Custom, Excise & Service Tax Tribunal
Shri Harish Agarwal, Director vs Cce, Jaipur on 23 April, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No. 2, R.K. Puram, New Delhi 110 066. Principal Bench, New Delhi COURT NO. III DATE OF HEARING : 25/02/2015. DATE OF DECISION : 23/04/2015. Excise Appeal No. 1698-1699 of 2009 [Arising out of the Order-in-Original No. 01/2009 (CE) dated 01/01/2009 passed by The Commissioner, Central Excise Commissionerate I, Jaipur.] For Approval and signature : Honble Shri Rakesh Kumar, Member (Technical) Honble Shri S.K. Mohanty, Member (Judicial) 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 would 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 : Department Authorities? M/s Savitri Concast Ltd. ] Shri Harish Agarwal, Director ] Appellants Versus CCE, Jaipur Respondent
Appearance Shri Bipin Garg, Advocate for the Appellant.
Shri Pramod Kumar, Authorized Representative (Jt. CDR) for the Respondent.
CORAM : Honble Shri Rakesh Kumar, Member (Technical) Honble Shri S.K. Mohanty, Member (Judicial) Final Order No. 51402-51403/2015 Dated : 23/04/2015 Per. Rakesh Kumar :-
The facts leading to filing of these appeals are, in brief, as under.
1.1 The appellant are manufacturers of MS Ingots chargeable to Central Excise duty under heading 7206 of the Central Excise Tariff. Shri Harish Aggarwal is the Director of the appellant company. The period of dispute in this case is from April 2002 to September 2006. The appellant were selling their final product to various rolling mills including Shri Sharma Steel Rolling Mills Pvt. Ltd., Industrial Area, Jodhwara, Jaipur (hereinafter referred to as SSSRM). M/s SSSRM manufacture various rolled products. The rolling mill of SSSRM was visited by the Jurisdictional Central Excise officers on 10/9/05. In course of search of the factory premises, certain loose papers sheets containing despatches of bars/rods and receipt of MS Ingots were recovered alongwith various other records in the factory offices, which were taken into custody. Certain records were recovered in a bag from a room in the factory premises and since these records appeared to be the records of sale of bars and purchase of ingots in form of private ledger books pertaining to period from April 2005 to September 2005, the same were also taken into custody. On study of the private ledger book for the period from April 2005 to September 2005, it appeared that during July and August 2005, 461.31 MT of MS Ingots had been received by SSSRM from the appellant unit in respect of which the appellant unit had not issued any invoices. Beside this, it was also found that during the same period SSSRM had received 29 consignments of Ingots from the appellant unit, the total weight which was 511.26 MT and though the appellant had issued invoices in respect of the same, the details regarding quantity were not matching as the total quantity as per the invoices issued by the appellant was 545.143 MT. The Department, therefore, was of the view that during July and August 2005, the appellant have received 927.57 MT of MS Ingots (461.31 MT + 511.26 MT) which had been clandestinely cleared by the appellant without payment of duty and on which the duty involved was Rs. 25,39,575/-. Beside this, from the entries in the private ledger of SSSRM for the period from April 2005 to July 2005 it appeared that during this period they have received MS Ingots worth Rs. 5,25,33,509/- and runners and risers Rs. 2,01,000/- from the appellant company without any invoice, the total duty involved on which would be Rs. 86,06,369/-. Thus on the basis of the entries in the private ledger book recovered from SSSRM, the Department has alleged that during the period from April 2005 to August 2005 the appellant company had supplied MS bars and runners and risers valued at Rs. 6,80,94,629/- to SSSRM without payment of duty and without issue of invoice and the duty involved on these goods was Rs. 1,11,45,944/-.
1.2 The Department, however, has not demanded duty from the appellant company on the basis of the entries in the private ledger book of SSSRM and these entries have been treated only as an evidence of unaccounted manufacture of MS Ingots and its clandestine clearance by the appellant company.
1.3 The investigating officers studied the balance sheet of the appellant company for 2003-2004 and 2005-2006 for determining the cost of production and according to this study, the investigating officers concluded that while during 2003-2004 on the basis of the cost of production of MS Ingots, and sale price realised on which the duty had been paid, the appellant company made a very insignificant profit of Rs. 15 per MT, during 2005-2006 the appellant company made huge loss of Rs. 1278 per MT.
1.4 The officers, thereafter, studied the power consumption of the appellant unit which during the period from September 2004 to September 2005 varied from 972.93 units per MT to 1486.5 units per MT.
