1. The appellants have filed these appeals against the Order-in-Original No. Commr/RPR/CEX/129/2012 dated 31.12.2012 wherein the Commissioner has confirmed demand of Central Excise duty amounting to Rs. 8,15,89,512/- along with interest. He has also imposed penalty of equal amount against the notice. A personal penalty of Rs. 1.50 crore has also been imposed upon Shri Sanjay Agarwal, Director.
2. Briefly stated the facts of the case are that M/s. Dadu Steel and Power Ltd. are engaged in the manufacture of M.S. Ingots falling under chapter heading 72061010 of Central Excise Tariff Act, 1985. During the course of audit of the books of accounts of the appellant's unit for the period October 2007 to March, 2009, it was observed that average consumption of electricity towards production of finished goods i.e. M.S. Ingots showed abnormal variation in each month. Normally for the manufacture of MS ingots in an induction furnace with raw materials like sponge iron, pig iron and waste and scrap around 750-850 units of electricity is consumed per MT. However, as per details submitted by the appellants vide their letter dated 25.3.2010, it was observed that they have sometimes consumed lesser the electricity units i.e. 773 per MT units for producing 1322.03 MT of finished goods and on other occasions they have shown consumption of electricity unit 1752.
3. During physical verification of their finished goods and raw materials carried out under panchnama dated 30.11.2009, it was observed that there was a shortage of 18.600 MT on the stock of MS ingots upon comparison of physical stock with the book balance recorded.
4. On verification of the purchase invoices for the year 2008-09, it was observed that average weight of ingot mould of size 3.5 x 4.5 x 69 was calculated as 588 kgs. The appellants purchased 129.855 MT of ingot mould during the year 2007-08 and 384.880 MT during the year 2008-09, which when converted into numbers worked out to 875 numbers of ingot mould. Only 72 ingot moulds were found physically available in the factory premises of the appellants. It is alleged that the appellant No. 1 appeared to have utilized the remaining 803 numbers of ingot mould for the production of suppressed production of MS ingot weighing 25953 MT of MS ingot.
5. Further they have also shown 'other income' amounting to Rs. 39,41,860/- during the year 2007-08 and Rs. 20,06,770/- shown in the trial balance for the year 2008-09 (which was shown as Rs. 29,87,422/- in the final audit report for the year 2008-09). Upon inquiry with Multi Commodity Exchange of India Ltd., Mumbai, it was reported by AVP (Legal) of MCX vide his letter No. MCX/Legal/SJ/BR/3247/09-10 dated 27.7.2009 that "there is no such client, M/s. Dadu Steel & Power Ltd. registered as a client with the member M/s. Trinetara Commodities." They have shown sale of slag to the tune of Rs. 25,21,595/- and Rs. 21,23,149/- in their profit and loss account during the year 2007-08 and 2008-09 respectively. The Revenue has alleged that due to excess electricity consumption as indicated above, they have produced extra quantity of MS ingots which were cleared without payment of duty amounting to Rs. 8,15,89,512/- clandestinely.
6. Accordingly, Show cause notice was issued and the impugned order came to be passed in which the Central Excise duty demand was confirmed along with imposition of penalty. Aggrieved by the said decision, appeals have been filed both by the assessee as well as Shri Sanjay Agarwal, Director.
7. With the above background, we heard Shri Bipin Garg, learned Advocate for the appellants and Shri H.C. Saini, learned DR for the Revenue.
8. Learned Counsel for the appellants pleaded that they have never suppressed the production and undertaken clandestine clearance. He assailed the impugned order mainly on the following grounds:
(i) The duty demand has been confirmed in the impugned order only on the basis of electricity consumption. On the basis of theoretical calculation based on the Technical opinion report of Shri N.K. Batra, Professor of IIT, Kanpur, the department has taken into account that for producing one MT of steel ingots, electric consumption is in the range of 555 to 1046 KWH. Taking the above as a norm, based on consumption of electricity shown by the assessee, demand has been worked out. Other than the theoretical calculation, the department has not collected any evidence to establish the clandestine removal of goods.
Learned Counsel has also relied on the case of R.A. Castings Pvt. Ltd. vs. CCE [2009 (237) ELT 674 (Tri)] which has also been upheld by the Hon'ble Allahabad High Court as reported in [2011 (269) ELT 337 (All)] which in turn has been approved by Hon'ble Supreme Court [2011 (269) ELT A 108) SC]. He prayed that the duty demand may be set aside.
9. Learned DR on the other hand, contested the submissions of appellants and reiterated the findings of the Order-in-Original. Learned DR also filed written submissions dated 24.7.2017 in which it has been submitted that in addition to consumption of electricity, the department has also produced other evidence in the form of additional moulds procured by the appellant which were not found physically available in the factory. The appellant has been found to have recorded sale of bogus sale of slag during the period 2007-2008 and 2008-2009 to cover up the receipt of sales proceeds of clandestine cleared goods. Revenue has also found that huge amount has been shown as profit earned from Commodity trading in their books of accounts whereas Multi Commodity Exchange of India reveal that the appellant is not engaged in the said trade.
