By TIOL News Service

MUMBAI, NOV 27, 2017: THE Appellant is engaged in the manufacture of Woven Fabrics of Polypropylene or blend of Polypropylene with HDPE, LDPE or LLDPE. They were importing raw materials and were availing MODVAT Credit of the duty paid on inputs in terms of Rule 57-A of the CER, 1944.

A SCN was issued alleging that during the verification by the CE officers, shortage of 31.158 MT of finished goods namely cut pieces of woven fabrics was found involving Central Excise duty of Rs.3,11,580/-; shortage of 106.034 M.T. of input P.P. Granules involving MODVAT Credit amounting to Rs.9,27,797/- was observed; that in their statements, the factory personnel informed that HDPE/LDPE/LLDPE granules so imported were neither received nor used in the production of final products by the Appellant Unit though they had taken the MODVAT Credit of the duty paid on these inputs; accordingly MODVAT credit of Rs.87,50,158/- was sought to be recovered.

The demand on the above counts was confirmed and penalties were imposed on the company as well as the Director.

In appeal before the CESTAT, the appellant made detailed submissions negating the conclusions arrived at by the adjudicating authority.

The AR reiterated the findings of the adjudicating authority and submitted that the officials of the Appellant Company, including the General Manager, had stated in their statements that HDPE/LDPE/LLDPE was not being used in the manufacture of woven fabrics by the Appellant; the shortages in finished products as well as raw materials was accepted by the General Manager and Excise Clerk.

The Bench considered the submissions and observed -

+ We find that the allegation against the Appellant Unit is that they have availed the Modvat Credit of the duty paid on imported inputs, namely HDPE/LDPE/LLDPE without using the same in the manufacture of their finished products.

+ We find that such allegation is based upon the statement of employees but not corroborated by any evidence. There is no evidence that the raw material did not enter the factory of the Appellant or were not used in manufacture. None of the records of the Appellant Unit has been held to be non-reliable. The Appellant has maintained the whole record of receipt of goods in their factory and their utilization in manufacture of finished goods and nothing contrary has been alleged to these records. No evidence has been adduced to show that Appellant has used any other raw material other than the imported goods nor any evidence of diversion of imported raw material has been brought on record. In such circumstances, merely on the basis of statement of employees, it cannot be concluded that the imported raw material has not been used in manufacture by the Appellant.

+ Further we find during the visit of offices no samples were withdrawn which could show the contents of raw material in finished goods which can support the allegation of revenue. The revenue has placed reliance upon the Opinion of Director of Laxminarayan Institute of Technology, Nagpur wherein it has been stated that P.P. Granules are the only raw material required for the manufacture of P.P. Fabrics and HDPE, LDPE and LLDPE granules have no role to play in the manufacture of polypropylene fabrics. That the addition of HDPE/LDPE/LLDPE can reduce the cost of Polypropylene fabrics as the polypropylene is around 30% costlier than HDPE/LDPE/LLDPE etc. and their addition in propylene fabrics can affect the quality. We find that such option nowhere supports the revenue's allegation and is irrelevant to the case.

+ Without testing the goods of the Appellant no meaningful conclusion could have been arrived at. Secondly the opinion nowhere shows that cut woven fabrics cannot be manufactured by blending PP granules with HDPE/LDPE/LLDPE granules. On the other hand the Opinion itself states that addition of these materials reduces the cost of PP fabrics as those materials are cheaper by 30% in comparison to P.P. This clearly shows that the manufacturer can blend any of these materials with P.P. granules at the time of manufacture of woven fabrics to reduce the cost. We are thus of the view that the Revenue has not been able to establish that the impugned inputs were not used by the Appellants in the manufacture of their finished products.

As regards the demand of excise duty on the alleged shortage of finished goods and raw materials, the CESTAT held that mere admission of shortages could not ipso facto lead to conclusion of clandestine removal of such short found goods. Noting that the documentary evidence submitted by the assessee had not been rebutted by Revenue by conducting enquiry with transporters or buyers, the demands on the aforesaid counts were set aside.

In fine, the demand and penalties against the Appellant Unit/Director were held to be unsustainable and set aside.

The appeals were allowed with consequential relief.

(See 2017-TIOL-4157-CESTAT-MUM)