2024 (3) TMI 276 - AT - Central Excise

Clandestine Removal - process loss - yield of 79% on deployment of 228584 kgs of raw materials in 2006-07 for production of 146295 kgs of finished product leaving 48002 kgs unexplained - recovery alongwith penalty - HELD THAT - The appellant had deployed various raw materials in different proportions for manufacture of finished goods. The lower authorities, without considering the material mix and reaction loss of each separately, have merely presumed that weight of raw materials should be found to match that of finished goods and that, in the event of gap if any, the difference should be explained. There are no provision in Central Excise Act, 1944 that authorises duty recovery in such circumstances. There is no allegation of clandestine removal in the show cause notice let alone any evidence thereon. Even if such gap was ascertained, and explanation not found acceptable, this could, at best, be used to corroborate alleged illicit removal which is not alleged here. Effectively, duty is sought to be collected on what be alleged to be inefficiency which the statute does not envisage. There are no reason to sustain the demand, interest and penalty - the impugned order set aside - appeal allowed.

Summary

Issues involved:
The limited issue in the appeals is the fastening of duty liability under section 11A of Central Excise Act, 1944, along with attendant penalties, on the ground of 'process loss' being excessive.

Comprehensive Details of the Judgment:

Issue 1: Duty liability and penalties based on excessive process loss
The appeals by M/s Gem Synthetics & Polymer (I) Ltd challenged the duty liability of &8377; 42,96,130 and &8377; 9,87,632 for different periods, along with penalties, due to alleged excessive 'process loss.' The proceedings were initiated based on a yield discrepancy in the production process, with a significant amount of raw material remaining unexplained.

Issue 2: Manufacturer's explanation and authorities' response
The appellant, a manufacturer of various resins, argued that the duty liability was imposed without sufficient evidence and was unjustified. The authorities upheld the demand and penalties, citing the high process loss claimed by the appellant as unusually high and requiring precise proof.

Issue 3: Legal arguments and case references
During the proceedings, the appellant's counsel argued against the presumption of duty liability based on process loss, while the Authorized Representative for Revenue supported the imposition of penalties for short payment of duty. The impugned order referenced case laws emphasizing the onus on the appellant to prove their process loss claims with scientific evidence.

Issue 4: Lack of evidence and statutory provisions
The Tribunal noted that the lower authorities did not consider the material mix and reaction loss of each raw material separately, instead focusing on matching the weight of raw materials with finished goods. It was highlighted that there was no provision in the Central Excise Act, 1944 authorizing duty recovery based on inefficiency or process loss, especially in the absence of evidence of clandestine removal.

Final Decision
The Tribunal found no justification to sustain the demand, interest, and penalties based on the alleged excessive process loss. The impugned order was set aside, and the appeals were allowed.

Separate Judgment:
No separate judgment was delivered by the judges in this case.