2025 (12) TMI 447 - AT - Central Excise

Excise duty demand quashed as clandestine removal not proved; electricity consumption alone insufficient without corroborative evidence

M/s. Reema Gases Pvt. Ltd. Versus Commissioner of CGST & Central Excise, Kolkata-VII

The Tribunal allowed the assessee's appeal and set aside the demand of excise duty and penalties for alleged clandestine manufacture and removal. It held ... Clandestine removal - demand solely on the basis of consumption of electricity - corroborotive evidences or not - onus to prove - HELD THAT:- It is seen that the SCN has been issued solely based on the electricity consumption of the induction furnace used by the Appellant. In order to allege any clandestine manufacture and clearances, the onus is on the Department to bring in several corroborative evidence in the form of purchase of inputs, manufacture of furnished goods, dispatch of finished goods, details of purported vendors and buyers, details of movement of inward and outward goods, details of cash transactions found for such sales etc. While the Department is not required to precisely bring the entire details on account of these issues, they are expected to bring in at least proper corroborative evidence to support the allegation that the clandestine manufacture has taken place. Mere reliance on the electricity consumption without any corroborative evidence towards excess purchase of raw materials so as to convert the raw materials into finished goods, will not help the Revenue to prove the case. After going through these factual details it emerges that the only basis on which the demand has been confirmed, is on account of the electricity consumption without any corroborative evidence whatsoever in any form. In the case of Union Enterprises Vs Union of India [2014 (5) TMI 93 - CALCUTTA HIGH COURT], the Hon’ble Kolkata High Court has considered the Allahabad High Court’s decision in the case of R. A. Casting on similar issue and it was held that 'mere excess consumption of electricity without any corroborative evidence relating to the purchase of the raw material, conversion of the raw material into a final products and clearance from the manufacturing unit to the respective buyers are produced does not raise presumption of evading the duty.' Since the Department has relied only on the Electricity consumption alone without any corroborative evidence whatsoever, the decision of the Hon’ble High courts are squarely applicable. The impugned order is set aside - appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether a demand of central excise duty alleging clandestine manufacture and clearance can be sustained solely on the basis of electricity consumption without corroborative evidence. 1.2 Whether, in the absence of statutory norms and unit-specific investigation for electricity consumption, theoretical/arithmetic calculations of production based on power usage can validly form the basis of excise demand. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Sustainability of excise demand based solely on electricity consumption Interpretation and reasoning 2.1 The Tribunal noted that the show cause notice and the impugned demand were founded exclusively on the alleged excess consumption of electricity in the induction furnace, applying assumed units of power per metric tonne of ingots and inferring suppressed production on that sole basis. 2.2 The Tribunal held that, for alleging clandestine manufacture and clearance, the burden lies on the Department to adduce corroborative evidence covering, inter alia, purchase of additional raw materials, actual manufacture of finished goods, dispatch and movement of finished goods, details of alleged buyers and vendors, and financial flow (including cash transactions) connected with such alleged clearances. 2.3 It was observed that while the Department is not required to establish every single detail with mathematical precision, it must at least produce 'proper corroborative evidence' to support the allegation of clandestine production; mere reliance on electricity consumption, in isolation, is insufficient. 2.4 The Tribunal emphasized that in the present case no corroborative evidence of excess procurement of inputs, conversion into finished products, or clearance of such goods was produced; the demand rested entirely on electricity consumption and a theoretical production formula. 2.5 The Tribunal referred to and relied upon judicial precedents where it has been held that electricity consumption alone cannot be treated as substantive evidence of clandestine production, including decisions holding that excess or abnormal power consumption is, at best, a corroborative factor and not an independent foundation for duty demand. 2.6 The Tribunal noted that High Court decisions, as discussed in the order, have consistently affirmed that mere excess electricity consumption, without supporting evidence regarding raw materials, manufacture, and clearances, does not raise a presumption of duty evasion, and that such view has been left undisturbed by the Supreme Court. Conclusions 2.7 The Tribunal concluded that a central excise demand cannot be sustained solely on the basis of electricity consumption data, in the absence of corroborative evidence of clandestine manufacture and removal. 2.8 As the Department had relied only on electricity consumption, with no independent or supporting material, the demand was held to be unsustainable in law and liable to be set aside. Issue 2: Validity of theoretical production calculations and absence of statutory norms/unit-specific investigation Legal framework (as discussed) 2.9 The Tribunal took note of the legal position, as discussed in earlier judicial pronouncements, that norms of electricity consumption for determining production under central excise cannot be arbitrarily assumed and that, where specific rules contemplate fixation of norms, the competent authority is required to prescribe and notify such norms and investigate deviations taking into account factors such as type and quality of inputs, labour, material, power conditions, and plant-specific variables. Interpretation and reasoning 2.10 The Tribunal observed that production capacity in induction furnaces depends on several variables, including product mix, quality of scrap, quality and efficiency of power, and other operational conditions; hence, a universal or uniformly applicable standard of electricity consumption per metric tonne cannot be mechanically adopted. 2.11 It was noted that there was no experiment or study conducted in the appellants' own factory to devise unit-specific norms of electricity consumption for producing one metric tonne of steel ingots, and no statutory norm was shown to have been fixed or notified for the appellants' unit. 2.12 The Tribunal referred to judicial findings that electricity consumption varies from heat to heat, day to day, and even within the same day, and therefore an 'imaginary' or theoretical production figure based solely on a standard unit-consumption ratio, without factory-specific investigation, cannot validly determine excise liability. 2.13 The Tribunal also noted that reliance on general or theoretical reports on electricity consumption (such as the report commonly attributed to a technical expert) has been judicially criticized, and that such material, without corroboration and unit-specific verification, does not constitute substantive evidence of suppressed production. Conclusions 2.14 The Tribunal held that, in the absence of prescribed statutory norms and without any experiment or unit-specific investigation in the appellants' factory, the theoretical/arithmetic calculation of production based on assumed electricity consumption per metric tonne could not form a valid legal basis for raising duty demand. 2.15 It was concluded that the methodology adopted by the Department-deriving alleged excess production solely from power consumption figures and presumed norms-was contrary to the settled legal position and unsustainable. Overall Disposition 2.16 Applying the above reasoning, and following the ratio of the cited High Court decisions, the Tribunal set aside the impugned order and allowed the appeals with consequential relief in accordance with law.