Shree Balaji Furnaces Pvt. Ltd. Vs CCE & CGST (CESTAT Delhi)
Summary: Shree Balaji Furnaces Pvt. Ltd., a manufacturer of M.S. ingots falling under Chapter 72 of the Central Excise Tariff Act, 1985, challenged a central excise duty demand arising from an alleged short-accountal of production during April 2015 to March 2016. The dispute arose from the input-output ratio declared by the manufacturer in its ER-5 returns: 1.1 metric tonnes of scrap for the manufacture of one metric tonne of M.S. ingots. The Department used this ratio to estimate the quantity of ingots that should have been produced and compared the theoretical output with recorded production. On that basis, the Department alleged non-accountal of 485.25 metric tonnes of ingots and initially demanded differential duty of ₹15,86,161. The original adjudicating authority confirmed the demand by order dated 6 June 2017. The Commissioner (Appeals), however, took account of some scrap cleared as such from the factory and reduced the demand to ₹7,10,136. The manufacturer appealed against the reduced demand as well.
The appellant argued that the declared ratio was only an indicative manufacturing norm and could not establish actual production. It pointed to variables including furnace temperature and the quantity and characteristics of raw materials. It also relied on an earlier dispute in which a similar demand was dropped after considering runners and risers generated in the factory and captively reused in production. The appellant maintained that a duty demand could not rest on assumed output alone. The Revenue contended that the manufacturer itself had disclosed the ratio of 1.1 MT of scrap per 1 MT of ingots in the ER-5 returns and was therefore bound by it. The central issue before the Tribunal was whether the arithmetical difference between theoretical and recorded production could, without further proof, sustain a demand alleging clandestine manufacture and clearance.
The Tribunal held that the allegation of clandestine clearance required tangible documentary and oral evidence. The Department had not produced such corroboration and had calculated the entire demand on a presumption based on the ER-5 ratio. It relied on Easter India Chemicals Ltd. and Raj Tandon vs. CCE, Ghaziabad, 2017-TIOL-1118-CESTAT-All, which rejected a similar demand based on input-output figures without an enabling statutory basis or the necessary determination of production norms. Following that decision, CESTAT concluded that the demand could not be sustained merely because actual recorded production differed from output estimated through the ER-5 formula. The impugned order was set aside and the appeal was allowed. The ruling concerns the evidentiary burden in clandestine-clearance allegations; it does not hold that declared production ratios are irrelevant for all assessment or audit purposes.
Cases Discussed
- Easter India Chemicals Ltd. and Raj Tandon vs. CCE, Ghaziabad — 2017-TIOL-1118-CESTAT-All (CESTAT Allahabad): The Tribunal followed this decision holding that a duty demand cannot be founded solely on estimated production calculated from ER-5 input-output figures without supporting evidence and legal basis. Exact TaxGuru case URL not independently verified.
FULL TEXT OF THE JUDGMENT/ORDER OF CESTAT DELHI
The present appeal is against the Order-in-Appeal No. 46-SM-CE-JPR- 2017 dated 07.02.2018 passed by the Commissioner, Central Excise & CGST, Alwar.
2. The appellant is engaged in the manufacture of M. S. Ingots falling under Chapter 72 of the First Schedule of the Central Excise Tariff Act, 1985. The appellant had declared, vide their ER-5 returns, their input output ratio. The ratio declared was 1.1 MT of scrap for manufacture of 1.0 MT of M.S. Ingots. The Department noticed that during the period April, 2015 to March, 2016, the appellant accounted for production of M. S. Ingots lesser than what would arise as per above formula by consumption of the scrap accounted by the appellant. The Department formula the opinion that the appellant had not accounted their production of final products in full and proceeded to demand differential Central Excise duty amounting to Rs. 15,86,161/- on the presumption of short accountal of production of 485.25 MT of M.S. Ingots. After issue of show cause notice, the Original Authority, vide his order dated 06.06.2017, confirmed the demand of duty but the Commissioner (Appeals), reduced such demand to Rs. 7,10,136/- by taking into account certain quantum of M.S. Scrap which was claimed by the appellant as cleared as such from the factory. The present appeal has been filed by the appellant challenging even the reduced demand for Central Excise duty.
