Custom, Excise & Service Tax Tribunal
) M/S.Maithan Alloys Ltd vs Commissioner Of Central Excise, Bolpur on 21 September, 2016
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, KOLKATA
EASTERN ZONAL BENCH: KOLKATA
1 & 2) Appeal Nos. E/38 & 39/11
(Arising out of Order-in-Original No.63/Commr/BOL/10 dated 13.10.2010 passed by the Commissioner of Central Excise, Bolpur.)
FOR APPROVAL AND SIGNATURE
HONBLE SHRI H.K.THAKUR, MEMBER(TECHNICAL)
HONBLE SHRI P.K.CHOUDHARY, 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 should be released under Rule 27 of the
CESTAT(Procedure) Rules, 1982 for publication in any
Authorative report or not?
3. Whether Their Lordship wishes to see the fair copy
of the Order?
4. Whether Order is to be circulated to the Departmental
Authorities?
1) M/s.Maithan Alloys Ltd.
2) Shri Subodh Agarwalla, Director of M/s.Maithan Alloys Ltd.
Applicant (s)/Appellant (s)
Vs.
Commissioner of Central Excise, Bolpur Respondent (s)
Appearance:
Shri J.P.Khaitan, Sr.Advocate & Shri Arijit Chakraborty, Advocate for the Appellant (s) Shri S.K.Naskar, AC(AR) for the Revenue CORAM:
HONBLE SHRI H.K.THAKUR, MEMBER(TECHNICAL) HONBLE SHRI P.K.CHOUDHARY, MEMBER(JUDICIAL) Date of Hearing :- 21.09.2016 Date of Pronouncement :- 28.09.2016 ORDER NO.FO/A/76086-76087/2016 Per Shri H.K.Thakur.
These Appeals have been filed by Appellant M/s.Maithan Alloys Ltd., Burdwan and its Director Shri Subodh Agarwalla against Order-in-Original No.63/Commr/BOL/10 dated 13.10.2010 issued on 25.10.2010, passed by Commissioner of Central Excise, Bolpur, West Bengal as Adjudicating authority.
2. Shri J.P.Khaitan (Sr.Advocate) and Shri Arijit Chakraborty (Advocate) appeared on behalf of the Appellants. Shri J.P.Khaitan submitted that Appellant is a manufacturer of Ferro Alloys Ferro Manganese and Silico Manganese falling under Central Excise Tariff Heading 72.02 of the first schedule to the Central Excise Tariff Act, 1985. That the said goods are manufactured in smelting furnaces by smelting oxides into alloys at very high temperatures. That each furnace has a tap hole and molten alloys and slag are tapped out at periodical intervals and after cooling the cast alloy is removed, chipped, cleaned and separated from sand, slag and other contaminants. That manufacturing process is completed after such clearing but the cast alloy segregated from contaminants is yet to be broken into pieces, sorted and graded according to size etc. That this stage of ferro Alloys is referred to as unsorted production and is not ready for entering in the Daily Stock Account (DSA) or RG-1 account but are duly reflected in Appellants production records. That unsorted production of Ferro Alloys after breaking into smaller pieces, sorting and grading according to size and chemical analysis are packed in gunny/HDPE bags of 50 kg. each or are stacked in loose form as heaps for loading onto containers for exports or trucks for steel plants. That the ferro-alloys obtained in the form of powder/dust during breaking and sorting are bagged. That as per their practice bagged quantity is entered into DSA on actual weighment basis. That loose ferro-alloys are carried to storing place and are weighed on the basis of two sizes of baskets one having 20 kgs. capacity and other having 30 kgs. capacity. That weight of material contained in 20 kgs. & 30 kgs. baskets is a tested method adopted by the Appellant over time to calculate the weight of loose ferro-alloys which is reflected in the DSA on daily basis and is called sorted production. That the shape and size of sorted ferro alloys greatly vary. Learned Senior Advocate made the Bench go through photographs of such materials copy of which is at page-95 of the Appeal papers. That due to great variation in the shape, size and density of material in the lumps of Ferro Alloys heavier lumps have a tendency to settle at the bottom of the stacks/heaps and lighter lumps/pieces of ferro-alloys remain towards the top. That such heaps/stacks in the storing area do not have a clear or well defined geometrical shape and it is practically impossible to get proper dimensions to ascertain volume and height. That each heap/stack is a heterogenous matter having lumps of material with different density and size.
