[Order per : P. Karthikeyan, Member (T)]. - M/s. Saravana Alloys Steels Pvt. Ltd. (hereinafter referred to as SAS) and its Directors filed appeals No. E/721-723/2007 & Appeal No. E/840/2008. Appeal No. E/737/2007 has been filed by the revenue impugning the same Order-in-Original No. 9/2007 of the Commissioner as impugned in appeal No. E/721 to 723/2007 of the assessee and its Directors.
2. SAS was engaged in the manufacture of MS ingots and CTD bars. They had two induction furnaces of capacity of 2.5 MTs each and two electro thermal furnaces of capacity 7 MTs each. Starting with scrap as the input, SAS manufactured ingots first and thereafter, converted them into CTD bars. Investigation conducted by the Director General of Central Excise Intelligence revealed that SAS had indulged in large scale evasion of duty by resorting to clandestine production and removal of finished goods. Evidence recovered by the Director General included the following :
(i) Three invoices used by SAS for transportation of clandestinely removed goods;
(ii) Non-accountal of scrap purchased from three dealers;
(iii) Undervaluation of scrap and overstating the yield;
(iv) Data recovered from SAS’s computer;
(v) Consumption of electricity in excess of the industry norms and
(vi) Statements of Managing Director and other persons.
3. Two show cause notices were issued. One dated 11-8-2006 and another dated 29-1-2007. The period of dispute covered by the first show cause notice is from August 2001 to December 2005 and the second notice from 1st January 2006 to 31 October 2006. In adjudication, the Commissioner found that SAS had cleared 24.72 MTs of CTD bars under parallel invoices. It had purchased 2906.383 MTs of scrap from dealers without accounting. On the basis of 70% yield, these raw materials could yield 2034 MTs ingots. Shri N. Saravanan, Director had admitted sale of CTD bars without accounting. Shri Nagaraj, Managing Director (MD), SAS admitted purchasing scrap without accounting. As per the chits recovered from one of the dealers, during May-July 2004, the price paid for scrap was Rs. 8,800/- per MT, whereas SAS had indicated the same in their records as Rs. 6,000/- per MT. The MD of SAS had admitted payment of amounts in excess of invoice value in cash. Output from scrap was shown to be 92% in the records of SAS. This corresponded to yield from good quality imported ‘shredded’ scrap. Production was recorded accordingly, though the raw materials i.e., scrap used were of different varieties with varying yields. The MD of SAS admitted that it was not possible for them to produce even the accounted quantities of finished products with the scrap they had accounted and issued for production. They were making good this shortage in the quantity of scrap by purchasing scrap, paying cash, which was not accounted. These purchases were financed out of sale of unaccounted CTD bars sold clandestinely as deposed by Shri Nagaraji, MD, SAS. It was inferred that during 2001-2002 to 2004-2005, SAS had made purchases of scrap financed out of unaccounted sale of CTD bars to the extent of 38,866 MT. The Commissioner found that considering yield of 70%, this would have yielded 27,206 MT of steel ingots.
4. Based on the data retrieved from the computer maintained by the assessee’s accountant, Shri R. Shivakumar, a quantity of 3600 MTs of steel was accounted in excess of RG-1 figure for the months July and August 2004. This was indicated under Column-B of the printout retrieved. Under Column-A, the total production during the relevant period was found to have been recorded. Shri Saravanan, Director of SAS or the accountant Shri R. Shivakumar could not explain satisfactorily this quantity not reflected in the RG-1. Later, in cross examination, the accountant stated that the said quantity was recorded at the instance of one of the Directors for the information of investors.
