Custom, Excise & Service Tax Tribunal
Shri J.P. Agarwal, Commercial ... vs C.C.E., Raipur on 9 August, 2016
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
WEST BLOCK NO.2, R.K. PURAM, NEW DELHI-110066
BENCH-DB
COURT III
Excise Appeal No.E/2475/2009-EX [DB]
Excise Appeal No.E/2476/2009-EX [DB]
[Arising out of Order-in-Original No. COMM/RPR/34/2009 dated 28.05.2009 passed by the Commissioner of Customs & Central Excise, Raipur]
For approval and signature:
HONBLE MR. S.K. MOHANTY, MEMBER (JUDICIAL)
HONBLE MR. R.K. SINGH, MEMBER (TECHNICAL)
1
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2
Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3
Whether Their Lordships wish to see the fair copy of the Order?
4
Whether Order is to be circulated to the Departmental authorities?
M/s.Balajee Structurals (India) Pvt. Ltd.
Shri J.P. Agarwal, Commercial Executive Appellant
Vs.
C.C.E., Raipur Respondent
Present for the Appellant : Mr.Rupendra Singh, Advocate
Present for the Respondent: Mr.G.R. Singh, D.R.
Coram: HONBLE MR. S.K. MOHANTY, MEMBER (JUDICIAL)
HONBLE MR. R.K. SINGH, MEMBER (TECHNICAL)
Date of Hearing : 19.07.2016
Date of Pronouncement:09.08.2016
FINAL ORDER NO. 52955-52956
PER: S.K. MOHANTY
Both these appeals have been filed against the impugned order dated 28.05.2009 passed by the Commissioner, Central Excise, Raipur, wherein duty demand of Rs. 1,50,97,991/- was confirmed against M/s Balajee Structurals (India) Pvt. Ltd. with imposition of equal amount of penalty. Besides, penalty of Rs. 10 lakhs was also imposed on the Commercial Executive, Shri J.P.Agarwal.
2.?The brief facts of the case are as under :
2.1 The officers of Central Excise Department visited the factory of M/s Balajee Structurals on 19.07.2005. During search of factory premises, the Daily Analysis Report of laboratory and raw material issue register was recovered. Further, the officers recovered Daily store report showing the use and stock position of various materials used in the production of excisable goods namely, B.P. Sets (Bottom Pouring Sets) of different sizes, silico manganese, Ferro Silicon, Aluminium etc., which are for exclusive use in Induction furnace. The panchnama was prepared by the officers in presence of Shri J.P.Agarwal. On the basis of verification of documents/records, the Department issued the show cause notice dated 01.11.2008 to the appellants. It was alleged that each B.P Sets is used for each heat, thus the number of B.P.sets used in a day reveals the number of heats materialized. A chart was compiled on the basis of such issue. The officers also recorded statement of Shri Kamal Kishore Ketki, who stated that the two induction furnaces are installed in factory having capacity of 6 MT each. The officers on the basis of log sheets of Induction furnace for 16.07.2005 and 17.07.2005, calculated the capacity of induction furnace as 7.9 MT. By multiplying the number of B.P.Sets used for the period 01.03.2005 with 7.9 MT, it was alleged that there has been suppression of 5435.934 MT of M.S. Ingots during the said period. It was also alleged that on the day when the use of B.P.Sets was not found, the use of Silicon Magnese and Ferro Silicon in production was considered. Thus multiplying the number of times the said items were issued, the same was multiplied with the capacity of furnace i.e 7.90 MT and it was alleged that the Appellant's unit has suppressed 380 MT of production of M.S. Ingots. It was further alleged that the consumption for per ton M.S Ingots in Appellant's unit is 911 units, whereas the industrial average is 850 MT per Unit, which shows that the allegation made against the assessee are correct. It was also alleged that in the year 2003 certain dubious investments were made in Appellant's unit which shows that the amount of clandestine clearances has been brought back into Appellant's unit in form of investments.
3. The show cause notice was adjudicated vide Order-in-Original No. COMM/RPR/34/2009 dated 28.05.2009 (for short, the "impugned order"), in confirming the proposals made therein. The impugned order has confirmed the demand on the following grounds:-
(i) That B.P. Sets is used for each heat. The number of B.P.Sets issues/ used in a day reveals the number of product heats materialized during that day. So the daily reports showing quantity/ number of B.P Sets in different sizes issued reveals the number of product heat materialized and therefore specific size of ingots produced from each charge during that day.
