Trading’s Turnover Cannot Be Attributed to Goods Manufacture Without Evidence: CESTAT Sets Aside ₹3.19 Crore Excise Duty Demand [Read Order]

The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that trading turnover cannot be treated as manufactured goods without proper evidence and investigation.

Hightension Electrical Equipments Pvt. Ltd., the appellant, is engaged in manufacture and supply of electrical overhead materials such as A.B. Switch, D.O. Fuse, H.T. Fuse and other fittings. The appellant was also engaged in trading of goods and was availing the benefit of SSI exemption. They maintained separate invoices for manufactured goods and traded goods, identified as “M-series” and “T-series” respectively.

The department conducted investigation and alleged that the goods shown under T-series invoices were actually manufactured by the appellant and cleared without payment of duty. Based on this, the department issued a show cause notice demanding central excise duty of Rs. 3.19 crore along with interest and penalties for the period April 2009 to March 2013. The adjudicating authority confirmed the demand and penalties. Aggrieved by this order, the appellant approached the Tribunal.

The appellant’s counsel argued that the company was engaged in both manufacturing and trading activities. They argued that due to lack of capacity, part of the goods were purchased from the open market and supplied directly to customers without bringing them to the factory.

The counsel also argued that the department failed to conduct proper investigation at the supplier’s end or with transporters to verify movement of goods. The counsel further argued that audited balance sheets clearly showed separate figures for manufacturing and trading sales, but the same were not properly considered.

The revenue counsel supported the order and argued that the terms of purchase orders indicated that the appellant was responsible for manufacturing, testing and supply of goods. It was argued that the trading activity was only a cover and that the entire turnover should be treated as manufacturing turnover for the purpose of duty.

The two-member bench comprising Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) observed that it was necessary for the department to verify whether the appellant actually carried out trading activities. It observed that no investigation was conducted at the end of suppliers or transporters and no effort was made to examine whether the appellant had the capacity to manufacture the entire quantity of goods.

The tribunal further observed that audited balance sheets clearly showed separate manufacturing and trading sales but these were not properly considered by the department. It explained that without proper investigation, it cannot be concluded that all goods were manufactured by the appellant. The tribunal also observed that the demand was based on assumptions and presumptions.

The tribunal pointed out that if trading turnover is excluded, the manufacturing turnover falls within the SSI exemption limit. It explained that in such circumstances, denial of exemption and demand of duty is not justified. The tribunal set aside the demand of Rs. 3.19 crore along with interest and penalties. The appeals filed by the appellant were allowed.

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