2025 (7) TMI 1001 - HC - Central Excise

Setting aside of demand of Excise Duty when clandestine removal allegation could not be proved by the revenue against the appellant - SCN in respect of the duty demanded was time barred u/s 11 A of the Central Excise Act - HELD THAT - The Tribunal has confined the allegation of clandestine removal to the extent of 1378.595 MT of formaldehyde (finished products) and 453.302 MT of methanol (raw material) consequent to which the appellant was liable to pay penalty as well as the duty on the shortage of raw material and finished products. Subsequently the Tribunal has modified the order of Commissioner passed on 04.07.2017 and remanded the matter to the Adjudicating Authority to re-quantify the demand and re-decide the penalties on the basis of revised computation. It is pertinent to mention here that the appellant/Company has not challenged the order dated 21.02.2018 passed by the Tribunal and thereby the same has attained finality. From analysis of record and the impugned order it appears that the Tribunal has clearly recorded a finding that the appellant has already suffered civil consequences on account of allegation of clandestine removal of finished goods at 1378.595 MT of formaldehyde as well as on account of shortage of raw materials as a result of which the Tribunal proceeded to set-aside the penalty under Section 11AC of the Act 1944 and Rule 209A of the Central Excise Rules 1944 however duty imposed upon the appellant has not been set-aside - This Court is of the considered opinion that the Tribunal has rightly maintained the duty imposed upon appellant for the reason that by order dated 21.12.2018 the Tribunal has confirmed the demand of clandestine removal of formaldehyde to 1378.595 MT in compliance of which the Commissioner after recomputation imposed the duty of Rs. 21, 11, 422/- and the said order dated 21.02.2018 has not been challenged by the appellant before this Court by filing an appeal as such the said order has attained finality. The impugned order passed by the CESTAT is affirmed and it is held that the Tribunal has not committed any error in not setting-aside the imposition of duty. Since finding with regard to setting-aside the penalty under Section 11AC of the Act 1944 has not been questioned by the Revenue it is deemed appropriate not to dwell on the said issue. The substantial question of law No. 1 is answered in favour of the respondent/Revenue and against the appellant - Appeal dismissed.

Summary

ISSUES:

1. Whether the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) committed a patent illegality in not setting aside the demand of excise duty while holding that the clandestine removal allegation could not be proved by the revenue against the appellant.
2. Whether the CESTAT failed to set aside the demand of central excise while setting aside the penalty under Section 11AC of the Central Excise Act, 1944 on account of the show cause notice in respect of the duty demanded being time barred under Section 11A of the Central Excise Act.

RULINGS / HOLDINGS:

1. The Tribunal did not commit any error in maintaining the excise duty demand as the order dated 21.02.2018 confirming the clandestine removal of 1378.595 MT of formaldehyde and related duty demand has attained finality since it was not challenged by the appellant; thus, the imposition of duty was rightly upheld.
2. The Tribunal rightly set aside the penalty imposed under Section 11AC of the Act 1944 and Rule 209A of the Central Excise Rules, 1944, as there was "not a single instance of clandestine removal" found by the revenue by way of interception without proper invoices or challans, and the appellant had already suffered civil consequences by payment of duty.

RATIONALE:

1. The Court applied the statutory provisions of the Central Excise Act, 1944, particularly Sections 11A and 11AC, and Rule 209A of the Central Excise Rules, 1944, in assessing the validity of the demand and penalty.
2. The Tribunal's findings on clandestine removal were based on documentary evidence and statements, restricting the demand to a reasonable quantity (1378.595 MT of formaldehyde) rather than the originally alleged 3996.286 MT, reflecting a calibrated approach to quantification of duty and penalty.
3. The principle that once an order of the Tribunal attains finality by non-challenge, it cannot be reopened was emphasized, thereby upholding the duty demand confirmed in the earlier Tribunal order.
4. The Court recognized the distinction between civil consequences (duty demand) and penal consequences (penalty), holding that the absence of direct evidence of clandestine removal justified setting aside the penalty while maintaining the duty demand.
5. No dissent or doctrinal shift was noted; the Court affirmed the Tribunal's balanced approach in separating the liability for duty from the imposition of penalty under the Act.