The Ahmedabad bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that the excise duty cannot be demanded on raw materials used in the manufacturing of final products once the duty was already demanded on final products.
Om Sai Textiles, the appellant assessee was a 100% Export Oriented Unit (EOU) and engaged in the manufacture of Polyester grey fabrics falling under Chapter 54 of Schedule to the Central Excise Tariff Act,1985.
The assessee appealed against the order passed by the Commissioner of Central Excise and Customs Service Tax for confirming the demand of central excise duty of Rs. 2,55,38,210/- on clandestinely cleared dyed grey fabrics illicitly removed and confiscation of goods valued at Rs. 2,89,72,080/- was also proposed under Rule 25 of the Central Excise Rules, 2002 and under Section 111(j) and 111(o) of the Customs Act, 1962.
Hardik Modh, the counsel for the assessee contended that the Commissioner wrongly demanded excise duty on raw materials used in the final products and submitted that once the duty was demanded on final products, the duty cannot be demanded on the raw materials used in the manufacturing of final products.
Kalpesh P. Shah, the counsel for the department relied on the decisions made by the lower authorities and contended that the assessee had in the guise of making deemed exports to another unit diverted the goods and created fictitious clearance documents to Neearj whereas the goods were not physically transported to the unit ,instead diverted to the local market in contravention of Exim Policy and had evaded payment of duty.
The Bench observed that even if there was any duty demand, the same shall be restricted only upon finished goods and the raw material duty cannot be demanded as the same were consumed for the intended purpose of manufacture.
The two-member bench comprising Ramesh Nair (Judicial) and C.L Mahar (Technical) quashed the order and remand the matter to the Adjudicating Authority to decide the matter afresh after affording an opportunity of personal hearing to the assessee.
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