TaxTMI 
TaxTMI 
TaxTMI 
2016 (1) TMI 967
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.... Ltd. (hereinafter referred to as HINDALCO) and various other dealers. They were also doing job work of manufacturing aluminum Alloy ingots and Zinc Alloy ingots for their sister concern namely M/s. Grand Metal Industries Ltd. (hereinafter referred to as GMI) 2. The department entertained serious apprehension as under: (i) That the appellants were engaged in fraudulent availment of CENVAT Credit by way of procuring cenvatable invoices in respect of inputs without actual receipt of those materials. (ii) The scrutiny of ER-1 returns revealed a huge disproportion in the ratio of their cenvat uses and payment of duty on their finished goods as reflected in their PLA account vis-a-vis CENVAT account (iii) That appellants had shown sale of abnormal quantity of Ash and Residue and burning loss amounting to more than 15% of the total consumption of raw material. Whereas the burning loss in similar process accounts to be 2-3% and Ash and Residue up to 5%. That, the cumulative wastage or burning loss cannot be more than 7-8% (iv) That the appellants were taking credit on the basis of invoices issued from their sister concern, GMI, without actual receipt of ....
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....d directed the department to complete the investigation within one month. The department approached the Honble Supreme Court and while dismissing the SLP, the Honble Supreme Court observed that the department was at liberty to issue a further show cause notice if necessitated. A show cause notice dated 5.2.2009 was issued raising the allegation that the job workers have not returned some quantities of raw material to the appellant. Another show cause notice dated 17.3.2010 was issued which pertains to the present appeal. The said show cause notice dated 17.3.2010 issued invoking extended period of limitation proceeds on allegations raised mainly on five counts which are as follows: (i) CENVAT Credit of Rs. 3,39,24,526/- on CG/EC ingots has been availed and utilized wrongly by the appellants as these CG/EC ingots (inputs) were cleared as such by appellants in a clandestine manner. (ii) CENVAT Credit of Rs. 3,97,14,666 on sorted quantity from Aluminum scrap availed and utilized is inadmissible as these were removed clandestinely without issue of sale invoice. (iii) CENVAT Credit of Rs. 1,08,68,346/- on Aluminum scrap availed and utilized is inadmissible as ....
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....he day to day purchase, consumption of material, production of various finished and semi finished goods and sale. The case of the department is mainly based upon the data received from the pen drive and the statements recorded. The appellants admit the pen drive and its contents. According to them the pen drive did not contain any data other than that was disclosed in the statutory records. The appellants have started manufacturing activity w.e.f. 30.06.2006. They were availing CENVAT Credit on inputs which are basically aluminum scrap and aluminum ingots. Aluminum scrap is imported and aluminum ingots are procured indigenously. The basic raw material used by appellants for manufacture of Aluminum Alloy is Aluminum scrap. The entire aluminum scrap was imported. It is their case that they did not use indigenous aluminum scrap because only two types of aluminum scrap is available indigenously, i.e.., utensil scrap and wire scrap. Utensil scrap is not suitable for manufacture of aluminum alloy and wire scrap is costlier than the imported scrap. They imported mainly three types of Aluminum scrap as per ISRI specifications, i.e., Tense, Tait Tabor and Twitch. The process of manufacture ....
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....artment that the appellants were mis-declaring the imported aluminum scraps 'Twitch' whereas in reality they were importing aluminum scrap 'zorba' which is a restricted variety of scrap for import. 'Twitch' variety do not contain more than 5% of free zinc, free magnesium etc. and may contain at least 95% of aluminum. On the other hand any scrap containing less than or equal to 90% aluminum is 'zorba' variety. On overseas enquiry it was revealed that appellants imported zorba mis-declaring as Twitch in connivance with overseas suppliers. That arrangements were made with overseas supplier for supply of scheduled zorba Aluminum containing 83% to 86% aluminum and the rest other metals like Mg, Zn, CN, Brass, stainless steel etc. After sorting out the appellants induldge in clandestine removal of these metals without reversing credit. The data retrieved form pen drive revealed unaccounted receipt and issue of inputs. It also revealed that appellant was procuring Aluminum scrap from market, without accountal thereof and removing clandestinely high value goods like CG ingots, imported scrap by substituting zorba quality of scrap in their manufacture. They were clearing aluminum dross in t....
