Custom, Excise & Service Tax Tribunal
M/S Kotdwar Steels Limited vs Cce, Meerut-I on 27 September, 2016
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL, West Block No.2, R. K. Puram, New Delhi. Date of hearing: 14.09.2016 Pronouncement on: 27.09. 2016 Excise Appeal Nos. 115, 116, 117 of 2007 (Arising out of order-in-original No. 91-98/Commr/Meerut-I/2006 dated 29.09.2006 passed by the Commissioner of Central Excise, Meerut-I). M/s Kotdwar Steels Limited Appellant Sanjeev Jindal, Director Sanjeev Gupta, Director AND Excise Appeal Nos. 772 - 773 of 2012, (Arising out of order-in-original No. 33-38/Commr/MRT-I/2011 dated 27.12.2011 passed by the Commissioner of Central Excise, Meerut-I). M/s Kotdwar Steels Limited Appellant Sanjeev Gupta AND Excise Appeal Nos. 58006 to 58010 of 2013 (Arising out of order-in-original No. 13-14/Commr/MRT-I/2013 dated 28.02.2013 passed by the Commissioner of Central Excise, Meerut-I). M/s Kotdwar Steels Limited Appellant Rajeev Agarwal Dinesh Chandra Joshi Sanjeev Gupta Brijmohan Agarwal Vs. CCE, Meerut-I Respondent
Appearance:
Sh. Amit Jain, Advocate for the appellant Sh. Amresh Jain, AR for the Respondent.
Coram:
Honble Justice (Dr.) Satish Chandra, President Honble Shri B. Ravichandran, Member (Technical) Final Order Nos. 53777 53786/ 2016 Per: B. Ravichandran:
These are ten appeals involving the same issue and the same appellant for different periods and hence all are taken up together for decision. The brief facts of the case are that the main appellant (M/s Kotdwar Steels Limited) are engaged in the manufacture of M.S. Ingots liable to Central Excise duty. The unit of the main appellant is located at Jashodharpur Industrial Area, Kotdwar, Uttarakhand. The main appellant claimed exemption under Notification No. 50/2003-CE dated 10.06.2003 on the ground that w.e.f. 07.08.2003, they have been clearing the goods after 25% enhancement of production capacity. The appellants submitted various documents like certificate of Chartered Engineer, Capacity Certificate by the General Manager, DIC Kotdwar, details of procurement of capital goods etc. in support of their claim. The Revenue by entertaining a view that the appellant did not make additional installation of machines and have not made expansion on such a scale and on such a nature, initiated proceedings to deny the exemption claimed by the appellant. Periodical show cause notices were issued to demand duty on denial of such exemption. Eight such notices covering period from 07.08.2003 to December, 2005 were issued. These were decided by the first impugned order dated 29.09.2006. Thereafter, three more such proceedings were completed against the appellant. The original authority continued to deny the claim for exemption and confirmed the demands against the appellant. Various penalties were also imposed on the appellants. These appeals were all directed against such orders, confirming duty demands and imposing penalties on the unit and on various individuals.
2. We have heard the ld. Counsel representing the appellants and the ld. AR for Revenue. We have also perused the appeal records including written submissions. The allegations against the main appellant which resulted in the above impugned orders were as below:
(i) That as stipulated in the Boards Circular No. 772/5/2004-CE dated 21.01.2004, they had not installed additional machinery furnace and they claimed to have upgraded the capacity of said furnace by adding certain electric parts.
(ii) That as per the definition given by the Honble Tribunal in the case of M/s Travancore Titanium Product vs. CC the substantial expansion claimed by the party is not on such a scale and such a nature as would be comparable to the new unit.
(iii) That the party have not bought any brought certain items (as per para 1.5 above) in the factory but they have attempted to prove its import to their factory through Trade Tax Forms No. 31 which were not found entered in the statutory records of Trade Tax Check Post.
(iv) That the party neither enhanced its electrical power load nor they upgraded the same by installing any transformer.
(v) In addition to above, discrepancies in the certificate issued by the Chartered Enginner, General Manger of DIC, Kotdwar have been pointed out.
3. The original authority held that Notification No. 50/2003-CE requires increase in installed capacity by not less than 25% and no other definition given by other statute can be made applicable to the said Notification. It was also noted that even the Board Circular dated 21.01.2004 makes it clear that it is the increase in installed capacity of the unit that is to be considered as relevant.
4. The original authority after examining the submissions made by the appellant and the documents submitted by them held that the appellants have not fulfilled the condition of Notification No. 50/2003-CE and their claim cannot be accepted. Accordingly, duty demand was confirmed and equal amount of penalty was imposed. Further, penalties were imposed on the individuals who are Directors in the company.
