Case Law Details
Agarwal Aluminiums Vs Commissioner (CESTAT Delhi)
In the case of M/s Agarwal Aluminium versus the Commissioner of Central Excise and Service Tax (CESTAT Delhi), an appeal was filed to challenge the order-in-original dated 27.01.2020. This article provides a detailed analysis of the case, focusing on the denial of area-based excise duty exemption based on the requirement that commercial production should have commenced on or before 31.03.2010.
Detailed Analysis
The central issue in this case revolves around whether Agarwal Aluminiums were eligible for the benefits outlined in Notification No. 50/2003-CE, dated 10.06.2003. This notification offered area-based excise duty exemption but imposed the condition that the factory must have initiated “commercial production on or before 31.03.2010.”
Agarwal Aluminiums claimed the benefit of this exemption, but a show cause notice was issued on 16.07.2015 after a comprehensive investigation. The investigation revealed that the appellant had not initiated commercial production before the specified date. Consequently, a demand was confirmed by the Commissioner on 22.07.2016.
However, the case took a turn when the Tribunal remanded the order back to the Original Authority due to contradictory facts in the earlier order. Subsequently, the Commissioner issued the impugned order on 27.01.2020, which led to the denial of the Central Excise duty exemption and the imposition of a substantial penalty.
The appellant’s grounds for appeal included:
(i) Arguing that the unit had been established and functional before the sunset date, with aluminium sections sold on an invoice dated 31.03.2010. (ii) Asserting that they had functional furnaces before installing the main furnace and had been manufacturing goods. (iii) Challenging the sustainability of the show cause notice, issued more than four years after the investigation began. (iv) Contending that the demand of duty, interest, and penalty was incorrect and should be set aside.
On the other hand, the Authorized Representative for the Department presented counterarguments, emphasizing:
(i) The appellant’s notification submission, indicating that commercial production had not commenced by 31.03.2010. (ii) The purchase date of the industrial furnace, which crossed into Uttarakhand only on 29.03.2010, making it improbable for the factory to install and commence production within two days. (iii) The discrepancy in the appellant’s aluminum scrap consumption between 29.03.2010 and 31.03.2010, casting doubt on the production volume claimed. (iv) The impossibility of the appellant manufacturing extrusion products, such as aluminium sections, with their existing equipment. (v) The absence of evidence supporting the claim of having hired DG sets before obtaining electricity connection.
Conclusion
After a thorough examination of the facts and submissions, the CESTAT Delhi upheld the impugned order, denying the appellant the benefit of the Central Excise duty exemption under Notification No. 50/2003-CE. The order confirmed the demand of Central Excise duty, imposed interest, and a substantial penalty.
This case highlights the importance of meeting the specified conditions for exemptions and the need for clear documentation and evidence when claiming such benefits. It serves as a reminder of the legal intricacies surrounding area-based excise duty exemptions and the importance of complying with all prerequisites to avoid penalties and legal disputes.
FULL TEXT OF THE CESTAT DELHI ORDER
M/s Agarwal Aluminium1 filed this appeal to assail the order-in-original2 dated 27.01.2020. The short issue to be decided is whether the appellant was entitled to the benefit of area based exemption Notification No. 50/2003-CE dated 10.06.2003 or not. It is undisputed that one of the conditions for availing the benefit of this notification was that the factory should have commenced “commercial production on or before 31.03.2010”. The appellant claimed the benefit of this notification. A show cause notice3 dated 16.07.2015 was issued to the appellant after detailed investigation which showed to the Revenue that the appellant had, in fact, not commenced commercial production before 31.03.2010. The demand was confirmed by the Commissioner by order dated 22.07.2016 which, on assessee’s appeal, was remanded to Original Authority by this Tribunal’s order dated 07.11.2017 in view of some contradictory facts mentioned in that order. Thereafter, the impugned order was passed on 27.01.2020 by the Commissioner in the denovo proceedings. The operative part of this order is as follows :-
“(1) I hereby deny the benefit of Central Excise duty exemption under Notification No. 50/2003-CE dated 10.06.2003 to M/s Agrawal Aluminiums, B-171, Phase – I, ESIP, Sitarganj, Udham Singh Nagar, Uttarakhand.