1.5 A special audit was also got conducted by the Department in February 2007 through a cost accountant under Section 14 of the Central Excise Act, 1944 and according to the cost audit report, while the installed capacity of the unit was 12600 MT based on 7 heats in a day for 300 days with crucible capacity of 6 MT per heat, the reasons for under utilisation of the capacity were not being maintained, that no records of the power failure, and stoppage of production due to power failure was being maintained and during 2005-2006 the company failed to recover the material cost and power cost. According to the Department, however, the power consumed of the appellant should be 689 units per MT of MS Ingots. It is on the basis of this norm that the Investigating Officers estimated the actual production of the appellant company during the period from April 2002 to September 2006 as 64511.25 MT against which the appellant company had shown the production of only 37478.94 MT and accordingly it has been alleged that during the period from April 2002 to September 2006, the appellant has under reported the production of 27032.313 MT of MS Ingots which has been cleared without payment of duty. The duty involved on this estimated unreported production is Rs. 5,37,28,971/- .
1.6 It is on the basis of the above investigation that a show cause notice dated 27/4/04 was issued to the appellant company for demand of duty of Rs. 5,37,28,971/- from them in respect of alleged clandestine removal of MS Ingots during the period from April 2002 to September 2006 alongwith interest thereon under Section 11AB and also for imposition of penalty on the appellant company under Section 11AC and imposition of penalty under Rule 26 of the Central Excise Rules on Shri Harish Aggarwal, Director of the appellant company.
1.7 The above show cause notice was adjudicated by the Commissioner vide order-in-original dated 01/1/09 by which the above-mentioned duty demand was confirmed against the appellant company alongwith interest under Section 11AB and beside this, while penalty of equal amount was imposed on the appellant company under Section 11AC, another penalty of Rs. 25,00,000/- was imposed on Shri Harish Aggarwal, Director of the appellant company.
1.8 Against the above order of the Commissioner, these two appeals have been filed by the appellant company and its Director Shri Harish Aggarwal.
2. Heard both the sides.
3. Shri Bipin Garg, Advocate, the learned Counsel for the appellant, pleaded that just because the name of the appellant company was found as supplier of MS Ingots in the private ledger book of SSSRM, the Department cannot allege that the appellant has supplied the MS Ingots to SSSRM without issue of invoices, as other than the ledger entries, in the private ledger book of SSSRM, there is no other independent evidence in this regard, that the allegation of the Department that Shri Harish Aggarwal has admitted clandestine removal of MS Ingots to SSSRM in his statement dated 15/9/05 is totally wrong, as no such admission has been made by Shri Harish Aggarwal and he had been just being asked to sign a pre-prepared chart, that in any case, Shri Harish Aggarwal had retracted his statement as having been given under pressure, that merely on the basis of the entries in the records being maintained by a third party the allegation of clandestine removal cannot be made against an assessee and in this regard he relies upon the judgments of the Tribunal in the cases of CCE, Indore vs. Rajratan Synthetics Ltd. reported in 2013 (297) E.L.T. 63 (Tri. Del.), CCE, Coimbatore vs. Chola Spinning Mills (P) Ltd. reported in 2009 (92) R.L.T. 731 (CESTAT Che.), Rama Shyama Papers Ltd. vs. CCE, Lucknow reported in 2004 (168) E.L.T. 494 (Tri. Del.) and Sunhill Ceramics Pvt. Ltd. vs. CCE, Rajkot reported in 2007 (217) E.L.T. 353 (Tri. Ahmd.), that the power consumption of the appellant varies from 972 units to 1486 units per MT and mostly it remains between 1,000 units to 1100 units per MT, that the power consumption norm of 689 units per MT is totally arbitrary, without any basis and without conducting any actual experiment or study in this regard in the appellants unit, that in the appellant unit upto August 2004, there was only one furnace of 3 MT capacity and in September 2004 the same was replaced by the furnace of 6 MT capacity, that, therefore, while from September 2004 to September 2006 the installed capacity of production can be taken as 12600 MT