2.1 That on 20.09.2007 to 21.092007 during a search operation Income Tax Officers prepared a stock inventory of the Appellant by taking both sorted and unsorted materials. That estimation of stock done by the Income Tax authorities was not made the basis of making any addition to the income of the Appellant for the assessment year 2008-2009. Learned Advocate made the Bench go through copy of assessment order passed by the Income Tax authorities and stock taking inventory prepared.
2.2 That on 06.12.2007 officers of Central excise also visited Appellants factory and calculated the weight and volume of sorted Ferro alloys on the basis of weigh-volume ratio rather than actual weighment. That volume of stacks/heaps of sorted material was calculated by taking some measurements when geometrical shapes of heaps and shapes/sizes of materials contained therein were different and heterogeneous. That weight contained in one cubic foot sized box was determined at 97.58 kg. by randomly taking Silico Manganese from the heaps. That this weight was converted into per metric weight for estimating the total stock of sorted material. That the above exercise was not even done for Ferro Manganese. That after investigation department issued show cause notice dated 05.05.2009 which has been confirmed by Adjudicating authority under impugned Order-in-Original dated 13.10.2010 by confirming demand of Rs.1,41,37,531/-, along with interest and also imposing a penalty of rs.1,41,37,531/- upon the Appellant and Rs.10.00 Lakh on the Director.
3. Learned Senior Advocate for the Appellants submitted that due to following arguments the case of clandestine manufacture and clearances is not established against his client at all :-
(i) That stock-taking exercises done by both the Income Tax authorities and the Central Excise authorities are completely hypothetical. That method of stock-taking done by the Income Tax authorities is not disclosed to the Appellant and no income addition has been made by the Income Tax authorities on this issue in the relevant assessment year. That while estimating weight Income Tax officers have considered unsorted material also which has not reached DSA stage.
(ii) That shortage has been calculated by starting from the Income Tax inventory dated 21.09.2007 and to that DSA figures from 20.09.2007 to December 5, 2007 have been added as per the show cause notice. That Income Tax inventory was an estimation and the method adopted for Income Tax inventory is not made available to the Appellant. That Appellant requested for cross-examination of Income Tax officers who prepared inventory but the same was not allowed. That Central Excise authorities found stock of Ferro Manganese as matching with DSA as per inventory prepared on 06.12.2007.
(iii) That unsorted materials of ferro-alloys cannot be considered because the same has not reached DSA stage or RG-1 stage as done by the Income Tax inventory. That Central Excise officers also expressed no interest in physical stock of unsorted production while taking their stock-taking. That there was no shortage of any final products except 6.750 MT of packed Silico Manganese which was also an accounting/clerical error.
(iv) That there is not even an iota of evidence that any clandestine clearance is made by his clients as final sale is made on actual weighment basis when DSA goods are loaded onto the containers or trucks carrying finished goods.
(v) That as per one opinion dated 13.09.2010, submitted by the Appellant to the Adjudicating authority as per record of personal hearing held on 10.09.2010 from a valuer Chartered Engineer, the weight of Ferro Manganese/Silico Manganese cannot be determined correctly on weight volume ratio basis. Learned Sr.Advocate made the Bench go through the record of personal hearing and certificate dated 03.09.2010 to emphasize his argument.
(vi) That Income Tax inventory considered unsorted material also while ascertaining the shortages which have not reached DSA stage and same authority has not made that inventory as basis of any addition to their income.
(vii) That Adjudicating authority failed to consider/deal with the case laws relied upon by the Appellants.
(viii) That in view of the following case laws neither the stock-takings done by both the revenue authorities are acceptable nor the case of clandestine removal is established against his clients. :-
(i) J.K.Corporation Ltd. v. Commissioner of C.Ex. & Cus., Bhubaneswar [2007 (210) ELT 501 (Ori.)]
(ii) Steel Authority of India Ltd. v. Commissioner of C.Ex., Mysore [2006 (200) ELT 229 (Tri.-Bang.)]
(iii) Geekay Wires Pvt.Ltd. v. Commr. of C.Ex., Hyderabad [2006 (200) ELT 86 (Tri.-Bang.)]
