Case Law Details
Ludhiana Steel Rolling Mills Vs Commissioner of Central Excise (CESTAT Chandigarh)
Introduction: The Ludhiana Steel Rolling Mills Vs Commissioner of Central Excise case has been a crucial litigation in understanding the importance of substantive evidence in the realm of excise duty and taxes. The Central Excise and Service Tax Appellate Tribunal (CESTAT) Chandigarh set aside a Show Cause Notice (SCN) that demanded Rs. 82,20,602 in excise duties from Ludhiana Steel Rolling Mills. This article aims to dissect the case, focusing on the legal arguments and the Tribunal’s rationale for its judgment.
Background and Allegations: Ludhiana Steel Rolling Mills, involved in the manufacturing of bars, rods, and rounds, received a Show Cause Notice from the Revenue Department. The SCN alleged that the company violated Section 6 of the Central Excise Act 1944 and Central Excise Rules, 2002, thereby evading excise duty on the scrap traded by them. The crux of the allegation was ‘clandestine removal’ of scrap from the manufacturing premises without appropriate payment of Central Excise Duty.
Legal Arguments by Ludhiana Steel Rolling Mills
Ludhiana Steel’s counsel presented several compelling arguments:
1. Separate Head Office: They argued that the trading activities were conducted from a separate head office, which also at times got cited in the invoices.
2. No Clandestine Operations: Contrary to the allegations, Ludhiana Steel Rolling Mills had VAT receipts and invoices showing the legal purchase of scrap.
3. Lack of Investigation: Counsel pointed out the Revenue Department’s lack of concrete evidence or investigation into their alleged clandestine operations.
Inadequacy of Revenue’s Case
The case against Ludhiana Steel Rolling Mills fell apart for several reasons:
1. No Concrete Evidence: Revenue failed to present substantive evidence that the scrap was manufactured by Ludhiana Steel.
2. Inadequate Investigation: Revenue failed to conduct inquiries with transporters or even a simple stocktaking to prove the allegations.
3. Legal Precedents: Similar past rulings support the requirement for tangible evidence against the manufacturer.
Court’s Judgment: In the absence of a thorough investigation and concrete evidence, the Tribunal found the Show Cause Notice to be legally unsustainable. It observed that mere assumptions and presumptions are insufficient grounds for confirming demands of such nature.
Conclusion: The judgment reaffirms the necessity for the Revenue Department to conduct meticulous investigations and present concrete evidence to substantiate their allegations. In this case, Ludhiana Steel Rolling Mills successfully argued against the SCN due to the Revenue Department’s inadequacy in presenting a compelling case. The verdict underscores the importance of due process and robust evidence in matters of excise and taxation.
FULL TEXT OF THE CESTAT CHANDIGARH ORDER
The appellants, M/s Ludhiana Steel Rolling Mills, are engaged in manufacture of bars, rounds, and rods etc; during the course of audit, it was noticed that the appellant was also trading in steel scrap, which is similar to the scrap generated in their factory. A show cause notice, dated, 29.06.2011 was issued to the appellant alleging that they have violated Section 6 of the Central Excise Act 1944 read with Rule 9 (1) and( 2) of Central Excise Rules, 2002; demanding Central Excise duty of Rs.82,20,602/- in terms of proviso 2 Section 11A of Central Excise Act 1944 along with interest and penalty. The proposals in the show cause notice were confirmed vide Order-in-Original dated, 01.11.2012. Hence, this appeal.
2. Shri Naveen Bindal, learned Counsel for the appellants submits that the appellants have their head office located at a distance in the same city. He was conducting trading from that premises; though at times, the suppliers mentioned the address of manufacturing premises in the invoices issued by them for the scrap, the trading of the scrap was on account of their head office only and therefore, the same was not entered in the Central Excise Records maintained at the factory. He submits that it is not in dispute that they have purchased the scrap. Learned counsel submits a list of invoices showing the purchase of scrap from various manufactures situated all over India.
3. The Learned counsel for the appellants further submits that the Revenue has not conducted any investigation to prove that the said scrap was manufactured in their factory; no allegation is also made as to the duty payable, if any, on the prime material that have been produced in the factory, in case it was to be believed that the scarp was generated and cleared from their factory without payment of applicable duty; no enquiries were conducted with the transporters to prove that the scrap was cleared from the factory in a clandestine manner. The appellants, on the other hand, have proof of payment of VAT under Punjab VAT Act; in most cases the scrap purchased from various sources was directly delivered to the premises of the purchasers of scrap from the appellant; in the scrap trade, this is the practice adapted and scrap is not normally unloaded at the premises of the dealer. The mention of the factory premises in the purchase/sale invoices in respect of scrap traded by the appellants is not wrong as the head office of the appellant is also at the manufacturing premises. He submits that the appellants have been disclosing all the facts to the department and therefore, invocation of the extended period and imposition of penalty is not tenable under the law.
