M/S. Adsorbent Carbons PVT LTD. vs. The Commissioner Of CGST And

Held

The Court held that the impugned order-in-original cannot be sustained. The reasoning was that while the respondents cannot be accused of arbitrariness in applying the norms of an expert body like the Coconut Development Board, the application of such standard input and output norms cannot be the sole basis for issuing a show cause notice for determination of duty when there is no allegation of diversion or clandestine removal against the assessee. The Supreme Court in M/s. Oudh Sugar Mills Limited had made it clear that calculations regarding output cannot be based on inferences involving assumption. Similarly, the Madras High Court in M/s. IOCEE Exports Ltd., held that standard norms cannot be the sole basis when there is no allegation of diversion. Since there was no allegation of clandestine removal against the petitioner in this case, the order resting on the Coconut Development Board's formula was unsustainable. The Court set aside the impugned order and remitted the matter to the first respondent to levy duty based on actual production/removal of goods.

Facts

The petitioner, M/s. Adsorbent Carbons Private Ltd., a 100% Export Oriented Unit manufacturing Granulated Activated Carbon, filed a writ petition challenging an order-in-original dated October 16, 2019, passed by the Commissioner of CGST and Central Excise. This order imposed a duty of Rs. 3,10,70,480/- and a penalty of Rs. 40,00,000/-. Previously, the petitioner had challenged show cause notices proposing a duty of Rs. 55,96,99,274/-, and this court had directed them to approach the assessing officer. The impugned order was based on the input-output ratio norms provided by the Coconut Development Board, alleging clandestine removal. The petitioner contended that duty should be levied only on actual manufacture and removal, not on a formula.

Key Issues

1. Whether the impugned order-in-original, which levies duty based on the input-output ratio norms laid down by the Coconut Development Board, is sustainable in law, particularly when there is no allegation of clandestine removal against the petitioner? (Question of law turning on Section 3 of the Central Excise Act, 1944 and Rule 8 of the Central Excise Rules, 2007). Petitioner's arguments: The levy of excise duty can only be on the product actually manufactured and removed from the factory premises. The respondents have applied a formula to work out the output and levied tax on that basis, which is not permissible. Reliance was placed on M/s. Oudh Sugar Mills Limited Vs. Union of India (1978) and M/s. IOCEE Exports Ltd., Vs. The Commissioner of Central Excise, Chennai-II Commissionerate (Madras High Court, 25.02.2021). Respondents' arguments: The respondents have applied the norms laid down by the Coconut Development Board, an expert body, and are justified in doing so. The impugned order is appealable, and therefore, the writ petition is not maintainable.