TaxTMI 
TaxTMI 
2015 (6) TMI 1012
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....ron has some iron in form of iron oxide and also has the impurities in the form of gangue (up to 6%) and small impurities of Phosphorus and Sulphur. For manufacture of MS Ingots from the sponge iron, alongwith the sponge iron, steel scrap, pig iron, small quantity of CPC, and Silico Manganese are charged into the furnace in certain proportion. Pig iron contains 3.6% to 4% of carbon and when it is melted with sponge iron, the carbon present in the pig iron reduces the iron oxide present in the sponge iron into iron and carbon gets oxidized into CO2. The carbon in the CPC (which is 99% of carbon) also reacts with iron oxide present in sponge iron and reduces the same to iron. The carbon present in pig iron, CPC, sponge iron, iron and steel scrap and silico manganese, besides reducing the iron oxide present in sponge iron into iron also contributes to the carbon content of mild steel and the proportion of pig iron, steel scrap, CPC and silico manganese to be melted with sponge iron in the furnace has to be such that the carbon content of the resultant steel is of the desired level - 0.25% in case of mild steel. 1.2 Since in the appellant's unit, the payment of duty through Cen....
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....T respectively. Since the quantum of receipt of pig iron, Steel scrap and CPC has not been disputed and quantity of MS ingots manufactured, as shown in the record, has also not been disputed, it has been alleged that excess consumption of pig iron, CPC and steel scrap shown by the appellant during 2006-2007 to 2010-2011 (up to December, 2011) has been illicitly diverted without reversing Cenvat credit. It is on this basis that the proceedings were initiated by way of issue of show cause notice dated 6-5-2011 for recovery of Cenvat credit of Rs. 5,69,46,336/- during the period 2006-2007 to 2010-2011 under Rule 14 of Cenvat credit Rules, 2004 read with proviso to section 11A(1) of the Central Excise Act, 1944 alongwith interest on it under section 11AB and also for imposition of penalty on the appellant company under Rule 15(2) read with section 11AC and also under Rule 25 of Central Excise Rules, 2002. Another show cause notice dated 1-2-2012 was issued to the appellant for recovery of Cenvat credit of Rs. 73,49,835/- for the period from January, 2011 to December, 2011 under Rule 14 of Cenvat credit Rules, 2004 read with section 11A(l) of the Central Excise Act, 1944 alongwith inter....
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....ponge iron may vary from 11% to 23.15% depending on the quality of sponge iron and higher is the content of iron oxide, more pig iron and carbon in the form of CPC would be required for manufacture of mild steel ingots/billets, that National Institute of Secondary Steel Technology, Ministry of Steel, Government of India, in its opinion regarding the use of pig iron in induction furnace, after explaining sponge iron characteristics used in the manufacture of mild steel has opined that "the quantity of pig iron, needed is dependent upon quantity of sponge iron and nature of steel scrap used as charge and it is used to compensate carbon loss and is usually 20% to 25% of the total sponge iron added to the furnace" that the use of pig iron by the appellant is well within the limit specified in the opinion of National Institute of Secondary Steel Technology, that the allegation of taking wrong Cenvat credit on alleged inflated consumption of pig iron, steel scrap, and CPC which, in turn, is based on theoretical calculations, is totally wrong, that bulk of the total Cenvat credit demand Is on alleged inflated consumption of pig iron which is alleged to have been illicitly cleared without ....
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....ot be determined merely by calculations based on a series of assumptions regarding iron oxide content of sponge iron, etc., that the Revenue's allegation that manufacturing cost of MS ingots is more than the price at which MS ingots were available in the market is totally wrong, as during the period of dispute, the appellant company was earning profit and never incurred any loss, that the appellant also rely upon the Apex Court's judgment in the case of Oudh Sugar Mills Ltd. v. Union of India - 1978 (2) E.L.T. J-172 (S.C.) and Tribunal's judgment in the case of Sanco Plastics Pvt. Ltd. v. CCE, Delhi - 2004 (176) E.L.T. 740 (Tri.-Del.), German Dyes & Chemicals v. CCE, Delhi-I - 2010 (261) E.L.T. 722 (Tri.-Del.) wherein it has been held that the duty demand cannot be confirmed against an assessee purely on the basis of output and input norms, and that in view of above, the impugned orders are not sustainable. 4. Shri R.K. Gupta, the learned DR, defended the impugned order by reiterating the findings of the Commissioner in the impugned order. He, pointing out to the Commissioner's findings in Paras 10.1 and 11 of the impugned Order-in-Original, pleaded that for manufacture of ....
