2016 (3) TMI 474 - AT - Central Excise

Clandestine removal of capital assets from the factory - duty demand - Whether a demand can be demanded from the appellant as manufacturer of the capital goods found in their factory at the time of visit? - Held that - The demands proposed to be raised by Revenue on the basis of the assumption and presumption without having any cogent evidence in support of their allegation. Moreover Income Tax Department has investigated the matter thoroughly and by way of investigation it was revealed that transactions between the dummy units and the appellants are non-existent therefore the question of procurement of raw materials/capital assets in the factory of the appellant does not arise. Consequently the allegation of clandestine removal of these capital goods also does not arise. With these observations we set aside the demand With regard to demand on account of capital goods manufactured by the appellant through labour contractors we find that there was agreement between the contractors and the appellant wherein the appellant were required to provide raw materials and electricity and the contractors have fabricated the capital goods at the site of the appellant and the appellant has paid job work charges to the contractors. As per agreement between the parties the appellant has appointed labour contractors on job work basis to fabricate the impugned capital goods. We also note that the duty can be demanded from a manufacturer of the goods as it is a factum record that the impugned goods have been fabricated on job work basis by the contractors therefore as per the Central Excise provision the appellant cannot be the manufacturer of the said goods. In that case the duty is to be demanded from the contractor and not from the appellants. Therefore we hold that the demand is not sustainable - Decided in favour of assessee

Summary

Issues involved:
1. Whether duty can be demanded for clandestine removal of capital assets.
2. Whether duty can be demanded for capital goods found in the factory.
3. Whether penalties imposed on the appellants are sustainable.

Analysis:
Issue 1: The appellant was alleged to have removed capital goods without payment of duty. The Revenue claimed the goods were procured through dummy units. However, the invoices from these units were deemed insufficient evidence. The Income Tax Department found transactions between the units and the appellant to be non-existent. Consequently, the demand for duty of Rs. 4,41,10,056 was set aside due to lack of evidence supporting clandestine removal.

Issue 2: A demand of Rs. 1,11,67,833 was made for capital goods allegedly manufactured by the appellant through labor contractors. It was found that the contractors fabricated the goods at the appellant's site based on an agreement where the appellant provided raw materials and electricity. As per Central Excise provisions, duty cannot be demanded from the appellant as the goods were fabricated by contractors. Citing legal precedents, the Tribunal ruled in favor of the appellant, setting aside the demand for duty.

Issue 3: The penalties imposed on the appellants were set aside as the demands for duty were deemed unsustainable. The Tribunal found that without sustainable demands, penalties could not be upheld. The appeals were allowed, and any related applications were disposed of accordingly.

In conclusion, the Tribunal ruled in favor of the appellant on all issues, setting aside the demands for duty and penalties. The decision was based on the lack of evidence supporting the allegations made by the Revenue and legal precedents regarding the manufacturing of goods by contractors.