TaxTMI 
TaxTMI 
2026 (7) TMI 1779
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.... Chapter 72 of the Central Excise Tariff Act, 1985, in its factory located at Kalinga Nagar Industrial Complex, Jajpur. The end product manufactured by the Appellant is sold domestically in the Indian market and is also sold to merchant exporter for the purpose of export. ii. During the underlying period, the Appellant was a Joint Venture of 4 Central Public Sector Enterprises, namely MMTC (shareholding of 49.78%), NMDC (10.10%), BHEL (0.68%), MECON (0.68%) and 2 Odisha Government PSUs, namely OMC (20.47%) and IPICOL (12.00%). Accordingly, the Appellant was functioning in manner similar to Central Public Sector Enterprises. iii. The Appellant was registered under Central Excise, having Registration No. AAACN9433BXM00 for payment of appropriate Central Excise duty on the products manufactured by it. iv. During the relevant period several semifinished and finished products including Pig iron, were produced at the Appellant's plant. The process of manufacturing pig iron starts at Blast Furnace where hot metal is produced. The Hot metal is then tapped from Blast Furnace to ladles. This hot metal is then weighed and sent to Pig Casting Machine (PCM) for produc....
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....cted in the DSA and the physical stock of raw materials and finished goods as on 31.03.2013 and directed the concerned department to furnish suitable justification for the same. The justification for the shortage was duly communicated on 22.06.2013, wherein the following reasons were pointed out: * Errors in parameters of stock verification, viz. volumetric basis; * No weighing system in place to record pig iron production accurately. Accordingly, the quantity of pig iron produced was derived on the basis of the yield of pig iron and scrap from hot metal, which could result in errors in assessment of such yield. * No weighing system even for coke fractions and for consumption of coal. These are also done on yield basis. ix. Thereafter, by internal communication dated 24.07.2013, it was noted that even daily hot metal production had initially been declared on theoretical norms. A Hot Metal Weigh Bridge was installed in January 2011, pursuant to which accurate weighment of hot metal was achieved. However, pig iron production, scrap arising and losses continued to be declared on percentage basis of weighed hot metal based on norms/ assumptions. Cons....
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....or the shortage in the stock of finished goods. In view of such alleged shortage, the Appellant was called upon to self-assess their Duty liability and make payment of appropriate duty. xv. The Appellant vide their letter dated 27.11.2013, promptly clarified that they had not cleared any goods, over and above the quantities reflected in the statutory records to defraud the Government. The Appellant clarified that the Production Department records the production particulars (shift wise) on theoretical estimation/ calculation. Whereas the statutory records maintained for taxation and other commercial purposes duly reflect the actual sales figures on the basis of actual weighment. Hence, there is discrepancy in the position of stock. xvi. The investigation culminated in the DGCEI issuing a Show Cause Notice dated 28.01.2016 (hereinafter referred to as "underlying SCN") proposing to recover Rs. 7,06,34,526/- (Rs. 6,85,77,210/-, towards Central Excise duty Rs. 13,71,544/- towards Education Cess and Rs. 6,85,772/- towards Secondary & Higher Education Cess) for the period 2012-13 & 2014-15 under Section 11A(4) of the Central Excise Act, 1944 along with interest under Sec....
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....clandestine removal. The Chief Security Officer/ AGM (Security) of the Appellant categorically admitted that the modus of operation was unauthorized loading of the material (Pig Iron) over and above the invoice quantity. The FIR lodged by the Appellant suggests pilferage, which appeared to have contributed to such abnormal shortage. xix. The Appellant being aggrieved by the impugned order is filing this present appeal. 3. The Ld. Counsel appearing on behalf of the appellant has made various arguments in support of his contentions, which are inter alia, as under: - A. STATEMENTS RECORDED RELIED UPON BY THE DEPARTMENT WERE RECORDED IN VIOLATION TO SECTION 9D(1)(B) OF THE CENTRAL EXCISE ACT, 1944 A.1 The underlying SCN and the impugned order have relied upon the statements given by several employees as well as the Manager of the external agency. In this regard, it is submitted that the statements relied upon in the underlying SCN and impugned order could not have been considered as valid evidence under Section 9D of the Central Excise Act, 1944. A.2 Section 9D(1)(a) of the Excise Act sets out the limited circumstances in which a statement, made a....