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....and perused the records. 6. The appellant manufacture MS ingots and from MS Ingots they manufacture TMT bars. For the manufacture of MS ingots, they require sponge iron which is the main raw material. Along with sponge iron, certain quantities of iron and steel scrap, pig iron, CPC and Silico Manganese are used. There is no dispute about the quantum of production of MS ingots and there is no allegation that the same has been under reported. The appellant have availed Cenvat credit in respect of sponge iron, iron and steel scrap, pig iron, CPC and Silico Manganese, and there is no dispute about the quantum of receipt of these items during the period of dispute in respect of which Cenvat credit has been availed. In fact, in this case, no enquiry has been conducted with the suppliers of sponge iron and steel scrap, pig iron, CPC, etc. and the quantity of receipt of these items received is not disputed. The department's allegation against the appellant is that during the period of dispute, they have inflated the consumption of pig iron, iron and steel scrap and CPC and the quantities of these items claimed to have been consumed for production of MS ingots, as recorded in the ap....
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....ponge iron into iron would depend upon the content of iron oxide in the sponge iron. The department on the basis of the book called "Hand Book of Sponge Iron for Rotary Kiln" authored by Shri P.C. Pardhan, has assumed that sponge iron contains maximum 8% of iron oxide in the form of FeO, out of which only 50% is available for reaction (para 3.7 of the O.I.O dated 31-12-2012), It is on this basis that the quantity of pig iron required for reducing iron oxide present in the sponge iron has been calculated by assuming that while iron oxide content of sponge iron is 8%, the pig iron contains 3.6% and CPC is 99% contain out of which 60% is recoverable. 7.1 The appellant have shown yield of MS ingots as 77% to 81% out of the total quantity of raw materials used i.e. sponge iron+steel scrap/pig iron + silico manganese + CPC. However, according to the Department, the 77% to 81% yield is on much lower side, as similar induction furnace units which make MS ingots from sponge iron have 87% yield. Accordingly, the department's stand is that the yield of MS ingots in the factory of the appellant company is 87%. But the department, instead of estimating the production of MS ingots and on....
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....ble for reaction with carbon. 7.2.3 From the above carbon input required for manufacture of a given quantity of mild steel from sponge iron, the contribution of carbon from - (a) sponge iron (0.10%); (b) iron & steel scrap (0.15%); (c) Silico Manganese (1.5%) and (d) CPC (60% of 99% of CPC) used has been deducted. 7.2.4 From the carbon input required for manufacture of a given quantity of mild steel, as calculated in para 7.2.2 , (say X), the carbon contribution from sponge iron, iron/steel scrap, CPC and silico manganese, as calculated in para 7.2.3 (say Y) has been deducted. The carbon contribution (X-Y) has been treated as the carbon contribution from pig iron. 7.2.5 On the basis of carbon contribution (X-Y) from pig iron, the quantity of pig iron has been calculated as 100 x (x-y) divided by 3.6. It is thes? estimated consumption of pig iron which has been compared with the actual consumption of pig iron and the excess quantity of pig iron has been alleged to have been clandestinely cleared without reversal of Cenvat credit. It is on this basis that it has been alleged that as against claimed pig iron consumption of 6552 Ml, 7662 MT, 8775 MT and 4539 MT ....
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.... truth. The pig iron content would depend upon the iron oxide content. According to the opinion dated 1-1-13 of National Institute of Secondary Steel Technology of the Ministry of Steel, Govt. of India, pig iron required is about 20% to 25% of the sponge iron. 8.2 Thus, the entire case of the department against the appellant company is based on a series of assumptions for which there is no justification and the calculations based on the same. When there are conflicting opinions about the iron oxide content of sponge iron and the proportion of pig iron to be used for manufacture of mild steel from sponge iron and there is no basis for other assumptions like only 50% of FeO present in sponge iron reacting with carbon contributed from pig iron & CPC, the department's allegation regarding inflating the consumption of pig iron, iron/steel scrap and CPC would not be sustainable, more so, when the cross-examination of the officer's who made these calculations and of the NIT professors who concurred with the Departmental officers calculations has not be allowed. 9. The Apex Court in the case of Oudh Sugar Mills Ltd. (supra) held that merely on the basis of calculations of r....