Custom, Excise & Service Tax Tribunal
Binjusaria Metal Box Co. Pvt Ltd vs Hyderabad-Iv on 3 August, 2018
(1)
Appeal No: E/2491 & 2492/2010
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Division Bench
Court - I
Appeal No. Appellant(s) Respondent(s) Order-in-Original No.
04/10-Adjn.(Commr.) CE E/2491/2010 Binjusaria Metal Box CCCE, dated 08.10.2010 Co. Pvt Ltd Hyderabad-IV passed by CCCE & ST, Hyderabad-IV E/2492/2010 Anil Kumar Kedia -do- -do-
Appearance:
Shri K. Nagaraja Rao, Advocate for the Appellant(s) Shri V.R. Pawan Kumar, AR for the Respondent.
Coram:
HON'BLE Mr. M.V.Ravindran, MEMBER (JUDICIAL) HON'BLE Mr. P. Venkata Subba Rao, MEMBER (TECHNICAL) Date of Hearing: 04.07.2018 Date of Decision: 03.08.2018 FINAL ORDER No. A/30823-30824/2018 [Order per: P.V. Subba Rao.]
1. Appeal No.E/2491/2010 has been filed by Assessee while Appeal No.E/2492/2010 has been filed by the Managing Director of the assessee challenging personal penalty imposed upon him. Heard both sides and perused the records.
2. The facts in brief, after filtering out unnecessary details, are that the assessee is a manufacturer of Thermo Mechanically Treated Bars (TMT Bars). Firstly, they converted steel scrap or pig iron or sponge iron into (2) Appeal No: E/2491 & 2492/2010 ingots. They also converted MS ingots into TMT bars. Officers of the Central Excise received intelligence that the assessee has been misusing CENVAT credit on inputs and conducted detailed investigation. After conducting detailed investigation, they found that the data as revealed in the balance sheets for years 2004-05, 2006-07 and as derived from their firm registry for the period 2007-08 had shown excess process loss. Thus, it was felt that abnormal high process loss or invisible loss could be on three possible reasons or grounds.
(1) That the material is not used in the manufacturing process. It is diverted and hence not accounted for in the manufacture and is adjusted through higher invisible loss.
(2) Material was used but the TMT bars production was not accounted for and clandestinely removed.
(3) The process of invisible loss is suddenly effected due to some special factors not foreseen.
3. The show cause notice was issued discussing the above in which 3rd ground was ruled out on the ground that the raw materials used by them as well as the technology and equipments are among the best and there is no evidence of any extraordinary adverse factor adjudicating increased loss.
4. Secondly, they also found that the assessee had taken credit on invoices procuring sponge iron from M/s Lakshmi Gayatri Iron and Steel Ltd. On verification of the transport vehicles used for transportation of sponge iron from Nalgonda to Hyderabad, it was found that the vehicles were not transport vehicles at all but passenger cars and autos which are not capable of carrying the 136.17 Metric Tonnes of sponge iron on which they have (3) Appeal No: E/2491 & 2492/2010 taken CENVAT credit. It has also been alleged that the status of these vehicles was ascertained from the letter received from the Transport Department of the State Government. It is further alleged in the show cause notice that the assessee is also manufacturing similar goods for M/s SAIL under a job work agreement. As per this agreement, the total loss for conversion of billets into TMT bars is 5% which can be taken as a benchmark for determining the possible losses. In his statement dated 31.12.2008, Shri Anil Kedia, Managing Director of the company explained that the SAIL goods were processed separately but there is no separate account for either raw material or finished goods relating to SAIL. He explained that the loss of 5% is as per the agreement with SAIL but the actual loss occurred in the goods is higher. Therefore they have to deliver the goods as per the contract even if they received less production or incur more burning loss. The remaining material is compensated out of their production. Thus, he argued that 5% loss recorded in the SAIL agreement is not the correct benchmark.
5. The assessee was issued a show cause notice demanding reversal of CENVAT credit of Rs.79,92,646/- under Rule 14 of CENVAT Credit Rules r/w provisions of Section 11A of the Central Excise Act, as per calculations in the annexure to the show cause notice. This annexure takes into account the loss recorded by the assessee and the maximum loss recorded based on their own past provision and the industry trends. After deducting the maximum loss as per the industry trend, the unaccounted loss of 3.93% for the period 2006-07 and unaccounted loss of 3.57% for the period 2007-08 were worked out. Taking the average value of the duty paid on billets/squares/ingots purchased, the total assessable value and duty (4) Appeal No: E/2491 & 2492/2010 payable on such value was worked out to the aforesaid amount. The show cause notice also sought to deny credit of Rs.2,26,303/- as the goods could not have been received in their premises in the vehicles mentioned in the invoices. The show cause notice also demanded interest and proposed penalties.
6. After following due process of law, the Commissioner of Central Excise, Hyderabad-IV, vide his impugned Order-in-Original has confirmed the demands along with interest and imposed penalties on the assessee. He also imposed a penalty of Rs.20 lakhs on Shri Anil Kedia, Managing Director of assessee. The assessee filed this appeal on the following grounds.
