CESTAT: Demand of duty of Rs. 163 Crore based on assumptions is not permissible

The CESTAT, Delhi in M/s Miraj Products Pvt. Ltd. V. Commissioner, Central Goods & Service Tax [Final Order Nos. 50804 – 50805/2022 dated September 02, 2022] held that the assessing authority has not found any undeclared machines in the manufacturing premises or factory of the assessee and duty has been demanded based on assumptions and presumption, which is not permissible under the scheme of compounded levy on the product manufactured by the assessee. Therefore, the appeals filed by the assessee were allowed by the CESTAT.

Facts

M/s Miraj Products Pvt. Ltd ("the Appellant") company is engaged in packing and clearance of branded lime mixed chewing tobacco. The appellant company is operating under the compounded levy scheme during the period of this dispute. 

Further, the officers of the Income Tax Department ("the Respondent") conducted search proceedings at various premises of Miraj group and its personnel. While conducting the search proceedings at the residential premises of Prakash Chand Purohit, the Managing Director of the appellant company, the officers found one sheet of survey data. Although he explained the contents of the Survey sheet to the Respondent which was related to the Tobacco Market Survey Report for data comparison of sales. 

Moreover, a Show Cause Notice dated May 03, 2017 ("the SCN") was issued to the Appellant proposing to recover Central Excise duty amounting to Rs. 163, 06, 00,000/- along with interest, and penalty, by relying on the data mentioned under the survey sheet alleging that such figures depict clearances of the final products clandestinely manufactured by the Appellant, from presumed undeclared machines installed at some secret place.

On receiving the SCN, the Appellant submitted a letter dated December 20, 2017, requesting to allow cross-examination of various officers whose reports have been relied upon in the SCN. The permission was not granted and being aggrieved by this, the Appellant challenged the said order in appeal no. E/51687/2018, which also got dismissed.

Thereafter, the Appellant submitted a detailed reply to the SCN, which got dismissed, and the proposed demand with a penalty against the Appellant was confirmed by the Respondent.

Being aggrieved by this order of the Respondent ("the Impugned order") the Appellant filed the present appeal in the Customs Excise and Service Tax Appellate Tribunal ("the CESTAT").

Issue

Whether the excise duty along with interest and penalty was rightly imposed on Sh. Prakash Chand Purohit, Managing Director on the allegation of clandestine manufacture and clearance of chewing tobacco?

Held

The Hon'ble CESTAT, Delhi in Final Order Nos. 50804 – 50805/2022 dated September 02, 2022, held as under:

• Observed that the Respondent has not found any undeclared machines in manufacturing premises or factory as the factory of the Appellant was regularly visited from time to time by the Respondent and they have never found any undeclared packing machine being operated by the Appellant. The tribunal further stated that duty has been demanded on the basis of assumptions and presumption, which is not permissible under the scheme of compounded levy on the product manufactured by the Appellant.
• Held that the Appellant gave a cogent explanation with regard to the sheet or survey report found from the premises of Sh. Prakash Chand Purohit, Managing Director, which was arbitrarily rejected. Therefore, based on these observations the tribunal allowed the appeal filed by the Appellant and set aside the impugned order.