Case Law Details
Mahavir Ferro Alloys Pvt. Ltd. Vs Commissioner of CGST & Central Excise (CESTAT Kolkata)
The case of Mahavir Ferro Alloys Pvt. Ltd. Vs Commissioner of CGST & Central Excise revolved around allegations of clandestine removal and underpayment of excise duty based on estimated production norms. The Department contended that the appellant, a manufacturer of sponge iron, had understated production by 11,542 MT during 2008-09 and 2009-10, based on an input/output ratio of 1:1.67. This theoretical norm suggested higher production than recorded, leading to a demand for unpaid duty of ₹1.59 crore. The Show Cause Notice also alleged undervaluation in transactions between the appellant’s divisions, resulting in additional duty shortfalls. The appellant challenged these allegations, asserting that the estimates were based on flawed theoretical calculations without accounting for variations in raw material quality and operational parameters.
The appellant argued that their actual input/output ratio ranged from 1:1.87 to 1:1.92 due to the use of lower-quality iron ore and coal. They contended that duty could not be levied on estimated production under Section 3 of the Central Excise Act, which mandates duty on actual production. Supporting data from statutory records and corroborative evidence negated the allegations of clandestine removal. The Tribunal noted that the Department relied solely on theoretical norms without presenting concrete evidence. Citing precedent cases, the Tribunal ruled in favor of the appellant, emphasizing the necessity of substantive proof for such allegations. This decision underscores the importance of evidence over estimations in excise duty disputes.
Appellant was represented by Shri Kartick Kurmi, Advocate
FULL TEXT OF THE CESTAT KOLKATA ORDER
The Appellant is engaged in the manufacture of Sponge Iron and M.S. Ingots falling under Ch.72 of the CETA. For manufacture of Sponge Iron, the Appellant uses Iron Ore in the ratio of 1:2 (apporx), Coal 1:2 (approx.) and Dolomite @ 5%, per metric tone of Sponge Iron manufactured depending on the quality of raw material and other manufacturing parameters. The installed capacity of the Kiln is determined/assessed by the Kiln suppliers considering Iron Ore with Ferrous Content (Fe) of 65% of size 5mm-18mm and Coal with Fixed Carbon (FC) of 45% (size 0-18mm).
2. On 27-02-2010 the Preventive Officers of the department conducted search at their factory and office premises and took physical stock of raw materials and finished goods on estimated basis. The physical stock of raw materials etc., were found tallying with the books of accounts. However, a shortage of 12.165 MT of Sponge Iron was detected, on estimate basis.
3. The Show Cause Notice dated 23-08-2012 was issued by Ld. Commissioner alleging clandestine production/removal of 11542.000 MT of Sponge Iron during the period from 2008-09 to 2009-10 (upto 2602-2010) on the based on the input/output norms of 1:1.67. As per this ratio with the usage of 1.67 MT of iron ore, 1 MT of sponge iron can be manufactured. On the basis of this input/output ratio of 1:1.67 , the Show Cause Notice alleged that during the said period, by consuming 160198 MT of Iron Ore Fe of 63% the Appellant “should have” manufactured “estimated production” of 95927 MT of Sponge Iron whereas the Appellant has produced 84385 MT of Sponge Iron which is short by 11542 MT. This has been taken as understated which is taken as cleared without payment of duty of Rs.1,59,38,571/-.
4. The Show Cause Notice also alleged under valuation of Rs.17,33,546/- for sale of 991.885MT of Sponge Iron in respect of clearances made to their M.S.Ingot unit (Division-II) during the period July, 2009 to February, 2010 and resulting in short payment of duty to the extent of Rs.1,42,845/- . Sri Vicky Jain, Managing Director of the Company was required to Show Cause why penalty U/r 26 of the Central Excise Rules, 2002 should not be imposed upon him for his purported abatement in the offences of the Appellant Company.
