The Mumbai Bench Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) nullified an excise duty demand citing a lack of concrete evidence for the alleged assembly of television sets at their Bhiwandi warehouse and duty evasion.
Sunder International, the appellant is a partnership firm based in Mumbai, involved in importing parts of TV sets, storing them in a warehouse in Bhiwandi, and engaging in the sale of both TV parts and complete TV sets.
Before this, the appellant had a manufacturing facility in Goa, where they assembled TV sets until operations ceased in September 2015. After shutting down the factory, the company shifted its focus to trading from the Bhiwandi warehouse.
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In Early 2016, the Directorate of Revenue Intelligence (DRI) received information alleging that the appellant was importing complete TV sets in a disassembled state under the guise of parts to avoid paying customs duties.
In February and May 2016, officials from the DRI and Directorate General of Goods and Services Tax Intelligence (DGGI) searched the Bhiwandi warehouse. During these inspections, the authorities noted several indicators of assembly activities like dismantled TV parts, some fully assembled TV sets, wooden tables, and electrical connections. They also seized documents and recorded statements from employees, who allegedly confirmed that assembly activities were taking place.
Based on the findings, the DGGI issued a show cause notice on 28 September 2020, demanding Central Excise duty amounting to Rs. 9,93,80,686 for the period between August 2015 and July 2016, along with interest and penalties. The notice accused the appellant of clandestine manufacturing and evading taxes.
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The appellant appealed before the CESTAT arguing that they imported TV parts and stored them without assembling or manufacturing TV sets in the Bhiwandi warehouse. The counsel argued that the investigations were based on assumptions, and no concrete evidence of manufacturing or clandestine removal was presented and the show cause notice was time-barred, as investigations began in 2016, but the notice was issued in 2020.
On the contrary, the department relied on evidence collected during the search, and statements from employees indicated assembling activities.
The two-member bench comprising C J Mathew (Technical Member) and Ajay Sharma ( Judicial Member) perused all the records and highlighted that in cases of clandestine manufacture, the department must present solid evidence such as raw material acquisition, sales, transportation, or other corroborative proof.
The tribunal found that the statements of employees were questioned due to the language barrier and the lack of voluntary nature. Cross-examination showed inconsistencies, casting doubt on their credibility.
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During cross-examination, the tribunal found that the statements of employees were inconsistencies, casting doubt on their credibility. The tribunal noted that the facts of the case were already known to the authorities in 2016. Hence, issuing a show-cause notice in 2020 under extended limitation was unjustified.
Therefore, the tribunal concluded that the department failed to establish clandestine manufacture or removal beyond a reasonable doubt. Thus, the show cause notice was not sustainable. The appellant’s appeal was allowed with consequential relief
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