TaxTMI 
TaxTMI 
2003 (2) TMI 521
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.... raised in the order dated 12-10-2001 and the Commissioner (Inv.) has also submitted his report dated 31-7-2002, a copy of which has been supplied to the applicant. The Commissioner (Inv.) has already endorsed a copy of his report to the respondent Commissioner. 2.0 The applicants were heard finally on 4-9-2002. The applicants were represented by Shri B.V. Kumar, Advocate, accompanied by S/Shri S.S. Naganand and A.S. Monappa, Advocates while the respondent Commissioner of Central Excise, Belgaum was represented by Shri R.N. Gunal, Superintendent of Central Excise. 3.0 To briefly recapitulate the facts involved, consequent to a visit by the officers of Central Excise to the factory premises of the main applicant on 4-11-1998, and subsequent investigations, the subject SCN C.No.V/72/15/65/99-Adjn., dated 28-6-2000, was issued by Commissioner, Central Excise, Belgaum. The SCN alleges that the main applicant manufactured and cleared without proper accounting 11,841 MT of rolled steel products during April, 1997 to October, 1998 (1-4-97 to 31-10-98) evading Central Excise duty of Rs. 2,30,29,558/-. Accordingly, the notice proposes to demand the same under the provisions ....
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....une, 97 to Nov., 97, which was duly recorded in their Annexure V Account [maintained in terms of the then Rule 57F (2) of the Central Excise Rules 1944] and which had been omitted to be taken into account in their initial application, and that Modvat credit availed furnace oil was consumed in production of these job worked goods also. The applicant also filed copies of reports dated 16-5-2001 and 14-9-2001 of one Shri T. Chalam of M/s. Bharat Steel Consultant, chartered by them to study their unit, which reports indicated the production level which could have been achieved by the unit. The said reports indicated FO consumption rate of 63.7 litres PMT and total manufacture of 21,850 MT to 21,900 MT of rolled products as against 18,986 MT accounted in RG-1. 4.3 The applicant has also sought for abatement of FO consumed in melting division from the total consumption in their unit adopted in SCN to arrive at the FO consumed in rolling mills division (RMD) alone. It is, therefore, pleaded that a quantity of 1,10,600 litres should be subtracted from the total consumption of FO to arrive at FO consumption of 13,94,620 litres in RMD before working out the average consumption. The a....
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....application itself clearance of 2038 MT without payment of duty and without accounting, during July, 98 to Oct., 98. But, the said admission is claimed to be made to avoid any further harassment and litigation and without prejudice to their basic contention on manufacture and clearance. Similarly, for the remaining period of April, 97 to June, 98, applicant admitted subsequently clandestine manufacture and clearance of 1000 MT of rolled products. However, the very disclosure of additional duty liability expressing willingness to pay the short-levy/non-levy is indicative of their admission of omission to correctly account manufacture and clearance of this quantity. 7.1 The Bench further observes that a general plea has also been advanced by the main applicant that corroborating evidence for procurement of raw materials, clearance of the finished goods (rolled products), and cash flow from the customers in respect of these clandestine clearances are missing and that the department has, therefore, failed to prove its case, which is essential as laid down by various courts. However, the Bench would like to place on record that there is a basic difference in the proceedings and ....
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....ualification that it related to preceding months' production. They have additionally disclosed 1000 MT also, but, again, without specifying the period of manufacture and clearance. Finally, as stated supra, they had themselves commissioned an expert, Shri T. Chalam, Engineer-cum-Consultant of M/s. Bharat Steel Consultant, to study the functioning of the unit. In his reports dated 16-5-2001 and 14-9-2001 the consultant indicated that the estimated production during 1-4-97 to 31-10-98 would have been 21,850 MT, (as against the statutorily accounted production of 18,986 MT) giving an average FO consumption of 63.7 litres per MT. 7.3 The above facts clearly bring out that, admittedly, there was unaccounted production and clearance. Even the applicant's Consultant himself has estimated the quantum of rolled products manufactured, based on two factors, one of them being furnace oil consumption. The applicants themselves have made additional disclosure of 1000 Tons, obviously, based on such a study and have used the said study to defend the correctness of their additional disclosure. When the main applicant themselves admit that due to laxity in monitoring production, certain unde....