4. Mr. Shivani, Learned Authorised Representative for the department reiterates the findings of the OIO and submits that the appellants have not intimated the department about their intention to use the manufacturing premises also for the trading purposes; they have clearly violated the provisions of Section 6 of the Central Excise Act 1944 read with Rule 9 (1) and( 2) of Central Excise Rules, 2002 and therefore, they have rendered themselves liable to pay Central Excise duty on the scrap removed by them from the registered premises i.e, the factory.
5. Heard both sides and perused the records of the case. The allegation by the Revenue is that the appellants have removed scrap from their manufacturing premises and have not paid the applicable Central Excise duty on the same and that they have not got the registration modified to include the activity of trading the excisable goods, which are very similar to those which are manufactured by the appellants. On the contrary, the appellant claims that their trading premises is about 6 kms away from the manufacturing facility; they have proof of sale and purchase of scrap; they did not avail any CENVAT credit on the scrap purchased; therefore, they were of the opinion that a separate registration was not required.
6. We find that the department alleges that the appellants are required to pay Central Excise Duty to the tune of Eighty Lakhs on the scrap cleared by the appellants; we find that as submitted by the counsel for the appellants, department has not come out with any proof to show that the said scrap was not purchased by the appellant or to show that the scarp was generated in the factory. As Central Excise duty is on the manufacture of scrap, it is incumbent on the part of the department to show proof that the said scrap has been manufactured in the factory. We find that no investigation was conducted to show the purchase of raw material, deployment of labour, consumption of electricity etc. to prove the production of the scrap. Understandably, huge quantities of scrap, involving a duty of about Eighty Lakhs cannot be done without commensurate production of primary materials i.e. bars, rods, etc; no such discussion is seen either in the show cause notice or in the Order-in-Original. We find that not even a simple stocktaking of the raw material, finished product, the scrap generated was undertaken. On this count itself, the show cause notice is not legally sustainable. We find that Hon’ble Allahabad High Court, in the case of Continental Cement Company 2014 (309) ELT 411 (All.), observed that:
12. Further, unless there is clinching evidence of the nature of purchase of raw materials, use of electricity, sale of final products, clandestine removals, the mode and flow back of funds, demands cannot be confirmed solely on the basis of presumptions and assumptions. Clandestine removal is a serious charge against the manufacturer, which is required to be discharged by the Revenue by production of sufficient and tangible evidence. On careful examination, it is found that with regard to alleged removals, the department has not investigated the following aspects:
(i) To find out the excess production details.
(ii) To find out whether the excess raw materials have been purchased.
(iii) To find out the dispatch particulars from the regular transporters.
(iv) To find out the realization of sale proceeds.
(v) To find out finished product receipt details from regular dealers/buyers.
(vi) To find out the excess power consumptions.
13. Thus, to prove the allegation of clandestine sale, further corroborative evidence is also required. For this purpose no investigation was conducted by the Department.
14. In the instant case, no investigation was made by the Department, even the consumption of electricity was not examined by the Department who adopted the short cut method by raising the demand and levied the penalties. The statement of so called buyers, namely M/s. Singhal Cement Agency, M/s. Praveen Cement Agency; and M/s. Taj Traders are based on memory alone and their statements were not supported by any documentary evidence/proof. The mischievous role of Shri Anil Kumar erstwhile Director with the assistance of Accountant Sri Vasts cannot be ruled out.
15. In view of the above, we are of the opinion that when there is no extra consumption of electricity, purchase of raw materials and transportation payment, then manufacturing of extra goods is not possible. No purchase of raw material outside the books have been proved.
7. In view of the considered opinion that the Department has failed to substantiate the allegation of clandestine removal of scrap by the appellants. In fact, we find that the show-cause notice makes a bare averment that the appellants have violated Section 6 of the Central Excise Act 1944 read with Rule 9 (1) and(2) of Central Excise Rules, 2002 and for the reason, Excise Duty payable is demanded under the proviso to Section 11A of Central Excise Act 1944.As no other penalty, for violation of the provisions of the Act and the rules, if any, is proposed in the show cause notice, imposition of penalty even for not obtaining registration cannot be considered at this stage. We are of the considered opinion that such a show-cause notice bereft of any investigation and proof thereof cannot be sustained; for the reasons, the show-cause notice and the impugned order are liable to be set aside.
8. In the result, we set aside the impugned order and allow the appeal.
(Pronounced on 30/08/2023)