(2) I hereby confirm the demand of Central Excise duty amounting to Rs. 4,44,30,161/- (Rupees Four Crore Forty Four Lac Thirty Thousand One Hundred Sixty One only) against M/s Agrawal Aluminiums, B-171, Phase – I, ESIP, Sitarganj, Udham Singh Nagar, Uttarakhand for the period April’2010 to March’2015 under Section 11A (4) of Central Excise Act, 1944.
(3) I hereby demand interest as per applicable rates on the above confirmed demand of duty under Section 11AA of Central Excise Act’1944.
(4) I hereby impose a penalty of Rs. 4,44,30,161/- (Rupees Four Crore Forty Four Lac Thirty Thousand One Hundred Sixty One only) against M/s Agrawal Aluminiums, B-171, Phase – I, ESIP, Sitarganj, Udham Singh Nagar, Uttarakhand, under Section 11AC of Central Excise Act, 1944, read with Rule 25 of the Central Excise Rules, 2002”.
2. Aggrieved, the appellant filed this appeal on the following grounds :-
(i) The unit was established and was functioning before the sunset date and aluminium sections were sold on an invoice dated 31.03.2010. Therefore, the exemption cannot be denied to the appellant. The declaration under the exemption notification was filed by the Department on 29.03.2010 and, therefore, it is incorrect to say that the production has not “commenced by that date” ;
(ii) The exemption was denied by the impugned order on incorrect emphasis. Even before the main furnace was installed. The appellant had two small karahai type furnaces fitted in earth build in-house (moose furnaces) which were functional and the appellant was manufacturing goods ;
(iii) The SCN was issued after more than 4 years in the beginning of the investigation and, therefore, is not sustainable ;
(iv) The demand of duty, interest and imposition of penalty are, therefore, incorrect and the appeal may be allowed and the impugned order may be set aside with consequential relief.
3. On behalf of the learned Authorized Representative for the Department made the following submissions :-
(i) The intimation under the exemption Notification dated 29.03.2010 was submitted to the office of the Deputy Commissioner on 30.03.2010 and the office of the Superintendent on 31.03.2010. A perusal of this letter shows that against the column “date on which option exercised” the appellant recorded “from the date of start of commercial production (shall be intimated separately)”. This shows that until 31.03.2010, the appellant had not begun commercial production by 31.03.2010 ;
(ii) The industrial furnace was purchased by the appellant by invoice dated 26.03.2010 from the supplier in Himachal Pradesh and as can be evidenced from the stamp on the invoice. It entered the State of Uttarakhand where the appellant is located only on 29.03.2010. It is extremely difficult to bring the furnace to the factory, commission it, make all electric connections on the same day and start commercial production also on the same day as claimed by the appellant ;
(iii) As reported in paragraph 15.4 of the impugned order, the appellant had a closing balance of the raw material aluminium scrap of 13,319 kg. on 29.03.2010. On 31.03.2010 the appellant had a closing stock of 13,183.09 kg. It shows that the appellant had consumed only 136.31 kg. of scrap between 29.03.2010 and 31.03.2010. It is impossible for the appellant to have manufactured 430.20 kg. of final product namely aluminium sections with merely 136.31 kg. of scrap.
(iv) The goods which were manufactured by the appellant were aluminium sections, which are produced by extrusion. They are manufactured by putting the aluminium ingots through the process of extrusion, i.e., by heating ingots and pushing them through a die with specific cross sectional profile. It is impossible that aluminium sections emerge out of the Karahai furnace itself. There is nothing on record to show that the appellant had the infrastructure to extrude aluminium sections by 31.03.2020 ;
(v) As per the standard input/out norms notified by the DGFT to manufacture 1 kg. of aluminium extruded products 1.05 kg. of aluminium scrap is required. The consumption of aluminium scrap as per the record is only one-third of the final product manufactured ;
(vi) For any factory or the furnace to work, one needs to have an electrical connection. Records of the electricity authority show that the appellant had not consumed any power before April, 2010. Although the appellant claimed that it had hired DG sets prior to getting the electricity connection, no evidence in support of this claim has been submitted ;
(vii) In view of the above, appeal may dismissed.
4. We have gone through the records of the case and considered the submissions by both sides.
5. The short point to be decided is if, based on the facts and records which are available, it can be inferred that the appellant had commenced commercial production prior to 31.03.2010 and, therefore, was entitled to the benefit of the exemption notification or not.
