Electricity-based production estimates for clandestine removal found insufficient, while proceedings under the repealed Act remain permissible and appeals allowed

Savings clause in the CGST transitional provisions permits initiation and continuation of proceedings under the repealed Central Excise Act; consequently proceedings launched under the earlier law were held valid. Estimates of clandestine production based solely on electricity consumption were rejected as legally insufficient because the calculations assumed uniform production efficiency without corroborative factors; therefore alleged excess production and clandestine removal could not be established and related duty, interest and penalties were set aside. The adjudicatory conclusion required additional independent evidence beyond unit electricity-to-production ratios; appeals by the taxpayers were allowed with consequential relief.

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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Issue (i): Validity of instituting or continuing proceedings under the repealed Central Excise Act after commencement of the CGST Act, 2017.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proceedings and the power to institute or continue proceedings in respect of obligations accrued under the repealed Acts; the statutory savings therefore permits institution or continuation of actions for periods prior to the appointed day.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.

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