AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2011 (2) TMI 1211
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.... conducted by the Director General of Central Excise Intelligence revealed that SAS had indulged in large scale evasion of duty by resorting to clandestine production and removal of finished goods. Evidence recovered by the Director General included the following : (i) Three invoices used by SAS for transportation of clandestinely removed goods; (ii) Non-accountal of scrap purchased from three dealers; (iii) Undervaluation of scrap and overstating the yield; (iv) Data recovered from SAS's computer; (v) Consumption of electricity in excess of the industry norms and (vi) Statements of Managing Director and other persons. 3. Two show cause notices were issued. One dated 11-8-2006 and another dated 29-1-2007. The period of dispute covered by the first show cause notice is from August 2001 to December 2005 and the second notice from 1st January 2006 to 31 October 2006. In adjudication, the Commissioner found that SAS had cleared 24.72 MTs of CTD bars under parallel invoices. It had purchased 2906.383 MTs of scrap from dealers without accounting. On the basis of 70% yie....
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....ge power consumption recorded by them was higher (than the actuals). Shri G. S. Hegde, an expert in the field, employed by the Commissioner for determining the electricity consumption for production of assessee's final products visited the premises of the assessee, consulted concerned persons and furnished a report. According to his report dated 10-7-2006, the amount of power required for producing one tonne of ingots was 1000 KWH and for production of one tonne of CTD bars from a tonne of ingots, the power requirement was determined as 200 KWH. The Commissioner found that this was in line with the study report of the Nucleus Group set up by the CBEC for estimating power consumption norms for induction furnaces. This group had indicated the consumption to be in the range of 555 KWH to 1000 KWH per MT of MS ingots. Based on the above norms, the Commissioner worked out the quantity of CTD bars manufactured and cleared clandestinely without payment of duty during the period 8/2001 to 12/2005 at 30443 MTs and for the period 1/2006 to 10/2006 at 3667 MTs. After due process of law, the Commissioner passed Order-in-Original No. 9/2007 demanding duty of Rs. 8,25,48,632/- along with applica....
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....he requirement, considering that assessee produced CTD bars of dimensions ranging from 8 mm to 25 mm separately. Shri G. S. Hegde's report did not follow a test run of the machines and also did not disclose any authority for arriving at the standard norm of 700-800 units for production of one tonne MS ingots and 100-125 units for one tonne of CTD bars. The report did not give allowance for machine failure, power failure, human errors and wastage on account of rejected ingots, etc. 8. Though the appellant sought cross examination of Shri G. S. Hegde, the same was denied. Relying on various case laws, it is submitted that denial of cross examination was violation of principles of natural justice. It is submitted that such evidence had to be discarded as held in Vallabh Alloys Ltd. v. CCE, New Delhi - 2003 (157) E.L.T. 398 (Tri. - Delhi). Assessee had got the power requirement ascertained by an expert Shri K. Ramesh. According to his report, the power requirement for producing one tonne of CTD bars ranged from 1510 units to 1870 units (1320-1660 units for ingots). As per this norm, there was no suppression of production. The Commissioner found that the energy consumed as per the....
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....e Commissioner ignored retraction of the initial deposition of Shri M. A. Gaffer admitting that the entries in his diary reflected unaccounted sale of scrap to SAS. The statement of Shri M.A. Gaffer was not corroborated by independent, tangible and cogent evidence. The period involved was 7/2004 to 8/2004, quantity 648 tonnes and the consequent duty liability around seven lakh rupees. Based on the documents recovered from M/s. Azad Steels, the Adjudicating Authority concluded that during January 2002 to February 2002 and January 2003 to February 2003, SAS had procured respectively 978 tonnes and 264 tonnes of scrap. This was based on the bunch of slips recovered from M/s. Ameer Steels and the statements of Shri Nagaraji and Shri Ameer Azad. It is submitted that the statements of Shri Nagaraji and Shri Ameer Azad were not corroborated by any tangible and cogent evidence. It is submitted that the finding of undervaluation of scrap purchases and payments for such purchases by using unaccounted sale proceeds of CTD bars was not sustainable. The statement of Shri Nagaraji could not be taken into account, in the absence of evidence to corroborate the same. The department had wrongly assu....
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....tatements of Shri N. Saravanan were also similar. No adverse inference could be drawn from these statements. 10. The crucial finding in the impugned order is that SAS clandestinely manufactured and cleared its final products based on the power consumption determined for producing one tonne of MS ingots and one tonne of CTD bars. It was based on expert opinion obtained from Shri G.S. Hegde employed for the purpose by the department. In this report, Shri G.S. Hegde had concluded that 1000 units of power were required for manufacture of one tonne of MS ingots and around 200 units of power were required for manufacture of one tonne of CTD bars from MS ingots. This norm has been applied to work out the quantity of final products manufactured and cleared by SAS during the period 8/2001 to 10/2006. This report is assailed on the following grounds. ● During these years, it cannot be assumed that the production was always normal. ● It is obviously not possible to conclude that the entire period would be a period of normal production. ● During such long perio....