5. The Appellant in filed their reply to Show Cause Notice and denied the allegations. The Appellant inter alia contended that –
(i) the demand on “estimated production” is based on theoretical input/output norms;
(ii) the poor quantity of Iron Ore, Coal and host of other manufacturing parameters are not at all considered;
(iii) There is no cogent, tangible, affirmative and unimpeachable corroborative materials on record;
(iv) The purported Incoming Memo (BIN Card), Daily Statement, Feeding Register itself disproves the charge of understatement of production by applying theoretical Input/Output norms.
6. After due process, the Adjudicating authority vide the impugned Order-in-Original dated 30-12-2015, confirmed the demand. Being aggrieved, the appellants have filed the present Appeal before the Tribunal.
7. The Ld Advocate appearing on behalf of the appellant, makes the following submissions.
7.1 The entire demand of Rs.1,59,38,571/- is confirmed in the instant case on “estimated production” by applying purported theoretical input/output norms.
7.2 As per the department, the input/output ratio should be 1:1.67, whereas in case of the Appellant, it is 1:1.90. Reference is invited to Para 7.9 on Page 79 & Para 7.11 on Page 80 of OIO.
7.3 There is no corroborative evidence brought on record in support of the main charge of clandestine removal of 16436.71 MT of Sponge Iron.
7.5 The duty in the instant case is levied on “estimated production” of Sponge Iron that “should have been” produced by applying theoretical input/output norms.
7.6 The levy under Section 3 read with Section 2(f) of the Central Excise Act, is on “actual production” and not on any “estimated production”.
7.7 The Appellant submits that no duty can be demanded based on Input/Output ratio without considering the quality of raw material and other manufacturing parameter.
7.8 As per RG-1/DSA, ER-1 and ER-4 returns and reflected the same in RG-1/DSA, ER-1 and ER-4 returns During the period under dispute i.e. 2008-09 to 2009-10 (upto 26-02-2010) they have manufactured following quantities of Sponge Iron.
TABLE – “A”
| Year | Sponge Iron manufactured (MT) |
| 2008-09 | 42630.000 |
| 2009-10 (upto 26-02-2010) | 41755.000 |
| Total | 84385.000 |
7.9 During the period under dispute they have purchased 86% to 94% of inferior quality of Iron Ore as tabulated below. It is stated that high grade Iron Ore contains Fe 63%+ and Iron Ore between Fe 59% to 63% in their quality.
TABLE – “B”
Purchase of Iron Ore Fe content wise (in MT)
| Year | 2008-09 | % | 2009-10
(Upto 26-02-2010) |
% |
| (1) | (2) | (3) | (4) | (5) |
| 59-61% | 77974.256 | 54.5% | 39738.395 | 39.95% |
| 61-63% | 60064.859 | 42% | 46257.676 | 46.51% |
| 63%+ | 5000.000 | 3.5% | 13457.369 | 13.54% |
| Total | 143039.115 | 99453.440 |
7.10 During the period under dispute they had purchased 100% poor quality Coal (i.e. Grade E/F) having Fixed Carbon (FC) of 23% to 28%. The standard requirement of FC in Coal for manufacture of Sponge Iron is 45% (Grade A).
TABLE – “C”
