2015 (8) TMI 57 - AT - Central Excise

Tribunal overturns duty demands & penalties, citing lack of evidence & unfair norms.

The Tribunal set aside duty demands and penalties imposed on the appellants due to lack of independent evidence, arbitrary application of power ... Clandestine manufacture and removal of goods - Non accounting of goods - whether on the basis of the evidence, the Commissioner's orders confirming the duty demands against the appellants and imposing penalty on them can be upheld - Held that:- Investigation in respect of the appellant unit started when the unit of NIPL was visited by the Central Excise officers on 03/10/05 and their sales of MS Ingots to various rolling mills were ascertained on the basis of the entries in their private ledger books. It was found that NIPL were not showing the entire quantity of MS Ingots sold by them to various customers in the RG-1 register and were paying duty on much lesser quantity. Since the appellant unit - M/s Everest, M/s MPK and M/s Khetan were among the customers of NIPL, the quantity of MS Ingots supplied by NIPL to these units during period from 02/8/05 to 01/10/05 as per the entries of NIPL ledger book was compared with the supplies as per NIPL records in respect of which the invoices had been issued. It is on this basis it is alleged that during the period from 02/8/05 to 01/10/05 M/s Everest, M/s MPK and M/s Khetan have received 143.32 MT, 40.21 MT and 39.93 MT of unaccounted MS Ingots from NIPL. However, the duty demand against M/s Everest, M/s MPK and M/s Khetan is not on this basis Thus the evidence in support of Department's allegation of duty evasion against the appellants is - (a) entries in the private ledger book of NIPL which showed supply of certain quantity of MS Ingots to the appellants during period from 02/8/05 to 01/10/05 for which no invoices have been issued by NIPL and (b) power consumption per MT of rolled products in the case of SSSRM - 102,09 units per MT while the same in the case of the appellant units is from 225 units per MT to 275 units per MT. No experiments or studies have been conducted by the Department in respect of the rolling mills of the appellant companies to determine their average power consumption for production of one MT of rolled products. - Commissioner in the order in the case of M/s Everest has accepted that the rolling mills of SSSRM is automatic rolling mill, but he has still applied the power consumption norm of SSSRM to the appellant unit, on the ground that the products being manufactured by SSSRM are CTD bars which consume more power while the products being produced by the appellant consume lower power. In our view this assumption is an arbitrary assumption without any basis and without conducting any study or experiment in this regard. - not even inspection or study has been conducted to. determine their actual power consumption norm. Beside this, neither any evidence unaccounted purchase of raw material nor there is any evidence of clandestine/ unaccounted clearances of final product. Merely on the basis of an arbitrarily adopted power consumption norm, the production of an assessee on the basis of his power consumption cannot be estimated and duty demand cannot be affirmed against him on this basis. - impugned orders are not sustainable. The same are set aside. - Decided in favour of assessee. Issues Involved:1. Alleged receipt of unaccounted MS Ingots by the appellants from NIPL.2. Estimation of production based on power consumption norms.3. Validity of duty demand based on third-party records.4. Application of power consumption norms of another unit (SSSRM) to the appellants.5. Imposition of penalties under Section 11AC and Rule 26 of the Central Excise Rules.Issue-wise Detailed Analysis:1. Alleged Receipt of Unaccounted MS Ingots by the Appellants from NIPL:The investigation began when the factory premises of M/s Nirmal Inductoment Pvt. Ltd. (NIPL) were searched, revealing discrepancies in the records of MS Ingots supplied to the appellants. The entries in NIPL's private ledger indicated that M/s Everest, M/s MPK, and M/s Khetan received unaccounted MS Ingots. However, the appellants denied these allegations, and the Department could not substantiate the claims with independent evidence. The Tribunal noted that the duty demand cannot be confirmed merely on the basis of third-party records without allowing cross-examination of the concerned persons from NIPL, as established in the case of Kishan Chand Chela Ram vs. Commissioner of Income Tax.2. Estimation of Production Based on Power Consumption Norms:The Department estimated the production of rolled products by the appellants using the power consumption norm of 102.09 units per MT, derived from another rolling mill, SSSRM. The appellants contested this estimation, arguing that their power consumption ranged from 225 units per MT to 275 units per MT, which was supported by a study conducted by the National Institute of Secondary Steel Technology (NISST). The Tribunal found that the Department had not conducted any study or experiment to determine the actual power consumption of the appellants' units, making the application of SSSRM's power consumption norm arbitrary and unjustified.3. Validity of Duty Demand Based on Third-Party Records:The Tribunal emphasized that the entries in the private ledger book of NIPL alone could not be treated as evidence of unaccounted receipt of MS Ingots by the appellants. The Department's reliance on these entries without corroborative evidence or cross-examination of the concerned persons from NIPL was insufficient to uphold the duty demands. This principle was supported by various judgments, including CCE, Indore vs. Rajratan Synthetics Ltd. and CCE, Coimbatore vs. Chola Spinning Mills (P) Ltd.4. Application of Power Consumption Norms of Another Unit (SSSRM) to the Appellants:The Tribunal found that the power consumption norm of SSSRM, an automatic rolling mill, was not comparable to the manual rolling mills of the appellants. The NISST study and a notification by the Government of Rajasthan indicated that the average power consumption for medium-sized rolling mills like the appellants' was around 225 units per MT. The Tribunal held that the Department's application of SSSRM's power consumption norm to the appellants was arbitrary and unsupported by any study or experiment.5. Imposition of Penalties under Section 11AC and Rule 26 of the Central Excise Rules:The penalties imposed on the appellants under Section 11AC and on their directors under Rule 26 of the Central Excise Rules were based on the alleged unaccounted receipt of MS Ingots and the estimated production using the power consumption norm of SSSRM. Since the Tribunal found the basis for these allegations and estimations to be arbitrary and unsupported by evidence, the imposition of penalties was also deemed unsustainable.Conclusion:The Tribunal concluded that the impugned orders were not sustainable due to the lack of independent evidence, the arbitrary application of power consumption norms, and the failure to allow cross-examination of NIPL's concerned persons. Consequently, the duty demands and penalties imposed on the appellants were set aside, and the appeals were allowed. The miscellaneous applications for extension of stay orders were also disposed of.