Custom, Excise & Service Tax Tribunal
M/S. Agrawal Round Rolling Mills Ltd vs C.C.E. & S.T. Raipur on 26 May, 2014
IN THE CUSTOMS, EXCISE AND SERVICE TAX
APPELLATE TRIBUNAL, NEW DELHI
PRINCIPAL BENCH,
Date of Hearing/decision: 26.05.2014
Stay Application No. E/Stay/57635, 57637/2013 in
Appeal No. E/57063, 57066/2013 - EX[DB]
[Arising out of Order-in-Original No. Commissioner/RPR/31/CE/ 2013, dt. 31.01.2013, passed by Commissioner of Customs & Central Excise- Raipur]
For approval and signature:
Honble Mr. Justice G.Raghuram, President
Honble Mr. Rakesh Kumar, 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. Agrawal Round Rolling Mills Ltd. Appellants
Mukesh Kumar Aggarwa Director
Vs.
C.C.E. & S.T. Raipur Respondent
Appearance:
Sh. Somesh Arora, Advocate - for the Appellants Sh. Pramod Kumar, Jt. CDR- for the Respondent CORAM:
Honble Mr. Justice G.Raghuram, President Hon'ble Sh. Rakesh Kumar Member (Technical) FINAL ORDER NO:52487-52488/2014 Per Rakesh Kumar:-
The facts leading to filing of these two appeals and stay application are, in brief, as under:-
1.1 M/s. Agrawal Round Rolling Mills Ltd., Raipur, Chhattisgarh (hereinafter referred to as Appellant Company) are engaged in the manufacture of Mild Steel Ingots (MS Ingots) and rolled products of iron and steel filling under Chapter 72 of the Central Excise Tariff. Sh. Mahesh Kumar Agrawal is the Director of the Appellant Company. The main raw-materials for manufacture of MS Ingots is Sponge Iron, Pig Iron, Steel Scrap and Ferro Alloys. Pig Iron is used for addition of carbon and its quantity is dependent upon whether the steel to be made is Mild Steel or high carbon steel. Ferro Alloys are added for manufacture of Alloy Steel and Stainless Steel. The period of dispute in this case is from Amy05 to Aug.06.
1.2 M/s. Monu Steel, Raipur, Chhattisgarh, a Proprietorship Concern of Sh. S.K.Pansari is a Commission Agent/Broker dealing in various Iron and Steel products viz- Sponge Iron, MS Ingots etc. Acting on an intelligence that Appellant Company along with other Iron Steel manufacturers was evading Central Excise duty by clandestine removal of MS Ingots through M/s. Monu Steel, Raipur, the Premises of M/s. Monu Steel were searched on 15.01.2007 and some incriminating records found were taken over. The statements of Sh. S.K.Pansari were recorded on 15.01.2007, 19.09.07, 21.09.07, 30.05.08 and 02.06.08 under section 14 of the Central Excise Act, 1944. Sh. Pansari in these statements while admitting that he is a Commission Agent dealing in various Iron Steel products including MS Ingots, stated that he is contacted by both the sides buyers as well as sellers, that he as broker procure sales orders for various Iron and Steel manufacturers including the Appellant Company for which he was getting commission, that though the sales orders were received over phone, he was making entries in respect of them in his diary which includes name of the buyer, name of the seller, bill number, bill amount etc., that documents recovered from his premises contained details regarding sales by various Iron and Steel manufacture including the Appellant Company through, him that abbreviation O means material sold without bill on which excise has not been paid and that the abbreviation R means Regular payment in 10 to 15 days. Scrutiny of the records recovered from M/s. Monu Steel indicated that during the period of dispute 685.44 MT of MS Ingots had been cleared and sold by the Appellant Company to various customers through M/s. Monu Steel without payment of duty and without issue of invoices. The Authenticity of records maintained by M/s. Monu Steel appeared to be backed by the fact that a number of entries in the records recovered from M/s. Monu Steel were tallying with the entries regarding sales as recorded in the record of the Appellant Company.
1.3 Since the records recovered from M/s. Monu Steel read with his statements indicated that the appellant were making clandestine clearances without payment of duty, further scrutiny of the records of the Appellant Company was conducted. It was found that there were two induction furnace of 6 MT capacity each were installed in the factory premises of the appellant company and as per the technical literature of the furnace manufacturer M/s. Inductotherm average power consumption per MT of MS Ingots produced was 830 units. However, while average power consumption during 2006-07 varied from 3305 units per MT for 1444 units per MT which appeared to be abnormal. Moreover there were vide fluctuations from to months in power consumption per MT of MS Ingots produced which indicated that the appellant were under reporting the production of MS Ingots. By taking average power consumption as 830 units per MT, it appeared that total production of MS Ingots during period from April05 to Aug.06 had been under reported by 21082 MT valued at Rs.32,62,82,135/- on which duty involved was Rs.5,32,49,247/-. Thus the Department was of the view that excise duty to this extent has been evaded by the appellant company during period from April06 to Aug.06.