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....eel Technology (NISST), Chandigarh who was approached by the Commissioner (Inv.). Besides, in their letter dated 9-1-2002 NISST have enumerated various factors which will have an impact on production, and the Bench finds that these are factors whose existence at the relevant time, and the extent of their existence, cannot be determined at a later date to ascertain the production during the material period. In view of the indeterminate nature of the above factors, the Bench has found it expedient to decide the case based on already available evidences on record. 8.0 The Bench also observes that the SCN specifically depends on the average FO consumption rate to allege clandestine manufacture/ clearance only in regard to period April, 97 to June, 97. The average FO consumption adopted for this period is based on a statement dt. 17-2-99 of Shri K.M. Yousuf, Factory Manager of the applicant company. For the two subsequent periods, namely, July, 97 to November, 97 and December, 97 to June, 98, clandestine manufacture is alleged in the SCN based on certain documentary evidence and statements. In the case of the period July to Nov., 97 reliance is placed on a statement (2A) alleged....
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....s was deduced by the expert on the basis of the above-mentioned assumed power requirements, which itself is unsubstantiated, neither the power consumption rate nor the deduced average FO consumption is, prima facie, acceptable. It is observed by the Commr. (Inv.) that "Any assumption can be considered a norm only if it applies to test conditions generally in normal course, largely if not universally. In the absence of any scope for any laboratory/optimum test conditions especially at this farther point of time, the reliability of norm should be tested with reference to monthly consumption of electricity and production for each month concerned. As may be seen from Table I (Annexure I), the norms are failing when applied to the monthly consumption of power and the Billets and rolled products displaying extensively excess production than those recorded in RG I or arrived at by the norm of 63.7 ltrs. or 50 ltrs. per MT of rolled products in certain months and totally erratic results in other months where the power consumption is not even enough to produce the billets/ingots as recorded leaving no power for producing rolled products. In view of the above, the norm of 63.7 ltrs. of furna....
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....to arrive at the estimated production of rolled products'. It is also pleaded that though the letter dt. 9-1-2002 of NISST, addressed to Commissioner (Inv.) had mentioned that the oil consumption in various units in the country varies from 35 to 75/80 litres per ton, 'this significant opinion has been brushed aside (by the Commissioner) as it supports the contention of the applicant'. It is also contended that on account of certain problems in the plant, the consumption of furnace oil was high which is supported by the aforesaid letter dated 9-1-2002 of NISST. Accordingly, the main applicant reiterates the conclusions of Shri T. Chalam, Engineer-cum-Consultant, as Shri Chalam was personally aware of the production facilities, machinery and actual turn out in the factory. 12.0 It is observed from the report of the Commissioner (Inv.) that Annexure-I to the said report shows "Monthwise estimated production based on power consumption". For this purpose, the consumption rate of 120 KW hr PMT suggested by Shri Chalam, the applicant's consultant, has been adopted. Taking the total power consumption of the unit (both Melting and Rolling Divisions), and applying the consumption rat....
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.... the Bench observes that NISST letter dated 9-1-2002 does indicate such factors. But the said letter also states that based on their studies/data, the oil consumption varies from 35 to 70/80 litres per MT, and that the oil consumption of a "good unit" normally varies in the range of 35 to 45 litres per ton. In the instant case, the factors referred to in the letter of NISST are just not available on record, and have also not been specifically listed/produced even by the applicant, to support the FO consumption level claimed by him, or as indicated by his expert Sri Chalam. It is also observed that according to Worksheet III to the SCN, FO consumption during 94-95, 95-96 and 96-97 was only 52.6 litres, 51.12 litres, and 51.50 litres, respectively. These are in consonance with the rate suggested by NISST for a 'good unit'. Correctness of these consumption levels have not been challenged with any evidence. The average level of consumption adopted in the SCN, namely, 50 litres per MT is, prima facie, in consonance with the above levels achieved as per records in the preceding years. On the other hand, the FO consumption rate based on RG 1 accounted production of rolled product (includi....
