2026-VIL-1717-CESTAT-KOL-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise - Clandestine Manufacture - Goods cleared as traded goods alleged to be manufactured goods - SSI exemption - Appellant-company availed SSI exemption under Notification No. 08/2003-C.E. The Revenue alleged that the goods shown as traded were manufactured by the Appellant and cleared without payment of duty - Whether the allegation of clandestine manufacture and clearance is sustainable - HELD - Out of the vendors on record, summons were issued to only a few, the statements of the vendors who appeared and accepted the sales were not relied upon, and the inability to locate some vendors at an address does not establish that they were non-existent or that the transactions were fictitious, particularly when registration certificates and municipal certificates were produced and payments were made through account-payee cheques. The statement of the transporter was not shown to have been tested as per Section 9D of the Central Excise Act, 1944 and cannot be elevated into substantive evidence - Nothing was brought on record from the purchasers to show that they placed orders requiring the Appellant to manufacture the spare parts. Higher value of spare parts compared to equipment is a mere surmise without any statutory or evidentiary basis. Presence of a logo cannot by itself establish the place, source or manner of manufacture - Clandestine manufacture is a serious allegation requiring cogent, tangible and affirmative evidence such as excess raw materials, electricity consumption, labour, production capacity, transportation and flow back of funds, none of which was brought on record, and the electricity consumption was wholly incongruous with the scale of manufacture alleged. The Chartered Accountant's certificate bifurcating manufacturing and trading clearances, founded on the books and records, was accepted in the absence of any material showing it to be incorrect - For the years in which the manufacturing clearances were below the threshold limit, the Appellant is entitled to SSI exemption, and for the later two years the Appellant is eligible for exemption up to the prescribed limit as the clearances in the preceding year had not exceeded the threshold limit - Demand for the years in which clearances were within the threshold limit is not sustainable, and the matter is remanded to the adjudicating authority only for the limited purpose of verifying the payment of duty by the Appellant for the later two years – The appeal is disposed of - Invocation of extended period where earlier show cause notice was issued on the same allegation - An earlier show cause notice had been issued to the Appellant-company for an earlier period on the self-same allegation of manufacture of spares under the guise of trading, and the Appellant had from time to time intimated the Department about its manufacturing activities and availment of SSI exemption. The extended period of limitation was invoked in the present notice alleging suppression - Whether the extended period of limitation is invocable - HELD - The very nature of the Appellant's activities was within the knowledge of the Department much prior to the initiation of the present proceedings. Where the material facts were already within the knowledge of the Department and an earlier notice had been issued on substantially the same factual foundation, the allegation of deliberate suppression of facts with intent to evade duty cannot be sustained merely by reproducing such allegation in the subsequent notice. Once the relevant facts were within the knowledge of the Department at the time of the earlier notice, the extended period cannot subsequently be invoked on the same set of facts by alleging suppression. This finding does not confer on the Appellant any right to claim refund of duty already paid or otherwise payable on the manufacturing clearances of the later two years - Invocation of the extended period of limitation is not legally sustainable - Penalty under Section 11AC of Central Excise Act, 1944 - Consequence of failure of the demand on clandestine manufacture - Penalty equivalent to the duty was imposed on the Appellant-company under Section 11AC on the allegation of clandestine manufacture and clearance with intent to evade duty - Whether penalty under Section 11AC can be sustained - HELD - There being no sustainable finding of clandestine manufacture and deliberate evasion on the scale alleged in the impugned order, and the demand having been found unsustainable except to the limited extent of the actual manufacturing liability for the later two years, the foundation for imposition of penalty under Section 11AC does not survive - The penalty imposed on the Appellant-company under Section 11AC is set aside - Penalty on Director under Rule 26 of Central Excise Rules, 2002 - Penalty was imposed on the Director of the Appellant-company under Rule 26 on the allegation that he was personally responsible for the affairs of the company and for the unauthorised production and unaccounted clearance of goods - Whether penalty under Rule 26 can be sustained on the Director in the absence of established clandestine manufacture - HELD - The penalty provision necessarily requires a legally established foundation connecting the concerned individual with the acts rendering the goods liable to confiscation or otherwise attracting the statutory ingredients of the provision. In the absence of cogent evidence establishing clandestine manufacture and clearance, the mere designation of the co-appellant as Director cannot furnish a sufficient basis for sustaining the penalty - The penalty imposed on the Director under Rule 26 is set aside - Penalty under Rule 27 of Central Excise Rules, 2002 - Non-maintenance of statutory records at the factory - Penalty was imposed on the Appellant-company under Rule 27 for non-maintenance of statutory records and documents at the factory premises - Whether the penalty under Rule 27 survives when the principal demand on clandestine manufacture fails - HELD - The penalty relates to an independent procedural contravention and is not dependent upon the sustainability of the principal demand on clandestine manufacture. The finding regarding non-maintenance of the prescribed records has not been satisfactorily rebutted - The penalty imposed under Rule 27 is upheld
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