1.4 Another raw-material for manufacture of Mild Steel ingots is Pig Iron which is added ad add Carbon. The Investigating Officers obtained an opinion from the Department of Metallurgy, National Institute of Technology, Raipur(C.G.) under their letter No.1388/Met. Engg./ Consultancy/2009 dt.06.08.2009 stating that the maximum proportion of Pig Iron should not be more than 8%. However, it was found that in the appellant unit use of Pig Iron was to the extent of 16%, which also indicated that the production of MS Ingots was being under reported.
1.5 The statement of Sh. Mahesh Aggarwal, Director of the Appellant Company was recorded in course of which he was questioned about the above discrepancy in the consumption of electricity per MT and consumption of Pig Iron but he could not give any satisfactory reply. 1.6 In view of the above investigation Show Cause Notice dt. 28.05.2010 issued to the appellant company and its Director Sh. Mahesh Aggarwal and Sh. Monu Steels for:-
(a) Demand of Central Excise duty amounting to Rs.5,32,49,247/- from the appellant company on alleged clandestine removal of 21082 MT of MS Ingots during period from May05 to Aug.06 along with interest thereon under section 11AB;
(b) Imposition of penalty under section 11AC on the Appellant Company; and (c ) Imposition of penalty under Rule 6 of the Central Excise Rule, 2002 on M/s. Monu Steel and Sh. Mahesh Kumar Aggarwal, Director of the Appellant Company;
1.5 The above Show Cause Notice was adjudicated by the Commissioner vide Order-in-Original dt. 08.02.13 by which he confirmed the above mentioned Central Excise duty demand along with interest and while imposed of penalty of equal amount on the Appellant Company under section 11AC, imposed penalty of Rs.1 Crore on Sh. Mukesh Kumar Aggarwal and penalty of Rs. 2 Lakh on M/s. Manu Sales under Rule 6 of the Central Excise Rule,2002.
1.6 Against this order of the Commissioner these two appeals have been filed by the Appellant Company and its Director Sh. Mahesh Kumar Aggarwal along with Stay Application.
2. Heard both the sides. Though the matter was listed only for the hearing of the stay applications, after hearing the same for sometime, the Bench was of the view that the matter can be taken up for final disposal as the same has to be remanded. Accordingly with the consent of both sides, the matter was heard for final disposal.
3. Sh. Somesh Arora, Advocate, the learned counsel for the appellant, pleaded that duty demand of Rs.5,32,49,247/- against the appellant on alleged clandestine removal of 21082 MT of MS Ingots during period from April05 to Aug.06 is based on the assumption, that for manufacture of one MT of MS Ingots, 830 Units of electricity in consumed and that the proportion of Pig Iron in the manufacture of MS Ingots cannot be more than 8%., that another evidence relied upon by the Department is the papers recovered from the premises of M/s. Monu Steel (Proprietorship Concern of Sh. S.K.Pansari), that the Appellant had sought cross examination of the person from National Institute of Technology, Raipur who had tendered the opinion regarding consumption of Pig Iron and also the cross examination of Sh. S.K.Pansari of M/s. Monu Steel but the cross examination of these persons has been dis-allowed, that there is no basis for adopting the figure of 830 units of electricity for manufacture of one MT of MS Ingots, as earlier, the appellants unit had been examined by the audit and the consumption of 1100 unit of electricity per MT has been accepted, that no experiment has been conducted in the appellants factory to determine the actual consumption of electricity for production of one MT on Mild Steel Ingots, that consumption of electricity depends upon various factors like power break down, power fluctuation, quality of scrap etc., that letter from Department of Metallurgy, National Institute of Technology, Raipur opining that consumption of Pig Iron in the manufacture of MS Steel Ingots cannot be more than 8% is merely an opinion and unless the cross examination of the person which has given this opinion is allowed and its correctness is ascertained by cross examination of that person, this opinion has no evidentiary value, that similarly, the author of documents recovered from the premises of M/s. Monu Steels has not been identified for which cross examination of Sh. S.K.Pansari was necessary, but the same has not been allowed, that the documents recovered from the premises of M/s. Monu Steel are third party documents which cannot be admitted as evidence without cross examination of the person from whom the documents have been recovered and the author of the documents, that cross examination of a witness whose statement has been relied upon is mandatory if the same has been requested and denied without any valid reason, it amounts to denial of natural justice, that in this regard he relies upon the judgment of Honble Allahabad High Court in the case of Parmarth Iron Ltd., reported in 2010(260) ELT-514(All.), that Honble Delhi High Court in the case of Slotco Steel Products Pvt. Ltd. Vs. CCE Delhi, reported in 2012(281) ELT-193 Delhi, relying upon its earlier judgment in the case of J&K Cigarette reported in 2011(22) STR-222(Del.) has held that in terms of the Provisions of Section 9D of the Central Excise Act, 1944, the Cross Examination of the