Nagpal Steels Ltd. v. Collector Of C. Ex., Chandigarh

24. It was also argued that entries in the seized 13 pads did not indicate the description of the goods of which the weight was recorded; that even the statement of Shri Brij Mohan, the scribe of these pads did not specifically refer to the entries; that the loose papers were only reports which did not bear any authentication nor was there any corroboration; that the Department had no evidence to show the transport of raw materials receipt thereof prior to 24-1-1989 which had not been accounted for; that the seized heat register/logbook pertaining to the period 1-1-1990 to 10-10-1990 had not been made available to the Noticees for inspection; that the data said to have been collected from these registers was not authenticated by any officer of the Central Excise Department.

25. The ld. Counsel, reiterating the submissions made before the lower authorities, submitted that stock verification was approximate; that in respect of ingots weight is recorded on approximate basis; that the private production report was only for the month of January, 1990; that no norm has been fixed for their factory; that though specific directions were given by the Tribunal while remanding the case for de novo adjudication to look into the aspects specified therein, the adjudicating authority has not taken the trouble to examine to co-relate the figures of production with the raw materials account or private records or the octroi receipts; that the Department has not brought any evidence on record to show that as to what extent there was clandestine removal of ingots; that the test run was directed by the Tribunal which should have been done in the Assessee’s unit was not done; that there has been no co-relation between the raw materials and the finished final products; that octroi receipts are not reliable documents; that no evidence has been brought on record that there was surreptitious removal; that some estimates were made on the basis of heat registers which were not produced for inspection as they are reported to be lost; that since the Registers are not available for inspection, it was submitted by the ld. Counsel that no reliance can be placed on these registers; that the finding of the ld. Commissioner that the test run may not be representative was only a sunrise and presumption.

26. On the question of seizure of the goods from the truck, the ld. Counsel submitted that Panchnama was prepared at 1600 hours, there were two witnesses, Shri Makhan Singh and Shri Suraj Prakash; that the truck went out of order and was under repairs; that confessional statement given by Shri Wirsa Singh has been retracted; that the Panch witnesses on cross-examination stated that the truck was under repairs; that Shri Gurdev Singh was produced and his statement recorded; that no report about the investigations with Karam Steels was placed on record; that since the Department did not say anything on the result of the investigations, hence the presumption was that the evidence was not against the Appellants; that octroi receipt had mutilated entries and, therefore, no proof of clandestine removal; that the statements recorded were retracted and that request for cross-examination was not allowed.

27. The ld. Counsel submitted that the Appellants have 2 Furnaces; one is induction furnace and the other is arc furnace; that the consumption in the arc furnace is much higher than the one in the induction furnace; that the ld. Collector relied upon a number of experts opinions about average electricity consumption; that the experts gave opinion only in respect of electricity consumption for induction furnace and not the consumption of electricity in arc furnace; that the power is common and, therefore, the consumption in arc furnace/induction furnace cannot be apportioned; that Shri Shenoi was cross-examined and that he admitted that he had differences with the management of the Appellant Company.

28. The ld. Counsel, summing up his arguments, submitted that there is no evidence to directly co-relate the receipt of raw material, its clandestine conversion into ingots and their clandestine removal from the factory; that there was no evidence for imposition of penalty nor were penalties warranted in the instant case. The ld. Counsel, therefore, submitted that the impugned order may be set aside and the Appeals allowed.

29. Replying to the arguments and explaining elaborate evidence on record, Shri P.K. Jain, the ld. SDR appearing for the respondent Commissioner, submits that one gate pass was used for clearing 2 consignments; that the interception of the truck was based on information; that the truck driver admitted that this was the second time he was carrying the goods; that the Gate Pass was issued at 0850 hrs. on 11-10-1990 whereas the truck was intercepted at 1600 hours; that the number of ingots found in the truck did not tally with the number indicated in the gate pass; that Shri. C.L. Nagpal, Managing Director of the Company admitted that he prepared the gate pass in the morning and that for the present consignment, he could not prepare a Gate Pass and it was the mistake of his employees. The ld. DR, therefore, submitted that the goods loaded in the truck were being removed without payment of duty and, therefore, the ld. Commissioner has rightly confiscated the same and released them after appropriation of the amount of security in lieu of confiscation. The ld. DR further stated that on the same ground confiscation of the truck and the imposition of personal penalty on the persons concerned is justified.

