Maintainability of Show caue notice without foundation

PJ/Case Laws/2010-11/1006

Case: Dhampur Sugar Mills Ltd v/s Commissioner of C. Ex, Meerut-II

Citation: 2010 (260) E.L.T. 271 (Tri- Del.)

Issue:- What will be the effect when the show cause notice itself has no foundation under law?

Brief Facts:- Show cause notice was issued to the appellant alleging that HR Coil and Plate as well as Graphite packing were not capital goods and therefore, they could not take credit on the same. The period involved was from February 2005 to September 2005.

The Adjudicating Authority confirmed the demand raised in the show cause notice and in appeal, the Commissioner (A) upheld the impugned order. Hence, appellant has filed further appeal before the Tribunal.

Appellant’s Contentions:- Appellant submitted in its reply to show cause notice that the use of said goods as part of the fermenter, Yeast Propogation Vessels, Pre-Fermenter main Hole flange connection and connecting pipe line network of yeast propagation vessels to pre-Fermenter.

Appellant relied upon the decisions given in the case of L.H. Sugar Factories Ltd. V. CCE, Meerut [2010 (251) E.L.T 135 (Tri. Del.)] & Sarjoo Sahkari Chini Mills Ltd. V. CCE, Lucknow [2009 (248) E.L.T. 559 (Tri. Del.)].

Appellant also relied upon the judgment of the Rajasthan High Court in Union of India v/s Hindustan Zinc Ltd [2007 (214) ELT 510 (Raj)] wherein the High Court had dealt the matter in great length and concluded that the goods once brought to factory for use in upkeep and maintenance of plant and machinery which are directly used in manufacture of excisable articles are the capital goods.

Respondent’s Contentions:- Revenue submitted that thread bare examination of every item was done by the Adjudicating Authority and what that was done at the adjudication stage was also tested in the appellate stage. According to them goods in question do not qualify the capital goods, since those were neither components nor spares or accessories of capital goods.

Reasoning of Judgment:-The Tribunal held that the show cause notice failed to speak anything about the nature of goods, its uses and its classification on the body of it. But the appellant had explained in detail each and every item of the Annexure to show cause notice submitting that when those goods are either components, spares or accessories supporting the capital goods of the class as defined by Rule 2(a)(i) of the Cenvat Credit Rules, 2004, Cenvat credit is undeniable.

It was noted that H.R. Coil was not subject matter of show cause notice except the figure appearing in show cause notice as 7208. 11.

It was noted that the Adjudicating Authority examined the graphic packing which was subject matter of show cause notice. Moreover packing AMP 031, 032 and Smart PTFE/ Graphite Fibre in para 7 and was of the opinion that Cenvat Credit is not admissible to the assessee under the class of the capital goods. No where in para 7, they could demonstrate that they has considered pleadings of the assessee made in the reply to show cause notice. And Examined the packing item in para 8. It was recorded that the appellant did not produce any document to prove that duty on these products was paid. Appellant went through the definition of capital goods and came to the conclusion that disallowance is justified.

It was observed that so many technicalities were raised by the appellant but none of them were put into test by Technical experts.

The show cause notice failed to speak anything about the nature of goods, its uses and its classification on the body of it. But the appellant explained on each and every item of the Annexure to show cause notice submitting that when those goods are either components, spares or accessories supporting the capital goods of the class as defined by Rule 2(a)(i) of the Cenvat Credit Rules, 2004, Cenvat credit is undeniable.

The Tribunal held that a casual show cause notice was issued without depicting the cause against the proposed action. When the show cause notice losses its foundation to bring the appellant to the proper charge under the law, the proceeding shall be ill-founded. When the show cause notice did not assign the reason as to why the proposed proceeding has been initiated, a bald statement therein does not meet the end of justice. No doubt, the authorities have examined various items but they have travelled beyond the scope of show cause notice. If the notice is not brought to charges, and never face charges by any order passed beyond show cause notice.

In view of the circumstances, it is made clear to both sides that on the basis of governing facts and attending circumstances; this order has been passed against an ill-founded proceeding. Impugned order set aside.

Decision:- Appeal allowed.

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PJ/Case Laws/2010-11/1006

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