10. Heard both sides and perused the records.
11. The crux of the issue is whether the appellant, during the impugned period, has actually manufactured MS ingots in excess of what was recorded in their records and removed the said quantity clandestinely without payment of duty. The demand has been confirmed in the impugned order by taking normal consumption of 830 units of electricity for the manufacture of 1 MT of MS ingots, thereby calculating the total quantity of MS ingots on the basis of actual consumption of electricity. The basis for taking normal consumption as 830 units per MT of MS ingots, is the Technical Opinion report of Shri N.K. Batra, Professor of IIT Kanpur. In the said report, in cases where ingots were manufactured using melting scrap, the electric consumption ranges between 555 to 754 KWH and in cases where it is manufactured using sponge iron, the consumption ranges between 815 to 1046 KWH. The findings also find support in the article of Shri Varshney Executive Director of All India Induction Furnace Manufacturer Association, New Delhi.
The appellant has challenged such quantification of the Materialization Test reports for production of MS ingots with the argument that consumption of 830 units per MT cannot be applied across the board for all times without carrying out controlled production in the appellant's factory. They have also highlighted factors such as the following which can have impact on electricity consumption.
(1) It is stated that power consumption depends upon supply of power to the furnace and the different types of raw material which is used.
(2) If there is power break down then the entire production gets stopped. Further, if it is for 5 to 6 hours, furnace is required to be restarted.
(3) In the case of break down of other machinery, the factory cannot sustain production.
(4) The skill of labour/employee is also a factor.
In the light of above factors, they have submitted that allegations of clandestine clearance cannot be held against them only on the basis of Technical Opinion report. They also relied upon the case law in the case of R.A. Castings Pvt. Ltd. which has already been followed in various other cases and submitted that the demand merits to be set aside.
12. Revenue, on the other hand has contended that electricity consumption is not the only basis for arriving at the demand. They have also highlighted the following points:-
(a) During 2007-2008 and 2008-2009, the appellants have purchased 875 moulds. However, during verification only 72 moulds were found available in the factory. Taking into consideration the average life of ingots moulds in terms of 160 in numbers, Revenue has estimated total quantity of ingots manufactured and calculated that production was shown less to the extent of 4680 MT.
It has been submitted by the appellant in this regard that Revenue has taken recorded production of 25953 MT of MS ingots as against production of only 21272 MT of MS ingots. If the above correction is carried out then the total quantum of production goes down to the estimated production by the department. However, no detailed findings have been recorded by the adjudicating authority on this contention of the appellant.
b) The appellant has recorded income by way of Commodity trading in MCX. Even though such findings has been indicated as Rs. 25 lakh and Rs. 21 lakh during 2007-08 and 2008-09, upon verification by the Revenue with the Multi Commodity Exchange of India Ltd., Mumbai, it was revealed that appellant had not traded and used the income as a fake transaction.
The appellants contention is that even if it is presumed that transactions are not as certified by MCX, it cannot be presumed that the appellants had manufactured and removed ingots clandestinely.
c) The appellant has intimated receipt of huge amount of receipts of the order of Rs. 25 lakh and Rs. 21 lakh during the period 2007-08 and 2008-09 by slag. It has been alleged that the amount shown as earned is nothing but accountal of proceeds of clandestinely cleared goods. The appellant has contended that the department itself has, during separate proceedings, issued show cause notice to pay the duty under Rule 6(3) of the Cenvat Credit rules, 2004. No finding has been given by the adjudicating authority on this.
13. The main cause raised by the appellants in the appeal is clandestine clearance cannot be alleged only on the basis of projected figures of production on the basis of electricity consumption. They also cited the case laws of R.A. Castings Pvt. Ltd. (supra) which stand upheld by Hon'ble Supreme Court. It has also been pointed out before us that the case law has also been followed by the Tribunal in many other decisions.
14. We have perused the decision in the case of R.A. Castings Ltd., The Tribunal in the said decision has held as follows.:
"23. The Tribunal has consistently taken the view that wherever electricity consumption alone is adopted as the basis to raise demands, the order of the lower authorities have been held to be unsustainable in law and set aside and the Revenue had been directed to carry out experiments in different factories on different dates to arrive at the average to be adopted as a norm, which can be followed thereafter and the Revenue in the present case not having conducted any experiment whatsoever cannot be permitted to justify the demands raised. It will be appropriate on the part of the Revenue to conduct experiments in the factory of the appellants and others and that too on different dates to adopt the test results as the basis to arrive at a norm, which can be adopted for future. The impugned demand based merely on assumptions and presumptions cannot, therefore, be sustained nor could be justified both on facts and in law.
24. The law is well settled that in every case of alleged clandestine removal, the onus is on the Revenue to prove what it alleges with positive and concrete evidence. In the absence of any p
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ositive evidence brought by the Revenue to discharge its onus, the impugned order cannot be sustained. 15. The above case law settles the position that electricity consumption cannot be the only factor for determining the duty liability that too on imaginary basis without having tenable evidence of clandestine manufacture and clearance of goods. The excess consumption of electricity, no doubt raises suspicion with regard to quantum of action. However, mere suspicion cannot lead to demand. Electricity consumption can vary from one unit to another and can vary in the same unit in different conditions. By following the decision in the case of R.A. Casting P Ltd.. (supra), which also stand approved by the Hon'ble Supreme Court, we conclude that there is no justification for upholding the duty demand only on the basis of projected production based on electricity consumption figures. The other evidences submitted by the Revenue, by itself do not lead to conclusion of clandestine manufacture or clearance. At best it can raise doubt in our mind regarding the actual production accounted. However, suspicion, however grave, cannot take the place of tangible evidence as has been held in so many decisions. 16. In view of our above discussions, we set aside the impugned order and allow the appeal.