5. The total quantity of final products held to have been clandestinely manufactured and cleared during the material period was determined by the Commissioner on the basis of the power consumed during the period. Shri Nagaraji, MD, SAS had admitted that the average power consumption recorded by them was higher (than the actuals). Shri G. S. Hegde, an expert in the field, employed by the Commissioner for determining the electricity consumption for production of assessee’s final products visited the premises of the assessee, consulted concerned persons and furnished a report. According to his report dated 10-7-2006, the amount of power required for producing one tonne of ingots was 1000 KWH and for production of one tonne of CTD bars from a tonne of ingots, the power requirement was determined as 200 KWH. The Commissioner found that this was in line with the study report of the Nucleus Group set up by the CBEC for estimating power consumption norms for induction furnaces. This group had indicated the consumption to be in the range of 555 KWH to 1000 KWH per MT of MS ingots. Based on the above norms, the Commissioner worked out the quantity of CTD bars manufactured and cleared clandestinely without payment of duty during the period 8/2001 to 12/2005 at 30443 MTs and for the period 1/2006 to 10/2006 at 3667 MTs. After due process of law, the Commissioner passed Order-in-Original No. 9/2007 demanding duty of Rs. 8,25,48,632/- along with applicable interest under Section 11AB of the Central Excise Act, 1944 (the Act). He imposed penalty of equal amount as the duty demanded under Section 11AC of the Act on the assessee. In addition, a penalty of five lakh rupees was imposed on the assessee under Rule 25 of Central Excise Rules, 2001/2002. He also imposed a penalty of two lakh rupees each on Shri S. Nagaraji, MD, SAS and Shri N. Saravanan, Director, SAS. While the appeals filed by the assessee and the Directors seek to vacate the order impugned, appeal filed by the revenue seeks to enhance the demand confirmed to Rs. 9,43,53,166/- as proposed in the show cause notices and to appropriately enhance the penalties imposed.
Order-in-Original No. 12A/2008 dated 30-4-2008
6. This order has been passed disposing a show cause notice issued in continuation of the notices adjudged in Order-in-Original No. 9/2007. The period of dispute is from 1-11-2006 to 30-6-2007. The grounds forming basis of the show cause notice are the same as those basic to Order-in-Original No. 9/2007. Vide this order, the Commissioner confirmed demand of Rs. 1,17,17,417/- along with interest. The Commissioner imposed penalty of equal amount as the duty demanded under Section 11AC of the Act. In addition, a penalty of two lakh rupees was also imposed on SAS under Rule 25 of the Central Excise Rules, 2001/2002. SAS has filed appeal No. E/840/2008 impugning this order.
7. We examine appeal No. E/721/2007 filed by SAS first. It was submitted in the appeal that the impugned order was passed in violation of principles of natural justice and the same was not a speaking order. It was based on conjectures and surmises. They submitted that in the reply to the show cause notice dated 25-4-2007, SAS had specifically requested for personal hearing. However, the Commissioner passed the impugned order confirming a huge demand of Rs. 8.25 crores without granting personal hearing. The impugned order was therefore liable to be quashed as illegal. It is submitted that demand was quantified based on the consumption norms recommended by Shri G. S. Hegde and that the norms ascertained by Shri G. S. Hegde were not reliable. SAS had two 2.5 tonne capacity inducto therm furnaces, which were very old. Shri Hegde had not determined power requirement for each furnace separately considering its capacity, size, make and age. He had also not determined the requirement, considering that assessee produced CTD bars of dimensions ranging from 8 mm to 25 mm separately. Shri G. S. Hegde’s report did not follow a test run of the machines and also did not disclose any authority for arriving at the standard norm of 700-800 units for production of one tonne MS ingots and 100-125 units for one tonne of CTD bars. The report did not give allowance for machine failure, power failure, human errors and wastage on account of rejected ingots, etc.
8. Though the appellant sought cross examination of Shri G. S. Hegde, the same was denied. Relying on various case laws, it is submitted that denial of cross examination was violation of principles of natural justice. It is submitted that such evidence had to be discarded as held in Vallabh Alloys Ltd. v. CCE, New Delhi - (Tri. - Delhi). Assessee had got the power requirement ascertained by an expert Shri K. Ramesh. According to his report, the power requirement for producing one tonne of CTD bars ranged from 1510 units to 1870 units (1320-1660 units for ingots). As per this norm, there was no suppression of production. The Commissioner found that the energy consumed as per the ‘Technical Opinion Report’ of the Nucleus Group set up by the CBEC for production of steel ingots varied from 500-1026 units per tonne and the same matched the opinion furnished by Shri G. S. Hegde. The Commissioner rejected the report of Shri K. Ramesh, inter alia, for the reason that he had not been given a copy of the expert opinion furnished by Shri G.S. Hegde to enable him form a proper opinion. The technical opinion report of the Nucleus Group was relied on by the Commissioner without furnishing a copy of the same to the assessee along with show cause notices. The Commissioner had not considered the technical opinion furnished by Shri K. Ramesh, which was more scientific compared to the report of Shri G. S. Hegde. In case the technical opinion furnished by the assessee was found deficient, it was open to the department to cross examine Shri K. Ramesh as held by the Tribunal in the case of M/s. Balaji Designs v. CCE - (Tri.-Chennai).