per annum as shown in the cost audit report, during period from April 2002 to August 2004 the capacity would be only 6300 MT per year, that on this basis, the maximum production during April 2002 to August 2004 could be only 15750 MT @ 6300 MT per year and the maximum production during September 2004 to September 2006 @ 12,600 MT per annum would be only 26200 MT and thus the maximum production possible during the period from April 2002 to September 2006 on the basis of the installed capacity of the unit would be 40,950 MT against which the production recorded in the Central Excise records is 37478.94 MT, that the Departments allegation during this period that the appellant must have produced 64511 MT of MS Ingots is, therefore, without any basis, that this allegation is absolutely wrong when the Department does not dispute that during period upto August 2004 there was only one furnace of 3 MT capacity in the appellants unit and only in September 2004 the old furnace was replaced by a new furnace of 6 MT capacity, that as regards the commission income of Rs. 1,16,25,916/- shown in the balance sheet for 2005-2006, the appellant have paid service tax on this amount and tax was also deducted at source, that no investigation has been done to establish that the appellant had not provided any commission agent service, that in view of this, no adverse conclusion can be drawn from their commission income of Rs. 1,16,25,916/- shown in their balance sheet for 2005-2006, that the duty demand merely based on power consumption norm of 689 units per MT which had been adopted without any basis is not sustainable and in this regard he relies upon the judgment of the Tribunal in the case of R.A. Castings Pvt. Ltd. vs. CCE, Meerut I reported in 2009 (237) E.L.T. 674 (Tri. Del.), which has been affirmed by Honble Allahabad High Court vide judgment reported in 2011 (269) E.L.T. 337 (All.) and the SLP filed by the Government against the judgment of Honble Allahabad High Court was dismissed by the Apex court in the judgment reported in 2011 (269) E.L.T. A108 (S.C.), that same view has been taken by the Tribunal in the case of Bhawani Shanker Castings Ltd. vs. CCE, Jalandhar reported in 2009 (246) E.L.T. 332 (Tri. Del.) and this judgment which has been upheld by Honble Punjab & Haryana High Court vide judgment reported in 2012 (275) E.L.T. A57 (P&H), that same view has been taken by the Tribunal in the cases of Trikoot Iron and Steel Casting Ltd. vs. CCE, Meerut reported in 2015 (315) E.L.T. 65 (Tri. Del.) and in the case of Pragati Steels Pvt. Ltd. vs. CCE, Kanpur reported in 2012 (286) E.L.T. 253 (Tri. Del.), that recently the Tribunal in the case of SRJ Peety Steels Pvt. Ltd. and others vs. CCE, Aurangabad reported in 2014 TIOL 1530 CESTAT MUM has held that allegation of clandestine production and clandestine removal based merely on calculation of raw material fed into the process or on working of the machinery as noticed during test inspections when there is no tangible evidence in support of the allegation is not sustainable, that the ratio of the Apex courts judgment is squarely applicable to the facts of this case, more so, when no test/inspection/study of the appellants unit has not been conducted to determine its average power consumption per MT of MS Ingots produced and an arbitrary power consumption norm of 689 units per MT had been adopted and that in view of the above, the impugned order confirming duty demand of Rs. 5,37,28,971/- against the appellant company alongwith interest and imposing penalty of equal amount on the appellant company under Section 11AC and penalty of Rs. 25,00,000/- on its Director Shri Harish Aggarwal under Rule 26 of the Central Excise Rules is not sustainable.
4. Shri Pramod Kumar, the learned Jt. CDR, defended the impugned order by reiterating the findings of the Commissioner and pleaded that the appellant during the period of dispute were selling the goods at very nominal profit or at price much below the cost of production, that no businessman would continue to conduct his business when he is incurring huge losses, that from the entries in the private ledger book of SSSRM it is clear that the appellant during the period from April 2005 to August 2005 had supplied huge quantity of MS Ingots without issue of invoice and without payment of duty to SSSRM and this is a clear evidence of duty evasion by the appellant company. He, therefore, pleaded that there is no infirmity in the impugned order.
