2020 (11) TMI 548 - AT - Central Excise

SSI Exemption - clandestine removal - manufacture of MCBs (Miniature Circuit Breaker) - use of Brand name of others - demand of duty by the Department is primarily worked out on the basis of a rough register (RUD-26), which was recovered from the factory, alleged to be showing movement of the goods i.e. removal of finished goods and receipt of raw/packing materials - retraction of statements - SCN issued about 20 days before the end of 5 years from the date of search - HELD THAT - It is evident on the face of the record that the show cause notice was issued by way of wide guess work wherein duty demand of ₹ 1.22 crores was made approximately. Further, the Revenue in the proceeding before the Settlement Commissioner itself revised the demand at ₹ 49,50,711/-, thereafter in the adjudication proceedings, the demand was further reduced and confirmed at ₹ 34,94,797/- which was also found erroneous and further reduced by the Commissioner (Appeals) at ₹ 34,06,203/-. It is also noted that the installed capacity (30,000 switches per month) as certified by the Chartered Engineer has not been found to be untrue or wrong, and the same was not considered without assigning any reason by the court below. It is also evident from the overall state of affairs that the appellant have not maintained proper records of the transactions. Further it is found that the Rough register (RUD-26) on the basis of which the quantum of clandestine removal has been estimated, is not reliable, as the author of the same Shri Sanjay has not been examined by the Revenue, neither the proprietor - Shri Ashish Gaur have been interrogated about the entry and interpretation in the said rough register. From the statement dated 15.12.2010 of Shri A. Gaur under Section 14 of the Act, it is found that there is no categorical admission of clandestine removal. Further this statement was retracted within a week. Further, Revenue have not worked out the source of raw material for manufacture of the huge quantity alleged to be clandestinely cleared, nor flow back of the proceeds of the alleged clandestine removal. Further, no adverse quantitative ratio has been found out nor any adverse ratio with respect to consumption of electricity is found. Admittedly, the total electricity bill for the two months in dispute is about ₹ 20,100/- or ₹ 10,000/- per month approximately. With such meager consumption of power and taking in view the installed capacity, as well as the idle time due to power failure or break down of machine from time to time, the estimated production and confirming of duty by Revenue is found to be erroneous and high pitched. In the interest of justice, the demand of duty is restricted to ₹ 2,51,596/-, which is the duty accepted or admitted by the appellant in their pleadings. This amount will further be adjustable from the duty liability disclosed in the Returns for the relevant period. Accordingly, penalty under Section 11AC read with Rule 25 of Central Excise Rules is set aside as case of Revenue is not proved. Appeal allowed in part.

Issues Involved:
1. Alleged evasion of duty by the appellant.
2. Validity and reliability of evidence used by the Department.
3. Calculation of duty liability.
4. Penalty imposition under Section 11AC of the Central Excise Act and Rule 25 of the Central Excise Rules.
5. Invocation of the extended period of limitation.

Detailed Analysis:

1. Alleged Evasion of Duty by the Appellant:
The appellant, engaged in the manufacture of electrical accessories, was accused of evading duty. A search on 28.06.2010 led to the recovery of documents and statements indicating unaccounted goods clearance on "kachcha documents" as per a rough register (RUD-26). The Department issued a show cause notice on 08.06.2015, invoking the extended period of limitation.

2. Validity and Reliability of Evidence:
The demand was primarily based on RUD-26, which allegedly showed the movement of goods. The appellant contended that RUD-26 was a rough register, not a production register, and did not reflect actual production figures. The author of RUD-26 was not interrogated, and the appellant's proprietor retracted his statement within a week, claiming it was made under duress. The Tribunal found RUD-26 unreliable as it was not corroborated by the author's testimony or the proprietor's interrogation.

3. Calculation of Duty Liability:
The Department initially demanded ?1,22,00,622/- based on rough estimates. The Settlement Commission revised this to ?49,50,711/-, and the Adjudicating Authority further reduced it to ?34,94,797/-, later corrected to ?34,06,203/- by the Commissioner (Appeals). The appellant argued that the rough register's entries were misinterpreted, and the Department's calculations were based on erroneous assumptions. The Tribunal noted that the Department's estimates were high-pitched and not supported by evidence like raw material sources, flow back of proceeds, or electricity consumption data. The Tribunal restricted the duty demand to ?2,51,596/-, the amount admitted by the appellant.

4. Penalty Imposition:
The Adjudicating Authority imposed penalties under Section 11AC and Rule 25, which were contested by the appellant. The Tribunal set aside the penalties, finding that the Department's case was not conclusively proven, and the appellant's admissions were retracted.

5. Invocation of Extended Period of Limitation:
The appellant contested the extended period of limitation, arguing that the Department delayed action after initial investigations. The Tribunal did not explicitly address this issue in detail but focused on the overall reliability of the Department's case and evidence.

Conclusion:
The Tribunal found the Department's demand based on rough estimates and unreliable evidence. The duty demand was restricted to ?2,51,596/-, and penalties under Section 11AC and Rule 25 were set aside. The appeal was allowed, and the impugned order was set aside, granting the appellant consequential benefits as per law. The appeal of Mr. Ajay Gupta was also allowed, and the penalty was set aside.

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