9. As regards the finding of unaccounted purchase of scrap based on loose sheets recovered from the dealers, the same is challenged on the ground that these sheets did not carry the name of the assessee or any signature. These were katcha slips. Shri K. Shaffiulla of M/s. K.S. Scrap dealers had in cross examination on 22-2-2007 denied that the documents in question belonged to him. The assessee had sought cross examination of Shri S.A. Hariprakash, investigating officer to show that the invoices of M/s. K.S. Scrap dealers were not recovered from SAS. However, the request for cross examining Shri Hariprakash was denied. Shri Nagaraji and Shri K. Shaffiulla had given different versions about the loose sheets. Shri K. Shaffiulla had stated that he was not sure that all the scrap mentioned in one of the loose sheets were supplied to SAS. He submitted that pages 2-13 related to supplies made to SAS. Shri Nagaraji had admitted that pages 1-5 of the loose sheets pertained to purchases of scrap by SAS. In any case the period involved was 4/2005 to 6/2005 and the quantity involved 1016 tonnes. The duty involved would be Rs. 11.5 lakhs. Similar objections are raised regarding the finding of unaccounted purchase of scrap from M/s. R.G. Trading. The documents did not bear any signature or the name of the company. The author of these documents was not interrogated. The entries in the documents were vague. The Commissioner ignored retraction of the initial deposition of Shri M. A. Gaffer admitting that the entries in his diary reflected unaccounted sale of scrap to SAS. The statement of Shri M.A. Gaffer was not corroborated by independent, tangible and cogent evidence. The period involved was 7/2004 to 8/2004, quantity 648 tonnes and the consequent duty liability around seven lakh rupees. Based on the documents recovered from M/s. Azad Steels, the Adjudicating Authority concluded that during January 2002 to February 2002 and January 2003 to February 2003, SAS had procured respectively 978 tonnes and 264 tonnes of scrap. This was based on the bunch of slips recovered from M/s. Ameer Steels and the statements of Shri Nagaraji and Shri Ameer Azad. It is submitted that the statements of Shri Nagaraji and Shri Ameer Azad were not corroborated by any tangible and cogent evidence. It is submitted that the finding of undervaluation of scrap purchases and payments for such purchases by using unaccounted sale proceeds of CTD bars was not sustainable. The statement of Shri Nagaraji could not be taken into account, in the absence of evidence to corroborate the same. The department had wrongly assumed that the scrap used yielded 70% of MS ingots. It was alleged that to purchase unaccounted quantities of scrap, the assessee should have cleared CTD bars without accounting. As such, the logic followed was, to produce accounted quantities of CTD bars, assessee used unaccounted scrap and for the purchase of such scrap, cash payments were made from the proceeds of unaccounted sale of CTD bars. The logic was unclear. As per the allegation, unaccounted scrap was used in the manufacture of accounted CTD bars and as such, there was no question of clearance of unaccounted CTD bars. The computer printouts were not admissible evidence in view of the stipulations contained in Section 36B(2) and B(4) of the Act, which were not satisfied. It is argued that the computer was not shown to have been regularly used to store or process the information for the purposes of any activities regularly carried on by the company or that the information of the kind contained in the computer printout was regularly supplied by the company in the ordinary course of activities. It was also not shown that during the relevant period, the computer was operating in the above manner properly. The printout did not carry any certificate and it only indicated that the information pertained to July-August; the year was not mentioned. Relying on the decision of the Tribunal in M/s. Premium Packaging (P) Ltd. v. CCE - (Tri.-Delhi), it is argued that the printout could not be used to prove clandestine removal if they did not satisfy the condition of their admissibility as documents in evidence as envisaged in Section 36(2)(a) of the Act as held by the Tribunal in the said case. During cross examination, Shri R. Shivakumar had denied that figures in Column-B corresponded to actual data or actual clearance from the factory. Shri R. Shivakumar had never admitted that the quantity in Column-B represented unaccounted production and clearance. Shri N. Saravanan in his statement dated 18-4-2006 had also deposed to the same effect. Several judicial authorities are cited in support of the claim that statements could not be relied on as evidence, unless they are corroborated by independent evidence. Statements of Shri R. Shivakumar and the scrap dealers were retracted also in cross examination. Shri Nagaraji had given statements containing general information relating to the factory. Statements of Shri N. Saravanan were also similar. No adverse inference could be drawn from these statements.