5. We have examined carefully the impugned order dated 29.09.2006 and noted the various grounds on which the conclusion for denial of exemption was arrived at. It is pertinent to record the appellants point wise counter on these grounds so that the fact can be examined in correct perspective. In the written submission the appellants gave point wise counter to the findings of the original authority on various facts:
Sl.
No. Findings in the impugned orders Rebuttals of the Appellant 1 Para 4.4 Chartered Engineers certifiate dated 26.4.2004 noted that he visited the factory on 26.4.2004. How he could check the capacity as on 2.8.2003 as MTs, viz. before expansion?
There is no basis of ascertaining the unit capacity mentioned in the certificate.
* The said Chartered Engineer also visited the appellants factory on 16.05.2003, before the substantial expansion was undertaken, and gave a certificate to the effect that the capacity of the unit was 4 MTs. This certificate was produced before the ld. Commissioner, as acknowledged in para 3.3(i) of the OIO dated 29.9.2006, however, the ld. Commissioner doubts the same without any valid reason and without producing any evidence to contradict the same.
* The certificate along with its Annexures is self-explanatory. It is based on the visit to factory and practical observations done by the Chartered Engineer on site.2
Para 4.3- The certificate dated 16.2.2004 issued by the GM, DIC is on the basis of certificates of the Chartered Engineer and the Chartered Accountant. The pre and post expanded capacity has not been verified by DIC. It is incomprehensible as to how the certificate dated 16.2.2004 issued by DIC could rely upon the Chartered Engineers certificate dated 26.4.2004.
* The certificate issued by the GM, DIC on 16.2.2004 relied upon the Chartered Engineers certificate issued on 16.5.2003, as referred above and not on the certificate dated 26.4.2004.
* The certificate issued by the Government department cannot be doubted in this manner. If the adjudicating authority had such doubts, proper recourse was to undertake investigation and response from DIC (as is stipulated in the letter dated 20.11.2007 of the Commissioner of Central Excise, Chandigarh also). Having not done the same, the ld. Commissioner could not act to the prejudice of the Appellant, only by expressing doubt over the genuinety of the documents produced by the appellants, without any supporting evidence. It is settled law that suspicion, howsoever strong, cannot take the place of evidence.3
Para 4.5- Invoices issued by M/s Electrotherm to the appellant are doubtful on account of the following:
* The furnace has been upgraded twice for increasing capacity. Since volumetric expansion is necessary, it is incomprehensible that the same change can be done twice in the furnace originally of 3 MTs.
* Invoice dated 12.2.2002 establishes that the capacity of furnace was 3 MTs on 12.2.2002 and not the capacity as on 2.8.2003.
* Invoice dated 24.7.2003 for the present substantial expansion is handwritten whereas that dated 12.2.2002 was typed.
* Cost of expansion from 3 to MT was Rs. 14.25 lakhs whereas the cost of expansion for 4 to 5 MT is only 8 lakhs.
* The original invoice dated 24.7.2003 was not produced.
* This observations is not based on any technical literature but merely on assumption of the ld. Commissioner. The appellant has provided adequate third party evidences to the effect that the substantial expansion took place on 03.08.2003. Thus, this finding is legally untenable, being based on no evidence.
Once the capacity is 3 MT on 12.2.2002 and thereafter w.e.f. 3.8.2003 upon expansion become 5.2 MT, it is an obvious conclusion that it was 4 MT only on 2.8.2003. In any case, the same is also certified by the Chartered Engineer as per the Certificate dated 16.5.2003.
This observations is also based only on conjectures and surmises, without any supporting evidence. If there was any doubt, the ld. Commissioner ought to have caused inquiry/ investigation to ascertain the actual capacity of the furnace post expansion. Having not done that, the appellant cannot be proceeded against, only on the basis of suspicion. It is settled law that mere suspicion cannot take the place of evidence. In fact on inquiry done by the Department directly, M/s Eletrotherm (India) Ltd., who had executed the work of upgradation, had confirmed vide their letter dated 14.5.2004 addressed to the ld. Deputy Commissioner having carried out the upgradation of the furnace (page 333). This letter has been acknowledged at para 3.2 (iii) of the OIO, but the same has neither been considered not has any reason been given by the ld. Commissioner for disregarding the same.
This is again a wishful thinking and comparison on the part of the ld. Commissioner, without any legal basis. Furthermore, the first expansion from 3 MT to 4 MT had two crucibles, whereas the second expansion had only 1 crucible initially in July 2003. The second crucible at a cost of Rs. 11.94 lakhs was added subsequently (page 425 in Appeal No. E/772/2012).