3. Heard Shri Ajay Mishra, ld. Advocate for the appellant as well as Shri P. R. Gupta, ld. AR for the Revenue.
4. Ld. Advocate submitted as follows:
(i) The present proceeding is for the period April, 2015 to March, 2016. But for an earlier period the Department had made a similar demand on the basis of the observations of the audit team. In such a case, after the remand of the matter by the Tribunal, the Jurisdictional Commissioner has dropped such demand after taking into account the quantum of runners and riser arising in the factory, which was diverted for the manufacture of finished products captively.
ii) He further submitted that the demand has been raised on the basis of the presumed production determined on the basis of the arithmetical formula declared by the appellant in ER-5 returns. He added that the actual quantum of goods manufactured depends upon various other factors such as temperature of the furnace, quantity of raw material etc. iii) He also submitted that the demand raised in similar circumstances on the basis of presumption production on the basis of ER-5 returns has been set aside by the Tribunal. Finally, he submitted that the demand may be set aside.
5. Ld. AR justified the impugned order and submitted that the ratio of 1.1 MT of raw material for 1 MT of ingots has been declared by the appellant in his ER-5 returns and hence such a ratio is binding on the appellant.
6. Heard both sides and perused appeal record.
7. The dispute in the present case is regarding the demand for duty raised on the basis of the input output norm declared by the appellant in their ER-5 returns. The appellant has declared the ratio of raw materials required to be used in the manufacture of finished product as 1.1 MT of raw material will be required to produce 1 MT of finished products. By applying such calculation Revenue came to the conclusion that the appellant has failed to account the full quantum of goods manufactured by them. The differential duty as per the calculation has been raised alongwith interest and penalties.
8. The question which has to be decided is whether the demand raised thereby on the basis of arithmetical calculation can be sustained. The allegation of clandestine clearance has been made by the Revenue authorities, but the same has not been supported by any documentary evidence. The entire demand has been worked out on the basis of presumption, taking into account the formula declared by the appellant.
9. Clandestine clearance needs to be established on the basis of tangible documentary as well as oral evidence. In the present case, no such evidence has been brought on record by the Revenue.
10. The appellant has relied on the decision of the Tribunal in the case of Easter India Chemicals Ltd. and Raj Tandon vs. CCE, Ghaziabad – 2017- TIOL-1118-CESTAT-All. After going through the decision of the Tribunal I find that the Tribunal has set aside the demand made only on the basis of input output ratio declared in ER-5 returns. The Tribunal has observed as under: “
5. Having considered the rival contentions and on perusal of record, it is observed that input/ output data in ER-5 return for the year 2007-08 is used to estimate quantum of goods manufactured in the year 2005-06. This estimated manufacture is not covered by any of the provisions of Central Excise Act or Rules made thereunder. The said Show Cause Notice has not invoked any enabling provisions which enables Revenue to use input/output data given in ER-5 return for charging Central Excise duty on estimated goods that should have been manufactured by the appellant. I, further find that Hon’ble High Court of Allhabad has laid down the principle in the said case (supra) referred to above and relied upon by the ld. Counsel for the appellant. The principle laid down is that if the provisions of erstwhile Rule 173E of Central Excise Rules, 1944 are invoked then it was mandatorily required to fix norm for electricity consumption, notify them to manufacturers and thereafter ascertain reasons for deviations, and after taking into account the consumption of various inputs, requirements of labour, material, power supply and conditions for running the plant together determine the goods manufactured and demand duty on the differential quantity of goods. Since such exercise was not carried out, therefore, I find that the impugned Show Cause Notice is not sustainable in law. I, therefore, set aside the impugned Order-in-Appeal and allow both the appeals. The appellants will be entitled for consequential relief, if any, in accordance with law”.
11. By following the above decision of the Tribunal, I find that the demand of Central Excise duty is not justified, in the absence of any documentary evidence supporting the charge of clandestine clearance.
12. In the result, the impugned order is set aside and appeal allowed.
(Dictated and pronounced in the open Court).