10. The crucial finding in the impugned order is that SAS clandestinely manufactured and cleared its final products based on the power consumption determined for producing one tonne of MS ingots and one tonne of CTD bars. It was based on expert opinion obtained from Shri G.S. Hegde employed for the purpose by the department. In this report, Shri G.S. Hegde had concluded that 1000 units of power were required for manufacture of one tonne of MS ingots and around 200 units of power were required for manufacture of one tonne of CTD bars from MS ingots. This norm has been applied to work out the quantity of final products manufactured and cleared by SAS during the period 8/2001 to 10/2006. This report is assailed on the following grounds.
● During these years, it cannot be assumed that the production was always normal.
● It is obviously not possible to conclude that the entire period would be a period of normal production.
● During such long period, there would be variations in manufacture and losses, on account of difference in power supply, labour factors, quality of raw material etc.
● The production calculated on the basis of a formula, without consideration of any of the other factors would not amount to determination of normal production.
● The estimated production is an estimate only, which is subject to a number of limitations.
● These calculations certainly involve some assumptions. If any of these assumptions breaks down, the ultimate conclusion will have to be rejected as incorrect.
● In the absence of any documentary proof, the allegation is not sustainable merely on the basis of estimates made.
● The charge of clandestine removal based on electricity consumption alone without any corroborative evidence is not at all sustainable.
● It is also seen that adoption of uniform pattern of production in a mechanical way, has been done in the show cause notice without examining all relevant factors such as consumption of raw materials, break down of the machinery installed, labour employed, maintenance of the machinery, power failure etc.
● In such circumstances, the charge of suppression of production is not sustainable.
● The normal production was fixed by the Department without issuing any show cause notice.
11. The following case laws are cited to challenge the computation of production based on the formula arrived at by Shri G.S. Hegde.
(i) M/s. Oudh Sugar Mills Ltd. v. UOI - 1978 (2) E.L.T. J172 (S.C.)
(ii) Parle Beverages v. CCE - (T) upheld by the Apex Court as reported in (S.C.)
(iii) Padmanabh Dyeing & Finishing Work v. CCE -
(iv) Madhu Foods Products Ltd. v. CCE - .
12. It was submitted in view of the above judicial pronouncements, demand based on an estimate of electricity consumption alone without any corroborative evidence was not sustainable. The investigation conducted by the department could at the most raise suspicion or doubt but suppression of production had to be substantiated by corroborative evidence for unaccounted purchase of raw materials, unaccounted cash transactions, etc. There had to be also evidence for transport of inputs and finished goods or variation in stock of inputs and finished goods compared to the corresponding accounted figures. The Commissioner had followed the principles of preponderant probability relying on CC, Chennai v. D. Bhoormull - (S.C.) and M/s. Gulabchand Silk Mills v. CCE - (Tri.-Bangalore), among others. It is submitted that the department could recover three invoices dated 31-8-2004 and 1-9-2004 covering a quantity of 25.72 tonnes. As regards the unaccounted purchase of scrap, there was only unreliable evidence and the quantity involved were 490 tonnes for the period 8/2001 to 3/2002; 487 tonnes for 4/2002 - 3/2003; 30.22 tonnes for 4/2003 to 3/2004 and 1470 tonnes for the period 4/2004 to 3/2005. It is submitted that even if the unaccounted purchases alleged were true, the corresponding duty involved worked out to Rs. 39,05,854/- based on the 70% recovery adopted by the department. It is submitted that particulars of production were reflected in the RG-1 register and the power consumption was reflected in the electricity bills. These were statutory documents periodically audited by the department. There was no allegation that the appellant had manipulated consumption details to record lower production.
