Customs, Excise and Gold Tribunal - Tamil Nadu
Commissioner Of Central Excise vs Sumangala Steels And Ors. on 31 March, 2004
Equivalent citations: 2004(175)ELT634(TRI-CHENNAI)
ORDER Jyoti Balasundaram, Member (J)
1. M/s. Sumangala Steels are engaged in the manufacture of MS ingots and MS billets, out of imported as well as indigenous MS scrap by charging scrap into the electric are furnace along with specified quantities of ferro-alloys. Central Excise officers conducted a preventive patrol on 03.03.1993 and intercepted a lorry loaded with 31 nos. of MS billets, described in the gate pass as MS ingots. The goods and the lorry were detained, the factory of the assessees was visited on 04.03.1993, registers were verified, which revealed that lorry intercepted on 03.03.1993 had left from their factory. Statements of various persons wee recorded and records were also seized. Investigations revealed that the assessee had indulged in suppression of receipt of MS scrap, and suppression of production and clandestine clearance of MS billets and ingots and had also wrongly availed Modvat Credit on billets which had not been declared in the Modvat Credit declaration. Show cause Notice, dated 31.08.1993 was issued proposing recovery of duty of Rs. 50,18,000/- on billets & ingots and MS runner & MS risers cleared without payment of duty, proposing disallowing of Modvat Credit of Rs. 1,00,00,26,360 taken on MS billets and also in respect of scrap not received; proposing confiscation of seized billets and proposing imposition of penalty on the company as well as on the Managing Directors, Manager and Assistant of the company, and the driver of the lorry intercepted on 03.03.1993. The commissioner of Central Excise dropped the charge of irregular availment of Modvat Credit utilised for manufacture of MS billets (Rs. 93,26,613) but disallowed Modvat Credit of Rs. 3,11,256 on scrap short received and scrap removed without credit reversal, (the Revenue has filed Appeal No. E/1082/1996 against the dropping of the charge covering the amount of Rs. 93,26,613/-) confirmed the duty demand as raised, confiscated the billets seized on 03.03.1993 and appropriated the security amount of Rs. 30,000/- towards the value of the billets which had been released provisionally on execution of a bond, confiscated lorry carrying the billets and also imposed penalty of the following amounts on the following persons:-
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(i) M/s Sumangala Steels Rs. 15 lakhs under Rule 173Q of
Central Excise Rules
(ii) Sh. Rajendran Sabanayagam
& Sh. Kartik Sabanayagam
Managing Directors Rs. 20,000/- under Rule 173Q
(iii) Sh. D. Annamalai Rs. 2,000/- under Rule 209A
(iv) Sh. G. Sankaran Manager Rs. 2,000/- under Rule 209A
(v) Sh. Murugesan Rs. 2,000/- under Rule 209A
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against which Appeal Nos. E/635-637/1995 and E/651/95 have been filed.
2. We have heard both sides.
3. We first take up the appeal of the Revenue. Credit was sought to be denied on the ground that credit of duty paid on scrap was availed on MS billets, which were not declared in the 57G declaration. The Commissioner has dropped the proceedings on the ground that during the period in dispute even the department has conceded that the products are only MS ingots. According to the Revenue, even after installation of continuous casting machinery in the factory in December, 1992, the assessees had declared their products as steel ingots and other primary forms under CET Sub Heading 7206.90, that billets and ingots are 2 distinguishable products and assessees have maintained this distinction in their office records and that filing of declaration of final products is a substantive requirement, for failure of which, credit is not admissible. We find that the plea of the assessees before the Commissioner was that they had only casting machinery installed in their factory for the manufacture of ingots and that they did not possess re-rolling or forging facilities for manufacture of billets, which are products of re-rolling or forging. This has not been rebutted by the Revenue in the appeal before the Tribunal. Further, even after physical verification of stock carried out by the Central Excise authorities, the products had been authenticated as steel ingots under CET Sub Heading 7206.90, while billets fall for classification under CET Sub Heading 7207.90. As the Revenue has not either raised the ground or established that billets are products of casting or that the assessee had installed re-rolling or forging machinery for manufacture of billets, the finding of the Commissioner on this aspect cannot be faulted and we accordingly uphold the same and reject Appeal No. E/1082/96.