(ii) That though Shri Ketki, Chemist of factory, who prepared daily analysis report deposed in his statement that the capacity of furnace is 6MT each but the production log sheets of furnace for 16.07.2005 and 17.07.2005 reveal that the capacity utilization of each furnace comes to 7.9 MT, which establish that the two induction furnaces are capable of producing more metal than its declared capacity of 6MT each. Thus considering the production of M. S. Ingots on the basis of B. P. Sets issued/ used during a day as reflected in Daily store report to be of 7.90 MT per heat, it is clear that there is suppression of 5435.934 MT of M.S. Ingots for the period 01.03.2005 to 17.07.2005.
(iii) That wherever information of B.P. sets is not available in Daily store report, the data of issue of silico magnese and Ferro Silicon available in the issue register has been considered for calculation of heat materialised . From these figures, the production suppressed was of 380.980 MT. The adjudicating authority also relied upon other records to shows that the issue of B.P.Sets, Silico Magnese and Ferro Silicon tallies.
4. The Ld. Counsel for the Appellant submits that the demand is based upon assumption/ presumption. That the B.P.Sets is a refractory material and is consumable used for pouring of molten metal from induction furnace to Ingots casting machine. That the use of B.P.Sets cannot be the criteria of suppressed production and removal. That B.P Sets being refractory material, are prone to breakages during transportation, handling and during the use. They come into multiple pieces and even if there is slight defect in one piece or it breaks during fitting, the whole set becomes obsolete. That in the statement of Shri J.P.Agarwal, he has clearly stated that 1 to 4 B. P. Sets are used in each heat. Nowhere in his statement, he has accepted that one B. P. Sets is used in each heat. He further submits that the log sheet for 16.07.2005 and 17.07.2005 cannot be the criteria to allege that the capacity of furnace is 7.90 MT. That the said log sheet nowhere shows the capacity and even Shri Ketki in his statement has not accepted any suppression of production. In his statement, he had stated that the capacity of furnace is 6 MT each. That even the purchase invoices of Induction furnaces installed in their factory clearly shows that the capacity of Induction furnace is 6 MT each. That there is no identification of author of such log sheets. He places reliance upon the judgment of AMBIKA CHEMICALS Versus CCE, CHENNAI 2002 (148) E.L.T. 101 (Tri. - Chennai) as upheld in 2003 (153) E.L.T. A298 (S.C.), to justify his stand that demand cannot be made on the basis of Note books maintained by the employee as the same is not supported by evidence with regard to purchase of inputs, production, source of funds, sale and receipt of consideration. Similarly he relies upon judgment of Tribunal in case of CCE, CHANDIGARH Vs. ARSH CASTINGS (PVT.) LTD. 2006 (195) E.L.T. 302 (Tri. - Del.) as upheld in 2010 (252) E.L.T. 191 (H.P.) to state that if on physical verification, no discrepancy is found, the demand on basis of the register maintained by the employee though related to the dispatch of the goods, the allegation of goods having cleared without payment of duty cannot be leveled in absence of any tangible evidence. He submits that the charge of clandestine removal is required to be proved by production of affirmative, positive and tangible evidence. There is no evidence on record to show the excess procurement of the raw material, manufacture of goods which were cleared without payment of duty and excess consumption of electricity etc., in absence of this evidence demand is not sustainable.
4.1 He submits that even if it is assumed that the private note book or record show some production, but in absence of identification of author and any evidence of clandestine removal, no demand can be made. He also relies upon the following judgment in support of his contentions made above :
(i) TGL POSHAK CORP. Vs. CCE, HYDERABAD 2002(140) ELT 187 (Tri).
(ii) SAVITRI CONCAST LTD. Vs. CCE 2015 (329) E.L.T. 213 (Tri. - Del.)