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....ia 2016 (340) E.L.T. 67 (P & H) A.7 In view of above, it is submitted that the procedure elaborated above under section 9D(1)(b) of the Excise Act has not been followed by the Adjudicating Authority during adjudication proceedings as well as while issuing the SCN. Thus, the statements do not qualify as valid evidence and cannot be relied upon. Thus, the demand confirmed in the Original Order based on the statements of employees and the manager of the external agency, should be set aside. B. THE VERIFICATION REPORT DRAWN BY THE EXTERNAL AGENCY HAS NO BASIS B.1 The underlying SCN has placed reliance on the report prepared by the external agency to allege that, as per the said report, the closing stock of Pig Iron as on 31.03.2013 was 39,548.634 M.T., whereas as per the DSA the closing stock was 59,876.300 M.T. On this basis the Department has alleged a shortage of 20,328 M.T. of pig iron. [Pg 39 of the Appeal]. Similar demand has been raised for other finished goods, viz. mixed coke and crude tar. B.2 On perusal of the report prepared by the external agency, it is clear that the report is only a one page document and does not disclose the basis, me....
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..... Post 2011, the hot metal production was recorded basis actual weighment due to the installation of weighment bridge. This hot metal was thereafter sent to the Pig Casting Machine (PCM) for conversion into pig iron. As evident from the facts above, after this stage, there is no weighment facility available to determine the exact quantity of pig iron produced. Accordingly, the production quantity of pig iron is derived on the basis of a conversion ratio, determined from the Appellant's own historical records over a period of time and in line with the practice followed by other steel plants. This conversion ratio is periodically revised with reference to the physical stock of pig iron and scrap, sample tests, and the prevailing operating process parameters. The quantity of pig iron so derived is recorded in the DSA. C.3 The hot metal-to-pig iron conversion ratio varied from 78.57% to 91.71% on a yearly basis from 2001-02 up to 2012-13. [Pg 318 of the Appeal Paper book]. Therefore, even where the quantity of hot metal is known, the derived quantity of converted products, namely pig iron and scrap, together with process losses, may not exactly correspond with the actual quant....
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....e Appeal Paper book]; * Internal communication dated 24.07.2013 - giving details of method of recording production and recommendations [Pg 333 of the Appeal Paper book], * Reply dated 27.11.2013 of the Appellant to the investigating team detailing the reasons for shortages. C.7 The Department despite being in possession of these letters, note sheets and office order did not step to seek clarity on the method adopted by the Appellant for measuring pig iron for the purpose of recording the same in the DSA. The Department presumed that such shortage indicated clandestine removal of finished products. C.8 It is, therefore, evident that the alleged shortages were merely notional, arising from the year-on year variation in the conversion ratio adopted for recording production. At best, such notional discrepancy can lead to a suspicion of shortage but cannot be a substitute for the proof of shortage/ clandestine removal. In the present case, the department has not provided any proof to substantiate that the alleged shortage was not notional, despite being in possession of the documents clearly outlining the manner of production recording adopted by the ....
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....rted discrepancy between the stock reflected in the DSA/ER-1 returns and the physical stock of pig iron, mixed coke and crude tar; ii. the survey reports prepared by the external agency; iii. the statements of the employees of the Appellant and other persons during investigation; iv. The FIRs pertaining to instances of theft/ pilferage; and v. internal note sheet communicating the discrepancy between the stock reflected in the DSA/ ER-1 returns and the physical stock of pig iron. D.2 At the outset, it is pertinent to note that clandestine removal is a serious charge which cannot be raised only on the basis of assumptions and presumptions. In order to sustain the allegation of clandestine removal, the onus is on the Department to prove the same by sufficient and tangible evidence. D.3 It is humbly submitted that none of the evidence/statements relied on the Department brings out the any tangible proof/ evidence which indicates actual manufacture and clandestine clearance of pig iron, mixed coke and crude tar by the Appellant. In the present case, the Department has assumed that the difference in the figures reflected in the DSA/E....
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....e form of evidence towards purchases, sales, movement of goods, electricity consumption, recorded statements of alleged purchasers and sellers etc. D.7 On perusal of the impugned order, it is clear that the department has failed to bring on record any evidence to show actual clandestine removal of Pig iron, crude tar or mixed coke by the Appellant. No evidence has been produced by the Department as to where these goods have been cleared to, or how and what mode of transportation has been used to clear these items, excess use of nay raw material, discovery of such finished goods outside the factory or receipt of any sale proceed. Further, no buyer has been identified by the Department to whom these items have been allegedly cleared. D.8 Therefore, the Department has not discharged the burden of proof in the instant case. In the absence of any corroborative evidence to support the allegation of that pig iron, crude tar, mixed coke had been manufactured and removed clandestinely, the impugned demand cannot sustain E. EXTENDED PERIOD OF LIMITATION IS NOT INVOKABLE AND THE ENTIRE DEMAND IS TIME BARRED. E.1 Without prejudice to the submissions in the f....