The original invoice was never asked for during the proceedings. Had it been asked, the appellant had no problem providing the same. The same is still available with the appellant and can be produced, whenever asked for.4
Para 4.8 & 4.9- The sanctioned load of 2800 KVA for electricity connection of the appellant was not sufficient for 5 MT capacity of the furnace. As per the rules of Uttaranchal Power Corporation Ltd. minimum load for 1 tonne furnace should not be less than 600 KVa.
It was submitted before the ld. Commissioner, as recorded in para 3.1 (viii) that the electricity load was sufficient for 5 MT capacity furnace and no evidence to contradict the claim of the appellant has been produced by the Department. Further, the regulations provide for load for 1 MT furnace and not for 5 MT, therefore, the same has no relevance to the present case of the appellant.
2800 KVA is sufficient for upto 6 MT furnace, as evident from quotation of Electrotherm.5
Para 4.6- Power factor unit and CI rough castings purchased under trade tax Form 31, Nos. 345310 and 345699 were not entered in the check post at Kotdwar. The stamp on these Form 321 is different from the stamp on Form 31 with No. 345705 for furnace.
Not all goods are scrutinized and entered at check posts. The appellant does not have any control on the stamps used on different days at the check posts and also cannot be held responsible for improper maintenance of records at the check post. If the Department had any doubt about the claim made by the appellant they could have easily got the furnace capacity verified, which has not been done. Rather, Mr. D. K. Jain, the Chartered Engineer engaged by the Department, when he appeared before the Honble Tribunal at the time of hearing of the stay application, categorically confirmed that the revised capacity of the furnace is 5.8 MT, based on which the Honble Tribunal prima facie concluded that the capacity expansion has taken place.6
Para 4.6- Chartered Engineer in his certificate has certified that power factor unit modified whereas Mr. Sanjeev Jindal stated power factory unit purchased. This inconsistency leads to the conclusion that power factor unit was not purchased.
The Chartered Engineers certificate also mentions the name of the supplier and value for purchase of the power factor unit. The invoice of M/s Inducto Engineers & Traders for purchase of the power factor unit is available at page 347 and payment for the same was made through banking channels. In his certificate, by modification, the Chartered Engineer meant the alteration or change and not that the existing power factor unit was only modified. The certificate should be read holistically with facts/ documentary evidence.7
Para 4.9 Production has increased to 1378 MT per month, which is abnormal and not commensurate with the expansion claimed.
This conclusion again is only on the basis of suspicion, without any legal basis and without any technical evidence.
Without prejudice to the above, it is submitted that at 4 MT, with heat taking 3 hrs. On 24 hour working, 8 heats are possible. In a day 32 MTs would be produced, which leads to 960 MT in a month, against the production of around 803 MT a month, recorded prior to expansion.
Subsequently, with 5 MT capacity, and heat time of 2.5 hours, it works out to 9.6 heats in a day, which works out to 48 MTs in a day. This translates to 1440 MTs a month, against the production of 1378 recorded. Thus, there is nothing abnormal.8
Para 4.9- The consumption of electricity which was 1578 units per MT has come down to 1068 units per MT, which is again not possible.
This finding again is based only on a suspicion, without any legal or factual basis and it reflects improper understanding of the ld. Commissioner regarding the technical aspects of power consumption in the furnaces.
In perfect situations, like perfect scrap with no impurity, 521 KW per MT of electricity consumption is there. But practically, this figure is not achievable.
The energy efficiency upon expansion was possible on account of various upgrades in the machinery, like installing additional converters, changes in DC Choke, capacitor bank etc. 9 Para 4.1- Installed capacity before/ after expansion was same but party was not recording the total production earlier and as soon as the exemption notification came into existence they started recording the full quantity produced.
This finding again is without any legal or factual basis. It is surprising that despite hinting at the possibility of excess production earlier, which obviously means that those goods were clandestinely cleared by the appellant without payment of duty, the ld. Commissioner has taken no action for getting the case investigated for establishing the allegation. This itself establishes the hollowness of the said finding.9
Para 6.23 (in Appeal No. E/772/2012) the certified by Sh. D. K. Jain cannot be brushed aside merely on account of observations of the Honble CESTAT in the stay order dated 29.03.2007, inasmuch as the appeal is still pending for disposal.
The appellant never contested the certificate of Sh. D. K. Jain on the basis of the observations of the stay order dated 29.03.2007 passed by the Honble CESTAT.
The appellant contested the same on the ground that Sh. D. K. Jain having never visited the factory or verified the machinery, his certificate only discrediting the certificate of other Chartered Engineer and he having made a categorical admission before the Honble Tribunal that the revised production capacity is 5.8 MT, proves that the expansion has in fact taken place.
