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Custom, Excise & Service Tax Tribunal

Meerut-I vs Sri Jaibalaji Ispat Pvt Ltd on 18 July, 2018

 IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE
                   TRIBUNAL
                  REGIONAL BENCH : ALLAHABAD
                          COURT No. I

                   APPEAL No. E/53049/2015-EX[DB]

(Arising out of Order-in-Original No.12/Commr./Meerut/2015 dated
10/04/2015 passed by Commissioner of Central Excise & Service Tax,
Meerut)
Commissioner of Customs, Central Excise
& Service Tax, Meerut                                              Appellant
Vs.
M/s Sri Jaibalaji Ispat Pvt. Ltd.                                Respondent

Appearance:

Shri Pawan Kumar Singh (Supdt.) AR for Appellant Absent for Respondent CORAM:

Hon'ble Mrs. Archana Wadhwa, Member (Judicial) Hon'ble Mr. Anil G. Shakkarwar, Member (Technical) Date of Hearing : 18/07/2018 Date of Decision : 18 /07/2018 FINAL ORDER NO. - 71714/2018 Per: Archana Wadhwa Being aggrieved with the order passed by Commissioner of Central Excise, Meerut vide which he has dropped the demand of Rs.78,98,568/- (Seventy Eight Lakhs Ninety Eight Thousands Five Hundred Sixty Eight) proposed to be confirmed in the show cause notice dated 05/05/2014, Revenue has filed the present appeal.

2. We have heard the learned A.R. Shri Pawan Kumar Singh appearing for Revenue. Nobody appeared for the respondent.

3. Having gone through the impugned order, we find that the respondents are engaged in the manufacture of MS Ingots. During the course of audit conducted in their factory and based upon the scrutiny of records the respondent was asked to declare their input output ratio which the respondent complied with. Statement of their employees was recorded whereas he again gave the input output ratio. Based upon the same Revenue entertained a view that the respondents have suppressed their production for the Financial Year 2009-10 and 2010-11. Accordingly, proceedings were initiated against them for confirmation of demand by issuance of show cause notice dated 05/05/2014.

4. While adjudicating the said show cause notice Commissioner held that input output ratio can never be adopted for alleging suppression of production in the absence of other evidences to show the actual manufacture and clearance of the goods in a clandestine manner. For better appreciation of the reasoning adopted by Commissioner, we reproduce the relevant paragraph from the impugned order:-

"vii. That, as there was a total production of 24214.220 MT Ispat in 2009-10, a suppression 3 APPEAL No. E/53049/2015-EX[DB] of production to the tune of 2043.557 MT Ispat was presumed and a duty of Rs.46,99,044/- (including cesses) was presumed to be evaded on the removal of so suppressed production by taking average value of the product sold in the financial year 2009-10. Similarly, for the year 2010-11 too, the demand was worked out on this presumption.

viii. That, such a presumption based suppression of production, removal of goods or evasion of duty is not sustainable under law being baseless, unfounded & unsustainable on evidence and also against the case laws available on the subject.

ix. That, on the facts alone, the vague generalization of the consumption of inputs is absolutely unfounded due to following amongst other reasons:

x. That, the consumption of the Sponge Iron, Heavy Melting Scrap or M.S. Scrap and Ferro Alloys depends upon a variety of factors. These factors may be, inter alia, as under:

a. The grade and purity of Sponge Iron which may contain different percentage of iron content, dust, oxidized iron/rut;

               b.        The grade and purity of HMS/MS

                 Scrap     which       may      contain       different

percentage of iron content, dust, oxidized scrap/rust;

c. The consumption of sponge iron depends upon the quality of scrap being used which, depending upon source, may vary in percentile Ispat content;

               d.        The metallurgical process adopted for

                 production,    the     working       conditions        in

                 production     unit,     the      power         supply

                 conditions,    the     technology         used        for

production and the fund flow for procuring raw material also affect the production to some extent.

xi. That, there are variety of reasons, which may lead to different consumption patterns. There may be some standard consumption norms for very high technology steel plants but in small furnaces like that 5 APPEAL No. E/53049/2015-EX[DB] belonging to the Noticee, they cannot follow any standard consumption pattern or purchase standard inputs. The Noticee cannot therefore generalize their consumption pattern. The consumption pattern adopted by the Noticee changes from heat to heat, day to day, month to month and period to period. xii. That, the consumption, besides the aforesaid factors, is also dependent upon economy of rates coupled with availability of raw material on credit purchase basis. The small furnaces like that of the Noticee cannot be choosers in the market and they just survive on the market conditions and cannot work on the generalized standard of consumption. xiii. That, the officers may calculate on month-to-month basis and they would find that the consumption patterns are ever changing. The Noticee survive upon survival instincts and street smartness alone. Otherwise, the Noticee cannot compete with big players in the market.