(iii) REAL ISPAT AND POW. LTD. Vs. CCE 2015 (330) E.L.T. 311 (Tri)
(iv) SOMESHWARA CEM. & CHEM. LTD. Vs .CCE 2005 (191) E.L.T. 1062 (Tri)
(v) CCE Vs. RAMAN ISPAT (P) LTD. 2000 (121) E.L.T. 46 (Tri)
(vi) CCE Vs. SANGMITRA COTTON MILLS 2004 (163) ELT 472 (Tri)
(vii) CCE Vs. DHANAVILAS SNUFF CO. 2003 (153) ELT 437 (TRI) 4.2 He submits that no practical test was conducted to ascertain the capacity of Induction furnace or the use of B.P. Sets in production. That the B.P. Sets is consumable and not raw material. That there is no evidence of receipt of any excess major raw materials namely, sponge iron and Pig Iron. He referred to paragraph 4 in the show cause notice, wherein, during physical verification no discrepancy was found either in stock of raw material and finished goods, which clearly shows that the allegations are without any basis. That only on the basis of use of refractory material no demand can be made. That similarly the number of times the Ferro silicon and Silicon manganese were issued cannot be considered as the number of heats materialized in factory. That the Ferro Silicon and Silicon maganese have got very minor use and only with the use of these items, production cannot be done. Use of these materials depends upon the chemical properties and quality of raw material. He relies upon the judgment in the case of M. VEERABADHRAN Vs. CCE EXCISE, CHENNAI-II 2005 (182) E.L.T. 389 (Tri. - Chennai) as upheld in COMMISSIONER Vs. M. VEERBADHRAN 2006 (197) E.L.T. A34 (S.C.). He also submits that no practical test of consumption of electricity has been done. The allegation of use of 911 Unit per MT is not based upon practical test nor the industry average of 850 Unit per MT is supported by any evidence as the consumption of electricity depends upon the use of raw material, their quality and proportion of mix. He states that no demand can be made on electricity consumption as held in the case of CCE, MEERUT-I Versus R.A. CASTINGS PVT. LTD. 2011 (269) E.L.T. 337 (All.) as upheld in COMMISSIONER Vs. R.A. CASTINGS PVT. LTD. 2011 (269) E.L.T. A108 (S.C.) and PRAGATI STEELS PVT. LTD. Vs. CCE, KANPUR 2012 (286) E.L.T. 253 (Tri. - Del.). He explains that the investment made were for subscription of share capital of company which has not been denied by the adjudicating authority. That even these investments were made in the year 2003, which has been accepted in the show cause notice and the present case relates to the year 2005, it cannot be said that the amount towards alleged clandestine production and removal was received in the year 2003. He submits that this clearly shows that the allegation against the Appellant are without any basis and reasoning. He further submits that without accepting that the seized records depict production capacity, even if it is assumed so, in that case also no demand can be made against the Appellant as there are no evidence of any clandestine production, removal of goods, transportation, reference of any buyer to whom the goods were removed clandestinely on receipt of monetary consideration. Thus, the allegation of suppression of production is absolutely baseless.
5. Per contra, the Ld. A.R. appearing for the Respondent reiterated the findings recorded in the impugned order to justify confirmation of the duty demand and imposition of penalty.
6. We have gone through the case records and considered the submissions made by both the sides.
7. We find that the demand has been confirmed based on the log sheet of 16.07.2005 and 17.07.2005, indicating that the average production of MS Ingots is 7.9 Mt per heat. However, we find that no person has been identified as author of such log sheets. The only statement recorded is of the Chemist, Shri Ketki, who had stated that it pertains to production. However, we find that Shri Ketki did not name any person who has prepared such log sheets. Shri J.P.Agarwal had refused to be said papers as pertaining to their production. Be it as the case may be, we find that though the said documents were seized from the factory of the Appellant, but no efforts were undertaken to check the veracity of the said documents. None of the documents seized from the premises has been investigated to know the author/ person who had prepared such documents. The Ld. Counsel for the Appellant has pointed out that even Shri Ketki in his statement had stated that the capacity of the furnace is 6 MT. In that case, the log sheet appears to be contrary to his statement and if the department had any doubt, they should have conducted practical test of the heat. No actual practical test was conducted to ascertain the capacity of the furnace which was the easiest thing to do. Further, the purchase invoices clearly show that the capacity of furnace is 6 MT each. We therefore, find that there is no force in the allegation that the capacity of furnace is 7.9.MT. Even the capacity of the furnace cannot be a criteria to allege clandestine removal. The excess or unaccounted consumption of raw material together with its production, removal and transportation has to be shown to substantiate the charges of clandestine removal.
