Custom, Excise & Service Tax Tribunal
Cce, Indore vs M/S Magnum Steels Limited on 17 October, 2016
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No.2, R. K. Puram, New Delhi. Date of hearing: 04.10.2016 Pronouncement on: 17.10.2016 Excise Appeal No. 3004 to 3012 of 2005 (Arising out of order-in-original No. 50/Commr/CEX/IND/2004 dated 06.07.2004 passed by the Commissioner, Customs & Central Excise, Indore). CCE, Indore Appellant Vs. M/s Magnum Steels Limited Respondent
M/s B.R. Associates Pvt. Ltd.
M/s I.R.S. Industries Pvt. Ltd.
I. C. Jindal, Director R. C. Sharma Ashok Maheshwari Virbhuti Gupta Arvind Agrawal Ajay Bhardwaj, Director Appearance:
Sh. R. K. Manjhi, AR for the Revenue Sh. A. K. Prasad & Ms. Surbhi Sinha, Advocates for the Respondent - assessee Coram: Honble Justice (Dr.) Satish Chandra, President Honble Shri B. Ravichandran, Member (Technical) Final Order Nos. 54089 54097/2016 Per: B. Ravichandran:
These bunch of appeals directed against order dated 15.07.2004 of Commissioner of Central Excise, Indore are filed by the Revenue. The brief facts of the case are that based on intelligence to the effect that certain units of the Magnum Group were not discharging Central Excise duty by resorting to clandestine removal of excise goods, investigations were started by the department in April, 1999. On completion of the investigation a show cause notice dated 20.04.2000 was issued to three main manufacturing assessees to demand Central Excise duties and to impose penalties. The case was adjudicated and the Commissioner vide the impugned order dropped all proceedings against all the noticees. The conclusion of the original authority is as below:
In view of the above discussions, it is clear that concerning none of the noticees, it has been proved that they had received excess raw material. No evidence exists proving clandestine production and clearances of finished goods. The financial aspect concerning purchase of raw materials and sale of finished goods did not find a place in the scheme of investigations. No financial transaction of any sort has been established among the Noticee No. 1, 2 and 3. The entire case hungs on a single sheet of paper whose authenticity itself has been challenged by the Noticees. The average consumption of electricity for a few days has been challenged by the Noticees. The average consumption of electricity for a few days has been extrapolated and applied to a considerable larger period of time. No norm was fixed under Rule 173E but an air has been made about this. Only a part of the documents/ statements have been relied upon which is against the established principles of law. All these infirmities leave me with no option but to hold that the charges of clandestine manufacture and clearances do not survive against any of the notices. So ordered.
2. The Revenue is aggrieved by the above finding. The main grounds of Revenues appeal are summarised as below:
(I) CASE AGAINST M/S B. R. ASSOCIATES PVT. LIMITED:
(a) The document recovered from Sh. R. C. Sharma, Manager clearly indicated that during the period from 01.04.1999 to 27.04.1999 M/s B. R. Associates Pvt. Limited and M/s I. R. Industries Pvt. Limited were producing much more than what is recorded in the RG-I register.
(b) There are cases of electricity theft booked by MPSEB against these units on 01.10.1999. This supports the department claim for suppression of production.
(c) The duty calculation was made based on electricity consumption based on production of private records maintained by Sh. R. C. Sharma from 01.04.1999 to 24.04.1999. The detailed production was accordingly fixed and duty demand for the impugned period was calculated.
(II) CASE AGAINST M/S I. R. INDUSTRIES PVT. LIMITED:
(a) The private record maintained by Sh. R.C. Sharma shown datewise shiftwise production for the period 01.04.199 to 27.04.1999. The unit is using generator for power generation. The average production was arrived at based on the capacity of the furnace and diesel consumption during the period 01.04.1999 to 27.04.1999. The total production was accordingly arrived at for all period.
(III) CASE AGAINST M/S MAGNUM STEEL LIMITED:
(a) The allegation of non-payment of duty was supported on the basis of the fact that the entire production of alloy steel ingots by the above two units were received by this unit and accordingly there was unrecorded excess production by M/s Magnum Steel Limited.