30. On the question of estimating production by taking the consumption of electricity, the ld. DR submitted that for manufacture of ingots, 2 inputs are main inputs; that these inputs are Iron & Steel scrap and Electricity. He submitted that whereas scrap can be bought from a number of sources and is of different quality and variety, the constant figure is electricity. He submitted that electricity is received from one source and is accounted for in the bills periodically issued and paid. He submitted that in the instant case, the estimations were done on the basis of electricity consumption. He submitted that for construction of electricity, expert opinion was invited from persons in the trade, manufacturer of the furnaces and the consumption of electricity based on the records maintained by the Appellants concerned. He submitted that the records pertaining for the month of January, 1990 prepared by Shri A.V. Shenoi, GM (Technical) were recovered which indicated that the appellants had manufactured 2073 MT of Steel ingots, but in the RG 1 Register only 1771 MT had been recorded. In addition, the report showed that the factory of the Appellants had consumed 1764475 KWH (Units) of electricity from 1-1-1990 to 31-1-1990. This gives an average of 851 units of electricity consumption for manufacture of one MT of Steel ingots. Experts who were consulted on the issue also opined that the consumption of electricity for production of one MT of steel ingots ranged between 750 to 800 KWH units. The ld. DR submitted that enquiries with M/s. Hindustan Brown Boveri Ltd., revealed that the consumption of electricity in respect of Arc Furnace and Induction Furnace was 485 KWH and 540 KWH units respectively. Needless to say, the ld. DR submitted, that the Arc Furnace and the Induction Furnace installed in the factory of the Appellant Company was manufactured by M/s. Hindustan Brown Boveri Limited. He also submitted that the Collector was fully competent to fix a norm; that in the instant case, the Collector came, to the conclusion after taking into consideration all the factors that 851 KWH units of electricity were necessary for production of one MT of Steel ingots.

31. The ld. DR submitted that the clandestine removal was indicated by the weighment entries made in the 13 rough pads which showed that during the period 4-5-1990 to 11-10-1990, 111 weighment entries pertaining to steel ingots with a total weight of 1499.475 MT had not been reflected in the Central Excise Records. The entries in the rough pads-indicated that during the 5 months i.e. from 4-5-1990 to 11-10-1990, approximately 1500 MT of Steel ingots cleared were not reflected in the Central Excise Records, thus on an average, 300 MT of Steel ingots were not being recorded in the Central Excise records. This fact was confirmed by the monthly production report for the month of January 1990 which indicated that 2073 MT of Steel ingots were manufactured, but only 1771 MT were reflected in the Central Excise Records. Thus a pattern emerged indicating that on an average 300 MT of Steel ingots were being manufactured and cleared surreptitiously without payment of duty. The ld. DR submitted that Shri Joga Singh, in his statement, confirmed that ingots were being supplied without payment of duty. Shri Joga Singh was one of the customers of the Appellant company. This statement of Shri Joga Singh was further confirmed by Shri Vinay Kumar. The Octroi records of the Octroi Post, Mandi Gobindgarh were also checked which also supported the fact that steel ingots were being removed without payment of duty.

32. The ld. DR further submitted that during the period March, 1988 to 10-10-1990, 47692069 KWH units of electricity were consumed and by taking 851 units necessary for manufacture of one MT of Steel ingots, the production of the Appellants during that period comes to 56047.384 MT, but in the official records, only 45,423.600 MT of Steel ingots were recorded. Thus there was a suppression of 10,618.784 MT of Steel ingots. Records of Octroi post, Ludhiana were also examined and it was noticed that during the period 24-1-1989 to 10-10-1990, 237 consignments of steel scrap weighing 24750.847 MT were not accounted for in the records of the Appellants. The records of Sales Tax Barrier, Shambhu in Ludhiana were also consulted. It was found that 52 truck loads of steel scrap valued at Rs. 34,56,221.00 had not been accounted for in the records of the appellants. Similar was the position in respect of ferrous scrap. The ld. DR, therefore, submitted that the Department had proved beyond any doubt that there was suppression of 10,618.784 MT of Steel ingots which were removed without payment of duty and, therefore, argued that demand of duty of Rs. 59,13,056.20 was justified.

