2025 (1) TMI 63 - AT - Central Excise

Recovery of Central Excise duty on the clearances of scrap and waste during the period from April 2008 to March 2013 - demand confirmed solely relying upon the verification report submitted by the range superintendent against which the Cenvat credit has been taken by the appellant and an observation was made that they are normal entries - HELD THAT - The report itself does not provide the details of all entries against which Cenvat credit has been taken. The impugned order also in these proceedings presumed that there is a dispute that the scrap which has been cleared would have arisen out of cenvated as well as non-cenvated items of iron and steel. It does not identify and make categorical statement to the effect that the scrap has arisen out of cenvated capital goods. It is based on a presumption which arises in view of the said verification report. Such presumption cannot take place of proof and cannot be basis for confirmation of demand. Appellant has taken a categorical stand before the Adjudicating Authority that these scraps have arisen out of non-cenvated capital goods some of them even prior to the insertion of Modvat/Cenvat credit scheme in respect of capital goods this stand of the appellant was to be rebutted by the Adjudicating Authority in the impugned order by relying upon the suitable and concrete evidences. Presumption made against the appellant cannot be the ground for confirming the demand. These scrap would have arisen not on account of any manufacture but on account of uses of capital goods. Over period of time such waste and scrap arising on account of reasons other than the activity of manufacture could not have been subjected to demand of central excise duty but should have been subjected to reversal of credit in the manner specified as per Rule 3 (5) of Cenvat Credit Rules if the said capital goods were cenvated. In absence of any conclusion in respect of the facts that these capital goods were cenvated it is found that impugned order proceeds only on the basis of presumption and assumption to confirm this demand. Interest and penalties - HELD THAT - As the demand itself is being set aside penalties and interest imposed under Section 11AC and Rule 27 is also set aside. Concusion - The burden of proof lies with the department to establish that the waste and scrap were generated from cenvated capital goods. Presumptions cannot replace concrete evidence in confirming duty demands. Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the appellant was liable to pay duty on the clearances of scrap and waste during the period from April 2008 to March 2013.
Whether the appellant availed Cenvat Credit on the capital goods from which the scrap was generated.
Whether there was suppression of material facts by the appellant to evade duty payment.
Whether the demand for interest on the duty amount was justified.
Whether penalties under Rule 25 and Rule 27 of the Central Excise Rules, 2002, and Section 11AC of the Central Excise Act, 1944, were applicable.
Whether a penalty under Rule 15 of the Cenvat Credit Rules, 2004, was justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Duty on Clearances of Scrap/Waste

Legal Framework and Precedents: The relevant legal provisions include Rule 3(5A) of the Cenvat Credit Rules, 2004, which stipulates the conditions under which duty is payable on waste and scrap.
Court's Interpretation and Reasoning: The court found that the department failed to provide concrete evidence that the scrap was generated from cenvated capital goods. The appellant claimed the scrap was from non-cenvated goods, a claim not adequately rebutted by the department.
Key Evidence and Findings: The department's reliance on a verification report citing only five entries of Cenvat credit was deemed insufficient. The court emphasized that presumption cannot replace proof.
Application of Law to Facts: The court noted that the burden of proof lies with the department to establish that the scrap was from cenvated capital goods. The appellant's assertion that the scrap was from non-cenvated goods was not effectively challenged.
Treatment of Competing Arguments: The appellant's argument that the scrap arose from non-cenvated goods was supported by the lack of evidence from the department. The court dismissed the department's presumption-based approach.
Conclusions: The court concluded that the demand for duty on the scrap was not sustainable due to the lack of concrete evidence.

Issue 2: Interest on Duty Amount

Legal Framework: Section 11AA of the Central Excise Act, 1944, provides for the levy of interest on delayed payment of duty.
Court's Interpretation and Reasoning: Since the primary demand for duty was not upheld, the associated interest demand was also set aside.
Conclusions: The demand for interest was not justified, as the duty itself was not payable.

Issue 3: Imposition of Penalties

Legal Framework: Penalties were considered under Rule 25 and Rule 27 of the Central Excise Rules, 2002, and Section 11AC of the Central Excise Act, 1944.
Court's Interpretation and Reasoning: The penalties were contingent upon the duty demand, which was found unsustainable. The court emphasized that penalties cannot be imposed based on assumptions.
Conclusions: The penalties were set aside along with the duty demand.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes: "Presumption made against the appellant cannot be the ground for confirming the demand."
Core Principles Established: The burden of proof lies with the department to establish that the waste and scrap were generated from cenvated capital goods. Presumptions cannot replace concrete evidence in confirming duty demands.
Final Determinations on Each Issue: The demand for duty, interest, and penalties was set aside due to the lack of substantive evidence from the department.

The judgment underscores the importance of concrete evidence in tax-related disputes and the necessity for the department to meet its burden of proof when asserting claims against taxpayers.

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