Grade wise Coal purchased during 2008-09 to 2009-10
| Year | Grade | FC% | Quantity Purchased (MT) |
| 2008 – 09 | Grade E | 27-28 | 74562.360 |
| Grade F | 23-26 | 18038.460 | |
| 2009 – 10 | Grade E | 27-28 | 72445.790 |
| Grade F | 23-26 | 7275.820 |
7.11 The detail of Input/Output ratio prevailing in the factor of the Appellant during the disputed period was as under.
TABLE – “D”
Details of Input/Output ratio prevailing in the unit of Appellant
| Year | Sized Iron Consumed (5mm – 18mm) (purchased directly and also obtained by crushing Iron Ore Lumps) (M.T) |
Iron Ore (3mm -10mm ) Consumed (M.T) |
Total Iron Ore consumption (M.T) | Sponge Iron manufactured (M.T) | Input/Output ratio |
| (1) | (2) | (3) | (4) | (5) | (6) |
| 2008-09 | 62420.000 | 19450.000 | 81870.000 | 42630.000 | 1:1.92 |
| 2009-10 | 54250.282 | 24098.557 | 78348.839 | 41755.000 | 1:1.87 |
| (Upto 26- | |||||
| 02-2010) | |||||
| Total | 116670.282 | 43548.557 | 160218.839 | 84385.000 | 1:1.89 |
7.12 The above Table would clarify that the input / output ratio is 1 :1.89 as against the input / output ratio of 1 : 1.67 taken by the Revenue.
7.13 While the appellant is explaining the input / output ratio by taking into consideration all the factors like Fe content of the Iron Ore, Coal grade, etc., the input / output ratio adopted by the Revenue is based on theoretical expert opinion of Institute of Mineral and Materials Technology, Bhubaneswar, GoI and the opinion of M/s Popuri Engineering & Consultancy Services, Hyderabad
7.14 The Appellant relies on the following decisions of this Hon’ble Bench passed in identical/similar fact situation –
(i) CCE Vs. Agrasen Sponge Ltd. (2025) 26 Centax 141 (Tri.- Cal.) [Para 17 to 19];
(ii) Aryan Ispat and Power Pvt. Ltd. Vs. CCE (2023) (11) TMI 677-CESTAT-KOLKATA [Para 10];
7.15 The Appellant also submits that in the expert opinion dated 0701-2010 tendered by Institute of Mineral and Materials Technology, Bhubaneswar, Government of India (relied upon under Para 12.8 of the Show Cause Notice (Page 303) itself, it is stated that considering the plant practice for producing 1 MT of Sponge Iron usually 1.8 MT of High quality Iron Ore with Fe of 65% is taken. In Reply to Q. No. 8 it is stated that the Iron Ore ratio depends upon the quality of Iron Ore and if the contamination of ore is high the yield would come down to 50% which means for 1 MT of Sponge Iron, 2 MT of Iron Ore would be required.
7.16 In the instant case considering the poor quality of Iron Ore and Coal consumed as elaborately setout above and the input/output ratio of 1.87 to 1.92 (average 1.90) is quite normal and no adverse inference can be drawn therefrom.
7.17 The allegations in the instant case are entirely based on theoretical calculation without any cogent, tangible, affirmative and unimpeachable corroborative materials on record evidencing clandestine removal of impugned goods. There is no confession of guilt either.
7.18 The Appellant also relies on the following case laws :
(i) Arya Fibres Pvt. Ltd. Vs. CCE (2014) 311 ELT 529 (Tri.-Ahmd.) (Para 40);
(ii) Continental Cement Company Vs. UOI (2014) 309 ELT 411 (All.) (Para 12);
(iii) CCE Vs. Agrasen Sponge Ltd. (2025) 26 Centax 141 (Tri.-Cal.) (Para 17 to 19);
(iv) Aryan Ispat and Power Pvt. Ltd. Vs. CCE (2023) (11) TMI 677-CESTAT-KOLKATA [13 to 171;
(v) Jai Balaji Industries Ltd. Vs. CCE reported in 2023-VIL-771-CESTAT-KOL-CE [Para 14.7, Para 15.51.
7.19 In the instant case there is not a single evidence in support of the main charge of clandestine removal of 11452 MT of Sponge Iron, has been adduced by the Revenue.