xiv. That, it is therefore not correct and legally sustainable to calculate duty on presumption based suppressed production and presume evasion of duty 6 APPEAL No. E/53049/2015-EX[DB] on a vague generalization of consumption norms, taken from a non-technical commercial executive in course of audit.

xv. That, the suppression of production and clandestine of removal of such goods requires clandestine procurement of raw material and unless and until cogent evidence is adduced for clandestine procurement of raw material, suppressed production from such clandestinely procured raw material & clandestine removal of so produced goods, the allegation of suppressed production and clandestine removal of such goods cannot sustain under law. xvi. That, therefore, the allegation of evasion of the duty demanded in the SCN is nothing but pure assumptions, which is not sustainable under law. xvii. That, the onus to prove the allegations leveled in the SCN is cast upon the department and the department. The department is duty bound to discharge onus cast upon it and adduce cogent and corroborative evidence to prove the allegations made in the SCN.

xviii. That, the department has failed to adduce even an iota of evidence to prove the clandestine removal of goods. The department has failed to adduce any evidence as to destination of clandestinely removed goods, the mode of transport of the allegedly clandestinely removed goods, the mode of payments received against such goods and the receiver of such goods.

xix. That, the department is bound to prove the allegations leveled in the SCN up to hilt by adducing cogent evidences to corroborate these allegations. Whereas, the department has not brought even single evidence on record to prove any of the allegations made in the show cause notice as regards suppression of production or clandestine removal of goods.

xx. That, in absence of any evidence whatsoever, the allegations regarding suppressed production or clandestine removal are baseless, unfounded and unsubstantiated.

xxi. That, the allegations are therefore just presumptions and the presumptions alone cannot form the basis for 8 APPEAL No. E/53049/2015-EX[DB] serious allegations like evasion of duty, clandestine removal and suppression of production. xxii. That, the degree of purity of raw material namely Sponge Iron, Mild Steel Scrap and Heavy Melting Scrap varies from source to source and supplier to supplier. The Sponge Iron can have variable iron content and variable impurities. Thus, per unit/per metric ton consumption of sponge iron can vary to a large extent, depending upon content of iron and percentage of impurities in the sponge iron. xxiii. Similarly, M.S. Scrap and H.M. Scrap have varying degree of iron content and corresponding degree of impurities like dust & rut and the low degree of iron content in these scraps also results in to low yield of finished iron ingots.

xxiv. That, if the Noticee get some sponge iron or scrap cheaper even if high in impurities on credit, they have to go for it and as a result, the recovery of output goes down.

xxv. That, the standard input to output formula can only be adopted by big manufacturers who adopt standard procedures and bank upon standard 9 APPEAL No. E/53049/2015-EX[DB] suppliers and/or standard inputs. Whereas, the standard input to output norms cannot be applied to the small furnace like that of the Noticee because they cannot maintain any standard regarding inputs like sponge iron and M. S. /H.S. Scraps and it depends more upon availability of funds to purchase inputs and the availability of inputs on credit basis. Therefore, for small furnace like that of the Noticee, no standard can be fixed for consumption of raw material per unit production of finished goods [input output ratio].

xxvi. Hence, the yardstick of input consumption like 900kg sponge iron for production of one MT steel ingots cannot be adopted for presuming suppression of production.

xxvii. That, the letter of the Accountant given to departmental auditors has no meaning under law because it was not supported by production staff or management, because the Accountant was not a technical person to declare input-output norms and lastly, under given conditions, no standard can be set for standard consumption of raw material for unit production of finished goods.

xxviii. That, there may be a date when the available grade of raw material may require 900kg sponge iron for production of one MT Steel Ingots but the next day, it may be 975kg or 1000Kg sponge iron and lesser quantity of Scrap. Hence, the only evidence namely letter of Accountant that has been made sole basis cannot be made a basis for clandestine production or removal of goods.

xxix. That, the language, handwriting and content of the said letter speak for itself that it was a non-serious and unapproved step.

xxx. That, therefore, the demand of duty is not justified and the allegations regarding clandestine manufacture & removal of goods is not sustainable under law and the same deserves to be dropped summarily.

xxxi. That, the Noticee have not contravened any provision of law as alleged in the SCN and hence are not liable for any penalty. They placed reliance on the ratio of following cases:

 Chandan Tobacco Co. vs. CCE, Vapi 2011 (270) E.L.T. 87 (Tri.-Ahmd.).

