Case Law Details
Commissioner of Central Excise & Service Tax Vs Argasen Sponge (P) Ltd (CESTAT Kolkata)
CESTAT Kolkata reviewed the appeal by the Revenue against Agrasen Sponge Pvt Ltd (ASPL) regarding alleged clandestine removal of sponge iron without payment of Central Excise duty. The case hinged on discrepancies in input-output ratios for raw materials and electricity consumption. The Revenue argued that the production ratios deviated significantly from industry norms established by technical consultants. It estimated that ASPL underreported production and clandestinely removed 16,436.71 MT of sponge iron, evading duties amounting to ₹1.83 crore.
The adjudicating authority dismissed the charges, citing insufficient corroborative evidence. While the department relied heavily on theoretical norms for production, the Tribunal highlighted the absence of tangible evidence such as transportation records or financial trails. The authority noted variations in raw material quality and expert opinions, which rendered the calculations speculative. It also emphasized that allegations of clandestine removal, being quasi-criminal, require conclusive proof. Supporting ASPL’s defense, the Tribunal ruled that duty demands cannot be based solely on estimates and upheld prior judicial precedents favoring actual production records over theoretical assumptions.
Respondent was represented by Mr. Kartik Kurmy & Ritika Kurmy, Advocates
FULL TEXT OF THE CESTAT KOLKATA ORDER
The Revenue is in appeal.
2. The facts of the case are that .
“1. M/s. Agrasen Sponge (P) Ltd; Mandiakudar, Kansbahal, Dist- Sundergarh, Odisha (herein after referred to as “the Noticee/ASPL”) are engaged in manufacture of “Sponge Iron” falling under chapter heading 72 of CETA, 1985. Acting on the Intelligence that the Noticee are indulging in clandestine manufacture and removal of excisable goods without payment of Central Excise duty, the factory and office premises of the Noticee was searched on 27.02.2010 and several incriminating records were seized.
2.2 Scrutiny of the Daily Stock Account, Raw Material Registers and the returns submitted by the Noticee revealed that during the period from April, 2007 to January, 2010 (excluding the period form July, 2008 to October, 2008), the Noticee has recorded production of 42045.00 MT Sponge iron only against consumption of 97664.45 MT of Iron Ore. Thereby the average consumption for manufacture of 1 MT of Sponge Iron was 2.32 MT of Iron Ore. On scrutiny of iron ore purchase invoices pertaining to the impugned period, it was found that the Noticee had procured iron ore of Fe content in the range of 63% to 65%.
2.3 Further, it was found that the standard/average consumption of power per MT of production of Sponge Iron was 162.00 KWH. The Noticee has shown a substantially high rate of consumption of iron ore as well as power as compared to standard consumption pattern suggested in metallurgy Le around 1.67 M.T. of iron ore and 75-100 Kwh of power for manufacture of 1 M.T. of Sponge Iron.
2.4 The expert opinion obtained from leading technical consultants in the field of production of sponge iron supports the above view of the ratio of consumption to production is 1.67:1, they are as under:
M/s Popuri Engineering & Consultancy Services, Hyderabad, who are experts in the field of designing/drawing and providing sponge iron technology and who have installed almost all sponge iron plants in Odisha, including that of ASPL, opined that the consumption to production ratio is 1.67:1 and the average power consumption is in the range of 70-100 KWH for production of 1 M.T. of Sponge Iron.
ii) M/s Industrial Technical Consultant, Raipur, who are experts in the field of designing/drawing and providing sponge iron technology have opined that the consumption to production ratio is 1.67:1 and the average power consumption is in the range of 90 KWH for production of 1 M.T. of sponge Iron.
2.5. During the period April, 2007 to January, 2010 (excluding the month form July, 2008 to October, 2008), the Noticee has recorded average consumption of 2.32 M.T. of Iron Ore for manufacture of 1 M.T. of Sponge Iron. Taking in account of the input-output ratio of 1.67:1 as per expert opinion, the estimated production of sponge iron comes to 58481.71 M.T., but the Sponge Iron Production recorded in the Daily Stock Account of the Noticee was found to be 42045.00 M.T. Therefore, it appeared that, 16436.71 M.T. of sponge iron has been manufactured surreptitiously, which has been removed clandestinely from their factory without payment of duty.
2.6. Further scrutiny of records has revealed that, the Noticee has grossly underutilized its installed capacity (varies from 33% to 39% during the period) which is neither commercially viable nor technically probable, thereby prima facie indicated that there is suppression of production.
2.7. From the above, it appears beyond doubt that the Noticee by way of showing more than the actual consumption of iron ore and power has accounted for less quantity of sponge iron in their record than the actual production. On being asked, the Noticee were not able to submit any process log book, drop test register or any lab test report for the impugned periods which are normally prepared to record the actual production. This established that, they have deliberately not accounted for the actual production and indulged in deliberate short accountable of production in the statutory books of account so as to clandestinely clear the excess production which was not accounted in the books of account without payment of appropriate duties.
