2022 (9) TMI 561 - HC - Central Excise

Waiver of penalty imposed in terms of Rule 209A of the erstwhile Rules read with Rule 26 of the Central Excise Rules, 2001 - benefit of the notification relating to issuance of certificate that the yarn is to be used only in handlooms - whether the benefit of certain notifications issued by the Department were misused and the respondent/assessee being a party to the modus? - HELD THAT - The adjudicating authority on analysing the documents available on seizure and on scrutiny of the statements which were recorded from various persons, pointed out that the purchasing bills instead of delivering the cross reel hank yarn to the respondent and the noticee no.3, the apex bodies, delivered them directly to various trading concern who appear to be merchants and traders of yarn and not handloom weavers. The respondent has not controverted by producing any evidence to this alleged conclusion that a modus has been adopted by which the respondent received a commission and ultimately the yarn which was to be distributed to handloom weavers were taken of by the trades and other agencies. Thus, on analysing the evidence the adjudicating authority held that the system was evolved only to ensure that the sale should look like a sale from the spinning mill, the noticee no.1 to the respondent, the noticee no.2 and this was done in order to avail the benefit of exemption whereas the actual sale took place between the spinning mill and the private traders while the respondent and the other apex society merely acted as a commission/selling agent thereby earning commission at the rate of 1.5% as profit. Thus, the adjudicating authority records that this point could not be controverted by the respondent neither at the time of making written submission nor at the time of personal hearing. The adjudicating authority held that the certificates declaring that the yarn is going to be used only on handlooms as issued by the respondent and the other apex society are not based on factual verification but only based upon the certificate issued by the spinning mill concerned. Thus, the adjudicating authority held that the conditions stipulated in the notification for the purpose of exemption are not favourable in the case on hand - The tribunal observed that the goods were purchased by the respondent, apex body for further distribution to traders who further sold the same to ultimate handloom weavers but might be located at the interior of the country having no access to the respondent/apex body for direct purchase of the goods. With regard to the certification which was also one of the conditions under the notification, the learned tribunal has not examined the aspect pointed out by the adjudicating authority that the certificate issued by the respondent and the other apex body was not based on any verification done by them, but solely based upon the certificate issued by the spinning mill. The order passed by the tribunal is utterly perverse, as it has not dealt with any of the findings which has been rendered by the adjudicating authority by appreciating the facts and evidence brought on record - there are no hesitation to hold that the tribunal committed a serious error in interfering with the order of the adjudicating authority. Appeal allowed - decided in favor of Revenue.

Summary

Issues Involved:
Misuse of notifications leading to benefit claims, Penalty imposition under Central Excise Act, 1944, Interpretation of exemption conditions based on certificates issued, Tribunal's interference with adjudicating authority's order.

Analysis:

1. Misuse of Notifications:
The case involved an appeal by the revenue under Section 35G of the Central Excise Act, 1944, challenging the order of the Customs, Excise & Service Tax Appellate Tribunal. The issue revolved around whether the Tribunal's decision to set aside the penalty order on the respondent was legally correct. The adjudicating authority found that the respondent and another noticee were involved in a scheme where yarn was purchased from private traders instead of directly from the spinning mill, misusing exemptions provided by the government. The respondent claimed that private traders were engaged to lift yarn on their behalf, but the authority found that the actual sale occurred between the spinning mill and traders, with the respondent acting as a commission agent. The respondent failed to provide evidence to counter this conclusion, leading to a penalty imposition.

2. Penalty Imposition:
The Commissioner of Central Excise, Haldia Commissionerate issued a show cause notice to the respondent based on discrepancies in yarn purchases. The adjudicating authority affirmed the penalty proposal, imposing a penalty on the respondent under Rule 209A of the Central Excise Rules, 2001. The respondent's appeal to the Tribunal was allowed, prompting the revenue's appeal to the High Court. Despite the respondent's lack of interest in the case, the Court heard the appeal on its merits and found that the Tribunal erred in interfering with the penalty imposition, ultimately ruling in favor of the revenue.

3. Interpretation of Exemption Conditions:
The adjudicating authority highlighted that the certificates issued by the respondent and another apex body were not based on factual verification but solely on certificates from the spinning mill. The certificates declared that the yarn was for handloom use, but the authority found that the actual sales to traders did not guarantee this end-use. The authority concluded that the conditions for exemption were not met due to the lack of control over the yarn's destination. The Tribunal's failure to address these findings and its incomplete interpretation of the exemption conditions led the High Court to deem the Tribunal's decision as erroneous and perverse.

4. Tribunal's Interference:
The High Court criticized the Tribunal for not addressing the evidence presented to the adjudicating authority, which clearly outlined the modus operandi of the scheme involving the respondent and the misuse of exemptions. The Tribunal's failure to consider the facts and evidence, especially regarding the respondent's role as a commission agent and the lack of verification in certificate issuance, led to the Court overturning the Tribunal's decision. The High Court found the Tribunal's interference unjustified and ruled in favor of the revenue, emphasizing the importance of appreciating the evidence and facts presented in such cases.

Overall, the High Court allowed the appeal, answering the substantial question of law in favor of the revenue, and reinstated the penalty imposed on the respondent due to the misuse of notifications and failure to meet exemption conditions as per the Central Excise Act, 1944.