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.... the assessee is a government organization. E.5 Further reliance is also placed on the following judgements wherein similar propositions have been upheld - i. Electronics Technology Parks v. Commissioner of Cus. C. Ex. & S.T., Trivandrum - 2022 (56) G.S.T.L. 182 (Tri. - Bang.) ii. Hindustan Petroleum Corporation Ltd v. Commr. of C. Ex., Mumbai - 2015 (328) E.L.T. 684 (Tri. - Mumbai) iii. Hindustan Petroleum Corporation Ltd. v. Commr. of C. Ex., Calcutta - I - 2001 (136) E.L.T. 943 (Tri. - Kolkata) Inordinate delay to issue Show Cause Notice. E.6 It is submitted that while the DGCEI had visited the plant of the Appellant on 25.10.2013 and was aware of the shortage/ excess in finished goods on that very date, as evident from the letter dated 11.11.2023 [Pg 475 of the Appeal Paper book]. However, still the underlying SCN has been issued only on 28.01.2016 after an inordinate delay of more than 2 years from the date of facts coming to the notice of the Department. It is a trite law that if there is an inordinate delay in issuance of show cause notice, extended period of limitation is not invokable. E.7 Reliance in this rega....
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....had failed to give satisfactory explanation, it could be inferred that there was clandestine removal of goods. 5. Heard the parties and considered their submissions. 6. In this case, we find that it is a fact on record that the appellant have engaged internal auditors to do the stock taking. During the said stock taking, quantities were taken on record, which are extracted hereinbelow: - 7. Now, on the basis of the stock taking done by the internal auditors, shortage of certain quantities were found during the impugned period. However, it was also found that some quantities of other finished goods or raw materials were found in excess. 8. We find that the reasons or discrepancy in stock taking have been explained, which is reproduced hereunder: - 9. As per the report filed, for the Pig Iron, the appellants were not having the weighing system and was being assessed on the basis of yield of pig iron and scrap. There may be errors in the assessment of yield of pig iron and scrap as the weighing system for measurement of the goods in question is not correct and absolute. We are therefore of the opinion that discrepancies can remain as the same was only done on eye estima....
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....be taken into the RG 1 account and would be cleared on payment of duty. The appellants are highly aggrieved over the impugned order. They have made several submissions and they have also relied on the various case-laws. It was contended that the appellants are following different methods for accounting the production, accounting the clearance to the parties, accounting the clearance for capital consumption and also stock takings. In fact, before the learned Adjudicating Authority they have stated that as far as the accounting of pig iron is concerned, it is based on estimate. As far as the accounting of clearance for the capital consumption is done on the basis of standard grab weight. During the stock verification, the method followed is volumetric calculation method. Based on the volume and density the weight is calculated. Thus, we find that different criteria are adopted for estimating the pig iron for different purposes. Therefore, in the very nature of the accounting, there is bound to be difference. Unless it is shown that the appellants had cleared the goods without payment of duty in a clandestine manner, or in other words, unless there is evidence to show that there is cl....
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....n observed that different practices are being followed in the Steel Plants in the matter of accounting their daily production. After carefully considering the matter, it has been decided that at the account acc of production maintained by the steel plants for their own purpose would be accepted for Central Excise purposes also. In case, however, they maintain separately Central Excise records, the figures of production to be entered therein would be the same as are maintained by that since the production in many instances has to be determined on the basis of sectional weight, which is a calculated weight the vari between the quantity finally cleared, and the initial production account should be viewed by Central Excise officers in their proper perspective. variations (iv) Annual stock-taking: Different methods are being followed in the matter of stock taking. After careful consideration, it has been decided that the steel plants would follow their respective procedures of stock taking but should intimate the Central Excise Officers in advance about their programme of stock taking to enable the officers to associate themselves with such stock taking wherever possib....
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....ysore - 2006 (200) E.LT. 229 (Tri.-Bang.) where a similar situation was examined and it was decided that the shortage is inflated due to errors in taking opening balance and a physical stock. It is also held that considering the practical difficulties in estimating the actual stock and in view of the submissions made by the appellants, the demand of duty made by the Adjudicating Authority cannot be sustained. The ratio of that case would be applicable for this case also. In the case decided by us also the steel products are involved. We are reproducing the findings given in that order: "We have gone through the records of the case carefully. The demand has been issued under Rule 223A covering a period of 13 years from 31-3-1998 to 31-3-2001. The Revenue has issued the show cause notice on the belief that Section 11A is not applicable for demands made under Rule 223A. The Department's view is not correct in terms of the judicial pronouncements cited by the appellants. There is no allegation that the appellants have removed goods in clandestine manner. Moreover, the stock taking was done by the associated with the same. Hence, the stock taking cannot be said to have been....