13. The demand was barred by limitation. The first show cause notice was issued on 11-8-2006 for the period 8/2001 to 12/2005. The search proceedings were conducted on 2-9-2004. Even if extended period could be invoked, the demand was barred by limitation for the initial period of one year after the search operations.
14. The second show cause notice covering 1/2006 to 10/2006 relied on the same evidence relied on for the earlier period up to December 2005. This part of the order suffers from similar infirmities as raised in respect of the order on notice for the period upto December 2005. It is submitted that the impugned order was passed violating the principles of natural justice in that the department had relied on the technical opinion report of Nuclear Group set up by the C.B.E.C. In the first show cause notice, reliance on these documents was not indicated. The department had relied on these documents in adjudication without furnishing copies of the same to the assessee. The assessee relied on the decision of the Apex Court in the case of M.A. Jackson v. CC reported in (S.C.) wherein the Apex Court had quashed the order impugned by the appellant for the reason that the Adjudicating Authority had relied on a pricelist of cars published in World Car Catalogue without furnishing a copy of the same to the appellant. The impugned order is assailed also for the reason that the Commissioner did not give findings on several arguments raised by the assessee in response to the show cause notice.
15. Appeal No. E/840/2008 challenges Order-in-Original No. 12A/2008 dated 14-8-2008. The impugned order confirmed demand of differential duty on the same findings as in the Order-in-Original No. 9/2007. The period of dispute is 11/2006 to 6/2007. The demand is worked out based on the power consumption and the requirement of power for producing one tonne of MS ingots and one tonne of CTD bars as per the study of Shri G.S. Hegde. SAS has challenged this order also on the ground that the evidence relied in the notice for the period August 2001 to December 2005 were wrongly relied on in passing this order.
16. The revenue has sought to justify the impugned order stating that the Commissioner had reliable evidence in the form of admission statements of Shri N. Saravanan, Director, SAS for higher power consumption than what was recorded. Shri Nagaraji, MD had admitted unaccounted purchases of scrap from three dealers to the tune of 2906.381 MTs. Shri N. Saravanan had admitted unaccounted clearances of 24.72 MTs of CTD bars. Adoption of the production norms suggested by Shri G.S. Hegde is sought to be justified on the basis that the estimate was consistent with the technical opinion of Nuclear Group set up by the C.B.E.C. which had also taken into account the prevailing consumption of power in furnaces as worked out by IIT, Kanpur and the All India Induction Furnace Association. The norms as per the technical opinion ranged from 555 KWH to 1026 KWH per MT of ingots depending on quality of scrap, fluctuation in power supply, etc. The Commissioner had rightly relied on the opinion of Shri G.S. Hegde. As regards the reliance on the computer printouts, it is submitted that the accountant of SAS had confirmed that quantities appearing in Column-B were not entered in the RG-1 register. The data, therefore, indicated two sets of accounts. It is also submitted that the Commissioner had followed principles of natural justice in passing the impugned orders. He had applied the principle of preponderance of probability following the Tribunal’s decision in the case of M/s. Gulabchand Silk Mills v. CCE (supra) and Apex Court judgment in the case of CC, Chennai v. D. Bhoormull (supra). This principle applied if the proposition was more likely to be true than not true. The standard was satisfied if there was greater than 50% chance that the proposition was true. Absolute proof being unattainable, the law accepted probability as a working substitute. Several judicial authorities are cited in support of applying the principle in finding evasion. In the case on hand, evidence available indicated preponderant probability of the evasion found by the Commissioner.
17. We have examined case records and carefully considered the submissions made by both sides. The two orders impugned in the appeals before us cover the period 8/2001 to 6/2007. The impugned orders confirmed demand of duty against SAS and imposed penalties on it and its two Directors following the finding that SAS had evaded duty to the tune of above Rs. 8.25 crores (Order-in-Original No. 9/2007) and above Rs. 1.17 crores (Order-in-Original No. 12A/2008). The demand is quantified based on a study conducted by Shri G. S. Hegde at the instance of the department. As per his expert opinion, 1200 units of power are required for production of one tonne of CTD bars. From the figures of actual consumption of power during the material period, production is worked out on the basis of the above norm. Difference between the said figure and the accounted production is held to represent clandestine production. We find that the clandestine production and clearance, therefore, has been worked out in both the orders based on an estimation relying on the expert opinion of Shri G.S. Hegde.