(b) The completion of ingots into flat was calculated at the ratio of 90% and the total duty demand was arrived at based on clandestinely received ingots from the above two units who manufactured and clandestinely cleared these ingots.
(c) The diary maintained by Sh. Arvind Agarwal, Authorised Signatory shows unaccounted clearances of 470 MT of bars and rods during 07.04.1999 to 26.04.1999.
(d) Various enquiries conducted with buyers, transporters corroborated the case of Revenue to demand duty on unaccounted production and clearance.
3. It was the contention of the Revenue that the original authority did not examine and appreciate the various evidences collected and recorded in the show cause notice in correct prospective. The contention of the original authority that the demand was sought to be confirmed in terms of Rule 173E is not correct. The determination of duty as proposed in the show cause notice was based on evidences collected and not based on Rule 173E.
4. We have heard ld. AR for the Revenue and ld. Counsel for the respondent-assessees. We have also perused appeal records including written submissions made by Revenue as well as by the respondent. The case of the department is mainly based on a handwritten chart recovered from Sh. R.C. Sharma who was present in the factory premises of M/s B. R. Associates Pvt. Limited on 28.04.1999. The production figures mentioned in the chart was considered as true in respect of two manufacturing units - M/s B. R. Associates Pvt. Limited and M/s I.R.S. Industries Pvt. Limited. The calculation of duty demand was mainly projected from this basis by adopting the norms as per Rule 173E. Based on such calculation the case of clandestine manufacture and clearance of alloys and non-alloy steel ingots was made against these two units. As all the production of these two units were sold to M/s Magnum Steel Limited, the case against M/s Magnum Steels Limited was made for unaccounted manufacture and clearance of items made out of such inputs received from these two units.
5. In the written submissions made by the respondents each one of the grounds of appeal have been contested and comments given by the respondent.
6. We have carefully perused the grounds of appeal and the findings of the original authority. The main basis of the proceedings against the respondents is certain chart prepared by Sh. R.C. Sharma containing details for 27 days. The demand against the two respondents related to the period 01.04.1995 to 30.09.1999 covering 4= years against the third respondent for 20.11.1997 to 30.9.2019. Details in the chart formed basis for projecting clandestine manufacture and clearance for the impugned period. The original authority examined the chart in detail. It is seen that there were serious inconsistencies in the entries as well as the purported meter reading for electricity. The meter reading as on 27.04.1999 was shown higher than the meter reading later given by the electricity department in their monthly bill as on 30.04.2016. Further, we also note that the actual status of Sh. R.C. Sharma has not been brought out by the department. The respondents have produced evidence that he is not on employment with them during the material time. Further, even in the chart the figures were selectively taken in respect of different respondents without assigning any reason.
7. Regarding invoking provisions of Rule 173E to quantify duty demand from two of the respondents, we note that the Revenue in appeal contended that wrong mentioning of rules will not vitiate the proceedings. Further, reference to Rule 173E has been made only for the limited purpose of quantification of duty evaded by the party by adopting reasonable and pragmatic means.. We find that it is not a simple case of wrong mentioning of rule. In para 16.3 of the show cause notice the basis of calculating the quantum of duty was mentioned as provisions of Rule 173E. Even if it is considered that Rule 173E was referred to only for the calculation purpose for arriving at the duty demand, we note that various parameters are to be considered to fix the norm. Parameters like installed capacity of the factory, raw material utilisation, labour employed, power consumption and other relevant factors are to be considered. In the present case as pointed out by the original authority consumption of electricity has been made as a sole basis for ascertaining normal production and there is no investigation on the other aspects relevant to the production of excisable goods, even this parameter of electricity consumption has not been examined and applied completely. Here it is relevant to note that during the argument both sides were asked about the status of cases, if any, pending against the respondent regarding electricity theft as the said allegation was mentioned by the Revenue in their submission. Both sides were not in a position to give any satisfactory factual information on this aspect. Ld. Counsel for the respondent informed that the cases are pending in the Honble High Court of Madhya Pradesh. No further details are available with both the sides. Hence, we are not able to form any opinion regarding corroboration of possible higher usage of electricity illicitly by the respondent.
