Excise Duty Demand Not Valid When Duty Liability is already paid before Issuance of SCN: CESTAT [Read Order]

In a significant case, the Chennai bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that excise duty demand is not valid when duty liability is already paid before issuance of Show Cause Notice (SCN).

M/s.Annamalai Cotton Mills (P) Ltd, the appellant was engaged in the manufacture of polyester/cotton blended yarn falling under Chapter 55/52 of the First Schedule to Central Excise Tariff Act, 1985 and were clearing the said yarn from their factory to their consignment agents situated throughout India.  The department noticed that while clearing the goods the appellant was adopting a lesser price than the price at which similar goods were sold by the said consignment agents on that date and place of removal during the period 01.07.1997 to 31.03.2001. 

The appellant had filed Annexure 2C price declaration as required under Rule 173C of erstwhile Central Excise Rules, 1944 in respect of goods intended to be removed for each of the consignment agents during the said period. As it was noticed that the assessable value declared was less than the price at which similar goods were sold by the consignment agents on the dates of removal, a show cause notice was issued to the appellant to demand differential duty of Rs.26,73,083/- invoking the extended period along with interest and for imposing penalties. 

After due process of law, the original authority confirmed the demand along with interest imposed an equal penalty and also ordered the appropriation of an amount of Rs.9,06,321/- already paid by the appellant.  On appeal, the Commissioner (Appeals) rejected the contention of the appellant that there was a calculation error and that the differential duty works out only to Rs.17,07,752/-.

However, the penalty was reduced to Rs.7,91,568/- observing that appellant had already paid an amount of Rs.18,81,515/- being the differential duty arising out of the consignment/depot sales periodically, much before issue of the show cause notice which was found tallying with the figures furnished by the Assistant Commissioner, Salem I Division and hence the balance duty payable by the appellant would be only Rs.7,91,568/.  The request for waiver of interest since the unit is declared under BIFR was rejected by the Commissioner (Appeals).

The appellant contended that they were not provided the copies of documents relied upon by the department to arrive at the differential duty raised in the show cause notice and the payment of Rs.18,81,515/- was not adequately considered at the time of adjudication. They also claimed that the unit is in the process of BIFR and no documents are available with them. 

The Tribunal observed that since the differential duty is raised solely on the relied-upon documents and due to insufficiency of documents, the appellant has not been able to properly defend their case and remanded the matter to the adjudicating authority to pass an order leaving all issues open including the issue of limitation and imposition of penalty. 

The department has passed the de novo order without perusing the relied-upon documents. In case, the documents were available, the same ought to have been supplied to the appellant before passing the order. The counsel appearing for the appellant has stated before the adjudicating authority that the appellant has not received the required documents to put forward their defence about the error in the quantification by the department.  

It was evident that the burden was on the department to prove the allegations in the SCN. They have to be clear as to the quantification of duty.  The department has not been able to throw any light as to the details of the quantification of duty for Rs.26,73,083/-. 

A two-member bench comprising Ms Sulekha Beevi C S, Member (Judicial)and Mr Vasa Seshagiri Rao, Member (Technical) observed that the appellant has admitted the liability of Rs.18,81,515/- and has paid the amount even before the issuance of SCN.

Further held that “We are therefore of the considered opinion that the duty demand has to be reduced to this amount. The appellant had paid it before the SCN and also as there is a violation of the principles of natural justice the penalties are not warranted.” 

The impugned order is modified by upholding the duty demand to the tune of Rs.18,81,515/- and the set-aside balance along with the penalties imposed.

To Read the full text of the Order CLICK HERE

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