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....ey resumed achieving the levels of FO consumption of 94-95 to 96-97, as mentioned above. Hence, the arguments canvassed, including the study report of Sri Chalam, Consultant and Engineer, to claim higher rate of FO consumption for every ton of rolled products during the material period are not convincing in the face of lesser consumption rates achieved in the preceding years and also during July to Oct. '98. 12.2 The following calculations would also corroborate the contents of Shri Yousuf's initial statement dated 17-2-99 and hence the average consumption of furnace oil at around 50 litres/MT adopted in the SCN, as against the subsequent claim of the applicant. Period April '97 to June '98 Production accounted in RG-1 - 12,973.455 MTs private records during July '97 to Jun '98 - 8,174.101 MTs* Production on job work basis - 1,943.510 MTs           Total F.O. consum....
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.... statement till 11-6-1999 whereafter, apparently, he has represented. However, it is seen from the copy of his oral statement dated 17-2-99 made before Superintendent (Prev.), Bellary, that there is an endorsement reading 'copy received Sd/- 17-2-1999', at the bottom of the said statement which is clear evidence of Shri Yousuf having received the copy of the statement on 17-2-1999 itself. Further, as already stated in pre-para, Shri Yousuf has made general and sweeping remarks in his retraction letter that as an experiment smaller capacity burner was fitted during time study between 3-2-98 and 7-2-98, which resulted in increased material waste as rejects (and hence in the furnace oil consumption), and that was later changed to the conventional burner, without specifying as to when these changes took place, what was the quantum of excess waste (Cold and Hard) recovered during the material period, how it was disposed of, etc. Finally, the average consumption rate of 50 litres indicated in his first statement dated 17-2-99 tallies with the average rate achieved during 1994-95 to 1996-97. Hence, the retraction loses its evidentiary value. 12.4 Similarly, the private account mai....
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....rect by Commissioner (Inv.), is 2,96,940 litres. Accounted production is 6013.495 MT, yielding average consumption of 49.3794. Applying the average consumption ratio of 50 litres, only 5,938 MT of rolled products could have been manufactured in the said period of July to Oct. '98. On the other hand, the statutorily (RG 1) accounted production itself being higher at 6013.495 MT supporting the claim of the applicant that the admitted unaccounted clearance of 2038 MT was the manufacture of the earlier period. 12.6 The total clandestine manufacture alleged in the first three worksheets to SCN covering April, 97 to June, 98 is 9803.001 MT. It is not indicated, how much of this quantity was clandestinely cleared during the same period. On the other hand applicant contends that even the 2038 MT cleared subsequently was also part of this period of manufacture. Therefore, going by the worksheets I-III of SCN for determining the quantity cleared clandestinely during April, 97 to June, 98, (on which duty is to be demanded) from out of the alleged total clandestine manufacture of 9803.01 MT, (in the worksheets I-III) deduction will have to be made of 2038 MT on which duty has to be dem....
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....b work basis for a third party, and due accounting of the same in Annexure V record as per Central Excise Rules, which has since been accepted by the Revenue also, though it was omitted to be taken into account by the worksheet to SCN. Hence, the net unaccounted production during the material period on applicant's own account works out to 6961.940 MT (8905.45 MT - 1943.510 MT), of which the applicant admits 3038 tonnes only. As a result, the Bench concludes that the application requires to be settled holding unaccounted manufacture and clearance during the impugned period as 6961.940 MT. 13.0 Finally, as for duty on the quantity of 2038 MT cleared during July to Oct. '98, applicant admits a short-levy of only Rs. 37,31,978/- (as against Rs. 42,91,792/- proposed to be demanded in the SCN) on the ground that the value adopted for duty calculation in the SCN on these goods is cum-duty value. 13.1 The Commissioner (Inv.), who was directed by this Bench to investigate the basis of the value adopted by the jurisdictional Commissioner and its correctness, has reported that "The Show Cause Notice has placed reliance on the statement (chart) drawn up by Shri Kariappa, Weighm....