18. Shri G.S. Hegde was cross examined by the learned counsel for the assessee on 30-1-2008. He deposed in response to questions by the advocate that he had not arranged for a trial production at the assessee’s plants during his study to ascertain the power consumption. He also stated that there were no standard data or literature available to arrive at a standard of power consumption. He had not taken into account the age of the two 2.5 tonne capacity furnaces at the assessee’s plants, since two other 7 tonne furnaces were new. He admitted an error in his calculation in adopting 400 as the number of heats per month instead of the correct 150. He accordingly suggested appropriate revision of relevant power consumption to 53 KWH instead of 20 KWH. During the cross examination, he also admitted that the power consumption determined was a reasonable estimate. We note that the expert heavily relied on his knowledge and experience and admittedly was not guided by any technical literature laying down a reliable standard, prescribing adjustment for different varieties of raw materials used or other factors which have a bearing on the output. We find it strange that Shri G.S. Hegde did not even consult the literature of the manufacturer of furnaces for information on power consumption. In this context, we find considerable merit in the grounds raised by the assessee to assail the finding of Shri G.S. Hegde as not reliable. These are noted in paragraph 10 above. We note that in M/s. Amar Ispat and Others v. CCE, Thane - 2008-T1OL-1360 (CESTAT-MUM) = (Tri. - Mumbai), the Tribunal had relied on the following certificate furnished by M/s. Mega Therm Electronics Pvt. Ltd. in rejecting the amount of power required to produce one tonne of MS ingots determined by the revenue.
“4. …………….
“Induction Furnace Efficiency depended on raw materials (Scrap and Power), also on scrap feeding & size of scrap. Power consumption per ton depends on scrap yield and size of scrap (scrap density decide feeding rate). So, average of every month cannot be same due to these variations.
Electrical Power from Electricity board also varies every hour. Sometimes input voltage is higher and other time is lower which affects melt rate. Breakdowns and power cuts are also responsible for average production and power consumption. For example: if power fails from Electricity Board in middle of heat, so metal solidifies and again needs power to re-melt.
Furnace size is also responsible for power consumption. In bigger Furnaces scrap feeding is easier & Electrical efficiency improves.
Due to these reasons, we are not responsible for melt rate & power consumption and no fixed data can be treated”.”
M/s. Mega Therm Electronics Pvt. Ltd. were suppliers of crucibles for the induction furnaces involved. In the said decision, the Tribunal had refused to apply the actual power consumption observed for producing a metric tonne of MS ingots in August - September, 2004 to determine production for the period up to August 2004. The Tribunal held that no demand could be confirmed solely on the basis of fuel consumption in the light of Tribunal’s order in Alfa Castings Pvt. Ltd. v. CCE - . The Tribunal had vacated the demand in the Amar Ispat case finding that the norm ascertained was not reliable and fluctuated from month to month.
19. We find that the assessee had engaged another qualified engineer Shri K. Ramesh to determine the same parameter. According to his study, the power consumption varied from 1510 to 1870 units for one tonne of CTD bars in the same plant. We find that the Commissioner has not given any reasons in the impugned orders for rejecting the technical opinion furnished by a competent expert though at the instance of the assessee. As rightly argued by the learned counsel for the assessee, it was open to the Adjudicating Authority to question Shri K. Ramesh and elicit his basis arriving at a different norm. The assessee had argued that the report of Shri K. Ramesh was reliable since the norm had been determined in a more scientific manner. On perusal of the two opinions, we do not find a valid reason to prefer one to the other. However, it was eminently possible for the Adjudicating Authority to ascertain as to which of the opinion could be safely relied on in the proceedings. In the circumstances, we note that the finding of clandestine production and clearance is based solely on an estimate, whose reliability is uncertain. In the Hans Castings Pvt. Ltd. v. CCE, Kanpur - , in a similar case of alleged evasion by clandestine production and clearance of steel ingots, the Tribunal vacated the demand and remanded the dispute for a fresh determination, after conducting trial runs in the appellant’s factory and if necessary, in one or two similarly placed other factories. It was observed that “neither there was a norm of consumption of power nor was any evidence in the form of private records seized, nor was based on any norm fixed by the department under Rule 173E”. In another case involving disputed clearances of billets in the case of Nav Karnataka Steels Pvt. Ltd. v. CCE, Belgaum - (Tri. - Bang.), where the production was determined based on consumption of fuel viz., furnace oil, the Tribunal observed as follows :
“Clandestine production and removal cannot be established simply on a theoretical basis by employing some formula. There should be sufficient corroborative evidence. In the absence of corroboration, it is very difficult to establish clandestine removal for a period of 5 years as has been done by the Adjudicating Authority.”