2.8. Thus, from the above, it is ascertained that ASPL has suppressed production of 16436.71 M.T. of sponge iron involving Central Excise duty of Rs. 1,83,27,914/- (including Cess) and removed the same clandestinely without payment of duty, thereby violating the provisions of Rule, 4, 6, 8, 10, 11, & 12 of Central Excise Rules, 2002 which is recoverable under Section 11A of the Act along with interest and applicable penal action under the rules.
2.9 According a Show Cause Notice was issued to the Noticee vide C.No.IV(6)2/CE/CPU/B-11/2010 dated 31.05.2012 for recovery of Central Excise duty amounting to Rs. 1,83,27,914/- along with imposition of penalty. interest and
3.0 ADJUDICATING AUTHORITY’S FINDINGS
The adjudicating authority, after examining the facts on record and submission of the Noticee in this regard has made the following observations/findings vide instant O-1-O dated 10.06.2016.
3.1 The duty has been demanded in the SCN by alleging that there was clandestine production followed by clandestine removal of sponge iron. The department has relied upon the following aspects:
a. The expert opinions- M/s Popuri Engineering & Consultancy Service, Hyderabad, who opined that 60% to 65% Fe(T) content iron ore would be required for production of sponge iron and the consumption and production ration of iron ore to sponge iron is 1.67:1.
b. M/s industrial Technical Consultant, Raipur, an expert in the same field opined that the ratio is 1.67:1 and the consumption of electricity will be 90 Kwh..
c. The Noticee has substantially high rate of consumption of iron ore i.e. 2.32 MT.
d. The Notice has substantially high power consumption as compared to standard consumption pattern suggested of 75-100 Kwh.
e. The Noticee has underutilized its installed capacity. It varies from 39% to 33% over the period from 2007-08 to 2009-10 which are neither commercially viable nor technically probable.
3.2 Regarding the ratio of consumption to production, the adjudicating authority has found that:
a. It appears from the invoices that, the iron ore used had variable Fe content ranging from 60-65%
b. The experts opinions, if taken together clearly establish that there can be range of ratio of iron ore to sponge iron varying from 1.67 and more depending on quality of iron ore and impurity in it
c. In the instant case, there is a range of input/output ratio varying from 1.80 to 4.77 and the average works out to be 2.32. Thus, the quantification based on the ratio taken as constant at 1.67 is not fool proof at all
d. Again, as per experts of IIMT, Bhubaneswar the ratio can be 1.80
e. There is a variation in Fe contents and if the variation in Fe content is taken into consideration, the production may decrease. The estimated production of sponge iron will be variable depending on quality of iron ore. Therefore, the demand on estimated production will be vague in absence of any other concrete evidence.
There are plethora of judgments where in ratio has been laid down that in case of interpretation more than one, the interpretation beneficial to assessee must be considered. Following the ratio the opinion which is beneficial to the assessee needs to be taken into consideration.
g) Charges of clandestine removal are quasi criminal in nature and are a serious charge and must be proved with tangible, cogent, affirmative and unimpeachable evidences.
3.3 The issue of clandestine production and clearance needs to be established with corroborative evidence. Simply the opinion of experts with dependence on many variables cannot be substitute for evidence of clearance established by transportation documents flow of cash etc. While deciding the issue in the case of M/s. Arya Fibres Pvt. Ltd; vs. CCE, Ahmedabad-II, reported in 2014 (311) ELT 529 (Tri-Ahmd)) has considered various orders of Tribunals and other appellate courts and arrived at the legal position regarding clandestine clearance and how they are to be established. Many other judicial decisions have also taken similar view.
3.4 Accordingly the adjudicating authority held that, the ratio laid down by various judgments makes it abundantly clear that department has to prove that firstly, there was clandestine manufacture and secondly, there was clandestine clearance to establish the demand of the duty for such an activity. Even one of these two are not established with certain degree of certainty, the demand on clandestine clearance will not withstand legal scrutiny.
3.5 Regarding excess consumption of power, CESTAT has dealt with the issue in its various orders wherein it was held that, electricity consumption could not be the only factor for determination of duty liability. Clandestine manufacture and removal on the basis of excess electricity consumption cannot be fastened.
3.6 Thus, the adjudicating authority found that, in the instant case there is nothing on record to suggest that there was any effort to find out whether sponge iron was clandestinely removed. The investigation presupposes if good were manufactured theoretically, again theoretically it was clandestinely removed and duty is demandable. But legal position has been made amply clear by the orders and judgments of appellate courts that preponderance of probability can be upheld only when there is one and only one conclusion is possible. But in the case under consideration even the arithmetic calculation for the clandestine production given variable result depending on the origin of expert opinion and there is not an iota of evidence on record to suggest clandestine clearance.