7.20 In the instant case-
(i) There is no evidence of actual production of 11542 MT of Sponge Iron;
(ii) There is no evidence of removal of 11542 MT of Sponge Iron;
(iii) There is no evidence of acceptance of buyers;
(iv) There is no evidence of flow of back of funds;
(v) There is no evidence of out of account purchase of raw material;
(vi) There is no evidence of out of account transportation of raw material;
(vii) There is no acceptance of transporters for transporting raw materials out of account;
(viii) There is no acceptance of sellers of raw materials;
(ix) There is no evidence of extra use of labour and payment of wages etc.;
(x) There is confession of guilt by the Appellant;
(xi) There was no excess shortage of raw material detected on the day of search;
7.21 In the impugned order shortage of 12.165 MT of Sponge Iron, Incoming Memos (Doc.No.01/2010), Feeding Register (Doc.No.02/2010) and “Daily Statement” (Doc.No.18/2010) and Doc.15/2010 purportedly seized from the premises of the Appellant are discussed in the OIO under Para 7.3 (Page 75), Para 7.4 (Page 76), Para 7.5 & Para 7.6 (Page 77, 79 & 88). No separate demand is raised on those documents etc. [Please see Para 7.8 at Page 79 vis a vis Para 12.0 at Page 88]
7.22 The maker of the said documents are not examined/not known (Para 7.4 at Page 76, Para 7.6 at Page 78). The maker of the Daily Statement Incoming Memo and Feeding Register are not known hence, no reliance can be placed on such documents of uncertain authorship. The Appellant relies on Hitech Abrasives P. Ltd. Vs. CCE reported in 2018 (362) E.L.T 961 (Chh.) (Para 12.2).
7.23 In the instant case the physical stocks were not determined by actual weighment but on eye estimation basis and that being the case the shortage of 12.165 MT where the Appellant manufactured 45115 MT in the year 2009-10 is just 0.02% which is quite negligible and no adverse inference can be drawn on that basis.
7.24 In the case of CIT Vs. M/s Balaji Wire Pvt. Ltd. reported in 2008 (304) ITR 393 [Para 19, Para 20], it is held by the Hon’ble Gujarat High Court that when the shortages were not verified physically, charge of clandestine removable cannot be alleged.
7.25 Understatement of production means more stock in the field compared to stock/production recorded in the books. In the instant case the position is just reverse. In the instant case there is purported shortage of 12.165 MT of Sponge Iron contradicts the charge instead of corroborating the same.
7.26 In the impugned order the understatement of production is sought to be corroborated with purported non accountal of consumption of 1136.100 MT of Iron Ore (raw material) on the basis of one “Daily Statement” [Doc. No. 15/2010] during the period from (2302-2010 to 25-02-2010) which were purportedly utilized for manufacture of 680.305 MT of Sponge Iron involving duty of Rs.7,28,743/- (included in main demand of 11452 MT of Sponge Iron and no separate demand is raised). Understatement of production means the receipt and consumption of raw materials are duly accounted for but the production is suppressed. Here the “Daily Statement” purportedly deals with suppression of raw material which contradicts the allegation.
7.27 The Appellant further submits that in the impugned order on the basis of some “Incoming Memos” [Doc.No.01/2010], (wrongly treated as BIN Cards), for the period 28-01-2010 to 25-02-2010 it is alleged/held that during said period the Appellant has not accounted for receipt of 3014.420 MT of Iron Ore which is purportedly used for manufacture of 1805.042 MT of Sponge Iron (included in total 11452 MT and no separate demand is raised) which purportedly corroborates the charge of understatement of production of 11452 MT of Sponge Iron. “Incoming Memos” does not relate the purchase of Iron Ore but relates to internal movement of Iron Ore within the factory. However, for the sake arguments even if the contention in the department is accepted, then also the said Incoming memos instead of corroborating the charge of understatement production by adopting higher of input/output ratio, contradicts the same.
7.28 As regards allegation of unaccounted production of 277.484 MT of Sponge Iron (included in 11452 MT and no separate demand is raised on this count) on the basis one “Feeding Register” [Doc. No.2/2010] for the period from 16-04-2009 to 20-07-2009 involving duty of Rs.2,87,274/-, most humbly submits that the said document does not relate to the Appellant and its maker is not known hence, such documents of uncertain authorship cannot be admitted into evidence.