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....n of CG/EC ingots upon which credit was taken is evident from that data of consumption recorded in the pen drive of Shri Tulsi Ram Yadav, who is the Assistant Manager, PPC, of the appellant company. The appellant was not transparent in maintaining records. All the inputs whether imported or procured domestically, or ingots purchased from Hindalco, Balco etc were clubbed together in the Raw material register under the heading "Aluminum". No records were intimated/presented to the department showing segregation of scrap, generation of dross. All these were maintained by PPC Section in the pen drive. 14.2 The data relating to the consumption of CG ingots was received from the pen drive in the excel file name 'LOSS MONTHWISE-1' (Sheet name 'TOTAL'). The data of purchase of CG/EC ingots was taken from the purchase invoices. On 31.5.2008, the appellant had closing balance of 90.970 MT of CG/EC ingots as recorded in data of the pen drive. (excel file name -DAILAY STOCK (MAY 08) 'Sheet name 'ACTUAL'). On scrutiny of excel files namely DAILY STOCK (APRIL 08)- decrypted and DAILY STOCK (MAY 08) sheet name ISSUE it was found that....
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....dence of clandestine removal of 1614.911 MT of CG/EC ingots. In the absence of any positive evidence regarding dispatch of the said quantity of CG ingots from the premises of the appellant, such as any statement of transporter to support the removal of CG/EC ingots from the factory, or the statement of any person alleging the purchase of any CG ingots from the appellant, or of any payment received for sale of such ingots, the allegation of clandestine removal of CG/EC ingots cannot be sustained. Whatever CG/EC ingots was purchased by the appellant, except the quantity which was sold as per bill and duly declared in ER-1 return, and the quantity shown as closing stock, the same has been consumed in the manufacture of final products. The department itself admits that the quantity of raw material consumed for the manufacture of final products for the period covered by the SCN completely tallies with the raw material issued as per RG 23A Part-1 maintained as per law. It is further admitted by department that the quantity of finished goods manufactured during the above period is found to tally with the quantity of finished goods entered in RG-1 register maintained for production and rem....
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....t. Therefore, this was also classified into different categories basing on their purity and composition. The appellant also made Zinc Master Alloy. The composition of this is 30% aluminum CG ingots and 70% special high grade zinc. During the period April, 2006 to May, 2008 the appellant had manufactured 828.853 M of Zinc Master Alloy which is reflected in the RG-1 register under the heading scrap melt. A quantity of 255.032 MT of aluminum CG ingots was consumed to make Zinc Master alloy taking melting loss @ 2.5%. This use of CG ingots is over and above the use of CG ingots for manufacture of aluminum alloy ingots. It is submitted that the excel sheet LOSS MONTHWHISE-1 would show that appellant has consumed the entire quantity of 7851.640 MT CG ingots procured from Hindalco, Balco and other dealers in the manufacture of aluminum alloy ingots except for 90.970MT which remained as closing stock and 29.739 MT which was sold on invoices and declared in returns. The net balance of 7730.937 MT was fully consumed in manufacture. The details of consumption and Reconciliation statement in reply to show cause notice is furnished by appellants as follows: Quantity of CG ingots purchased 785....
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....nput material comprising of CG/EC ingots, high value items segregated from imported scrap. There is no evidence to establish the removal of such huge quantity of cenvatable inputs which cuts the root of the allegation. 14.11 The allegation that appellants imported Zorba misdeclaring the same as Twitch is not supported by any evidence. Though department conducted stock verification of the raw material from 25.6.2008 to 4.7.2008 no discrepancy was detected. 15. Issue No. 2 Though appellants availed and utilized CENVAT Credit on aluminum scrap, a quantity 2366.119 MT of sorted saleable material was clandestinely removed from the total quantity of 9234.418MT of aluminum scrap imported and therefore CENVAT Credit of Rs. 3,97,14,666/- is not admissible. 15.1 Case put forward by Revenue On perusal of records it was found that appellant was selling elements like copper, Manganese, Zinc etc which were sorted from the aluminum scrap procured for manufacture of final products, without reversing the credit. The excel file 'RECON MONTHLY DROSS' (Sheet April, 1) showed that several elements like Brass, Lead, Stainless Steel, Magnesium, etc obtained from sorting of the scrap was sold by appe....