3.7 Various Tribunal decisions have held that, such cases are required to be proved beyond doubt on the basis of concrete and positive evidence which are lacking in the instant case.”
3. Aggrieved from the said order Revenue is before us on the following ground:
“4.1 From the raw material registers and statutory returns submitted to the department, it is seen that during the material period, the Noticee has consumed 97664.45 M.T. of Iron Ore (Fe content ranging between 63% to 65%) for production of 42045.00 MT Sponge iron only as per the daily stock account and statutory returns etc. Hence, the input-output ratio is derived at 2.32:1, which widely varies with the norms of 1.67:1 as fixed by M/s Popuri Engineering & Consultancy Services, Hyderabad who are leading Technical Consultants. The said view is also supported by M/s Industrial Technical Consultant, Raipur,
4.2 During the material period, average consumption of power per M.T. of production of Sponge Iron was 162.00 KWH by the Noticee, which varies with the norms of 70-100 KWH as certified by the reputed industrial consultants such as Institute of Mineral and Material Technology. Bhubaneswar and M/s. Popuri Engineering Consultancy Services, Hyderabad. Such reports recommend the standard rate of consumption after considering all factors into consideration. These are the recommendations basing upon the research conducted on ideal conditions so as to apply to industries in general. Hence the difference between standard power consumption rate of 70-100 units and actual consumption of 162 units during the material period cannot be ignored, considering the enormous quantum of energy found to have been consumed in excess without accountal during the period involved.”
was 84,385 M.T. in terms of which the input-output ration is derived at 1.90.1. I find that this ratio widely varies with the norms of 1.67:1 as fixed by M/s. Popuri Engineering & Consultancy Services, Hyderabad, who is a leading Technical Consultant. This is also supported by the opinion of M/s. Industrial Technical Consultant, Raipur.”
Accordingly the said adjudicating authority held that “I fully agree with the above reasoning adopted by the investigating officers. The department has rightly taken input output ratio 1.67:1 for calculation of production of Sponge Iron“.
4.7 As regards higher consumption of electricity for corroborating suppressed production the adjudicating authority at Para 7.12 of the said order observed that:
“As to how many units were consumed for production of one ton of Sponge Iron, figures have been taken from various technical reports of institutions and Industrial Technical Consultants such as, Institute of Minerals & Materials Technology, Bhubaneswar, M/s Industrial Consultants, Raipur & M/s. Popuri Engineering & Consultancy Services, Hyderabad. Such reports unequivocally recommend the standard rate of consumption at 80-90 units per Ton of Sponge tron after considering all the factors into consideration. These are not the recommendations basing upon the research conducted only on ideal conditions so as to doubt their applicability to the Industries in general. I find no reason to disapprove such findings of the reputed institutions. The difference of power consumption between the standard consumption rate of 80-90 units and actual consumption during the material period cannot be neglected, considering the enormous quantum of energy found to have been consumed in excess without accountal during the period of dispute“.
4.8 In the case of M/s. Shree Mahavir Ferro Alloys Pvt. Ltd. the ratio of input-output ratio of Iron Ore & Sponge Iron is 1.90:1 and Electricity consumption is 112 units for production 1 M.T. of Sponge Iron, where as in the instant case of M/s. Agrasen Sponge (P) Ltd., the corresponding ratio is 2.32:1 and 162 KWH respectively for production of 1 M.T. of Sponge Iron. Further the Fe content of the Iron ore used in both the cases was between 63% to 65%.
4.9 In both the cases the SCNs were issued after obtaining technical opinion from Leading Technical Consultants like M/s. Popuri Engineering & Consultancy Services, Hyderabad & M/s. Industrial Technical Consultant, Raipur regarding the input-output ratio. The standard input-output norm of maximum consumption of 1.67 M.T. of iron ore and Electricity Consumption of 70-100 Kwh for production of 1 M.T. of Sponge Iron was fixed by both the said Technical Consultants and in both cases substantially higher consumption of Iron Ore and electricity than the standard norm was found, basing on which two SCNs were issued by the Department. The adjudicating authority vides OIO No. OIO No.15/CCE/CEX/RKL/2015-16 dated 30.12.2015 in the case of M/s. Shree Mahavir Ferro Alloys Ltd. held the goods were cleared clandestinely and accordingly confirmed the demand raised in the SCN and also imposed penalty. Hence, it appears that there are no valid reasons for divergent stand taken by the same adjudicating authority (Commissioner, Central Excise & Service Tax, Rourkela) in two similar cases based on similarly relied upon parameters.