7.29 In any case, even if the same quantity of 277.484 is added to the accounted for production of the said period even than the input/output ratio of 1:1.67 cannot be achieved. During the said period the Appellant had produced 12150 MT of Sponge Iron consuming 23290 MT of Iron Ore and the input/output ratio considering the alleged 277.484 MT would come to 1:1.87 which again disproves the so called input/output ratio 1:1.67.
7.30 The Appellant submits that the amount of Rs.4,65,033/- paid by them at the investigation stage including interest of Rs.9,255/- were under protest and without prejudice.
8. In view of the foregoing submissions, the Ld Advocate prays that the impugned order may be set aside on merits.
9. He further takes a stand that the entire demand is hit by time bar for the following reasons:
9.1 The Appellant submits that the dispute in the instant case is relates to the period 2008-09 to 2009-10 (upto 26-02-2010) whereas the Show Cause Notice is issued on dated 23-08-2012 i.e. beyond the normal period of limitation of one year under Section 11A(1), hence the entire demand in the instant case is barred by normal period of one year.
9.2 The demand is raised on hypothetical production based on hypothetical Input/Output ratio. In the instant case none of the ingredients necessary for invoking extended period of limitation does exist. For invoking extended period a clear case of suppression of fact etc. have to be made out which is absent in the instant case.
9.3 In the instant case the average input/output ratio of 1:1.89 is worked out on the basis of ER-1, ER-4 and ER-5 returns filed by the Appellant with the department. In their ER-1 return filed every month the Appellant disclosed the production and clearance of their final products.
9.4 In the ER-4 returns filed on dated 25-11-2009 and dated 30-112010 for the year 2008-09 and 2009-10, they inter alia disclosed the production of Sponge Iron and consumption of Iron Ore, Coal etc.
9.5 In their ER-5 return for the year 2008-09 and 2009-10 filed on dated 30-05-2008 and 30-04-2009 the Appellant disclosed the input/output ratio of Iron Ore to Sponge Iron.
9.6 The Appellant submits that by their letters dated 28-11-2008, 0409-2009, 03-05-2010 and 28-07-2010 (Page 276, 279, 282, 285) they separately submitted the input/output ratio, installed capacity, electricity consumed, production of finished goods and consumption of Iron Ore, Coal etc., the Jurisdictional Range Superintended.
9.7 The Appellant submits that in the above background of the case the entire sets of facts relating to the input/output ratio, capacity utilization, electricity consumption, production of finished goods, consumption of Iron Ore, Coal etc. were shutdown etc. were in the knowledge of the department, hence, there is absolutely no suppression of facts etc. warranting invocation of extended period of limitation.
9.8 The Hon’ble Apex Court in the case of Anand Nishikawa Co. Ltd. Vs. CCE reported in 2005 (188) ELT 149 (S.C.) [Para 27] that when the facts are known to both the parties, inaction by one would not render it suppression of facts.
10. In view of the above submissions, he prays that the impugned Order may be set aside even on account of time bar.
11. The Ld A R Appearing on behalf of the Revenue submits that the physical verification conducted in the premises of the appellant revealed the shortage of 12.165 MT of the Sponge Iron [finished goods]. After this a detailed investigation was taken up. The input / output ratio which is based on the expert opinion of the reputed agencies like Institute of Mineral and Materials Technology, GOI has been applied to arrive at the clandestinely manufactured and cleared goods. He reiterates the detailed findings given by the Adjudicating authority and submits that the present appeal is liable to be dismissed.
12. Heard both the sides. We have perused in detail the appeal papers, written submissions and the documentary evidence placed before us.
