17 June 2024


Customs, Excise and Service Tax Appellate Tribunal

Eastern Silk Industries Ltd. and Ors. Vs. Commissioner of Customs




Any change in law is to be applied prospectively only and cannot be applied retrospectively to detriment of Appellants

In facts of present case, Department has conducted stock taking of the unit of the Appellants, Eastern Silk Industries, an EOU unit. The Department alleged that, there was a shortage to be 2140.03 Kg in the stock of raw material. A show cause Notice was issued. Commissioner, vide impugned order confirmed the duty demand and imposed a penalty on the Appellant-company and penalty was imposed on Managing Director of the appellant-company. Hence, present appeals.

Learned counsel for the Appellants submits that, the stock taking was conducted on actual as well as estimated basis; stock of some sections was taken by Excise officers and some by CSTRI officers; report was given after a month; CSTRI officials have confirmed during cross examination that, they have taken stock of preparatory and weaving sections only and stock of other sections was taken by excise officers; the report cannot be termed to be by experts. He submits that, shortage cannot be alleged on presumptions and assumptions; department did not produce any evidence for diversion of goods found short.

The shortage has been arrived at on the basis of assumption or presumption or on the basis of calculations. Finding of shortage cannot in itself be a conclusive proof of raw material being sold clandestinely or being used for manufacture of fabric which has been sold clandestinely. There is neither any allegation nor evidence regarding the clandestine clearance of such short-found material in the domestic market. Demanding of duty on mere shortages cannot be acceptable. The apex Court in the case of Oudh Sugar Mills Ltd. vs. Union of India has held that, allegations based only on calculation of raw material fed into the process or on working of the machinery is not a basis for demanding duty.

With regards to the alleged import and clearance of fabrics in DTA, the Department alleges that the appellants have imported fabrics whereas as per the license they were entitled to import only raw silk and that, they have cleared the imported fabrics under the guise of defects/waste. There is force in the Appellant's contention that, they have not mis-declared and the imports have been permitted by the customs officers after due examination at the time of import and they were also warehoused in the presence of customs officers. That being the position, it cannot be said that the Appellant is at fault. It was incumbent on the officers to verify whether the import of fabric was permissible in view of the license issued to them.

The Department alleges that, the Appellants have used the excess waste formula due to an error in the EXIM Policy. EXIM Policy as on 1st April, 2001, admittedly allowed wastage of 53% and therefore, there was nothing wrong in the Appellant's utilising the same. It was not for the Appellants to guess that there was a mistake in the policy. With effect from 19th October, 2001, with the issuance of public notice, permissible wastage was taken back to 35% and it is not the charge of the department that even after 19th October, 2001, the appellants continued to avail excess percentage of wastage than the permissible limit. Any change in the law is to be applied prospectively only and cannot, in any case, be applied retrospectively to the detriment of the Appellants. In view of the same, we find that demand of duty on this count is not sustainable.

The show-cause notice and the impugned order are not sustainable. Therefore, the duty demand is not sustainable. Once the duty demand itself becomes non-sustainable, the levy of penalties, on the appellant-company and the Managing Director, does not arise. The impugned order is set aside and the appeals are allowed.


Oudh Sugar Mills Ltd. vs. Union of India

Tags : Demand Penalty Legality

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