 Ravi Foods P. Ltd. vs. CCE, Hyderabad, 2011 (266) E.L.T. 399 (Tri.-Bang.).

 Amar Ceramics Ltd. vs. CCE, Rajkot, 2007 (213) E.L.T. 64 (Tri.-Ahmd.).

 CCE, Allahabad vs. Mohd. Anis & Sons Biri Workers, 2009 (246) E.L.T. 276 (Tri.-Delhi). xxxii. That, the actual data for consumption do not support department's theory.

xxxiii. That the total production of finished goods [Steel Ingots] and total consumption of raw material [Sponge Iron & Scraps] was audited by the statutory auditors and the same forms part of the Tax Audit Report [3CD]/Balance Sheets filed with the department of Income Tax. This duly audited and declared consumption of raw material does not support the input-output norms as alleged in the SCN. These figures were duly declared in the E. R. -5 [Input consumption Annually], E.R.-6 [Input consumption Monthly] and E.R.-1 Returns [monthly production of Ingots].

xxxiv. That, the department was thus informed of the consumption pattern and data as well as 12 APPEAL No. E/53049/2015-EX[DB] production per month and it silently acquiesced and never objected to the consumption and production norms. Now, it cannot invoke extended period of limitation because nothing ws suppressed or mis-declared and the department always had the knowledge. The department cannot now feign ignorance and invoke extended period of limitation and therefore the demand is time barred.

xxxv. That, the duly audited and declared data for the year 2009-2010, as given hereunder, does not support the basis that has been taken in the SCN as evident from the following:

Description of Raw Consumption during Production of Consumption Material 2009-10 [MT] Finished of raw material Goods MS per MT of Ingots [MT] Ingots Sponge Iron + 23616.800 + 15.200 975.96 Kg Sponge NDP = 23632 Silico Magnese & 144.096 + 2.055 = 24214.32 6 Kg Ferro Silicon 146.151 Pig Iron 200.860 8.29 Kg Total Mineral 23979.011 990.28 Content MS Scrap (DP) 1508.800 62.31 Kg MS Scrap (NDP) 506.520 20.91 Kg HMS (imported) 2126.890 87.84 Kg Remelting 383.140 15.82 Kg Runners/Risers Total scrap conent 4525.350 186.89 Kgs Total 28504.361 1177.17 Kgs 13 APPEAL No. E/53049/2015-EX[DB] xxxvi. That, therefore, during the year 2009-2010, the ratio of consumption emerges to be as under:

Sponge Iron: 990.28 Kg per MT of MS Ingots. Scraps : 186.89 Kg per MT of MS Ingots. xxxvii. That, the similar ratios would emerge if they analyse the data for the year 2010-11 also. xxxviii. Thus, the ratio of 900 Kg Sponge Iron per MT of M.S. Ingots, as made basis for allegations in the SCN, is proved to be incorrect, on the basis of actual data duly audited and declared. xxxix. They enclosed E.R.-5 Returns and reply to audit observation. That, accordingly, the demand is liable to be dropped and SCN is liable to be quashed."

5. As against the above reasoning of the Adjudicating Authority, Revenue in their memo of appeal have again reiterated their stand that input output ratio, which were primarily based upon the statement of the assessee's employee should be adopted for arriving at the quantum of manufacture of final product. However, we notice that the charges of clandestine removal are required to be proved not on the basis of input output ratio, which 14 APPEAL No. E/53049/2015-EX[DB] fluctuates depending upon number of factors like grade and purity of sponge iron, grade and purity of scrap, the metallurgical process adopted for production, the power supply conditions etc. For upholding the charge of clandestine removal, the onus to prove the same lies heavily on the Revenue and is required to be discharged by production of positive, tangible and cogent evidences. The same are admittedly absent in the present case and the entire case of the Revenue is on the basis of input output ratio, which cannot be appreciated. Accordingly, we find no justifiable reasons for interfering in the impugned order of Commissioner, as no infirmity is found in the view taken by him. Revenue's appeal is accordingly rejected.

                       (Pronounced in Court)




        Sd/-                                            Sd/-
(Anil G. Shakkarwar)                            (Archana Wadhwa)
Member (Technical)                             Member (Judicial)

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