6. The case of the Revenue is that the appellant had purchased an industrial furnace with accessories from M/s Macro Engineers, Himachal Pradesh under invoice dated 26.03.2010. This consignment crossed the border into Uttarakhand only on 29.03.2010 and therefore it could not have been brought into the factors, installed, commissioned, tested and production commenced by 31.03.2010. According to the appellant, it had two small karahai type furnaces called as moose furnaces in which aluminium scrap was molted and ingots were produced prior to this date. It is also the case of the appellant that the industrial furnace was brought in and installed and used prior to 31.03.2010 and the first invoice for final product was issued on 31.03.2010. An intimation was served upon the Deputy Commissioner of Central Excise and the Range Superintendent of letter dated 29.03.2010.
7. We have carefully gone through the intimation dated 29.03.2010 issued by the appellant. It states, inter-alia “with reference to the above notification, it is kindly informed to you that we are going to start commercial production from the last week of March”. This is followed by the details of the raw materials and final products which the appellant would use and manufacture. The products to be manufactured included aluminium ingots, billets, bars and rods, hollow profiles and tubes and pipes. In other words it included some cast products, such as ingots and billets and some extrusion products, such as, tubes, pipes, bars and rods. The date on which the option shall be exercised is indicated as “from the date of start of commercial production (shall be intimated separately)”. Since this letter was served upon the Deputy Commissioner on 30.03.2010 and on the Range superintendent on 31.03.2010, it is evident that the appellant had not begun commercial production until 31.03.2010 nor was it able to indicate by then the date on which the commercial production would begin. Therefore, the appellant mentioned that the date will be intimated separately. For this reason itself, the invoice dated 31.03.2010 issued by the appellant for aluminium sections does not appear to be correct or pertain to products manufactured by it. Further, the industrial furnace acquired for manufacturing aluminium ingots from scrap itself was purchased by invoice dated 26.03.2010 and it crossed into the State of Uttarakhand on 29.03.2010. We find it unthinkable that such an industrial furnace with accessories would have reached the factory on the same date and would have been installed, commissioned, tested, trials completed and commercial production also completed and the first invoice for commercially produced goods could have been raised on 31.03.2010 i.e. within two days.
8. We also find strong force in the argument of the learned Authorized Representative for the Revenue that under this invoice dated 31.03.2010 aluminium sections were sold which are extrusion products and there was no equipment for extrusion in the factory. Records show, as has been indicated in paragraph 15.4 of the impugned order, that Shri Ravi Agarwal of the appellant was asked as to how it could have produced 430.2 kg. of aluminium sections within two days by consuming a mere on 136.31 kg. of scrap, he claimed that records will be supplied later, but never did so. In the absence of any contrary evidence we accept Revenue’s contention that it was impossible for appellant to have produced 430 kg. of sections by consuming 136 kg. of aluminium scrap. Therefore, on the facts of the case we are not convinced that any commercial production was commenced on or before 31.03.2010.
9. It also needs to be noted that when the officers of the Preventive Wing visited the factory months later, on 22.10.2010 and a panchnama was drawn and it was found that the furnace of the factory was still under installation and hydraulic mechanism of furnace and electrical panels were not installed the furnace was also not connected to the electrical line. Therefore, it is highly doubtful that the appellant had, as it claimed installed the electrical furnace on two days between 29.03.2010 and 31.03.2010 and also completed the production.
10. It needs to be pointed out that the electricity consumption as per the electricity authorities was nil prior to April, 2010 and we find it hard to believe that the production could have taken place without any electricity at all. The appellant claimed that it had a diesel generator set for a few days, but was unable to provide any evidence to support its claim.
11. The last submission of the appellant was that it was manufacturing products in the moose furnaces, which were essentially karahais with fire under them. We are not convinced that those furnaces would have been able to produce ingots on such a large scale and certainly they could not have extruded and produced aluminium extruded products, such as, aluminium sections for which the first invoice dated 31.03.2010 was issued.
12. In view of the above, we find that the impugned order is correct and proper and calls for no interference. The impugned order is upheld and the appeal is dismissed.
(Order pronounced in open court on 12/09/2023.)
Notes:
1 appellant
2 Impugned order
3 SCN
