Custom, Excise & Service Tax Tribunal
Shivam Smelters Pvt. Ltd vs Commissioner Of Central Excise, ... on 28 May, 2015
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE CIRCUIT BENCH AT HYDERABAD Appeal(s) Involved: E/256/2012-DB [Arising out of Order-in-Appeal No. 69/2011 dated 29/09/2011 passed by the Commissioner of Customs, Central Excise & Service Tax, Hyderabad] For approval and signature: HON'BLE MR. JUSTICE G. RAGHURAM, PRESIDENT HON'BLE MR. B.S.V. MURTHY, TECHNICAL MEMBER 1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No 2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3 Whether Their Lordships wish to see the fair copy of the Order? Seen 4 Whether Order is to be circulated to the Departmental authorities? Yes Shivam Smelters Pvt. Ltd. Survey No. 358/1, Part Pregnapur Village, Gajwel Mandal, Medak Dist. Andhra Pradesh 502 311 Appellant(s) Versus Commissioner of Central Excise, Customs and Service Tax Hyderabad-I Kendriya Shulk Bhavan, L.B Stadium Road, Basheerbagh, Hyderabad 500 004 Andhra Pradesh Respondent(s)
Appearance:
Mr. G. Natarajan, Advocate Swamy Associates G-8, Fortuna Icon Apartments, Jodidhar Aswathappa Farm, Behind Nagarjuna, Sahakar Nagar, Bangalore 560 092 Karnataka For the Appellant Dr. L. Dendem, AR For the Respondent Date of Hearing: 28/05/2015 Date of Decision: 28/05/2015 CORAM:
HON'BLE MR. JUSTICE G. RAGHURAM, PRESIDENT HON'BLE MR. B.S.V. MURTHY, TECHNICAL MEMBER Final Order No. 21458 / 2015 Per: B.S.V. MURTHY The appellant manufactures MS Ingots falling under CETH 72061090 of the first schedule to the Central Excise Tariff Act 1985. They were availing cenvat credit of central excise duty paid on inputs viz. Sponge iron (in lumps and in granules form) Pig iron in granules form, PCM Jam, MS Scrap etc. besides availing cenvat credit of central excise duty paid on capital goods and service tax paid on input services. Surprise stock check of the appellants factory was conducted on 25.11.2008 and physical stock taking was conducted from 25.11.2008 to 29.11.2008. As a result of verification of stock, it was found that the physical stock of raw materials was short to the tune of 1672.423 MTs valued at Rs. 2,90,60,479/- (Rupees Two Crores Ninety Lakhs Sixty Thousand Four Hundred and Seventy Nine only). After completion of investigation show-cause notice was issued and on completion of proceedings in accordance with law, demand for cenvat credit of Rs. 41,90,522/- (Rupees Forty One Lakhs Ninety Thousand Five Hundred and Twenty Two only) being the credit of duty paid on 1672.423 MTs of raw materials found short was demanded with interest. Besides demanding cenvat credit with interest, penalty under Section 11AC of Central Excise Act 1944 amounting to Rs. 41,90,522/- (Rupees Forty One Lakhs Ninety Thousand Five Hundred and Twenty Two only) was imposed on the company and a penalty of Rs. 5,00,000/- (Rupees Five Lakhs only) was imposed on Shri Govind Kumar, Managing Director. The appeal filed by the appellants against this order before the Commissioner (Appeals) was rejected and the appellant is before us.
2. Heard both sides.
3. The learned counsel on behalf of the appellant submitted that actually there was no shortage at all. He stated that the appellants were maintaining raw material stock account on the basis of the output produced everyday. While calculating the output, they had provided for burning loss of 2 to 3% whereas the actual burning loss was much more. He draws our attention to the technical opinion of expert and submitted that the burning loss can be around 25%.
4. Further he submits that right from the beginning this has been the contention of the appellant. There is no evidence of any diversion of raw-material and officers have not produced any evidence to show the sale of raw-material or the finished products clandestinely. In the absence of any evidence to show sale of raw material as such or sale of finished products without payment of duty, the demand cannot be sustained. He draws our attention to the revised work sheets submitted by them right from the year 2003-04 to 2008-09 (November) and submits that if the correct burning loss is taken into account, there was no shortage of raw-material at all.
5. Learned AR submits that it is the appellants duty to account for the raw-materials and the shortage has not been disputed. He also submits that appellants did not maintain raw materials account properly at all and therefore demand is sustainable.