5. We have considered the submissions from both the sides and perused the records.
6. The appellant are manufacturers of MS Ingots from steel scrap and one of their customers of the MS Ingots was SSSRM. The enquiry into the appellant company was started when the premises of SSSRM were searched on 10/9/05, a number of records including a private ledger book were recovered. The private ledger book was containing entries regarding purchase of consignment of MS Ingots from the appellant company during the period from April 2005 to August 2005. Since as per the records of the appellant company no Central Excise invoices had been issued in respect of those supplies, Department has alleged that those supplies has been made without payment of duty and according to the Department, the total value of Ingots supplied without payment of duty during the period from April 2005 to August 2005 is Rs. 6,80,94,629/- on which the duty involved would be Rs. 1,11,45,944/-. However, the duty has not been demanded from the appellant company on this basis. The entries in the private ledger book of SSSRM have been treated only as evidence of duty evasion by the appellant company and for calculating the quantum of duty evasion by the appellant company, the Investigating Officers have determined the total power consumption of the appellant company during the period from April 2002 to September 2006 and adopting the norm that for manufacture of 1 MT of MS Ingots, 689 units of MT of power is consumed have estimated their production during this period as 64511.25 MT as against which the appellant shown the production only 37478.94 MT. It is on this basis that it has been alleged that during period from April 2002 to September 2006 the appellant have clandestinely cleared 27032.313 MT of MS Ingots on which the duty evaded is Rs. 5,37,28,971/-. The Department in this regard also relies upon the special audit report of the audit conducted under Section 14A of the Central Excise Act, 1944 according to which the production capacity of the appellant during the period of dispute was 12600 per MT annual and their capacity utilisation during 2004-2005 and 2005-2006 was only 76.14% and 72.81% and that they have not kept record of the power consumption on different stages and also no record of the stoppage of production due to power break down etc. has been kept. The special audit report also mentions that during 2004-2005 and 2005-2006 the appellant unit had received commission income of Rs. 1,16,25,916/- and that while during 2003-2004, they have sold their goods on a very meagre profit margin of Rs. 15 per MT, during 2004-2005 they have sold their goods at a huge loss of Rs. 1278 per MT and that no manufacturer would sale his goods at such a huge loss and still continue in his business.
6.1 The contention of the appellant on the other hand is that merely on the basis of certain entries in the private ledger book of M/s SSSRM, no allegation of duty evasion by clandestine removal can be made against the appellant, when the persons of SSSRM who were maintaining the ledger book were not examined and merely on the basis of third party records, the allegation of duty evasion cannot be made against an assessee, when there is no other independent evidence. It is also pleaded by the appellant that their power consumption varies mostly between 1,000 to 1,100 units per MT and during 2005-2006 it varied 1,100 to 1,486 units per MT and that the norm of 689 units per MT is absolutely without any basis. It has also been pleaded by the appellant that the capacity of production of the appellant upto August 2004 was only 6,300 MT per annum as it is not disputed upto August 2004 only one furnace of 3 MT of capacity was installed and only in September 2004 it was replaced by a new furnace of 6 MT of capacity. According to the appellant their maximum production based on their installed capacity during April 2002 to August 2004 would be 15750 MT and from September 2004 to September 2006 would be Rs. 25,200 MT and thus the maximum production based on the installed capacity during the period of dispute would be 40950 MT against which the production recorded in the Central Excise records and on which the duty has been paid is 37478 MT. Therefore, it has been pleaded that the Departments allegation that the appellant actual production during the period of dispute was 64511.25 MT is absolutely without any basis.
7. Coming to the 1st question as to whether on the basis of the recovery of a private ledger book from the factory premises of SSSRM which contain entries regarding receipt of MS Ingots by SSSRM from the appellant company during the period from April 2005 to August 2005 allegation of clandestine removal can be made against the appellant we are of the view that in terms of the Apex Court judgment in the case of Kishin Chand Chella Ram vs. Commissioner of Income Tax reported in 1980 (supp) SCC 660 allegation of duty evasion cannot be made against an assessee on the basis of the entries in the records being maintained by some other person unless an opportunity for cross examination of that person had been allowed. In this case no such opportunity for cross examination of the writer of the private ledger book of SSSRM or their supervising officer had been given. Moreover, the entries in the private ledger book of SSSRM showing receipt of MS Ingots from the appellant during the period from April 2005 to August 2005 are not supported by any other independent evidence on record. Therefore, we hold that merely on the basis of the entries in the private ledger book of SSSRM, the allegation of duty evasion against the appellant company cannot be sustained.
7.1 The second evidence relied upon by the Department is cost audit report according to which during 2003-2004 the appellant had sold their product Rs. 15 per MT and during 2004-2005 sold their product used huge loss of Rs. 1278 per MT and that during 2004-2005 and 2005-2006 they have shown commission income of Rs. 1,16,25,916/- from various parties in respect of certain commission agent service being provided by them which is not their line of business. In our view merely because during 2003-2004 the appellant sold their finished goods on a small profit margin of Rs. 15 per MT and during 2005-2006 the appellant sold their products at the loss of 1278 per MT, no adverse conclusion can be drawn and merely on profit and loss data it cannot be concluded that the appellant were indulging in duty evasion by clandestine removal during this period. Though the Department alleges that during 2004-2005 and 2005-2006 the appellant had received the commission income of Rs. 1,16,25,916/- from commission agent certificate from parties which is an unrelated activity and thereby implying that the appellant were under reporting their production and showing their income from manufacturing activity as the income from commission agent service, no adverse conclusion can be drawn from this, as the appellants claim that they had paid service tax on the commission income and also the income tax had been deducted at the source on the payments being received is not disputed. Moreover, no inquiry has been conducted to prove that these service transactions are bogus.
