2026 (2) TMI 285 - AT - Central Excise

Electricity-based production estimates for clandestine removal found insufficient, while proceedings under the repealed Act remain permissible and appeals allowed

Savings clause in the CGST transitional provisions permits initiation and continuation of proceedings under the repealed Central Excise Act; consequently ... Savings clause preserving proceedings under the repealed Central Excise Act - reliability of electricity-consumption-based production estimates - insufficiency of electricity-consumption alone to establish clandestine removal - requirement for additional corroborative factors to determine production and clandestine removal - Validity of initiating and continuing proceedings under the Central Excise Act after commencement of the CGST Act - HELD THAT:- We find that excess stocks of finished production and raw material seized from premises of Marie on 10.11.2017, excess stock of perfume seized on 10.11.2017 from the residence of Agarwal and excess stock of sweet supari seized from C&F agent of Marie are all parts of separate SCNs. The impugned order is only on account of alleged production and clandestine removal of sweet supari by Marie during the period October 2014 to June 2017. Clearly, the savings clause in section 174(2) of the CGST Act allows institution of any proceedings under the repealed Act (Central Excise Act, 1944) even after the appointed day of CGST Act. The submission of the Revenue deserves to be accepted and the submission of the learned counsel deserves to be rejected. Clandestine production and removal of sweet supari - The quantity of supari produced in kg per unit electricity consumed, as indicated above, varied widely during the period from 2.522 kg per unit to 8.448 kg per unit. The department’s case is that the highest production of 8.448 kg per unit consumed is the correct figure and Marie actually produced supari at this rate through the entire period and reported less production. No other parameter was used in the SCN to calculate the alleged clandestine production and removal although 59 documents were relied upon in the SCN included 16 statements of various persons recorded under section 14 of the Act and the Panchnamas. - In our view, all that the figures and calculations show is that if the production of supari in terms of electricity consumption has been as efficient during the entire period of dispute as it had been during the period 1 November 2017 to 9 November 2017, the production of supari would have been as calculated. However, the calculation does not establish that the production has, indeed, been so efficient throughout the period of dispute and part of the supari so produced was clandestinely removed without paying duty. In COMMISSIONER OF C. EX., MEERUT-I Versus R.A. CASTINGS PVT. LTD. [2010 (9) TMI 669 - ALLAHABAD HIGH COURT] the Allahabad High Court set aside a similar demand of duty alleging clandestine removal of ingots merely based on electricity consumption. Similarly in the case of Balashri Metals Pvt. Ltd. vs Union of India [2016 (10) TMI 872 - JHARKHAND HIGH COURT] the Jharkhand High Court quashed the order of Commissioner confirming demand of duty based on the production calculated based on electricity consumption. We find nothing in the calculations in Annexures A and B to the SCN to show that any other factor other than electricity consumption was reckoned to determine the alleged production of supari. We, therefore, find that the allegation of excess production and clandestine removal and consequent demand of duty, interest and penalties cannot be sustained. The impugned order is set aside both appeals are allowed with consequential reliefs to the appellants. Issues: (i) Whether proceedings and demands in respect of alleged past central excise liabilities can be validly instituted/continued after the commencement of the Central Goods and Services Tax Act, 2017; (ii) Whether a demand of excise duty for alleged clandestine production and removal can be sustained when calculated solely by reference to electricity consumption (applying the highest production per unit observed during a later period) without additional supporting factors or norms.Issue (i): Validity of instituting or continuing proceedings under the repealed Central Excise Act after commencement of the CGST Act, 2017.Analysis: Section 174(2) of the Central Goods and Services Tax Act, 2017 preserves investigations, proceedings and the power to institute or continue proceedings in respect of obligations accrued under the repealed Acts; the statutory savings therefore permits institution or continuation of actions for periods prior to the appointed day.Conclusion: In favour of Revenue.Issue (ii): Sustainablity of duty demand premised solely on electricity consumption ratios (using the highest observed production per unit) to estimate clandestine production and removal.Analysis: The demand relied exclusively on electricity-consumption-derived production ratios, which varied widely across the period. No fixed norms, no accounting for machine capacity/changes, labour, input-output ratios, alternate power sources, transport evidence or other corroborative parameters were applied; the methodology assumed that the highest short-term efficiency ratio observed later represented the correct production norm throughout the dispute period. Precedent and reasoned evaluation indicate that electricity consumption alone, without experimentally or administratively prescribed norms and without consideration of attendant factors, is an unreliable sole basis for quantifying production and establishing clandestine removals.Conclusion: In favour of Assessee.Final Conclusion: The proceedings under the repealed Central Excise Act are permissible post-commencement of the CGST Act due to the statutory saving, but the specific demand for duty, interest and penalties based solely on electricity-consumption-derived production estimates is unsustainable and is set aside; consequential reliefs are granted to the appellants.Ratio Decidendi: A demand for excise duty predicated solely on electricity-consumption-based estimations--without fixed consumption norms, corroborative factors or other reliable evidence--cannot sustain a finding of clandestine production and removal.