6. We have considered the submissions made by both the sides. On going through the records and submissions we find that the appellants are using different types of raw material viz. MS Scrap, Pig Iron, Sponge Iron etc. However separate raw-materials account for each item admittedly has not been maintained at all. It is strange and surprising that raw-material account was maintained in a consolidated manner. The appellants have not disputed the short found at the time of stock taking which was undertaken on 3 days. According to the Register the balance should have been 2651.122 MTs whereas physical stock was found to be only 978.704 MTs. It is surprising that such a huge shortage which works out to almost 73% was not noticed by the melter or by the Managing Director or by the Central Excise in-charge over a period of 4 years. This itself shows that in spite of the huge difference between the actual raw material available and the stock as per the Register, the assessee did not take any steps whatsoever to check whether the accounting is being done correctly or not. The method adopted by the assessee for maintaining consolidated raw material account itself is a strange method of accounting. It was also admitted that from July 2008 onwards they were not even maintaining the record of use of raw materials on which cenvat credit has been taken. The accountant had stated that he was maintaining the account on the basis of report of the smelter who was giving the details of consumption of raw material and production of finished goods. Shri Vijay Kumar the melter stated that they used to charge thousand Kgs of scrap and thousand Kgs of Pig iron and balance was filled with sponge iron. The capacity of the furnace is 5 tonnes. He also stated that the stock available on 25.11.2008 was sufficient for 30 to 40 heats. If the melters submissions are taken into account, the total stock comes to only about 200 tonnes which shows that even the melter underestimated the quantity available. Shri Govind Kumar, Managing Director on 25.11.2008 at the conclusion of the stock verification, had stated that right from the inception of the company burning loss was accounted at 2-3% and actual burning loss would be 18 to 25%. He also stated that they had not taken physical stock of the raw materials since the inception of the factory in 2003. He also stated that in the initial years they had taken burning loss as 2 to 4% which should have been 15 to 20%. Shri Govind Kumar did not state when they started accounting properly. The overall situation would show that the employees/Managing Director of the appellant never bothered to ensure that raw material account is maintained properly and the actual stock available tallied with the stock as per the records. While shortage because of rain, certain quantity getting mixed with mud etc. can be accepted, when there is huge difference as in the case before us now, it is surprising and strange that the appellant did not take any remedial steps to correct the account if it is due to only accounting error. Other than an expert opinion saying that there can be burning loss, there is no other evidence to show that the stock account was maintained properly. In the show-cause notice it was also stated that suddenly there was drastic reduction in the raw materials balance between the period July 2008 to November 2008 without corresponding increase in the figure of final goods produced. On the basis of consumption register submitted by the assessee and the raw material records, departmental officers arrived at raw material waste shortage and found that shortage could be attributed to only to raw-materials viz. Sponge iron (1671 tonnes) and PCM jam (1.33 MTs). The calculation for demanding duty also has been made on this basis only. It is the appellants claim that the quantity of loss is only 3.78% compared to the total quantity received by them over a period of 5 years. However this is not a proper method of looking at the stock. What is to be seen is what was the difference between the closing balance and the stock available at the time of verification and when there is a huge difference it shows that the appellants had not at all considered proper maintenance of records necessary. There is no explanation forthcoming as to why the appellant failed to account for the raw material correctly over a period of 5 years and how they did not know that the burning loss could be 15%; there is no explanation forthcoming as to why they did not maintain the account on the basis of accounting principles. The claim that raw material accounting was done on a hypothetical basis is not at all logical in view of the fact that the melter of the appellant knew how much quantity is required for the furnace each heat to be charged. The melter could have and probably has given the correct consumption detail and also output details for different charge into the furnace, the capacity of which is 5 tonnes. Then there is no answer to the question why accounting was done in such a manner. Under these circumstances how there could be so much difference has not been explained at all. According to Shri. Raja Ramchander Rao, the Central Excise In-charge, the production and consumption figures were given by the melter. If this is so there could not be any shortage at all. Under these circumstances no other conclusion can be reached other than the conclusion that appellant has failed to account for the raw material on which cenvat credit has been taken and show that the same has been used for manufacture of finished goods on which duty has been paid. This is an obligation cast on the manufacturers who take cenvat credit and it is not necessary for the department to prove clandestine removal of raw material or finished products. The obligation to show that the raw materials have been used for the purpose they were obtained and accounted for in accordance with law is on the assesee and in this case they have failed to discharge the same. Therefore the appeal has no merits and is dismissed.
(Order pronounced in open court) (JUSTICE G. RAGHURAM) PRESIDENT (B.S.V. MURTHY) TECHNICAL MEMBER iss