13. In the present case, the Revenue has raised two demands on the following counts :
(A) Non accountal of 11542 MT of sponge Iron Rs.1,59,38,571
(B) Under-valuation in respect of 991.885 MT 1,42,845 Sponge iron
14. The starting point of the investigation emanates from the shortage of 12.165 MTs of Sponge Iron during the visit of the Departmental officials. This has triggered the investigation to be taken up to check the manufacture and clearance details for the past period.
15. In this case, the Revenue would be required to pass the following twin tests:
(a) That the clandestine manufacture has taken place
(b) That the clandestine clearance has taken place
16. We first taken up (a) above, in respect of the manufacture of excess sponge iron. The rival contention about the input / output ratio forms the crux of the issue. While the Revenue has taken the input / output ratio as 1 : 1.67 MT, the appellant contends that the same would be around 1 : 1.90 MT. The shortage of 11,542 MT of sponge iron has been arrived at the basis of the input / output ratio adopted by the Revenue. The appellant contends that if the appellant’s input / output ratio is considered, then there would be no question of shortage and hence the resultant allegation of clandestine manufacture and clearance would get negated.
17. On going through the relevant portion of the Show Cause Notice and the Order In Original [ Para 7.9 and 7.9 ], we find that the Revenue has considered the input / output ratio of 1 : 1.67 as sacrosanct based on the expert opinion of Institute of Mineral Technology , Govt of India and another opinion of Popuri Engineering & Consultancy Services, Hyderabad. There is nothing to indicate that the Revenue has made independent study of the working of the appellant’s plant to take some sample outputs to study the pattern of input / output ratio. As per the data of Purchase of Iron Ore Fe Content, Grade-wise Coal purchased, Input / output ratio declared by the appellant in their Annual Returns, reproduced in the previous paragraphs by way Table, the year-wise details show that the input / output ratio ranges between 1 : 1.92 in 2008-09 to 1 : 1.87 during the period April 2009 to February 2010. The contents of the Table are all declared figures and are verifiable. There is nothing to indicate that due consideration was given for these submissions by the Adjudicating authority before coming to his conclusions. His conclusions seem to be flowing directly from the input/output ratio adopted by the Dept at the time of issuing the Show Cause Notice.
18. The output is dependent on several factors other than the input / output of the main raw material, iron ore. Even within Iron ore, the Fe content would play an important role. Other than this, we have to consider the usage of the quality of coal, dolomite, the capacity of kiln etc. Thus a simple formula of input / output purely based on the iron ore usage, would not fit all the manufacturers of Spong Iron. We find that such attempts have been made by the Revenue in the past which have come up for consideration before this Bench. In the case of CCE Vs Agrasen Sponge Pvt Ltd – Final Order No.77819/2024 dated 12.12.2024, an identical issue was before the Bench. The relevant extracts are as under :
“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 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.
2.8. 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 du
17. 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. Similar issue had come up before this Bench in the case of Aryan Ispat and Power Pvt. Ltd. Vs. CCE – FINAL ORDER NO. 77490 – 77492/2023 Dated: 17-11-2023
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
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.)].
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.
20. We observe that even this case, while the emphasis is only account of usage of iron ore, no corroborative evidence has been brought in respect of other inputs like dolomite and coal also which should have been consumed in order to carry out the clandestine production.
21. The appellant has filed the Annual Returns showing their input / output ratio for the years 2008-09 and 2009-10, which has not been rebutted by the Revenue by taking up sample production lots. The Revenue has relied solely on the so called expert opinion alone. We have observed from the above decisions as well as the decisions relied within these cases, mere expert opinion on its own, without any cogent, corroborative evidence has no value and does not carry the Revenue further.
22. Going by the factual matrix, read with the cited case laws, makes us to come to a conclusion that on the first count of (a) that is whether the clandestine manufacture has taken place, the Revenue has faltered and has effectively failed. On this count alone the impugned order gets dismissed and appeal is allowed.
