Small-Scale Exemption Cannot be Denied without Evidence: CESTAT Rules Expert Opinion Inadmissible, Sets Aside Excise Duty Demand [Read Order]

The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) ruled that the department failed to prove that the product manufactured was 'Brass Ingots' rather than 'Brass Billets' and noted that the department’s primary reliance on an outdated expert opinion and lack of relevant sample testing was unsustainable.

A. K. Industries (appellant) claimed to be engaged in the manufacture of 'Brass Billets,' which they cleared without paying excise duty, claiming the small-scale exemption under Notification No. 8/2003-CE dated 01.03.2003 (as amended) for the period from April 2005 to June 2005.

The Revenue Department, however, alleged that the product was 'Brass Ingots,' for which the exemption was not available, and issued a show cause notice in 2006 demanding excise duty of ₹15,45,499.

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The department's case relied on the statement from the partner of the Appellant firm, recorded in 2001. The department also relied on the opinion dated 11.11.2001 from the Head of the Metallurgical Engineering Department, Punjab Engineering College, Chandigarh, which opined the product should be termed as 'Ingot'.

The authority dropped the demand in 2012 and held that the product was 'Brass Billets' with a weight less than 5 kgs, and the appellant was eligible for the small-scale exemption. The Commissioner (Appeals) later accepted the department's appeal and set aside the Original Authority's order. Aggrieved by the authority’s order, the Appellant approached the CESTAT.

The CESTAT bench, comprising S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member), observed that the show cause notice was mainly based on the partner's statement and the expert opinion, both from 2001, while the disputed period was April to June 2005.

The Tribunal noted that an identical opinion from the same departmendemandt had been rejected in the case of M/s Usha Impex, where the Tribunal found the opinion incomplete and lacking examination of the goods’ characteristics.

The appellant's counsel argued that the department failed to draw samples during the relevant period and test them to determine the exact nature or weight of the product, which was mandatory. The Tribunal noted the Commissioner (Appeals) had held the product was Brass Ingots "without any basis".

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The tribunal found that in the Appellant's own case for an earlier period (01.04.2000 to 05.07.2000), the Commissioner (Appeals) had dropped the demandon identical facts. The tribunal concluded that the order passed by the Commissioner (Appeals) was "not sustainable in law". The tribunal set aside the impugned order and allowed the appeal of the appellant.

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