4. Now, we take up the assessees appeals i.e., the Company and its officers.
5. The case of the Revenue of suppression of production, and clandestine removal of finished goods is that, according to the Plant Manager of the assessee company, the percentage of yield of MS ingots will be 92-93% (virgin scrap is used) and as per the assessees own balance sheet, the yield is 90% Accordingly, the total production of MS ingots should have been 85,117.679 MTs (90% of 94575.199 MTs of scrap), while, only 80,138.364 MTs of ingots have been accounted for by the appellants' hence, duty is payable on the balance quantity of 4,979.315 MTs clandestinely removed. This inference has been drawn on the basis of production registers maintained by the appellants. This register reflects the total quantity of the scrap charged, which includes quantities of re-cycled scrap, which has admittedly gone into the production of MS ingots and consumed along with virgin scrap. The submission of the assessee is that MS scrap, which is the raw material is put into the electric arc furnace and after melting and casting, final product emerges. Normally, the desired yield will be in the range of 90-92% under ideal conditions and there will be a burning loss of 8-10%. during the process of melting, certain quantities would emerge in every heat as plant returns in the form of runners, risers, the excess melts, short ingots, plant returns, skulls etc. The conversion of scrap into ingots does not take place in one cycle of production and a certain quantity of the virgin scrap at the introductory stage would emerge as plant return in every heat and since the plant return also has metal properties, it is also fed once again into the furnace for melting and casting and by such re-cycling process, the yield of virgin scrap is improved so as to achieve the ultimate yield of 90-92%. The following illustration for 100 meters of scrap charged into furnace is set out below :-
Heat No. Charge Burning loss Plant returns Ingots 1 100 9 6 85 2 6 0.54 0.36 5.1 3 0.36 0.0324 0.0216 0.306
6. From the above the following are noticed:-
(i) In the first heat, 100 tonnes of virgin scrap is charged, which generates 85 tonnes of ingots and 6 tonnes of plant returns. There is invisible burning loss of 9 tonnes in this heat; hence, in this heat, yield obtained from 100MTs of virgin scrap is only 85%
(ii) In the second heat, 6 tonnes of plant return generated in the previous heat is again charged into the furnace, which generates 5.1 tonnes of ingots (85%), 0.36 tonnes of plant returns (6%) and there is also an invisible loss of 0.054 tonnes (9%) in this heat.
(iii) In the third heat, 0.367 tonnes of plant returns generated in the second heat is again charged to generate 0.360 tonnes of ingots (85%), 0.0216 tonnes of plant returns (6%) and in this heat also there is an invisible loss of 0.324 tonnes (9%).
(iv) Total ingots produced is 90.406 tonnes (85+5.1+0.306) from the initial 100 tonnes of virgin scrap charged into the furnace. This ultimate yield of 90.406 tonnes is obtained by re-cycling 100 tonnes of virgin scrap in three heats.
7. The Commissioner has placed reliance upon the production registers, which the appellants accept, is a reliable document for the purpose of computing production. The Commissioner also notes that production registers reflect the total quantity of scrap charged, which includes re-cycled scrap and after taking into consideration consumption of both virgin scrap and re-cycled scrap, the average yield is worked out to 90%. The appellants admit that the average yield is 90%. However, the Commissioner has proceeded on the basis that if 100 MTs of plant returns emerge over a period of 100 cycles of production, they will get accounted as 100 tonnes of plant returns and if out of 100 MTs, 50 MTs are drawn into the furnace for re-cycling, this has to be accounted for as scrap for raw material consumption. He has held that while considering the output for every cycle of production (heat), the production of ingots and plant returns, after considering appropriate percentage of burning loss, has to be taken into account.
8. Plant returns will figure as a percentage of the finished goods against raw material fed into the furnace and they will also become raw materials once they are taken out of the stock for re-cycling into the furnace and consequentially, plant return has to be accounted separately in terms of its production as finished goods and separately for the quantity, which is re-cycled. We agree with the appellants that the basis adopted by the Commissioner is erroneous and it is this error that has resulted in his arriving at the quantity of clandestine clearance.
9. There are additional reasons as to why the quantity alleged to have been produced clandestinely could not have been produced. One of such reasons is that the total available down-time (per cycle of production) divided by number of heats will give the average time per heat, which during the disputed period works out to 2.84. These figures have been taken from the production register, which is a reliable document and going by these figures there would be no time available to produce the alleged quantity cleared clandestinely. Yet another reason is that the average consumption of electricity PMT of ingot during the period in dispute is found to be 601-671 units, which is well below the norm of 851 units of electricity PMT of steel ingots as accepted on the basis of expert opinion in the case of Nagpal Steel Ltd. 2001(125) ELT 1147. Therefore, in the absence of any charge or finding of use of any other source of power, allegation of suppression of production cannot be sustained. We also note that even applying the formula of 90% yield, the ingots generated will only be 2655.800 out of 2950.893 MTs of unaccounted scrap, while the Revenue has alleged that 4979.31 MTs of ingots have been clandestinely produced. similarly, the total plant returns for the disputed period is 6142.730 MTS and not 4612.148 MTs as held by the authorities below. Central Excise authorities have ignored the figures of certain plant returns such as, short ingots; yard cleaning etc., which do not figure in the production register, as they emerge during further processing of the goods, and therefore, figure only in the plant return register and the plant returns have been confined only to such plant returns, which emerge at the production stage and figuring in the production register only, which is not correct. In the light of the above, we hold that the department has not discharged the burden of proving clandestine removal of finished products and, therefore, we set aside, the demand confirmed on the ground of suppressed production and clandestine clearance.
10. Certain minor areas remain for decision, such as, the difference between physical stock and book stock, resulting in a demand of Rs. 1,87,197/-; clearance of billets in the guise of MS scrap resulting in a demand of Rs. 2,75,631/-, clearance effected on 03.03.1993 without making debit entries in the RG 23A Part II registers resulting in duty confirmation of Rs. 1,57,600/-; and clearance to Bhuvalka Industries, Bangalore on 26.02.1993, on which, although, findings have been recorded, all the submissions made by the appellants have not been taken into consideration. In the interests of justice, we remand the above 4 issues for fresh decision by the jurisdictional Commissioner for passing of fresh orders after hearing the appellants and taking into account all the arguments raised by them.
11. The penalty imposed on the appellants is set aside in view of our findings that the charge of suppressed production and clandestine clearance of ingots is not established.
12. The appeals are disposed of in the above terms.