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....l, magnesium scrap etc, on applicable duty. Iron and stainless steel recovered from furnace is sold as burnt iron on payment of duty. All these are reflected in RG-1 register. It is submitted that appellant used, copper, zinc, Manganese CU/BR Jali, Brass etc in the manufacture of aluminum alloy ingots also in production of master alloys. 15.4 Further, that if the appellant had removed and sold such huge quantity of sorted material without issuance of bill, the department ought to have found shortage in stock while verification of stock. The contention of the department that in order to cover the clandestine removal and sale of CG ingots, sorted material and duty paid aluminum scrap of about 8928.11 MT, the appellant procured 8680.483 MT material from market without bills comprising of zinc copper, manganese, titanium etc is incomprehensible to any reasonable person. It cannot be imagined that any person would clandestinely remove and sell sorted material like zinc, copper, manganese etc and again procure similar material from the local market without bills. The impugned order has been passed is absurd and without taking into consideration the reply of the appellants and is not sus....
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....DVICE (DMR). The PPC updates its stock sheet on daily basis and is shown in DMR. When raw material is received at the factory, it is checked by quality control department. When the items are cleared the Quality Control Department ticks the same as and items not cleared a cross mark W is given. The PPC department at the first instance only enters the quantities which have been directly cleared by Quality Control Department. Those that are not cleared are not yet available for production and are not entered in the stock maintained in PPC excel sheet. Items not cleared are identified as Hold board which is on top of the material. Subsequently, when these items are segregated it is mentioned by hand on right hand side bottom, and on the basis of this noting PPC enters in the stock account since they are now segregated and available for production. As regards hand written inscriptions on left side bottom of DMR, these are items which have been issued to production from under process stock. In case any material out of such has been sold, then proper sale invoices has been issued. For eg. on 5.4.2008, a quantity of 4860 kgs burnt has been hand written on left bottom side. This quantit....
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....e of raw materials included 45,88,173 kgs of the two issues stated above and the balance quantity is 44,27,307 kgs, which is the sorted material sold clandestinely. In these excel file 'u' denotes unaccounted and figures in column 'u' of the row in purchases contain the data of unaccounted purchases of raw material made by appellants. Therefore, it can be inferred that the row Sale and the column 'u' against it denotes unaccounted sale of raw material made by appellants in respect of quantities entered in this column. That therefore the appellants have resorted to clearance of balance quantity of 4427308 kgs of Aluminum scrap sold unaccounted on which credit of Rs. 7,40,68,846/- was availed and utilized by them and is inadmissible. 17.2 Submissions by Appellant The allegation leveled against the appellant on this issue is that appellants removed 4427 MT of raw material clandestinely on which credit was availed. The department for its convenience has arrived at the conclusion that 9015480 kgs of raw material was received unaccounted. After deducting 45,88,173 kgs of which duty has been already demanded on the first two issues, the balance quantity of 4427MT is taken for raising th....
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..... It is further alleged that the sale of segregated items were made in cash only and this cash was used to procure local raw materials like H. Zn, Dross ingots, Ing 98, Local Twitch etc. The said case put forward is totally baseless as the appellant has demonstrated that dross ingots, Ing. 98, H.Zn etc were duly produced in-house as reflected from RG1 and RG23A Part-1 registers. Therefore the allegation that appellant diverted 4427 MT of sorted aluminum scrap and sold them without bills is an allegation without any sense. 18. Issue No. 5 The appellants cleared aluminum dross in the guise of ash and residue and thus short paid duty of Rs. 4,17,58,397/-. 18.1 Case put forward by Revenue In the process of manufacture, aluminum dross is generated and these are categorized into three by the appellant according to their aluminum content. Chamak category has high percentage of aluminum, while Mota has 70% and Barik 45% of aluminum. Some of the dross, i.e., Chamak, Mota and Barik are sent by appellants to outside job workers who leach out the aluminum content to manufacture aluminum ingots or dross ingots. On investigation, it was found that the recovery of Aluminum from Aluminum dross....