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....swar-2001 (47) RLT 343 (CEGAT- Kol.) it was held that allegation of clandestine removal based on difference in figures of production and clearance given in the annual financial accounts and RG-1 cannot be sustained and annual financial accounts are made public within two months from the date of close of the year. 5. The learned Departmental Representative also relied on the following case laws: (a) CCE, Ludhiana v. Arora Iron & Steel Rolling Mills - 2004 (175) E.L.T. 293 (Tri.-Del.) (b) CCE, Chandigarh v. Balu Ram Hamam Dass Steel Rolling Mills - 2004 (170) E.L.T. 111 (Tri.-Del.) (c) CCE, Indore v. Agya Auto Ltd. - 2004 (166) E.L.T. 177 (Tri.-Del.) (d) CCE, Surat v. Silver Prints - 2004 (169) E.L.T. 245 (Tri.-Mumbai) (e) CCE, Kanpur v. Ess Kay Polymers - 2004 (165) E.L.T. 566 (Tri.-Del.) (f) Kirloskar Brothers Ltd. v. Union of India and Others -1988 (34) E.L.T. 30 (Bom.). 6. On a very careful consideration of the issue, we find that the case-laws relied on by the Revenue are the cases decided by a Single Member Bench, whereas the Division Bench's decisions are in favour of the department. In any case, the l....
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.... in this case, no tangible evidence has been brought on record by the Revenue; merely from shortages recorded by the auditors on eye estimation basis / yield basis, it has been inferred that there is clandestine removal of goods on the part of the appellant. Such inferences are drawn merely on the basis of assumptions and presumptions and the same cannot be a basis to sustain the allegation of clandestine removal of goods against the appellant. 14. We take note of the facts of the case and the decision arrived at by the Tribunal in the case of Micky Metal Ltd. v. Commissioner of Central Excise, Bolpur reported in [2023 VIL-1624 - (CESTAT, Kolkata, Central Excise)], wherein it was alleged that the appellant therein had suppressed the facts from the Central Excise Department by not mentioning the production and clearance in Central Excise Returns in form ER-1 and therefore had evaded payment of duty; thus Show Cause Notice were issued. 15. In the said case, this Tribunal has observed as under: "7. Considered the facts that in this case the demand of duty sought from the appellant on the basis of difference in figures of audit report and ER-1 return for the year 2006-07....
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....'ble Allahabad High Court held that to allege clandestine removal of the goods, the following requirements are to be considered. "12. Further, unless there is clinching evidence of the nature of purchase of raw materials, use of electricity, sale of final products, clandestine removals, the mode and flow back of funds, demands cannot be confirmed solely on the basis of presumptions and assumptions. Clandestine removal is a serious charge against the manufacturer, which is required to be discharged by the Revenue by production of sufficient and tangible evidence. On careful examination, it is found that with regard to alleged removals, the department has not investigated the following aspects : (i) To find out the excess production details. (ii) To find out whether the excess raw materials have been purchased. (iii) To find out the dispatch particulars from the regular transporters. (iv) To find out the realization of sale proceeds. (v) To find out finished product receipt details from regular dealers/buyers. (vi) To find out the excess power consumptions. 13. Thus, to prove the allegation of clandestine sale, f....
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....on merits also, we hold that in the absence of any statement or investigation against the appellant with corroborative evidence, the impugned order is not sustainable. Accordingly, the same is set aside." 16. In view of the above, we hold that the Revenue has failed to prove the charge of clandestine manufacture and removal of goods by way of tangible evidence in this case. Merely on the basis of difference between stock recorded by the auditors and the statutory records, the impugned demand cannot be raised, by alleging clandestine removal of goods on the part of the appellant. 17. It is also seen from the records that the impugned Show Cause Notice has been issued to the appellants on 28.01.2016 by invoking the extended period limitation, for the period from 2012-13 to 2014-15. As the appellant is a public sector undertaking and no mala fides have been brought on record by the Revenue. In view thereof, the demand pertaining to extended period limitation is also not sustainable. 18. Furthermore, in the facts and circumstances of the case as above, no penalty can be imposed on the appellants. 19. In view of the above discussions, we hold that the charge of clandestine r....