We find that the case on hand is similar on facts to the above case. We note that in the proceedings, the learned counsel for the assessee had submitted that the figures of power consumption determined by the same expert Shri G.S. Hegde in the case of Shri Ulaganayagi Ammal Steels v. CCE, Trichy - (Tri.-Chennai) ranged from 1175 to 1200 units for one tonne of ingots. As per the report of Shri K. Ramesh, the power consumption per tonne of ingots varies from 1320 KWH to 1660 KWH. According to the assessee, the Commissioner had relied upon a study conducted by National Institute of Secondary Steel Technology which showed that the power consumption per tonne of ingot can go up to 1427 KWH, which was comparable to the range 1196-1415 KWH reflected in the performance of the assessee’s plant during 2001-2006. The technical opinion report of Nuclear Group set up by C.B.E.C. found that the energy consumption for the production of steel ingots varied from 500 to 1026 units. We are faced with a number of figures of consumption, more precisely several ranges of figures indicating consumption of power for one tonne of steel ingots/one tonne of CTD bars, which is subject to change depending on numerous factors including the several varieties of scrap, power shutdown, voltage fluctuation and human error entailing production of defective material, etc. Therefore, we find that ascertaining clandestine production of steel ingots solely on the basis of power consumption is not safe or reliable. In a case of clandestine removal of biscuits in the case of M/s. Madhu Food Products (supra), the Tribunal found as follows :
“15. On examination of the above decisions of various Courts and Tribunals, we find that the production has been calculated on the basis of consumption of electricity. No doubt some irregularities have been found in the maintenance of the statutory records, there is no evidence on record either by way of seizure of goods in transit or elsewhere or any private records being seized to show that there was clandestine removal. No evidence has been brought on record to prove that the goods were removed from the factory premises without payment of duty, even the estimated production is an estimate only which is subject to a number of limitations. We, therefore, hold that in the absence of any documentary proof, that the goods estimated to be produced and not brought on record were removed without payment of duty, demand for duty on such estimated goods cannot be confirmed. In the absence of this documentary evidence, we hold that clandestine removal of goods is not proved and, therefore, the demand of duty on this issue is not maintainable in law.”
We find the ratio of the above decision applicable to the subject case.
20. In the instant case, there were cases of clearance of finished goods under parallel invoices involving a total quantity of 24.72 tonnes during the period of dispute. There are also cases of procurement of raw materials viz., scrap without proper accountal. However, the dealers of scrap retracted their initial admission of sale against cash in cross examination or did not appear for cross examination, thereby rendering the finding of procurement of unaccounted raw material not free from doubt. As regards the information available in the computer printout, apart from the fact that the same involved only 3600 MTs, it is not reliably proved that the same represented clandestine clearances. Therefore, it would appear that there is hardly anything on record to infer that during the period August 2001 to 30th June 2007, the assessee had indulged in clandestine production and clearance of its finished goods. In this connection, we note that the following finding of the Tribunal in the case of Parshuram Cement Ltd. v. CCE, Lucknow - (Tri.-Del.) applies to the case on hand.
“9. Similarly, on the basis of the electricity consumption during the period in question as given in the show cause, no lawful conclusion could be arrived at there was excess production and clandestine removal, of the goods by the appellants for want of corroboration from any other source. There is nothing on the record to suggest if any excess raw material or finished goods were found in the store at the time of checking. There is also no evidence on the record to suggest the clandestine receipt of the raw material from various buyers and sale of the finished goods to different persons during the period in dispute by the appellants. No discrepancy in the RT.-12 returns which were regularly filed by the appellants was detected by the Excise Department at the time of checking. No seizure of the finished goods supplied to any customers in a clandestine manner, without payment of duty took place. No statement of any buyer of having received the goods from the appellants in a clandestine manner was recorded during investigation. While auditing the record of the appellants on different occasions by the Excise Department no discrepancy was found in the stock of raw material and the finished goods. In the absence of all these circumstances, it could not be concluded simply on the basis of the consumption of the electricity that there had been clandestine manufacture and removal of the goods by the appellants during the period in question (August, 1993 to December, 1995).