7.2 The only evidence which remains is the power consumption norm. In this regard the appellants plea is that their power consumption norm mostly varies between 972 units to 1486 units per MT and during 2005-2006 it has varied 1000 to 1100 per MT and that the power consumption norm of 689 units per MT has been adopted absolutely without any basis. We find that there is substance in this contention of the appellant as the impugned order does not spell out as to on what basis of power consumption norms 689 units per MT has been adopted when absolutely no test or studies in this regard has been conducted in respect of the appellant unit. Even if the power consumption norm of 689 units per MT pertain to some other induction furnace unit, the same cannot be applied to the unit of the appellant without conducting an actual study and experiment, as the power consumption norm in respect of an induction furnace unit would vary from unit to unit and would depend upon the type of the machinery, the type of scrap which is being used, the number of heats per day, whether there are frequent power break down etc. The productivity of an induction furnace unit would be optimum when the unit works round the clock while it will be lower if it works only one shift in a day. The Tribunal in the case of R.A. Castings Pvt. Ltd. vs. CCE, Meerut I reported in 2009 (237) E.L.T. 674 (Tri. Del.), has held that merely on the basis of power consumption norm, the duty demand based on the allegation of clandestine manufacture and clearance cannot be upheld against an induction furnace unit and this judgment of the Tribunal was upheld by Honble Allahabad High Court vide judgment reported in 2011 (269) E.L.T. 337 (All.) and the SLP filed against the judgment of Honble Allahabad High Court was dismissed by the Apex court vide judgment reported in 2011 (269) E.L.T. A108 (S.C.). Same view has been taken by the Tribunal in the case of Bhawani Shanker Castings Ltd. vs. CCE, Jalandhar reported in 2009 (246) E.L.T. 332 (Tri. Del.), the Departments appeal against which was dismissed by Honble Punjab & Haryana High Court vide judgment reported in 2012 (275) E.L.T. A57 (P&H), and also the cases of Trikoot Iron and Steel Casting Ltd. vs. CCE, Meerut reported in 2015 (315) E.L.T. 65 (Tri. Del.) and Pragati Steels Pvt. Ltd. vs. CCE, Kanpur reported in 2012 (286) E.L.T. 253 (Tri. Del.). Recently the Tribunal in the case of SRJ Peety Steels Pvt. Ltd. and others vs. CCE, Aurangabad reported in 2014 TIOL 1530 CESTAT MUM has also taken the same view holding that the power consumption norm of another unit cannot be applied in respect of an induction furnace unit and on this basis the allegation of clandestine manufacture and clearance cannot be made. Apex court in the case of Oudh Sugar Mills Ltd. vs. Union of India reported in 1978 (2) E.L.T. (J 172) (S.C.) has also held that allegation of clandestine production and removal based only on calculation of raw material fed into the process or on working of the machinery as noticed during test inspection would not be sustainable unless there is tangible evidence on record in support of clandestine production and removal. In the present case other than the assumption that the power consumption norm of the unit should be 689 units per MT, there is no evidence of unaccounted purchase of raw material or other clear evidence of clandestine removal of finished goods.
7.3 Moreover, when the Department does not dispute that till August 2004 the furnace installed in the appellant unit was 3 M.T. capacity and only in September 2004 this furnace was replaced by the furnace with 6 M.T. capacity and thus still August 2004 the capacity of production of the unit was only 6300 M.T. per annum and only w.e.f. September 2004 the installed capacity was enhanced to 12600 MT per annum and on this basis the maximum production during the period from April 2002 to September 2006 would be 40950 M.T. against which the production recorded in the statutory recorded during this period on which duty has been paid is 37478.94 M.T., merely based on the assumed power consumption norm of 689 units per MT for which there is no basis, the appellant unit cannot be alleged to have manufactured and cleared 64511 MT of MS Ingots during the same period.
8. In view of the above discussion, we hold that the impugned order is not sustainable. The same is set aside. The appeals are allowed.
(Pronounced in open court on 23/04/2015.) (Rakesh Kumar) Member (Technical) (S.K. Mohanty) Member (Judicial) PK ??
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