6. To begin with having perused the chronology of events, we note that the appellants filed their first letter on 03.07.2003 within one month of issue of Notification No. 50/2003-CE dated 10.06.2003, requesting the officer to visit and to ascertain the installed capacity, investment in machinery etc. Again on 04.07.2003, the appellants intimated the jurisdictional Superintendent regarding beginning of expansion of installed capacity in their unit and requesting for exemption. On 03.08.2003 intimation was given to the jurisdictional Superintendent regarding commencement of trial production after undertaking expansion of the installed capacity by 25%. The same day the jurisdictional Deputy Commissioner directed the appellants to submit documentary proof with regard to installed capacity of the machinery and capital investment prior to and after 07.01.2003. The details were submitted on 11.08.2003 and subsequently on different occasions.
7. The above background is recorded to indicate that the appellants are in regular communication with the department regarding their claim for exemption under the said Notification. As could be seen from the findings of the original authority, various doubts and suspicion have been raised against some of the documents and certificate submitted by the appellant. We note that the appellants have explained their position vis-a-vis these doubts. In fact, the case for denial of exemption was mainly sought to be supported on the ground of
(a) Certain items said to have been used in the capacity expansion have not crossed the Trade Tax Check Post as stamps on the documents appeared to be different.
(b) There is no enhanced power load and no transformer added and
(c) The certificate issued by Chartered Engineer and General Manager, DIC were having discrepancy and were issued without due scientific verification of machinery in the appellants unit.
We find that regarding certain items passing the check post the doubts raised by department could have been easily cross verified both by way of checking with the concerned authorities or by physically verifying the availability of such instrument in the appellants premises. We do not find any such examination by the department.
8. Regarding the discrepancies in the Chartered Engineer certificate and the confirmation of capacity by the General Manger, DIC we find that the same are given as per the request of the appellants based on materials produced. The appellant did categorically claimed that the Chartered Engineer verified physically before issuing certificate. Here we note that the department did approach another Chartered Engineer to verify the facts and to get the matter certified. We note that Shri D. K. Jain, Chartered Engineer whose assistance was taken by the Revenue and whose opinion was also relied upon appeared before the Tribunal at the time of hearing of stay petition filed by the appellant on 29.03.2007. The Tribunal recorded that Shri Jain is present in the Court to be of assistance in understanding the issue. Shri Jain has stated based on the formula relating to capacity production with the revised capacity is 5.8 MT. thus, clearly capacity expansion has taken place. The capacity expansion also remains certified by the General Manager of District Industries Centre. Considering the above recordings by the Tribunal we find no reliance can be made on the earlier opinion of the same Chartered Engineer.
9. One more indication of expansion in capacity was sought to be emphasised by the appellant with reference to increased production and clearance subsequent to the expansion. We note that in para 4.9 of the order dated 29.09.2006, the original authority raised certain doubts which apparently is on theoretical calculation and certain presumption. No technical verification by competent person was ever made by the department in support of any of the presumption raised in the original order. In fact, the original authority records that the abnormal increase in production and decrease in PMT consumption of electricity establish that the appellant before issue of exemption notification were producing more goods but were not recording in the production. We find such observation is purely in the realm of presumption and cannot form basis of any legal conclusion. Similar such presumptions adverse to the appellants have been made by the original authority. As already noted, all these suspicion and doubts could have easily been verified during the relevant period itself so that the facts relevant to the case could be satisfactorily cross verified and admitted. Having not done so during the relevant time it is not open to the Revenue to deny exemption on such presumption and doubts. No verification of such facts relevant to 2006 could be made after ten years now.
10. We have perused the various documentary evidences submitted by the appellant. The fact that emerges is that the appellant originally had capacity of 3 MT which was increased to 4 MT in the second stage of upgradation and overhauling. The appellants claimed to have changed the rating of solid state generator from 2000 KW to 2500 KW various other changes were made to increase the cooling of the assess generator. The furnace crucible capacity was increased 4 MT to 5 MT. The changes were carried out only in one crucible. These things have been explained by M/s Electrotherm (India) Limited who carried out the said upgradation work. The department did make reference to M/s Electrotherm, who confirmed the said expansion and supplied the supporting invoice for the same. The Chartered Engineer appointed by the department appeared before the Tribunal who confirmed that the revised capacity of the appellant as 5.8 MT.
11. Upon perusal of the documents relating to procurement of various capital as well as electrical items, labour charges paid and other related documents we find that the appellants claim of expanded capacity cannot be rejected. The proceedings by the department and the impugned orders heavily relied on certain suspicion and doubts raised against the claims by the appellant without due counter verification to categorically establish the correct expanded capacity by the Revenue.
12. In view of the above discussions and findings, we find that the impugned orders cannot be legally sustained. Accordingly, we set-aside the same and allow the appeals (Pronounced on 27.09.2016).
(Justice (Dr.) Satish Chandra) President (B. Ravichandran) Member (Technical) Pant