33. On the question of stock verification, the ld. DR submitted that stock was verified in the presence of the representative of the appellants and the shortage was admitted and, therefore, duty has rightly been demanded and the penalty has rightly been imposed.

34. The ld. DR, on the question of directions given by the Appellate Tribunal while remanding the case for de novo adjudication, submitted that the charge of clandestine removal has been proved by way of various documents recovered from the factory premises and the average electricity consumption figures; that the recovery of the documents in question is not in dispute; that electricity is such a thing consumption of which is a substantial indicator; that in the instant case, consumption has not been disputed. The ld. DR submitted that production may depend on a number of factors; that consumption of electricity cannot be altogether ignored; that trial run could be for one or two days whereas the Department had reports prepared by the Appellant’s General Manager (Technical) which indicated consumption of electricity and production of steel ingots during a whole month and, therefore, was a better representative of trial runs. The ld. DR submitted that in the instant case, the average consumption of electricity was worked out from the production records maintained by the Appellants; that the average consumption on the basis of actual production of the appellants also corresponds to the average consumption of other units similarly placed, who manufacture similar items. The ld. DR submitted that the test run production has been carried out in other similarly placed units but not in the case of the Noticee company fearing that the test run production in the factory premises of the appellants may not be of representative character because the appellants could have made the heat to take extra time and to use only that quality of scrap which would result in more consumption of electricity, thus defeating the very purpose of test run of production. Moreover, a better indicator in the form of monthly production report was available and further this report was supported by the expert opinion.

35. The ld. DR, therefore, submitted that the lower authorities have rightly confiscated the goods and demanded duty and imposed personal penalty.

36. Heard submissions of both sides. On careful consideration of the facts of the case and submissions made, we note that there are three distinct issues to be adjudged in this case. The first issue is confiscation of Steel ingots weighing 14.030 MT valued at Rs. 1,14,695.00 and Truck No. PUR 7537 valued at Rs. 1,50,000. We note that the truck was intercepted carrying 14.030 MT of steel ingots. The driver of the truck on demand produced a Gate Pass No. 515 dated 11-10-1990. When questioned, the driver admitted that he had already transported one consignment of ingots on the same gate pass and that the ingots loaded in the truck were being transported on the same very gate pass. It was found further that the number of ingots and the weight thereof did not tally with the number of ingots and weight thereof shown in the Gate Pass. Shri Sucha Singh, in his statement, stated that he had not prepared the gate pass and, therefore, he was not aware of the clearance of 162 steel ingots under GP 1 No. 515. The Security Supervisor had testified that he had not recorded the removal of the consignment of steel ingots loaded in the he truck on 11-10-1990. Shri C.L. Nagpal, Managing Director of the Company, in his statement recorded on 11-10-1990 admitted that he had prepared the gate pass No. 515, dated 11-10-1990 showing the time of removal as 0850 hours and the quantity of ingots as 14.220 MT. He also admitted that they had cleared the seized ingots without issue of any gate pass and without payment of duty which was due to the mistake committed by their employee. We also note that Octroi Post, Khanna records revealed that there was an octroi receipt of 11-10-1990 showing payment of Rs. 355/- as octroi charges for the consignment removed at 0850 hrs. Against, this, the appellants pleaded that the statements were recorded when the truck had not moved out as it developed defect in its gear system and, therefore, the goods were the same which were cleared on payment of duty under GP1 No. 515, dated 11-10-1990 and that the statements were retracted. Looking to the submissions of both sides, we note that Shri C.L. Nagpal, MD had clearly admitted that no gate pass was issued for these goods and that the goods were being transported because of the mistake of his employee. Having regard to the submissions made and the evidence on record, there is no doubt left in our minds to hold that the goods were or being clandestinely removed. In this view of the matter, we hold that the goods were being clandestinely removed and, therefore, the confiscation of the goods and the truck is upheld. So also the imposition of penalty on this court is upheld.