4.10 The above view finds support from the judgment of the Hon’ble High Court of Kerala in the case of Joy Versus Regional Transport Authority reported in 1999(105)E.L.T.275(Ker.) wherein it has been held that, “Judicial discipline demands consistency in rendering judgments’. A judicial Officer may hold different views on various aspects. A judicial officer may err and pass contradictory orders inadvertently. But once it is brought to the knowledge of the Judicial Officer, he is duty bound to keep track of consistency. Inconsistent orders passed by a judicial Officer almost in the same fact situation, and that too on the same day, would give rise to complaint of discriminatory treatment, which will undermine the people’s faith in the judicial system and the rule of law. It will cause resentment and anguish and make an imprint in the mind of the litigant that he has been discriminated. A judicial officer may err and pass illegal orders, but he shall not err in consistency. He should be consistent even in illegality.”
4.11 Needless to say, it is equally expected that a quasai judicial officer should be consistent in taking stand on almost similar issue. The instant order have been passed on 10.06.2016 and in the case of M/s. Shree Mahavir Ferro Alloys Pvt. Ltd was passed on 30.12.2015 and two divergent stand have been taken by the same adjudicating authority on clandestine production and clearance of Sponge Iron from Iron Ore. When the SCN was issued after due investigation and the charge of clandestine production and clearance as alleged in the SCN based on evidence, how during the time of adjudication those points/evidence were ignored by the adjudicating authority? The adjudicating authority has not indicated in the order what sort of evidence either additional or contrary was noticed/found by him so as to negate the charges framed in the SCN. The observation of the adjudicating authority that the goods were manufactured theoretically and clandestinely removed theoretically appears to have been made in a casual manner.
5.0. The case of clandestine removal is not required to be proved with mathematical precision nor is it possible to do so, for such covert operation are shrouded in mystery, exact details of which is only known to the perpetrators themselves. Hon’ble Supreme Court of India in the landmark in the case of Collector of Customs, Madras pronouncement Bhoormull reported in (1983(13)E.LT. 1546(S.C) is and others versus standards of in cases.”
4. On the other hand Ld. Counsel for the Respondent supported the impugned order and also submitted that the Respondent has also filed Cross Objection, same are to be taken on record. He further submitted that the entire allegation in the instance case is framed by applying theoritical input/output norms and there is absolutely no evidence on records to support the charge of clandestine removal.
5. In this case demand has been raised on the basis of estimated production whereas duty can be demanded only on actual productions in terms of Section 3 read with Section 2(f) of Central Excise Act.
6. To support this he relied on the decision of this Tribunal in the case of R.A. Castings P. Ltd. Vs. CCE [2009 (237) E.L.T. 674(Tri-Del).
7. He further submitted that the charge of clandestine removal is quasi criminal in nature and is a serious charge therefore, must be prove with tangible, affirmative and unimplicable evidence. To support this contention he relied on the decision of Arya Fibres Pvt. Ltd. Vs.. CCE (2014) 311 ELT 529 (Tri-Ahmd.) and Continental Cement Company Vs. UOI (2014) 309 ELT 411 (All.).
8, He also submitted that entire demand in this case is barred by limitation as periodical EA 2000 audit was conducted for the impugned period and no objection was raised against the appellant on the basis of input/output ratio on excess consumption of electricity. Therefore, whole of the demand is barred by limitation as for the period 2007-08 to 2009-10 Show Cause Notice has been issued on 31st May, 2012.
9. Heard the parties. Considered the submissions.
10. We find that in this case the Show Cause Notice has been issued to the Respondent alleging clandestine removal of goods on two grounds
a) Input/output ratio of raw materials on the finished goods. The case of the Revenue is that to manufacture 1 MT of Sponge Iron 1.67 MT of iron ore is required and to manufacture 1 MT of Sponge Iron 162 KW power is required.
11. The Ld. Adjudicating Authority has examined both the issues in the impugned order and drop the proceedings against the Respondent holding that the Show Cause Notice has been issued to the Respondent on the basis of estimated production of Sponge Iron, iron ore and no actual production was considered.
12. Relying on the various judicial pronouncements we further take note on the fact that a similar issue has came up before this Tribunal in the case of Aryan Ispat and Power Pvt. Ltd. Vs. CCE (2023) (11) TMI 677-CESTAT-Kolkata wherein the facts of the case are as under:
“Order No. – FINAL ORDER NO. 77490 /77492/2023
Dated: 17-11-2023
Clandestine removal of undeclared manufactured sponge iron lower declaration of the produced sponge iron to the extent of 11089.730 MT, during the period July 2006 to November 2009 quantification of the alleged clandestine manufacture has been arrived at “estimated production basis” admissibility of oral evidence time limitation HELD THAT:- In the entire investigation, the Department has not brought out any evidence towards excess procurement of coal and dolomites. Since the coal is bought from the coal mine, proper records were kept both by the vendor as well as by the receiver. Such huge quantity of coal could not have been bought by way of cash. There is also no evidence towards deployment and movement of hundreds of vehicles to transport such huge quantity of coal and dolomite. Further, it is seen that no investigation has been taken up towards alleged sale of the huge quantity of Sponge Iron. No statements have recorded from any of the alleged purchasers of the finished goods. There is no allegation about recovery of any private records towards cash receipt/cash payment for the alleged clandestine transactions. In case of allegations of clandestine manufacture/sales, it is essential for the Department to bring in as much corroborative evidence as possible.”
