2024 (6) TMI 757 - AT - Central Excise

SION norms cannot determine zinc oxide production quantities from zinc scrap materials, excess production allegations rejected

The CESTAT Bangalore held that SION norms cannot be applied to determine zinc oxide production quantities from zinc scrap materials. The department ... Clandestine removal of the zinc oxide - applicability of SION norms in determining the quantity of zinc oxide manufactured from zinc scrap - difference in the calculated figure and the figure of production recorded in the statutory records - HELD THAT:- Undisputedly the appellants are using raw materials viz., zinc dross, skimming, zinc ingots and other zinc scraps for manufacture of zinc oxide. The department applying the SION norms has calculated the quantum of zinc oxide ought to have been manufactured and the excess quantity alleged to have been clandestinely removed. Such methodology has not been accepted by the Tribunal in similar circumstances in the case of M/S MITTAL PIGMENT PVT. LTD. VERSUS CCE, JAIPUR [2016 (9) TMI 1016 - CESTAT NEW DELHI] case after analyzing the facts, it has observed that '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.' Since the impugned order itself is set aside on merits, there is no question of imposing personal penalty on Sri M. Jayaram, Director; hence, Revenue’s appeal is dismissed. Appeal disposed off. Issues Involved:1. Application of SION norms for determining the production of zinc oxide.2. Validity of demand based on theoretical production.3. Limitation period for raising the demand.4. Imposition of personal penalty on the Director.Summary:1. Application of SION norms for determining the production of zinc oxide:The primary issue was whether SION norms could be applied to determine the quantity of zinc oxide manufactured from zinc scrap and whether the difference between the calculated figure and the production recorded in statutory records could be considered as clandestine clearance without payment of duty. The Tribunal noted that the department calculated the quantum of zinc oxide using SION norms, which was not accepted in similar cases such as Mittal Pigments Pvt. Ltd. and Saravana Alloy Steel Pvt. Ltd. The Tribunal emphasized that theoretical norms without corroborative evidence could not substantiate allegations of unaccounted production and removal of goods.2. Validity of demand based on theoretical production:The appellants argued that the department's reliance on theoretical production norms was erroneous. They cited previous judgments where demands based on theoretical consumption were rejected due to lack of corroborative evidence. The Tribunal agreed, stating that adverse conclusions could not be based solely on presumptions and theoretical norms, reaffirming the principles laid down in cases like R.A. Castings Pvt. Ltd. and Continental Cement Company.3. Limitation period for raising the demand:The appellants contended that the demand for the period 2005-2006 to 2009-2010 was barred by limitation as all facts had been disclosed through regular returns. They referred to the Supreme Court's judgment in M/s. Chemphar Drugs and Liniments, which supported their claim. The Tribunal did not explicitly address this issue in detail as the main argument on merits led to the setting aside of the demands.4. Imposition of personal penalty on the Director:The Revenue appealed against the non-imposition of personal penalty on the Director, Sri M. Jayaram. However, since the Tribunal set aside the impugned orders on merits, it concluded that there was no basis for imposing a personal penalty on the Director, thereby dismissing the Revenue's appeal.Conclusion:The Tribunal set aside the orders of the adjudicating authority and the Commissioner (A) on the grounds that the department failed to provide sufficient evidence to prove clandestine production and removal of goods. The appeals filed by the appellants were allowed with consequential relief, and the Revenue's appeal regarding the imposition of a personal penalty on the Director was dismissed.