37. The second issue is about removal without payment of duty of steel ingots estimated on the basis of consumption of electricity. We note that for manufacture of steel ingots, consumption of electricity is one of the two main ingredients. We also note that for fixing a norm on account of consumption of electricity, various factors arise. They are the consumption of electricity according to the standard fixed by the manufacturers. In this case, we note that M/s. Hindustan Brown Boveri Ltd. were the manufacturers and suppliers of the furnaces (Induction Furnace and Arc Furnace). The consumption of electricity indicated by them for manufacture of one M.T. of Steel Ingots was much less than what the Collector accepted. Therefore, the second factor will be as to what precisely the consumption of electricity was in respect of the Appellant. No doubt, trial runs were conducted in other factories which indicated the consumption of electricity upto 1100 KWH units for manufacture of one MT of Steel ingots. However, these trial runs were limited for a short period and did not cover a sufficiently long period. Moreover, when the trial run is conducted, various factors are necessary to be considered and once the management of the factory knows that a trial run is in progress, they try to maximise the consumption of electricity. As against this, we note that the Department had relied upon the production/monthly report for the month of January, 1990. This report covered a period of 31 days. During these 31 days, the exact consumption of electricity was noted as also production. Taking this as the basis, no doubt taking into consideration the expert opinion and the actual consumption of electricity in other factories as indicated by the technical personnel of those factories, we find that the monthly report is more acceptable than any trial runs that would have been taken into consideration. About this monthly report, no doubt, the appellants have contested that such reports were not being prepared regularly, but Shri A.V. Shenoi, the General Manager (Technical) of the Appellant Company, in his statement stated that during his service with the Appellants, he was asked to prepare this type of report on production/monthly report for submission to the Managing Director and the Director of the Company. Thus, the existence of the report cannot be brushed aside simply because it has been disputed by the Appellants. The facts placed on record are that this monthly report was prepared and, therefore, can be taken as representative norm because it covers a period of full one month. Looking to all these facts and circumstances, we are inclined to accept the Department’s view that 851 KWH units of electricity is a reasonable norm for manufacture of one MT of Steel Ingots and has rightly been accepted by the adjudicating authority for arriving at the quantity of total production and production suppressed by showing a smaller quantity as production in the statutory records. We note that this is not the only document, but it is supported by the rough pads showing removal of the goods not recorded in the statutory records. The larger production which did not find mention in the statutory records was further supported by the Sales Tax records and Octroi receipts in addition to the rough pads being maintained by the Security staff of the company. Looking to all the facts and circumstances as also the submissions made before us, we hold that there was suppression and suppression of production has rightly been arrived at 10618.784 MT. In this view of the matter, the demand of Rs. 59,13,056.26 is correct and confirmation of this demand is upheld.

38. The third issue for determination is demand of duty on shortage and imposition of penalty. Looking to all these facts of the case and the gravity of the offence, particularly when this was being managed with the knowledge and connivance of the Managing Director and Director of the Company, we do not find the penalty to be too harsh and the demand of duty unreasonable and hence we find no reason too interfere with the quantum of penalty imposed and the demand of duty on shortages.

39. On the question of retraction, we find that three statements, including the statement of the Managing Director of the Company, are relevant. The Driver of the Truck and the Supervisor of the Company have retracted their statements. In so far as the retraction of the statement of the Driver is concerned, his affidavit indicated that the truck had developed a defect in its gear system and its support by the mechanic is not acceptable inasmuch as if that was so, it should have been brought out clearly in his first statement in which there was no reference to the repairs of the truck and as also the fact that the statement of the Driver was supported by the Managing Director who himself stated that the consignment had already left in the morning for its destination and that the goods under confiscation were not covered by any duty paying documents. This fact was further supported by the Octroi Post entry on the point of receipt of the goods which indicated that the gate pass now produced was used for transport of another consignment as the earlier consignment had reached its destination according to the Octroi receipt collected by the Department. Looking to all these facts and circumstances, we hold that retraction was an after-thought and that the original statements indicate the correct position.

40. In the result, the impugned order is upheld and the appeals are rejected.