TaxTMI 
TaxTMI 
2026 (8) TMI 995
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....nd attended the Personal Hearing granted by the Adjudicating authorities. They countered each and every allegation contained in the SCN by showing the details as per their records. However, after due process, the Adjudicating authority confirmed the demand along with interest and penalty. Hence, the appellant is before the Tribunal. 2. The Ld. Chartered Accountant, appearing on behalf of the appellant makes the following submissions: 2.1. It is explained that the aggregated demand of duty amounting to Rs. 18,17,92,020.00 (BED + Education Cess + S&HE Cess) pertaining to the period 2013-14 encompasses 8 (eight) allegations, out of which 5 (five) relate to alleged clandestine production and removal of finished goods and 3 (three) relate to alleged undervaluation, as below: Sl. No. Type of allegation Amount of duty in demand (Rs.) Reference to S.C.N. Sub-group : Sponge Iron 1. Clandestine production and clearance of Sponge Iron 49,48,817/- Para 14 & 15 2. Clandestine production and clearance of Sponge Iron 7,29,29,511/- Para 19 3. Undervaluation of Sponge Iron 1,04,66,448/- Para 16 ....
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....ute, is arbitrary and baseless. The appellants have referred to and relied upon a catena of decisions to substantiate that actual production cannot be ascertained by applying input and output ratio only. (B) Clandestine production and clearance of Sponge Iron, involving duty of Rs. 7,08,05,364/- (ref. Sl. No. 2 of the above Table): Grounds of S.C.N. (ref. paragraphs 19 and 19.1): (i) Sale of Sponge Iron as per E.R .- 1 : Rs. 219,44,44,905/- (ii) Amount realized for sale of unaccounted quantity of 2133.25 M.T. : Rs. 4,00,38,969/- (iii) Amount realized as per Trial Balance : Rs. 290,92,48,576/- (iv) So, excess realization : Rs. 67,47,24,702/- (v) (+) Additional realization (Para 5 of S.C.N.) : Rs. 8,40,80,000/- (vi) Net differential value : Rs. 59,00,44,702/- (vii) Duty payable : Rs. 7,08,05,364/- The appellants have submitted: - (i) That in the Show Cause Notice, the total amount of Rs. 290,92,48,576/- in Trial Balance has been wrongly considered as sale proceeds from Sponge Iron only. The said amount includes the value of the following fact....
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....lico Manganese has been derived, which have been cleared without payment of duty of Rs. 31,42,249/ -. The appellants have submitted: - (i) that in the Show Cause Notice, the table at paragraph 4 indicates that the excess purchase of 1315.65 M.T. of aforesaid raw materials has been derived by comparison between E.R .- 4 and E.R .- 6; (ii) that the aforesaid table also indicates that the quantity of consumption of raw materials is the same in E.R .- 4 and E.R .- 6 returns, which has been wrongly ignored in the Show Cause Notice; and (iii) that in the foregoing paragraphs, it has been submitted by relying upon decisions that the determination of quantity of production by applying input : output ratio is half-baked and it does not show actual production. (iv) The appellants have submitted that the aforesaid less than 2% differential quantity should not be attributed to unaccounted consumption quantity when the such items are prone to wastage during transportation, storage etc. and particularly when no verification has been conducted at the appellants' end by the Department and no evidence of unaccounted consumption has been brought ....
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....have not paid duty of Rs. 1,60,74,921/- by resorting to undervaluation. The appellants have submitted - (i) that the sale value of finished goods in E.R .- 4 is auto-generated figure by adding opening inventory value with production value and by subtracting closing inventory value; (ii) that, therefore, the auto-generated sale value figure of E.R .- 4 does in no way represent real sale value and accordingly, the uncertain sale value of E.R .- 4 cannot be compared with clearance value of E.R .- 1; (iii) the reconciliation statement has been submitted in Page 126 of Paper Book. (G) Undervaluation of Pellet, involving non- payment of duty of Rs. 4,54,98,149/- (ref. Sl. No. 7 of the above Table): Allegations in the S.C.N. (ref. paragraph 18): (i) The appellants have realized additional sale proceeds of Rs. 3681.08 lakhs from sale of Pellets as per E.R .- 4 return, which is over and above the clearance value declared in E.R .- 1. (ii) Hence, the appellants have sold the said goods without payment of duty of Rs. 4,54,98,149/- by resorting to undervaluation. The appellants have submit....