7.1 We find that the allegation of suppressed production is based merely upon use of B.P. Sets considering that one B.P. Set is used for one heat and thus the number of B.P. Sets means the number of heat materialized. We are not inclined to accept this logic made by the revenue for the reason that the consumption of consumables cannot be a criteria to determine the production of goods. It would be more farfetched imagination to assume that only on the basis of use of consumables, which is a refractory material in multiple piece and prone to breakages/ defect, can be ground to allege clandestine production and clearance of goods. Further no practical test of its use has been carried out. In this case, reliance has been placed on use of Ferro Silicon and Silicon Maganese, we find that it is used in very small percentage and the use depends upon the composition of major raw materials, and therefore, the number of times it was issued for production cannot be considered as equal to number of times the heat were materialized. In case of M. VEERABADHRAN Vs. CCE EXCISE, CHENNAI-II 2005 (182) E.L.T. 389 (Tri. - Chennai) as upheld in COMMISSIONER Vs. M. VEERBADHRAN 2006 (197) E.L.T. A34 (S.C.)., the demand based on formula was set aside and we find that the judgment is applicable in the present case. Further, the most important aspect for alleging clandestine removal is that there has to be extra consumption of major raw material which are Sponge Iron and Pig Iron and their production. Even there is no evidence of a single consignment cleared from the Appellant's unit without payment of duty. No buyer or transporter of alleged suppressed production has been brought on record. Nor any evidence in the form of receipt of consideration has been brought on record. The judgment cited by the Ld. Counsel in case of M/s AMBIKA CHEMICALS Versus CCE, CHENNAI 2002 (148) E.L.T. 101 (Tri. - Chennai) as upheld in 2003 (153) E.L.T. A298 (S.C.), CCE, CHANDIGARH Vs. ARSH CASTINGS (PVT.) LTD. 2006 (195) E.L.T. 302 (Tri. - Del.) as upheld in 2010 (252) E.L.T. 191 (H.P.), TGL POSHAK CORPORATION Vs. CCE, HYDERABAD 2002(140) ELT 187 (Tri-Chennai), SOMESHWARA CEMENTS & CHEM. LTD. Vs .CCE, HYDERABAD 2005 (191) E.L.T. 1062 (Tri. - Bang.), CCE, MEERUT Vs. RAMAN ISPAT (P) LTD. 2000 (121) E.L.T. 46 (Tribunal), CCE, COIMBATORE Vs. SANGMITRA COTTON MILLS (P) LTD 2004 (163) ELT 472 (Tri-Chennai) are on the ground that in absence of any evidence of clandestine removal, demand cannot be made merely on the basis of private records and registers. We agree with the submissions and judgments cited by the Appellant and hold that the demand on the basis of log sheet or use of B.P. Sets or Ferro Maganeese and Silicomn Magnese are not sustainable. Our view is also based upon the fact appearing in Para 4 of the show cause notice that at the time of visit to the factory of the Appellant, no discrepancy in stock of raw material and finished goods was found which could indicate any clandestine removal of goods.
7.2 The revenue has relied upon the consumption of electricity in the Appellant's unit. It is alleged that the consumption in Appellant's factory is 911 Units per MT, whereas the Industry average is 850 MT. We accept the contention of Appellant that no practical test was conducted to ascertain the actual consumption coupled with fact that the consumption of electricity is not the criteria to allege clandestine removal. Moreover, it is not knows as to from where the consumption of 911 units and industry average of 850 MT has been derived. In the case of CCE, MEERUT-I Versus R.A. CASTINGS PVT. LTD. 2011 (269) E.L.T. 337 (All.) as upheld in COMMISSIONER Vs. R.A. CASTINGS PVT. LTD. 2011 (269) E.L.T. A108 (S.C.), SAVITRI CONCAST LTD. Versus CCE, JAIPUR 2015 (329) E.L.T. 213 (Tri. - Del.) cited by the Appellant, it has been held that the consumption of electricity cannot be a ground to uphold allegation of clandestine removal. We therefore, hold that the said alleged consumption of electricity cannot be the defensible ground to allege clandestine removal of goods.
7.3 The revenue has also relied upon certain investment made in the Appellant's Unit in the year 2003 on the ground that the same pertains to amount of clandestine clearances made by the Appellant. We find from the appeal memo that such investments were properly explained and pertain to subscription of shares in Appellant's company. In such a case, there is no reason to link said amount with clandestine clearances. Even assuming to be so, we find that the investment pertains to the year 2003, whereas in the present case, the period involved is 2005. Thus, there is no reason to hold that the said investments support the allegation of the revenue.
8. In view of above observations, we hold that the demand against M/s Balajee Structural, the appellant herein, is not maintainable and we set aside the impugned order dated 28.05.2009.
9. Since, we have held that there is no sustainable demand, consequential penalties on Shri Jaiprakash Agarwal, Commercial Executive is also set aside.
10. Accordingly, both the appeals are allowed with consequential reliefs.
[Pronounced in the open Court on 09.08.2016)
(R.K. SINGH) (S.K. MOHANTY)
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
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