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....ges that the entire quantity of ash and residue sold by appellant is aluminum dross and demand is raised for the same. This can never be correct from the process of manufacture production ash and residue has to be generated. In view of the decision laid by the Supreme Court in Aluminum Co. Ltd. (Supra), there is no duty liability on dross, and the demand is unsustainable. 19. We have heard both sides elaborately and perused appeal records. 20. We find that the department proceeded against the appellant to deny CENVAT Credit on various items and also to demand duty on the goods cleared by them. As mentioned by us earlier in this order that the analysis of facts and evidences both in the show cause notice and the impugned order is not sequential, comprehensive and clear. Even during the arguments, explanations sought for on specific issues were not forthcoming with any clarity. We find that the data retrieved from the pen drive was the main source of various allegations and later confirmation against the appellant. Large number of statements have been recorded which were selectively quoted to support the conclusions drawn by interpreting the data in the pen drive. 21. In this case....
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....credit have been taken have been sold and as no sale invoice is prepared, the clearance is supposed to be clandestine. We find that the appellants have strongly contested the summary finding made by the original authority. They have submitted that out of the total quantity of 7,851/- MTs after deducting the closing stock and certain sale of inputs, the net balance of 7,713 MTs. have been fully consumed in the manufacture of aluminum alloy ingots. The reconciliation statement provided by the appellant from the data contained in the pen drive is as follows: Quantity of CG ingots purchased 7851.640 MT Less closing stocking as on 31/5/2008 90.970 MT Less Trading sale 29.739 MT Balance quantity of CG ingots consumed 7730.931 MT Details of consumption (i) Consumption under the head CG ing. according to deptt 6145.748MT (ii) Quantity of CG/EC ingots included in D.ing in pen drive 643.012MT (iii) Consumption of CG/EC ingots shown as EC(W)/Fridge 400.025MT (iv) CG/EC ingot used in the production of CU-Master Shown in pen drive 123.544MT (v) CG/EC ingot used in production of manganese Master alloy shown in pen drive 35.338MT (vi)CG/EC i....
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....0,874/- which was denied on the ground of diversion of 698 MTs of aluminum scrap. This was based on certain loose sheets and some tick marks found in the private records. Here, again there is absolutely no corroboration of such diversion of cenvat availed scrap. No transport evidence, buyer's details, money transportation etc. The private records are explained by the appellant. The tick marks and W marks are made by quality control department. Regarding hand written remark also, we find appellants explanation convincing and satisfactory. They have explained with illustration about sale of certain items and under process stock as entered in the statutory RG23A Part-I. The difference between private excel sheet and this statutory record has been explained by clearance or hold or certain sale, duly accounted for in the final statutory account. We find, either non-receipt or clandestine removal after receipt of any cenvatable raw material, has to be established by consistent corroborative evidence. We find no such evidence for this and the denial of credit is largely based on presumption and inference from private records. The details of private records were not denied by the appellant....
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.... Court in the case of Indian Aluminum Company Limited reported in 1995 (77) ELT 268 SC and 2006 (203) ELT 3 SC. In a recent decision, the Hon'ble High Court of Bombay in the case of Hindalco Industries Limited - 2015 (315) ELT 10 (Bombay) examined the issue of duty liability of aluminum dross and after relying on the various decisions including the above mentioned decisions of the Hon'ble Supreme Court held the product as not liable to excise duty. 31. Considering the above legal position, we find even if it is considered that the appellant have cleared aluminum dross, the duty liability on the same cannot be sustained. 32. Having examined each one of the points involving demand of duty or denial of credit as above we also arrive at certain general conclusions relevant to the case: (a) As already stated, the whole case is built up on data contained in the pen drive and certain statements of persons. Admittedly, the data contained in pen drive is not disputed by the appellant. The whole dispute evolve on the interpretation of the data contained therein. In such a situation, it is necessary for the Revenue to support their interpretation by clear corroborative evidences and ....