persons whose statement has been relied upon by the Department cannot be refused unless the Adjudication Authority had after hearing the party given a findings to the effect that the presence of the witnesses cannot be obtained without undue delay or expense which the officer concerned considers un-reasonable, that in terms of the Provisions of Section 9D(2) the Adjudicating Authority before relying upon the statement of a witness against the assessee, has to ascertain its correctness by examining him and permitting his cross-examination, that in this regard he relies upon the judgment of Honble Allahabad High Court in the case of Govind Mills Ltd., reported in 2013(294) ELT-361(All.), that in view of the above the denial of cross-examination has resulted in violation of the principle of natural justice, that Adjudicating Officer in the impugned order (para 3.5.12 of the impugned order) has relied upon collateral evidence in form of Appellants transactions in commodity trading through National Commodity & Derivative Exchange Ltd., Mumbai, which on inquiry were alleged to be fictitious transactions and on this basis it has been alleged that the appellant had shown an income of Rs.7,84,93,467/- from commodity trading, which actually is the income from un-accounted manufacture and clandestine sale of the MS Ingots, that Commissioner in this regard has relied upon certain evidence which had not been disclosed in the Show Cause Notice, that as held by the Apex Court in the case of CCE Vs. Ballarpur Industries Ltd. reported in 2007(215)- ELT-498 (SC), Show Cause Notice is the foundation of a case and the Adjudication Authority cannot Notice travel beyond the allegation made in the Show Cause Notice and that in view of this the enquiry with National Commodity & Derivative Exchange Ltd., Mumbai cannot be used as evidence against the appellant. He, therefore, pleaded that the impugned order is not sustainable.
4. Sh. Pramod Kumar, learned Jt. CDR, defended the impugned order by reiterating the findings of the Commissioner and pleaded that the allegation of duty evasion against the appellant company is based on concrete evidence on record, that the power consumption of 830 unit per MT has been adopted on the basis of the technical literature of M/s. Inductotherm who are the manufactures of the induction furnace installed in the appellant factory, that no explanation has been given by the Appellant for vide fluctuation in power consumption per MT of MS Ingots which has varied from 3305 units per MT to 1444 per MT during April05 to Aug06 period, that the only explanation for such high power consumption is un-accounted, manufacture of MS Ingots cleared without payment of duty, that the fact of un-accounted manufacture and clearance of MS Ingots is also corroborated by the consumption of Pig Iron in the appellant factory which is 16% while in terms of the opinion given by the Department of Metallurgy, National Institute of Technology, Raipur, the same could not be more that 8% as higher quantum of use of Pig Iron would result in higher percentage of Carbon in the steel and the same would no longer remain Mild Steel, that the allegation of un-accounted manufacture clearances of MS Ingots is further corroborated by the records recovered from broker M/s. Monu Steel which indicate that 685.44 MT of MS Ingots sold through M/s. Monu Steel had been cleared without issue of invoices and without payment of duty, that authenticity of records of M/s. Monu Steel is clear from the fact that a number of entries in the same tally with entries regarding clearances on the official records of clearance maintained by the Appellant Company, that huge income shown by the appellant through Commodity trading, while the enquiry with the National Commodity & Derivative Exchange Ltd., Mumbai, showed that appellant company had not made any transactions is another evidence showing that the income from the un-accounted production and sale of steel Ingots was being shown an income from commodity trading, that in these circumstances, denial cross examination would not amount to violation of natural injustice and in this regard Commissioner has correctly relied upon the judgment of Apex Court in the case of Kanungo & Co. reported in 1983(13) ELT-1486(SC), that in the appellants factory, that there are two furnaces, each of 6 MT capacity and on the basis of declared production of MS Ingots their capacity utilization was 30% to 37% while such low capacity utilization is economically not viable, that in view of this, the Commissioners Order is based on concrete evidence on record and as such there was no violation of natural injustice. 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. The duty demand for the period from April05 to Aug.06 is in respect MS Ingots which are manufactured by the appellant. The raw-material for the MS Ingots is Sponge Iron, Pig Iron, Steel Scrap and Ferro Alloys. The MS Ingots are manufactured by using two induction furnaces each of 6 MT capacity manufactured by M/s. Inductotherm. The allegation of un-accounted manufacture and clandestine removal of 21082 MT MS Ingots during period of April05 to Aug.06 is based on the assumption that power consumption per MT of MS Ingots is 830 units of electricity which according to the Department, is based on Technical Literature of M/s. Inductotherm. The other supporting evidence relied upon by the Department is:-