(iv) Micro Forge (I) Pvt.Ltd. v. Commr. of C.Ex., Rajkot [2004 (169) ELT 251 (Tri.-Mumbai)]
(v) Durga Trading Company v. Commr. of C.Ex., Lucknow [2002 (148) ELT 967 (Tri.-Del.)] Upheld by Supreme Court [2003 (157) ELT A 315 (SC)]
(vi) Satpushp Steels (P) Ltd. v. Commr. C.Ex., Jaipur [2006 (196) ELT 105 (Tri.-Del.)]
4. Shri S.K.Naskar, AC(AR) appearing on behalf of the Revenue argued that Appellant was also recording weight of the sorted material based on 20 kgs. and 30 kgs. capacity buckets and cannot now object to the method of weight determination and adopted by the officers of Central Excise. That stock calculation done by the Income Tax authority has not been contested by the Appellants. That shortages worked out by DGCEI authorities were not properly explained by the Appellants and their employees when they were present at the time of physical stock verification. That as per para 22.0 (d) of the Order-in-Original dated 13.10.2010 no physical weighment was undertaken while recording the production figures in DSA and that such recording was done on estimation basis, for which statement dated 27.01.2009 of Shri Hemanta Bhattacharjee was relied who is Appellants Accounts Manager. That Shri Hemanta Bhattacharjee in answer to Question No.6 & 9 of his statement has accepted the shortages calculated by Income Tax and DGCEI authorities and has not been retracted. Learned AR made the Bench go through para 30 to 40 of Order-in-Original dated 13.10.2010 to argue that Appellants have no case. Learned AR thus strongly defended the order passed by the Adjudicating authority.
5. Heard both sides and perused the case records. The only issue required to be decided in these Appeals is whether stock-taking of goods manufactured by the Appellant has been correctly done by the officers of DGCEI and the Income Tax authorities to determine shortages and clandestine removal of goods. Adjudicating authority in the Order-in-Original dated 13.10.2010, in para-32 to 34, has gone by the logic that if Appellant can adopt 20 kgs./30 kgs. bucket method to determine weight of the finished goods then why not the method adopted by DGCEI. Though not discussed by the Adjudicating authority in the Order-in-Original dated 13.10.2010 but still learned AR appearing for the Revenue tried to fortify departments case by arguing that Accounts Manager of the Appellants admitted to the shortages worked at by the officers of DGCEI. It is observed from both the inventories dated 06.12.2007 and 21.09.2007, prepared respectively by DGCEI and Income Tax authorities in the presence of Shri Hemanta Kr. Bhattacharjee, that DGCEI authorities only took into consideration stock of sorted finished goods. On the other hand Income Tax authorities have taken both sorted finished goods and unsorted production into consideration while preparing inventory dated 21.09.2007. The calculations done by the department are shown in Annexure-C to the show cause notice dated 05.05.2009. The entire quantity of finished goods and unsorted production of Income Tax inventory dated 21.09.2007 was taken into consideration. The method adopted for volume weight calculation by the Central Excise authorities was made known to the Appellants but there is no evidence as to what method was followed by Income Tax authorities and whether it was made known to the Appellants. For this purpose cross-examination of Income Tax officer who conducted stock verification was a must as requested by the Appellant. It is also not clear from DGCEI inventory whether estimation done as per 1 X 1 X 1 box was with one calculation or several samples were taken from different portions of the heap/heaps. It is observed from letter date dated 14.09.2010, given by the Appellant to the Adjudicating authority, that three photographs were, inter alia, provided to department, which indicate that heaps/stack of ferro alloys are irregular geometrical shapes and are heterogenous so far as size of material is concerned. Appellant also produced an expert opinion of one Valuer Chartered Engineer dated 13.09.2010 to the Adjudicating authority indicating that weight of stocks of Silico Manganese and Ferro Manganese cannot be accurately determined by weight-volume ratio. This certificate was furnished by the Appellant as a result of personal hearing given by the Adjudicating authority on 10.09.2010. This point was also taken up by the Adjudicating authority in para-10 of the Order-in-Original dated 13.10.2010 but no findings were given by him as to why the version given by the Appellant and endorsed by an expert, can not be accepted. In the absence of any documentary evidence or expert opinion obtained by department a view expressed by an expert Chartered Engineer cannot be brushed aside. Adjudicating authority or agency issuing show cause notice could have asked for cross-examination of the said Chartered Engineer. Alternately the cross-examination asked by the Appellant on stock-taking estimations done could have