13. And this Tribunal observed as under:
“10. From the Show Cause Notice and the OIO passed, it gets clarified that the demand has been made towards excess production of 11089.730 MT of Sponge Iron during the period July 2006 to November 2009 solely based on the formula adopted by the Department to arrive at the estimated production of iron ore to this extent. While the purchase quantity of iron ore has been taken into account and the electricity consumption has been considered, as pointed out by the Appellant, the manufacture of sponge iron also requires two other important raw materials/consumable viz., Coal & dolomite. In the entire investigation, the Department has not brought out any evidence towards excess procurement of coal and dolomites. Since the coal is bought from the coal mine, proper records were kept both by the vendor as well as by the receiver. Such huge quantity of coal could not have been bought by way of cash. There is also no evidence towards deployment and movement of hundreds of vehicles to transport such huge quantity of coal and dolomite. Further, it is seen that no investigation has been taken up towards alleged sale of the huge quantity of Sponge Iron. No statements have recorded from any of the alleged purchasers of the finished goods. There is no allegation about recovery of any private records towards cash receipt/cash payment for the alleged clandestine transactions. In case of allegations of clandestine manufacture/sales, it is essential for the Department to bring in as much corroborative evidence as possible. In this case, it is seen that the Department has solely relied on the consumption of iron ore which is only one of the raw materials to arrive at the estimated production quantity. Even the Fe (T) content of iron ore has been taken at a consistent level of 62.7% which would not be possible when lot to lot iron ore FE (T) content is checked. The variations which are likely to occur in such lots have not been taken into consideration.
11. We find that the statement recorded by Mr. BK Chandrakar, one of the Appellants herein on 18/01/2010 was retracted by him on 24/01/2010. Even in case of other persons who have recorded the statement, the procedure specified under Section 9D of CEA, 1944 has not been followed.
12. The Punjab and Haryana High Court in the case of G. Tech Industry Vs. Union of India- 2016 (339) ELT (209) (P & H) as given elaborate findings on section 9(D) as under-
4. In view of the fact that the case of the petitioner is essentially premised on Section 9D of the Central Excise Act, 1944, it would be appropriate to reproduce the said provision, in extenso, thus:
“9D. Relevancy of statements under certain circumstances. –
(1) A statement made and signed by a person before any Central Excise Officer of a gazetted rank during the course of any inquiry or proceeding under this Act shall be relevant, for the purpose of proving, in any prosecution for an offence under this Act, the truth of the facts which it contains, –
a. when the person who made the statement is dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by the adverse party, or whose presence cannot be obtained without an amount of delay or expense which, under the circumstances of the case, the Court considers unreasonable, or
b. when the person who made the statement is examined as a witness in the case before the Court and the Court is of opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice.
(2) The provision of sub-section (1) shall, so far as may be, apply in relation to any proceeding under this Act, other than a proceeding before a Court, as they apply in relation to a proceeding before a Court.”
(b) A plain reading of sub-section (1) of Section 9D of the Act makes it clear that clauses (a) and (b) of the said sub-section set out the circumstances in which a statement, made and signed by a person before the Central Excise Officer of a gazetted rank, during the course of inquiry or proceeding under the Act, shall be relevant, for the purpose of proving the truth of the facts contained therein.
5. Section 90 of the Act came in from detailed consideration and examination, by the Delhi High Court, in J.&K. Cigarettes Ltd. v. CCE, 2009 (242) E.L.T. 189 (Del.) = 2011 (22) S.TR. 225 (Del.). Para 12 of the said decision clearly holds that by virtue of sub-section (2) of Section 9D, the provisions of sub-section (1) thereof would extend to adjudication proceedings as well.
7. There can, therefore, be no doubt about the legal position that the procedure prescribed in sub-section (1) of Section 90 is required to be scrupulously followed, as much in adjudication proceedings as in criminal proceedings relating to prosecution.
8. As already noticed herein above, sub-section (1) of Section 90 sets out the circumstances in which a statement, made and signed before a Gazetted Central Excise Officer, shall be relevant for the purpose of proving the truth of the facts contained therein. If these circumstances are absent, the statement, which has been made during inquiry/investigation, before a Gazetted Central Excise Officer, cannot be treated as relevant for the purpose of proving the facts contained therein. In other words, in the absence of the circumstances specified in Section 9D(1), the truth of the facts contained in any statement, recorded before a Gazetted Central Excise Officer, has to be proved by evidence other than the statement itself. The evidentiary value of the statement, insofar as proving the truth of the contents thereof is concerned, is, therefore, completely lost, unless and until the case falls within the parameters of Section 90(1).
