payment has been brought on record by revenue. The manufacture of such quantity of goods on which Central Excise duty of around ₹ 5.5 crores was demanded is not established - Since Central Excise duty is on manufacture and manufacture is not established, therefore, there is no basis for demand of Central Excise duty to the tune of ₹ 5,58,89,762/- - Since the demand is not sustainable the penalty is on the appellants are not sustainable. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Alleged evasion of Central Excise duty
- Imposition of penalties on the appellants

Analysis:
1. Alleged evasion of Central Excise duty:
The case involved three appeals arising from a common Order-in-Original passed by the Commissioner of Customs, Central Excise & Service Tax. The appellant, a manufacturing company, had entered into an agreement to use a trademark on their goods and pay royalties accordingly. The Central Excise Intelligence officers initiated an investigation based on data retrieved from electronic devices seized during a search at the premises of another company. The investigation revealed discrepancies in royalty payments made by the appellant, leading to a demand for Central Excise duty of approximately ?5.5 crores. The Original Adjudicating Authority confirmed the demand and imposed penalties on the appellants under Rule 26 of the Central Excise Rules, 2002.

2. Imposition of penalties on the appellants:
The appellants contested the demand and penalties, arguing that there was no concrete evidence of clandestine manufacture or evasion of duty. They highlighted that no inquiry was conducted regarding the alleged production and sale of goods, identification of customers, or procurement of excess raw materials. The appellants also raised a limitation defense, stating that the show cause notice was issued after a significant delay from the seizure of data. The Tribunal noted that the Revenue failed to establish the excess production of goods or procurement of raw materials, dispatch of goods, identification of customers, or consumption of power. Citing a ruling by the Hon'ble Allahabad High Court, the Tribunal emphasized the need for tangible evidence to prove clandestine removal. Ultimately, the Tribunal held that the manufacture of the quantity of goods in question was not established, rendering the demand for Central Excise duty and penalties unsustainable.

In conclusion, the Tribunal set aside the impugned order and allowed all the appeals, providing consequential relief to the appellants.