In Padmanabh Dyeing & Finishing Work v. CCE, Vadodara - it has been observed by the Tribunal that in the absence of direct evidence regarding removal of the goods without payment of duty, electricity consumption was not enough to work out the production power of the assessee. To the same effect is the ratio of the law laid down in Hans Castings Pvt. Ltd. v. CCE, Kanpur - by the Tribunal it is well settled that suspicion, however, grave cannot take place of legal proof. It was for the Revenue to establish that there was excess production than the one entered in the statutory record and removal of the same in a clandestine manner without payment of the duty by the appellants during the period in dispute but the material/evidence brought on record was insufficient to prove the same.”
21. It is settled principle of law that adverse conclusion cannot be arrived at against an assessee based on presumption. It is the onus of the department to prove clandestine manufacture and removal of goods from the factory. In the entire period of dispute, spanning seven years, the department has not been able to lay hands on records or documents showing or suggesting clandestine production and clearance of the finished goods by the assessee in such a large scale as to warrant demands totaling about Rs. 10 crores. In the absence of evidence, we cannot sustain a finding of excess production and clearance involving the duty confirmed against the assessee. We find that the assessee’s premises were searched on 2-9-2004. After investigation and after arranging study of the performance of the assesee’s plant, show cause notice was issued after two years of search (11-8-2006). Yet another show cause notice was issued on 29-1-2007. One more show cause notice was issued on 29-10-2007. From the written submissions filed by the revenue, it is seen that demand has been confirmed on similar grounds for the period 7/2007 to 9/2008 adjudicating another show cause notice. The tentative finding arrived at the time of issue of first show cause notice was that the assessee was indulging in suppression of production and evasion of duty. Duty demand itself was to the tune of Rs. 7.25 crores. In the three Orders-in-Original passed by the Commissioner covering the period 8/2001 to 9/2008, as per the submissions furnished by the revenue, duty confirmed towards clandestine clearances by the assessee is more than Rs. 11 crores. Though, significant quantities were cleared as per these orders subsequent to the search in 2004, revenue has not been able to gather not even an iota of evidence for physical clearance of any quantity of ingots or CTD bars manufactured by the assessee clandestinely. There is no evidence of procurement of any quantity of raw materials without accountal. No evidence is available for transport of such goods cleared without payment of duty. There is no evidence of receipt of sale proceeds of any quantity of its final products without accountal. These would indicate that the basis for finding of evasion viz., the power consumption ascertained by Shri G.S. Hegde is totally incorrect. If the position was otherwise, it would not have been difficult for the revenue to seize any such final products clandestinely cleared or to gather evidence of such clearances in the form of invoices for purchase of scrap or sale of finished goods or transport documents. The compelling conclusion would be that the impugned demands have no reliable basis and are liable to be set aside.
22. For the period 2001-2005, the duty confirmed was Rs. 7,59,27,962/- for a quantity of 30443.27 rolled products. In the wake of introduction of transaction value effective from 1-7-2000, duty is liable to be paid on the basis of transaction value of each clearance. The impugned order does not indicate as to which clearances of which particular goods were liable to discharge the duty confirmed. This is also one of the infirmities of the impugned orders pointed out by the assessee. All the demands confirmed are solely on the basis that the assessee had consumed power in excess of the norm determined by Shri G.S. Hegde for production of finished goods which were cleared without payment of duty. As we have held that this norm is not an overriding benchmark which is reliable, the demands of duty confirmed in the orders impugned are set aside. Consequently, the demands of interest as well as penalties imposed are also set aside.
23. The appeals filed by the assessee-company and its Directors are allowed.
Appeal No. E/773/2007
24. This appeal filed by the revenue seeks to enhance the duty confirmed and the penalty imposed in the order No. 9/2007 of the Commissioner impugned in line with the proposals in the show cause notices. In the view we have taken of the demands confirmed, the appeal filed by the revenue has no merit. The same is rejected.
(Pronounced in open Court on 25-2-2011)