9. The consequence would be that, in the absence of the circumstances specified in Section 9D(1), if the adjudicating authority relies on the statement, recorded during investigation in Central Excise, as evidence of the truth of the facts contained in the said statement, it has to be held that the adjudicating authority has relied on irrelevant material. Such reliance would, therefore, be vitiated in law and on facts.
14. There is no justification for jettisoning this procedure, statutorily prescribed by plenary parliamentary legislation for admitting, into evidence, a statement recorded before the Gazetted Central Excise officer, which does not suffer from the handicaps contemplated by clause (a) of Section 9D(1) of the Act. The use of the word “shall” in Section 9D(1), makes it clear that, the provisions contemplated in the sub-section are mandatory. Indeed, as they pertain to conferment of admissibility to oral evidence they would, even otherwise, have to be recorded as mandatory.
15. The rationale behind the above precaution contained in clause (b) of Section 9D(1) is obvious.
The statement, recorded during inquiry/investigation, by the Gazetted Central Excise officer, has every chance of having been recorded under coercion or compulsion. It is a matter of common knowledge that, on many occasions, the DRI/DGCEI resorts to compulsion in order to extract confessional statements. It is obviously in order to neutralize this possibility that, before admitting such a statement in evidence, clause (b) of Section 9D(1) mandates that the evidence of the witness has to be recorded before the adjudicating 424 authority, as, in such an atmosphere, there would be no occasion for any trepidation on the part of the witness concerned. [Emphasis supplied)
13. In the case of Mittal Pigment Pvt. Ltd. Vs. CCE (2018 (360) ELT 157 (Tr-Del.)], the Tribunal has held as under-
6.1 Further the department has not gone beyond the approximation of yield which they have shown as 70 to 84% in col. 3 of Annexure-A attached to the show cause notice and average yield overall had been shown as 77.60% which has been made the basis for issuance of the show cause notice (SCN) as well as for confirming the duty of Central Excise by the impugned order dated 19-5-2009. The department confirmed the duty demand along with interest for the period of five years alleging suppression of clandestine removal of the final product and also imposed penalty mainly based on the production approximation and on the statement of Director of the unit, Shri Agarwal, who is one of the appellants in this case.
6.2 The department has not gone beyond the approximation and the statement of Shri Agarwal. Any prudent person would not so conclude on extra production by approximation and by a mere statement of the Director of the company. Unless there are further corroborations in the form of documentary evidences, which could be like despatch details for the production, receipt details of the said material, transactions of the sale money, transportation details of such goods, details of additional consumption of electricity for such suppressed production a prudent individual would not agree with the present conclusions of the Revenue. There is nothing on record from the Revenue side to come to a reasonable conclusion to say that there has been preponderance of probability of such suppressed production on the part of the appellant. The evidences in the form of approximation and averaging production as 77.6% and one statement of Shri Agarwal, Director of the appellant company cannot be called a prudent conclusion of the production estimate
7. Considering above discussions and the case laws cited above, we conclude that the Revenue has failed to reasonably prove suppressed production and clandestine clearance on the part of the appellants. Consequently, the impugned order in respect of confirmation of duty for alleged suppressed production, and imposition of fine and penalty on the appellant No. 1 and imposition of personal penalty of Rs. 40 lakhs on Shri Agarwal who is appellant No. 2 are hereby set aside. The appellants will get the relief accordingly. [Emphasis supplied]
14. The above Tribunal decision was affirmed by Rajasthan High Court as reported in CCE Vs. Mittal Pigment Pvt. Ltd. 2018 (16) GSTL 41 (Raj.)]
15. In the case of A. R. Shanmugasundaram Vs. CCE [2016 (333) E LT 158 (Tri. Chennai)), the Tribunal has held as under:-
14. In spite of specific directions of this Tribunal, to establish clear evidences on the receipt of LAB by the appellants, no evidence has been brought out in the de novo order except relying the statements of persons of SWC. The period involved in the present case relates to April, 89 to February, 95. It is pertinent to see that the appellants are registered with central excise and being a chemical industry the adjudicating authority ought to give a clear cut findings on the manufacture of final products and clandestine clearance. Further it is vital that both the inputs LAB and sulphuric Acid and the final product that is Acid slurry are highly corrosive chemical requires safety for transportation and storage and use. The Revenue tried to make out the entire case based on the SWC records for supply of LAB, various fictitious firms etc. The onus is on the department to establish the supply of LAB by SWC in various fictitious names pertaining to the appellants. Further, we find that mere single seizure of 449 kgs of acid slurry valued Rs. 16000/- during the transit cannot be a proof for the Revenue to arrive conclusion that the huge quantity of Acid slurry was manufactured and cleared clandestinely. The seizure of acid slurry found at M/s. Baby Star Soap Works, cannot be expanded to the total quantity of 1366.686 M.Ts alleged to have been manufactured by the appellants clandestinely
15. Further, we find that the adjudicating authority has computed the quantity and value purely on mathematical formula and worked out the total quantity of acid slurry by adopting the ratio of raw materiais LAB and sulphuric acid purely based on the alleged quantity of LAB received by the appellants from SWC and not supported with any evidence. As regards the payments made to three employees of SWC, the appellants claimed that this was paid for the expenses. Regarding payment of Rs. 11 lakhs made by Fintex Chemicals to TNPL, we find that there is no finding to link the said payments to supply of LAB to the appellants and mere statements that they are related and controlled by the appellants, is not an evidence to hold that appellants revived LAB.