(1) There is no abnormal burning loss as indicated by the learned lower authority. The loss of 5% in the SAIL agreement is not accurate and in fact the loss even in the goods manufactured for SAIL were much higher and therefore, they had subsequently given up the job work for SAIL as it has become unsustainable. Learned Commissioner shifted the responsibility on the appellant to explain the burning loss. This loss has been recorded in the balance sheets. The finding of the Learned Commissioner that either the inputs were not received in the factory or the inputs were cleared as such clandestinely, has no basis. No irregularities were noticed during the panchnama. (2) Regarding the non-receipt of inputs from M/s Lakshmi Gayatri Iron and Steel Ltd, on the ground that those vehicles were not transport vehicles, no evidence is supplied to enable them to rebut such charges. There is no statement from the consignor or (5) Appeal No: E/2491 & 2492/2010 consignee or transporter to seek clarification and hence the allegation was without iota of evidence.
(3) It is not possible to maintain arithmetic equation for input and output in a process. They vary on number of factors which may not be under control like continuous power supply, quality, and cost of inflation of raw material, etc., makes a difference in the percentage of losses.
(4) The demand is hit by time bar. Reliance is based on Form-IV register, sales invoices and profit and loss account and balance sheet which are statutory records and not private records and had all the details. Revenue has not furnished any evidence to show that there is either clandestine removal of final products or of the inputs. In view of the above, penalty and interest are also not sustainable.
7. The Learned Departmental Representative reiterated the Order-in- Original. He also relied on the judgment of the Hon'ble High Court in the case of Ranjeev Alloys Ltd [2009 (247) ELT 27 (P & H)] in which it was established that the vehicles which are supposed to have carried the inputs were found to be vehicles not capable of carrying the goods. It was held that the inputs are not transported by the vehicles mentioned in the invoices and hence assessee was required to reverse the credit. They also relied on the order of the Tribunal in the case of Sooraj Mull Baijnath Inds. Pvt Ltd [2014 (309) ELT 577 (Tri.-Delhi)] in which it is held that regarding CENVAT credit availed wrongly against bogus invoices, once initial burden has been discharged by the department showing registration number of vehicle mentioned in invoice that of two-wheeler not capable of transporting goods, (6) Appeal No: E/2491 & 2492/2010 onus shifts on manufacturer to produce evidence of physical receipt of goods.
8. We have examined the arguments on both sides. The two issues to be decided are (1) Whether a demand can be raised seeking reversal of CENVAT credit on the ground that the inputs could not have been used in manufacture of final products because the losses were much higher as per the standard industry norms.
(2) Whether the assessee is entitled to the credit of CENVAT on invoices which show that the goods were received in vehicles which on verification were found to be not capable of transporting the goods.
9. On first question, we do not find anything in the Central Excise Act or Rules which will enable the department to seek reversal of CENVAT credit on the ground that the reported losses during processing are much higher than what is reasonable. Such an aberration is certainly a cause for enquiry and investigation. It is possible that the assessee had, in fact, not received the goods at all and claimed CENVAT credit. It is also possible that the assessee had received the goods and removed the inputs as such without reversing the CENVAT credit. It is also possible that the assessee could have manufactured final products out of the goods and clandestinely removed them without paying Excise Duty. It is also possible that assessee was exceptionally inefficient or for some other reasons had incurred more losses than are due. However, these suspicions by themselves cannot form a basis for demand unless investigations can establish as to what had happened in (7) Appeal No: E/2491 & 2492/2010 that case. We find that the demand in the show cause notice is based on the mathematical calculations based on the average losses as per the benchmark of actual losses and on the presumption that the differential amount relates to inputs which have been clandestinely removed. The amount of duty sought to be reversed is also calculated based on the average value of the inputs and average rates of duty. In our considered view, such demand based on mathematical calculation is not supported by law.
10. As far as the second issue of the CENVAT Credit on inputs which are supposed to have been received in vehicles which turnout to be autos and cars are concerned, it is evident that it is impossible to carry inputs weighing in tonnes in these vehicles. If the assessee asserts that they had, in fact, received the goods in these vehicles, it is for them to show how. It is a well established principle that 'he who asserts must prove'. This is especially true when one claims an evident impossibility to be a fact. As far as the department is concerned, they have discharged their responsibility by showing that the vehicles mentioned in the invoices have been referred to the Regional Transport Office who explained that these were autos and cars and not transport vehicles. Therefore the assessee could not have received inputs in them and is not entitled to the CENVAT credit on the invoices under which the goods were supposed to have been received from M/s Lakshmi Gayatri Iron and Steel Ltd. In view of the above, the demand of Rs.79,92,646/- in the Order-in-Original is set aside while the demand of Rs.2,26,303/- is upheld. The interest on the amount will be reduced correspondingly. The penalty on the assessee under Rule 15(2) of the CENVAT Credit Rules r/w Section 11AC is also reduced to Rs.2,26,303/-. The (8) Appeal No: E/2491 & 2492/2010 penalty on Shri Anil Kedia, Managing Director of assessee is reduced to Rs.50,000/-
11. The appeals are allowed partly as herein above.
(Pronounced in the Open Court on 03.08.2018)
(P.VENKATA SUBBA RAO) (M.V. RAVINDRAN)
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
Veda