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....he department could at the most raise suspicion or doubt but suppression of production had to be substantiated by corroborative evidence for unaccounted purchase of raw materials, unaccounted cash transactions, etc. There had to be also evidence for transport of inputs and finished goods or variation in stock of inputs and finished goods compared to the corresponding accounted figures. The Commissioner had followed the principles of preponderant probability relying on CC, Chennai v. D. Bhoormull - 1983 (13) E.L.T. 1546 (S.C.) and M/s. Gulabchand Silk Mills v. CCE - 2005 (184) E.L.T. 263 (Tri.-Bangalore), among others. It is submitted that the department could recover three invoices dated 31-8-2004 and 1-9-2004 covering a quantity of 25.72 tonnes. As regards the unaccounted purchase of scrap, there was only unreliable evidence and the quantity involved were 490 tonnes for the period 8/2001 to 3/2002; 487 tonnes for 4/2002 - 3/2003; 30.22 tonnes for 4/2003 to 3/2004 and 1470 tonnes for the period 4/2004 to 3/2005. It is submitted that even if the unaccounted purchases alleged were true, the corresponding duty involved worked out to Rs. 39,05,854/- based on the 70% recovery adopted by....
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....elied in the notice for the period August 2001 to December 2005 were wrongly relied on in passing this order. 16. The revenue has sought to justify the impugned order stating that the Commissioner had reliable evidence in the form of admission statements of Shri N. Saravanan, Director, SAS for higher power consumption than what was recorded. Shri Nagaraji, MD had admitted unaccounted purchases of scrap from three dealers to the tune of 2906.381 MTs. Shri N. Saravanan had admitted unaccounted clearances of 24.72 MTs of CTD bars. Adoption of the production norms suggested by Shri G.S. Hegde is sought to be justified on the basis that the estimate was consistent with the technical opinion of Nuclear Group set up by the C.B.E.C. which had also taken into account the prevailing consumption of power in furnaces as worked out by IIT, Kanpur and the All India Induction Furnace Association. The norms as per the technical opinion ranged from 555 KWH to 1026 KWH per MT of ingots depending on quality of scrap, fluctuation in power supply, etc. The Commissioner had rightly relied on the opinion of Shri G.S. Hegde. As regards the reliance on the computer printouts, it is submitted that the....
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....dard data or literature available to arrive at a standard of power consumption. He had not taken into account the age of the two 2.5 tonne capacity furnaces at the assessee's plants, since two other 7 tonne furnaces were new. He admitted an error in his calculation in adopting 400 as the number of heats per month instead of the correct 150. He accordingly suggested appropriate revision of relevant power consumption to 53 KWH instead of 20 KWH. During the cross examination, he also admitted that the power consumption determined was a reasonable estimate. We note that the expert heavily relied on his knowledge and experience and admittedly was not guided by any technical literature laying down a reliable standard, prescribing adjustment for different varieties of raw materials used or other factors which have a bearing on the output. We find it strange that Shri G.S. Hegde did not even consult the literature of the manufacturer of furnaces for information on power consumption. In this context, we find considerable merit in the grounds raised by the assessee to assail the finding of Shri G.S. Hegde as not reliable. These are noted in paragraph 10 above. We note that in M/s. Amar Ispat....
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....udicating Authority to question Shri K. Ramesh and elicit his basis arriving at a different norm. The assessee had argued that the report of Shri K. Ramesh was reliable since the norm had been determined in a more scientific manner. On perusal of the two opinions, we do not find a valid reason to prefer one to the other. However, it was eminently possible for the Adjudicating Authority to ascertain as to which of the opinion could be safely relied on in the proceedings. In the circumstances, we note that the finding of clandestine production and clearance is based solely on an estimate, whose reliability is uncertain. In the Hans Castings Pvt. Ltd. v. CCE, Kanpur - 1998 (102) E.L.T. 139, in a similar case of alleged evasion by clandestine production and clearance of steel ingots, the Tribunal vacated the demand and remanded the dispute for a fresh determination, after conducting trial runs in the appellant's factory and if necessary, in one or two similarly placed other factories. It was observed that "neither there was a norm of consumption of power nor was any evidence in the form of private records seized, nor was based on any norm fixed by the department under Rule 173E". In an....
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....umption of electricity. No doubt some irregularities have been found in the maintenance of the statutory records, there is no evidence on record either by way of seizure of goods in transit or elsewhere or any private records being seized to show that there was clandestine removal. No evidence has been brought on record to prove that the goods were removed from the factory premises without payment of duty, even the estimated production is an estimate only which is subject to a number of limitations. We, therefore, hold that in the absence of any documentary proof, that the goods estimated to be produced and not brought on record were removed without payment of duty, demand for duty on such estimated goods cannot be confirmed. In the absence of this documentary evidence, we hold that clandestine removal of goods is not proved and, therefore, the demand of duty on this issue is not maintainable in law." We find the ratio of the above decision applicable to the subject case. 20. In the instant case, there were cases of clearance of finished goods under parallel invoices involving a total quantity of 24.72 tonnes during the period of dispute. There are also cases of procurement ....
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....Padmanabh Dyeing & Finishing Work v. CCE, Vadodara - 1997 (90) E.L.T. 343 it has been observed by the Tribunal that in the absence of direct evidence regarding removal of the goods without payment of duty, electricity consumption was not enough to work out the production power of the assessee. To the same effect is the ratio of the law laid down in Hans Castings Pvt. Ltd. v. CCE, Kanpur - 1998 (102) E.L.T. 139 by the Tribunal it is well settled that suspicion, however, grave cannot take place of legal proof. It was for the Revenue to establish that there was excess production than the one entered in the statutory record and removal of the same in a clandestine manner without payment of the duty by the appellants during the period in dispute but the material/evidence brought on record was insufficient to prove the same." 21. It is settled principle of law that adverse conclusion cannot be arrived at against an assessee based on presumption. It is the onus of the department to prove clandestine manufacture and removal of goods from the factory. In the entire period of dispute, spanning seven years, the department has not been able to lay hands on records or documents showing or....