16. It is pertinent to state that in order to manufacture acid slurry, use of second raw material, i.e. sulphuric acid oleum is equally important to establish illicit manufacture of finished goods of such a huge quantity, as alleged in the findings. As rightly contented by the appellants if they have to manufacture such a huge quantity of acid slurry definitely it requires huge storage capacity for LAB, finished product and spent acid, which is a byproduct as the same cannot be thrown out without clearing. In this regard, the Tribunal’s coordinate Bench in the case of Mahesh Silk Mills v. CCE, Mumbai reported in 2014 (304) E.LT. 703 (Tri-Ahmd.) clearly held that merely based on the statements and private records, the demand of excise duty on clandestine removal cannot be sustainable without corroborative evidence. The relevant portion of the said decision is reproduced as under:-
“6. It is observed from the records that the total demand of duty of Rs. 30,18,378/- in the case has been raised mainly on the basis of figures taken from the diary recovered from the factory premises of Mahesh Silk Mills on 19/20-10-1955. While recovery of the impugned from the factory premises of Mahesh Silk Mills is not disputed by the appellant but no one from appellant’s side has admitted that the diary belonged to the appellant. Nor the contents of the diary were admitted by any one from the appellant’s side. The scribe of the said diary has not been identified by the Revenue for ascertaining the ground realities. Only one trader – Chandan Prints, who is one of the 47 traders mentioned in the said diary, initially admitted to have received 24,555 L Meters of processed man-made fabrics, involving excise duty of Rs. 33,957/- from Mahesh Silk Mills against 24,555 L. Meters of grey Man- Made Fabrics sent to Mahesh Silk Mills on 29-3-1994 and 5-81993. However, M/s. Chandan Prints had retracted its statement during the course of adjudication. The statements of the remaining 46 traders have not been placed on record by the Revenue to prove that the remaining entries recorded in the diary also related to clandestine manufacture and removal of processed man-made fabric. There is no corroborative evidence of excess consumption of electricity, colours, dyes, chemicals, etc., by the appellant. There is also no evidence of transportation of processed man- made fabrics from the appellant’s factory or any instance where clandestinely removed goods were seized by the revenue. Cross-examination of the third party witness was also not provided to the appellants.
8. Similarly, in the matter of Nova Petrochemicals v. CCE, Ahmedabad-II, this Tribunal in its Final Order Nos. A/11207-11219/2013, dated 26-9-2013 this bench has held as under in Para 40:
“After having very carefully considered the law laid down by this Tribunal in the matter of clandestine manufacture and clearance, and the submissions made before us, it is clear that the law is well settled that, in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenues which mainly are the following:
i. There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions,
ii. Evidence in support thereof should be of:
a. raw materials, in excess of that contained as per the statutory records,
b. Instances of actual removal of unaccounted finished goods (not inferential or assumed) from factory without payment of duty.
c. Discovery of such finished goods outside the factory
d. Instances of sales of such goods to identified parties.
e. receipt of sale proceeds, whether by cheque o by cash, of such goods by the manufacturers or persons authorized by him;
f) use of electricity for in excess of what is necessary for manufacture of goods otherwise manufactured and validity cleared on payment of duty
g. statements of buyers with some details of licit manufacture and clearance,
h. proof of actual transportation of goods, cleared without payment of duty
i. links between the document recovered during the search and activities being carried on in the factory of production, etc.