8. We find the observation of the original authority on the Revenues case is relevant:
50. In the present case, there does not exist any direct evidence of clandestine removals. Here electricity consumption alone has been used to work out the probable production and that two for only 24/27 days. There is nothing to indicate as to how the average production derived could be taken as the standard production and was not a one time achievement. The excess production has not been established in the case. Here it is worthwhile to mention that for working out the demand, only 24/27 days of production written on a piece of paper recovered from a person who has been disowned by the noticee No. 2 & 3, can not be taken as a proof. As regards, the electricity consumption it depends upon the line losses, efficiency of panels etc. Moreover, at the most, if one month consumption was to be taken, this could have been somewhere during the middle of the period. Also, with the passage of time the efficiency of electrical/ mechanical instruments tend to decline about which no mention has been made.
9. The original authority proceeded to examine various case laws on this aspect more specifically regarding demand based on electricity consumption and concluded that production based on estimation basis without any corroboration cannot be the basis for duty demand. In the present case, the purported production as per the private records for the period of 27 days in April 1999 was projected for demand period of 4= years in respect of two respondents and for about two years in respect of the third respondent. Such extrapolation of small base data (even if such data is considered authentic) is not legally sustainable.
10. Regarding installed production capacity of M/s B. R. Associates Pvt. Limited and M/s I.R.S. Industries Pvt. Limited, the factual dispute has been examined by the original authority in respect of M/s B. R. Associates Pvt. Limited. The furnace crucial itself is only 2.5 MT whereas the projected production for duty demand was fixed at 2.77 MT per cycle. Similarly, in respect of M/s I.R.S. Industries Pvt. Limited the statement of Sh. S. R. Roy who explained the production cycle has not been relied upon by the revenue. The original authority recorded that if the deposition by Sh. S.R. Roy is considered the projected production of M/s I.R.S. Industries Pvt. Limited which was basis for the demand by Revenue is not sustainable.
11. We note that the demand against M/s Magnum Steels Limited was mainly based on the allegation that the other two manufacturers respondents have clandestinely manufactured ingots which were received by M/s Magnum Steels Limited for clandestine manufacture and clearance of their final product. We note that when the case of manufacturer suppliers of ingots itself has not been supported with adequate evidence further demand based on such purported excess production of raw material cannot stand. Further, we also note that average consumption of electricity was worked out in respect of M/s Magnum Steels Limited based on the consumption of particular period. The respondents contended that if average has to be worked out of the consumption the data should be taken for the entire year. In that case the average consumption will get altered and the calculation of alleged excess production will not be sustainable. Similarly, while calculating the production in which re-rolled products have been taken into consideration without taking into account of second quality goods, waste, burning loss etc. The original authority also commented upon the lack of evidence regarding purchase of furnace oil, which is a controlled commodity, during the impugned period. The original authority also examined large number of decided cases before concluding that the evidence available in the case cannot establish the purported unaccounted production of excisable goods by these three manufacturing assessee.
12. On careful consideration of the grounds of appeal and the impugned order, we find that the demand of duty of such substantial nature cannot be sustained on piecemeal evidence which are uncorroborated. The case of the Revenue has serious infirmities both in law and in fact. Even considering the general principle that in the case of clandestine removal cannot be established by precise and mathematical corroborative evidence, the minimum legal requirement is a preponderance of probability atleast to sustain the allegation. On careful analysis, we find that the case of Revenue against the assessee is full of presumptions and projection with unexplained gaps in analysis of facts which are too many too gloss over. We find that to arrive at a contrary conclusion other than the one arrived by original authority we are not presented with sufficient supportive evidence in the appeals by the Revenue. Accordingly, the appeals are dismissed.
(Pronounced on 17.10.2016).
(Justice (Dr.) Satish Chandra)
President
(B. Ravichandran)
Member (Technical)
Pant