(a) documents recovered from M/s. Monu Steels through whom 685 MT of MS Ingots had been sold by the Appellant Company and which are not recorded in the books of accounts being maintained by the Appellant Company;
(b) Statement of Sh. S.K.Pansari of M/s. Monu Steel admitting recovery of those documents also the fact that he was a broker for the appellant company and other manufacturer of Iron and Steel products and the entries with O were the entries in respect of which the goods had been sold without bills;
(c ) Opinion of National Institute of Technology, Raipur, Department of Metallurgy, under their letter dt. 06.08.09 wherein they have opined that proportion of Pig Iron in the manufacture of Mild Steel Ingots cannot be more than 8%;
(d) Enquiry with National Commodity & Derivative Exchange Ltd., Mumbai regarding the commodity trading transaction of the appellant company, from which the appellant company have shown the income of Rs.7,84,93,467/- during the year 2006-07 while the enquiry with Commodity & Derivative Exchange Ltd., showed that the transactions were bogus;
6. As regards the evidence in support of the allegation that the appellant company during 2006-007 had declared an income of Rs.7,84,93,467/- from commodity trading while inquiry with M/s. National Commodity & Derivative Exchange Ltd., Mumbai indicated that they had not made any such transaction and this indicated that the income of Rs.7,84,93,467/- during 2006-07 was actually from un-accounted manufacture and sale of steel products, it is seen that while in Para 3.5.12 of the impugned order, this allegation is mentioned as it referred to in Annexure-9 of the Show Cause Notice which are documents relating to the appellant companys Commodity trading transaction for the year 2006-07, the contention of the appellant company is that the enquiry with Sh. Sharad Joshi, Manager (Legal), M/s. National Commodity & Derivative Exchange Ltd., Mumbai, who has stated that the appellant company was not registered as a client with any member of the Exchange had not been disclosed in the Show Cause Notice. It is seen that contents of the letter dt. 30.09.08 Sh. Sharad Joshi referred to in Para 3.5.12 of the impugned order had not been disclosed in the Show Cause Notice and therefore the same cannot be relied upon in the Adjudication Proceedings, as in view of the judgment of Apex Court in the case of CCE Vs. Ballarpur Industries Ltd (Supra), if the Show Cause Notice did not make an allegation that the income from un-accounted manufacture and sale of MS Ingots was being shown as income from Commodity Trading, such an allegation cannot be made the basis for confirming duty demand in the Adjudication Order.
7. Since the duty demand against the appellant is based on Technical Literature of M/s. Inductotherm wherein it is mentioned that for production of one MT of MS Ingots is 830 units of electricity is consumed and also the opinion given M/s. National Institute of Technology, Raipur regarding consumption of Pig Iron being not more than 8%, the appellant had sought cross-examination of the Technical Experts. Similarly another corroborative evidence used by the Department is the documents recovered from premises of M/s. Monu Steel, a Proprietorship Concern of Sh. S.K.Pansari and in this regard the cross-examination for S.K. Pansari had been requested. But we find that same has been refused by the Adjudicating Authority without giving any valid reasons. It is well settled law that when duty demand against an assessee is based on opinion given by an expert and his cross-examination is requested, it has to be allowed. As opinion give by the technical expert is only an opinion evidence and its evidentiary value has to be ascertained by permitting his cross-examination. Similarly documents recovers from the premises of M/s. Manu Steels which are one of the main corroborative, evidence are in the nature of third party documents, and, therefore, in view of Apex Courts judgment in the case of Kishanchand Chellaram Vs. CIT, reported in 1980 (Supp.) SCC-660, the cross examination of Sh. S.K.Pansari from whose premises these documents had been recovered was necessary, more so when the same had been requested and as such the denial of his cross-examination has resulted for denial of natural justice. The judgment of the Apex Court in case of Kanungo & Co. (Supra), relied upon by the Department and wherein it was held that natural justice is not violated if cross examination of the person giving information is not allowed is not applicable to the facts of the case. The impugned order, therefore, is not sustainable. The same is set aside and the matter is remanded to Original Adjudicating Authority for de-novo decision. In course of de-novo Adjudication, the Adjudicating Authority should not rely upon any evidence which was not disclosed in the Show Cause Notice. The Adjudication Authority, in accordance with the Provisions of Section 9D(2) of the Central Excise Act, 1944 must examine the witnesses whose statements have been relied upon by the Department and thereafter must permit their cross-examination by the Appellant, if requested by them. The appeal and the stay application stand disposed of as above.
(Justice G.Raghuram) President (Rakesh Kumar) Member (Technical) S.Kaur 1