23. Now we are also required to take up the (b) as to whether the clandestine clearance stands proved by the Revenue.
24. We find that the entire focus of the Revenue in this case has been on proving the clandestine manufacture based on the input/output ratio as given by expert third party. We do not see any effort has been made by the Revenue on this front. We have seen from the above submissions of the appellant :
(i) There is no evidence of removal of 11542 MT of Sponge Iron;
(ii) There is no evidence of acceptance of buyers;
(iii) There is no evidence of flow of back of funds;
(iv) There is no evidence of out of account purchase of raw material;
(v) There is no evidence of out of account transportation of raw material;
(vi) There is no acceptance of transporters for transporting raw materials out of account;
(vii) There is no acceptance of sellers of raw materials;
(viii) There is no evidence of extra use of labour and payment of wages etc.;
(ix) There is confession of guilt by the Appellant;
(x) There was no excess shortage of raw material detected on the day of search;
25. Removal of 11542 MT of sponge iron would require movement hundreds of vehicles. No private records have been seized showing any cash transactions. No statements have been recorded from the purported buyers of the sponge iron. Thus, we not see an iota of evidence being gathered by the Revenue to fortify their allegation towards clandestine removal.
26. We again refer to the Arayan Ispat cited supra, wherein in respect of non-availability of corroborative evidence and relevant case laws have been discussed as under:
15. In the case of A. R. Shanmugasundaram Vs. CCE [2016 (333) E LT 158 (Tri. Chennai)], the Tribunal has held as under:-
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 materials 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 by-product as the same cannot be thrown out without clearing.
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 the 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 or 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 illicit 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.
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.
27. Applying the ratio of the above case read with the case laws referred within, to the factual matrix of the present case, we find that in the absence of bringing in any evidence towards clandestine clearance of Sponge Iron ore, even on this count the Revenue’s case fails. Hence, we set aside the confirmed demand even on this count and allow the appeal.
28. Coming to the shortage of 12.165 MT on which duty has been demanded, it is observed that no physical weighment was carried out and the figure is purely based on account of eye estimate, which is not permissible, when the duty demand is based on the quantity. Further, we also find force in the submission of the appellant that they have manufactured 45115 MT in the year 2009-10 and this shortage, if at all, could be just to the extent of 0.025 %, which is not a very major one. Hence, we set aside this demand on merits.
29. With reference to the confirmation of demand on account of undervaluation of sponge iron, when cleared to their another unit, we find that the Revenue has not brought in any evidence to show as to how this undervaluation would have resulted in any commercial benefit to the appellant. Since the both units share a common balance sheet at the end of the Financial Year and the Excise Duty paid by the appellant is available as eligible Cenvat Credit at the end of the receiving unit, the situation is that of Revenue neutral. Hence, we set aside the confirmed demand of Rs.1,42,845/-.
30. Coming to the arguments of the appellant on account of time bar, we find from the Tables given in the earlier paragraphs that the details of consumption have been filed by way of Annual Returns. All their purchase and sales details are part of their Profit and Loss Account. They have filed their ER 1, ER-5 & ER-5 Returns and the appellants are working under the jurisdiction of the Range / Division, which did not question the consumption pattern till the present Show Cause Notice was issued. Even in the present notice, the major portion of the confirmed demand is based purely based on the expert opinion towards input / output ratio. Hence, we do not find that the Revenue has brought in any evidene to the effect that the appellants have indulged in suppression with an intent to evade. Therefore, we hold that the confirmed demand in respect of extended period is hit by time bar provisions. Accordingly, we set aside the order to this extent even on account of time bar and allow the appeal.
31. Since we have held that the confirmed demand is not sustainable on merits and on account of limitations, the penalty imposed on the Managing Director Shri Vicky Jain also does not sustain. Hence, we set aside the penalty imposed on him.
32. Thus, the Appeals stand allowed on merits and on account of time bar. The appellants would be eligible for consequential relief, if any, as per law.
(Pronounced in the open court on…11th February, 2025.)
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