Revenue Neutrality and Procedural Lapses: CESTAT quashes Central Excise Duty and Penalty Orders [Read Order]

The Kolkata Bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) has quashed central excise duty and penalty orders due to revenue neutrality and procedural lapses.

In this case the appellant, M/s Allied Resins and Chemicals Limited, has challenged the demand notice of Rs. 3.14 with interest and penalties, which was upheld by the The Commissioner of Central Excise.

The appellants operate a factory that manufactures formaldehyde and various grades of resin powder. It also maintains integrated facilities with its sister concern, Aarem Chemicals Pvt. Ltd., which manufactures resin powder using liquid resin supplied by Allied Resins.

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The main issue, in this case, was whether the valuation of goods cleared to its own units and the sister concern adhered to the prescribed valuation rules.

The department observed that undervaluation and improper duty payment, demanding Rs. 2.46 crore for stock transfers and sales between the units.

The appellant's counsel submitted that urea formaldehyde resin intermediates ( Strong Bond M1, M2, and M3 ) were not sold to third parties but partly stock-transferred to the Hide Road unit and sold to a sister unit due to their short lifespan requiring further processing. The counsel further contended that the appellant relied on costing certificates by a Chartered Accountant, while the Department disputed the input costs for Formaldehyde, melamine, and the conversion cost for M3.

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The Tribunal noted that the company followed cost construction methods certified by its Chartered Accountant, and any discrepancies in valuation or duty payments resulted in revenue neutrality.

The bench noted the department's procedural lapses, which included unreliable stock verification methods and failure to substantiate allegations of shortages or clandestine removal with evidence.

The CESTAT also dismissed the imposition of penalties due to the absence of intention to evade duty and procedural lapses in issuing show-cause notices. It quashed penalties imposed on the general manager, Asim Das, noting that these were beyond the scope of the notice.

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Thus, the CESTAT bench, consisting of Ashok Jindal ( Judicial Member ) and Rajeev Tandon ( Technical Member ), only confirmed a conceded demand of Rs. 89,855 for scrap clearance but set aside all other demands and penalties. The bench held procedural lapses, revenue neutrality, and the absence of malafide intent invalidated the department's claims.

To Read the full text of the Order CLICK HERE

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