17. In the present case, in spite of clear directions by the Tribunal by giving an opportunity to the adjudicating authority to bring out all the evidences including the electricity consumption, adjudicating authority failed to bring out any material evidence in support of supply of LAB by SWC to the appellants, no evidence for such a huge amount of manufacturing activity, or no evidence of any payments for sale of finished goods clandestinely removed and no evidence on removal of spent acid. We also find that no attempt has been made to obtain the documents and records from TNPL, which is crucial for sale of LAB instead the LA had only relied on the statements and records of SWC who is a sole selling agent of TNPL
18. In view of the foregoing discussions, we are of the considered view that the entire demand of clandestine removal of acid slurry has been made based on assumption and theoretical calculations by arriving taking notional quantity of LAB. Accordingly, we hold that the demand is not sustainable and entire demand is liable to be set aside. The confiscation of the seized goods of 449 kgs of Acid slurry and imposition of fine ordered by the adjudicating authority is upheld. The excise duty demanded in the impugned order is set aside and the appeal is allowed to that extent [Emphasis supplied]
16. In the case of CCE Vs. R. A. Casting Pvt. Ltd. [2011 (269) ELT 337 (All.), the Tribunal has held as under-
2. The Respondent Nos. 1 and 2 were involved in the manufacturing of MS ingots and in respect thereof had maintained the books of account as provided under the Central Excise Rules and were furnishing the returns and paying the central excise duties. The Superintendent issued the show cause notices dated 1-12-2006 asking the respondent to show cause why the demand towards central excise duty may not be confirmed for the period from 2001-02 to 2004-05 by invoking the proviso to Section 11A(1) of the Act and why the penalty should not be imposed under Rule 25(1) of the Central Excise Rules, 2002 read with Section 11AC of the Act. Various allegations have been made in the show cause notices and from the perusal of the show cause notices it appears that the excess production has been estimated on the basis of the higher electricity consumption. The respondents filed their reply. The Commissioner of Central Excise, Meerut-1, vide its order dated 30- 7-2007 has confirmed the demand against the respondent nos. 1 and 2 and also imposed the penalty on the respondent nos. 1 and 2 and on other respondents alleged to have been involved in the clandestine removal of the goods.
5. On consideration of the aforesaid findings, we are of the view that the findings of the Tribunal are based on the material on record and they cannot be said to be without any material and perverse. We find that the Revenue has invoked the proviso to Section 11A(1) of the Act but no case has been made out in the show cause notices or in the adjudication order that there were any mis-statement, suppression of fact or fraud on the part of the respondents. No substantial question of law arises from the order of the Tribunal. (Emphasis supplied)
17. The ratio of the cited case law are squarely applicable to the facts of the present case. In the absence of the corroborative evidence, particularly taking into account that the entire estimated production has been arrived at based on certain formula with no statutory backing, we do not find any merits in the OIO passed by the Adjudicating Authority. Accordingly, we set aside the impugned order on merits.
18. We also find force in the arguments of the Appellant that the Show Cause Notice has been issued after 1 years 4 months from the date of receipt of the officials to the Appellant’s factory. There is no documentary evidence placed that such delay was caused by any non-cooperative attitude of the Appellant. Therefore, we hold that the confirmed demand is required to be set aside even on account c limitation also. We do so.
19. Thus, the Appeal is allowed both on merits as well as on account of limitation. The Appellant would eligible for consequential relief, if any, as per law.”
18. We find that in this case demand sought to be raised against the Respondent on the basis of estimated production as per input/output ratio of 1:1.67MT and electric consumption is 162 KW for manufacture of 1 MT Sponge Iron. All these basis for confirmation of demand are on estimate basis and there is no tangible evidence has been brought by the Revenue on record from where the Respondent procure other raw materials to manufacture such a huge quantity of Sponge Iron like coal and iron ore.
19. And in the case of Arya Fibres Pvt. Ltd. (Supra) this Tribunal has laid down law for establish clandestine removal clearance in cases of allegation made of clandestine manufacture and clearance of the goods. In para 40 of the said order which are as under :
“40. After having very carefully considered the law laid down by this Tribunal in the matter of clandestine manufacture and clearance, and the submissions made before us, it is clear that the law is well settled that, in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenue which mainly are the following:
i. There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions:
ii. Evidence in support thereof should be of:
a. raw materials, in excess of that contained as per the statutory records,
b. instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty.
c. discovery of such finished goods outside the factory,
d. instances of sale of such goods to identified parties;
e. receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons authorized by him;
f. use of electricity far in excess of what is necessary for manufacture of goods otherwise manufactured and validly cleared on payment of duty,
g. statements of buyers with some details of illicit manufacture and clearance;
h. proof of actual transportation of goods, cleared without payment of duty;
i. links between the documents recovered during the search and activities being carried on in the factory of production etc.”
19. As none of the test has been conducted to establish clandestine manufacture and clearance of the goods by the Respondent, therefore, the impugned demand are not sustainable against the Respondent.
20. In view of the observations we do not find any informity in the impugned order and the same is upheld.
21. Moreover, the periodical audit took place and no deficiency were found, no objections were raised regarding clandestine removal of goods by the Respondent, therefore, whole of the demand is also barred by limitation as Show Cause Notice has been issued by invoking extended period of limitation.
22. In view of this we hold that the Respondent succeeds on merits as well as on limitation therefore, we upheld the impugned order and dismiss the appeal filed by the Revenue. Cross objection raised by the Respondent are also disposed off in the above terms.
(Pronounced in the open court on 12.12.2024)
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