been provided. In the absence of cross-examination the evidenciary value of a document/statement is lost as per relied upon case law Satpushp Steels (P) Ltd. v. Commr. C.Ex., Jaipur (supra) and settled proposition of law. Department could have estimated the stock on 20 kg./30 kg. capacity buckets as was being adopted by the Appellant but choose to adopt a different estimation method. Findings given by the Adjudicating authority in para-38 of the Order-in-Original dated 13.10.2010 are highly illogical as nothing has been brought on record as to what is the DSA/RG-1 stage prescribed by the department. Secondly, department also preferred to calculate finished goods stocks of ferro alloys as per inventory dated 06.12.2007 and nothing was mentioned about the unsorted stocks of ferro alloys. In view of these observations the stock takings and calculations done by the department are not authentic and cannot be made the basis for confirmation of demand against the Appellants. Further the method adopted by the Income Tax officers and DGCEI officers was not accepted by the Appellants as both Shri Hemanta Kr. Bhattacharjee and Shri Subodh Agarwalla in their statements repeatedly said that stock-taking was on eye estimation and was only accepted as a good gesture towards the department. It is also observed that Income Tax authorities have also not felt the need to add any income on the shortages noticed in the assessment order for the year 2008-2009.
6. Appellant has relied upon a series of case laws, as per para-3(viii) above, where it has been held by courts and co-ordinate benches that stock taking based on eye witnesses/averaging cannot be made the basis of clandestine removal. Department has not been able to bring any contrary case laws on this issue. CESTAT Bangalore on this issue held as follows in the case of Steel Authority of India Ltd. v. CCE, Mysore (supra) :-
5.?We have gone through the records of the case carefully. The demand has been issued under Rule 223A covering a period of 13 years from 31-3-1998 to 31-3-2001. The Revenue has issued the show case notice on the belief that Section 11A is not applicable for demands made under Rule 223A. The Departments view is not correct in terms of the judicial pronouncements cited by the appellants. There is no allegation that the appellants have removed goods in clandestine manner. Moreover, the stock taking was done by the appellants themselves. The departmental officers only associated with the same. Hence, the stock taking cannot be said to have been conducted in terms of Rule 223A of the C.E. Rules. In any case, the shortage arrived at is based on estimates. The estimate cannot be said to be very accurate, as it has got its own limitations. It should also be appreciated that there are practical problems in steel plants in the matter of accounting of their production. The CBEC Circular No. 52/79 Cx.6, dated 26-10-1979 has also laid down certain guidelines with regard to condonation of losses observed during annual stock taking. The appellants submission that the excess/shortage noticed was only marginal should have been given its due consideration. The Tribunal in the case of M/s. Micro Forge (I) Pvt. Ltd. v. CCE, Rajkot reported in 2004 (169) E.L.T. 251 (T) has held that when the stock position is arrived at on the basis of estimation, the allegation of shortage of stock and consequent illicit removal of finished goods cannot be sustained. A plethora of case laws hold that provisions of Section 11A would apply in making demands of duty on deficiencies found during stock taking. The appellants based many reasons for discrepancies between the RG-1 and the physical stock. For example, the RG-1 is only based on estimated production and not based on actual weighment. Physical stock is also based on estimation of weight on the basis of volumetric estimate and conversion to theoretic weight based on sectional weight. A comparison between two estimation is inherently inaccurate. Losses like cutting, grinding and milling, scale loss after heat treatment and straightening, reprocessing after inspection at various stage of manufacture are not recorded in RG-1. Rejections are not recorded while accounting for quantity produced or issued in the form of sections and ingots. Shortage is inflated due to errors in taking opening balance as on 1-4-1998 and physical stock on 31-3-2001. Considering the practical difficulties, in estimating the actual stock and in view of the submissions made by the appellants, we find that the demand of duty made by the adjudicating authority cannot be sustained. Therefore, we allow the appeal with consequential relief. 6.1 Similar views were expressed by CESTAT Delhi and CESTAT Mumbai, in case laws Satpushp Steels (P) Ltd. v. CCE, Jaipur(supra) and Micro Forge (I) Pvt.Ltd. v. CCE, Rajkot(supra) to the effect that stock-taking on average weight calculation/estimation cannot be accepted for the purpose of demand and clandestine removal.