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....culating differential duty is the value declared by the applicant for their duty paid clearances and, hence, the present claim to deem it as cum-duty value does not hold water. Further, though the SCN has worked out additional duty liability by apportioning clearances of the alleged unaccounted production to different months between April, 97 to June, 98, the basis of arriving at the monthwise quantum of clearances is not available in the SCN. Even the applicant who has admitted unaccounted manufacture and clearance of 1000 MT during the aforesaid period, has not indicated the date(s) of clearance of the said 1000 MT. Accordingly, in the absence of details of dates of clearances, the Bench is left with the only option of arriving at the total average value of duty paid clearances adopted in the SCN for the 13 months from April, 97 to June, 98 and calculate the duty liability on the aforesaid 6961.940 MT on the basis of said average assessable value as indicated in the Annexures B & C (enclosed to this Order). 14.0 In fine, the duty payable on the unaccounted production and clearances during show caused period works out to Rs. 1,31,34,611/ (Annexure C to this order refers). ....
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.... day affairs of this unit, which was left to the local executives. It is admitted in view of the above, certain lapses in the internal control and proper monitoring of production and clearances of rolled products and finances of the company had occurred. The non-availability of documentary evidences is also claimed to be a handicap. During the hearing on 7-9-2001, Shri B.V. Kumar, Advocate submitted, inter alia, that since the procedures and scope relating to the Settlement Commission were new, after understanding the scope of the Settlement machinery, he directed his clients to work out the exact duty liability. He went on to add that his clients could not lay their hands on all the records within a short period. Still, in their anxiety to make a full and true disclosure of duty liability an expert, namely, Shri S.T. Chalam, Engineer and Consultant was engaged and assigned the task of estimating the total production during the period April, 1997 to October, 1998. The above factors clearly indicate that the main applicant had endeavoured to disclose full and true duty liability. However, the Bench has not agreed with the same for the detailed reasons given in the foregoing paragrap....
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.... of Furnace Oil in M/s. Navakarnataka Steels Ltd., Bellary ANNEXURE A Sl. No. Month Production as per RG 1 Job worked Qty. Total Furnace oil consumed in RM Divn alone (in ltrs) Average based on consumption in Rolling Mill Division alone (ltrs/MT) 1 Apr-97 880.040 0 880.040 56940 64.70 2 May-97 1018.765 0 1018.765 69240 67.96 3 Jun-97 949.305 154.855 1104.160 83280 75.42 sub total 2848.110 154.855 3002.965 209460 69.75 4. Jul-97 495.745 311.305 807.050 61360 76.03 5. Aug-97 875.940 416.705 1292.645 78120 60.43 6. Sep-97 713.775 725.385 1439.160 95460 66.33 7. Oct-97 1109.215 311.655 1420.870 87510 61.59 8. Nov.-97 1003.970 23.605 1027.575 72420 70.48 sub-total 4198.645 1788.655 5987.300 394870 65.95 9. Dec-97 966.50....
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.... 165158558.95 Average assessable value for the period from 4/97 to 6/98 12730.50 ANNEXURE- C Annexure showing duty payable by M/s Nava Karnataka Steels Ltd. Bellary Total Fur-nace oil RM Divn from 4/97 to 10/98 Estimated production of Rolled products @50 Itrs per MT Production as per RG 1 (MTs) Excess unac-counted pro-duction (in MTs) Quantity produced on job work basis Net total quantity of unaccounted Production Quantity of unaccounted clearances admitted for the period 7/98 to 10/98 Total Asse-ssable Value of unaccounted clearances for the period from 7/98 to 10/98 Duty pay-able for un-accounted clearances for the period from 7/98 to 10/98 Quantity of unaccounted production determined for the period 4/97 to 6/98 Total Ass-essable value of unaccoun-ted clearances for the period from 4/97 to 6/98 Duty pay-able for un-accounted clearances for the pe-riod from 4/97 to 6/98 1 2 3 4 5 6 7 8 9 10 11 ### 12 (2) minus (3) &&& (6) minus (7) 12730.50 (9) x 15% 1394620 27892.400....