7. There is no other positive evidence on record that any finished goods have been cleared without payment of duty. Adjudicating authority in para-40.0 of the Order-in-Original dated 13.10.2010 has gone by the presumption that shortages of 1147.110 MT of Silico Manganese and 492 MT of Ferro Manganese calculated by the departmental/Income Tax authorities must have been clandestinely removed. It is now a well settled legal proposition that no case of clandestine removal can be held to be proved on the basis of presumptions, assumptions and surmises. Secondly, it has already been observed by us that stock taking done by the department is hypothetical and full of flaws. In the case of clandestine removals there should be positive evidence to indicate clandestine activity like seizure of finished goods in transit, purchase of extra raw materials, excess consumption of power etc. In the case of Durga Trading Company v. Commissioner of Central Excise, Lucknow [2002 (148) ELT 967 (Tri.-Del.)], relied upon by Appellant, following was held in para 9:-
9.It is well? settled that the charge of clandestine manufacture of the dutiable goods and removal thereof without discharging the duty liable by an assessee, cannot be established on assumptions and presumptions. Such a charge has to be based on concrete and tangible evidence. In this context, reference may be made to Oudh Sugar Mills Ltd. v. Union of India - 1978 (2) E.L.T. (J 172) (S.C.), wherein the Apex Court has observed that demand of duty cannot be raised on the strength of assumptions and presumptions. There should be sufficient evidence of the removal of the goods alleged to have been manufactured and cleared without payment of duty. The charge of clandestine removal must be based on tangible evidence and not on inferences involving unwarranted assumptions. This very principle of law had been applied by the Tribunal in a number of cases and out of those, few are, Amba Cement and Chemicals v. CCE - 2000 (115) E.L.T. 502 (Tribunal) = 2000 (90) ECR 265, Gurpreet Rubber Industries v. CCE - 1996 (82) E.L.T. 347 and Madhu Foods Products v. CCE - 1995 (76) E.L.T. 197.
7.1 Above case law has been upheld by Apex Court by dismissing C.A. No.D 623 of 2003 filed by the department as reported in Commissioner vs. Durga Trading Company [2003 (157) ELT A 315 (SC)].
7.2 In this present case before us even the Appellant has not admitted to have made any clearances clandestinely. The finished goods are cleared by the Appellant on actual weighment basis in containers/trucks and it is not the case of the Revenue that any less quantity is cleared by comparing final goods quantities shown in the clearance documents and the DSA quantity.
8. In view of the observations contained in paras 5 to 7.2 above, and settled proposition of law case of the department regarding clandestine removal is not sustainable against the Appellants, except shortage of 6.750 MT of Silicon Manganese admitted by the Appellants. So far as imposition of penalties upon the Appellants are concerned, it is observed that once clandestine removal case booked against the Appellants does not sustain then there is no point in imposing penalties upon the Appellants. Accordingly Appeals filed by the Appellants are required to be allowed, except to the extent contained in the next paragraph.
9. So far as shortage of 6.750 MT of Silico Manganese, in packed condition is concerned, Appellants in Para-11(i) of Appeal No.E/38/2011 accepted this shortage. Further in Para-18 of their reply dated 09.09.2010 to the show cause notice, before the Adjudicating authority, also Appellant accepted this shortage. Order-in-Original dated 13.10.2010, to the extent mentioned in Para-38, passed by the Adjudicating authority, is required to be upheld. This shortage of 6.750 MT of Silico Manganese is required to be accounted for in the DSA and liable to duty if not already accounted for.
10. Appeals filed by the Appellants are rejected to the extent indicated in Para-9 above and allowed to the extent indicated in Para-8 above.
(Pronounced in the open court on 28.09.2016.)
SD/ SD/
(P.K.CHOUDHARY) (H.K.THAKUR)
MEMBER(JUDICIAL) MEMBER(TECHNICAL)
sm
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Appeal No.E/38 & 39/11