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....turn containing financial information statement for the preceding year filed under Rule 12(2)(a) of the Central Excise Rules, 2002 and ER-6 returns are filed under Rule 9A of the CENVAT Credit Rules, 2004 containing information regarding receipt and consumption of principal inputs; thus, Form ER-4 is a macro return requiring an assessee to declare details of expenditure, value and quantity of inputs including packing materials used for manufacture of excisable goods, details of other expenditure, details of job work done, details of income receipt and Cenvat credit taken/utilized, all under broad heads, corresponding to the assessee's Annual Accounts. They have also submitted that it is pertinent to note that in the Form ER-4 under the head 'Value' and 'Quantity of major raw materials' an assessee is required to indicate Opening stock + Raw material procured - Closing stock of raw material = Total consumption thereof. Manifestly, the said ER-4, more particularly aforesaid broad heads do not require the assessee to report micro details such as wastage of raw material, raw materials rejected on quality angle and not used in normal production, purchases received in....
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....Y 2012-13 has been already allowed by this Tribunal vide Final Order No. 76985/2025 dated 18-07-2025 in Excise Appeal No. 76637 of 2016, the copy of the Order is enclosed herewith. (ii) It is established principle of law that onus of proof of clandestine removal, contrary to the erroneous opinion of the Commissioner, is on the Department and the Department is required in law to establish clandestine manufacture and removal through positive and tangible legal evidence and the standard of proof therefor is that the same has to be proved beyond doubt and not by mere preponderance of probabilities or by way of inferences drawn based on calculations and alleged circumstantial evidence based on assumptions, presumptions and inferences. In the absence of such positive evidence, no case of clandestine removal of goods can be made out or established against an assessee. It is further settled law that in the absence of any positive evidence the benefit of doubt has to be in favour of the assessee. Applying the said settled principles of law there can be no manner of doubt or dispute whatsoever, on the basis of the facts and materials on record, that the said requirements o....
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....vehicle trips would be require. No details in this respect has been disclosed. No statement of any transporter or drivers has been recorded and relied upon. In fact there is not a single piece of evidence disclosed as to how and to whom and in what manner such huge quantity of the said goods were removed. There is also no evidence to show that any payment was received by the appellant from the alleged customers to whom the said alleged unaccounted goods were sold. There is also no evidence disclosed to establish, even prima facie, of payment being made by the appellant to any alleged persons/parties from whom any excess raw materials were purchased from which the said excess goods was generated. In the absence of the aforesaid, as per settled principle no case of clandestine removal can be said to have been established against the appellant. In this respect reliance is placed on the decision of this Hon'ble Tribunal in the case of Arya Fibers Ltd. Vs. CCE (supra) where the entire law on clandestine removal has been discussed and the legal position has been succinctly summarised in para 40 of the order. The requirements serialised therein, which are nothing but putting together ....
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....was brought on record to show from where the assessee has procured raw materials like coal and iron ore to manufacture such a huge quantity of sponge ore, the impugned demand was not sustainable iv. Viraj Steel and Energy Ltd. Vs. Commissioner of Central Excise, Customs and Service Tax 225 (4) TMI 954 - CESTAT KOLKATA (viii) It has also been held by this Hon'ble Bench of the Tribunal that allegation of clandestine manufacture and removal of final products cannot be sustained clearly on the basis of difference in the figures of Audit Report and ER- 1 Return unless the established principle laid down for sustaining clandestine manufacture and removal of goods as abovestated are satisfied. In this regard reliance is placed upon the following decisions :- i. Standard Pharmaceuticals Ltd. Vs. Commissioner of Central Excise 2025 (3) TMI 430 - CESTAT KOLKATA ii. Micky Metals Limited Vs. Commissioner of Central Excise 223 (7) TMI 357 - CESTAT KOLKATA (ix) In this regard reliance is also placed upon the decision of this Bench of the Tribunal in Jai Salasar Balaji Industries Private Ltd. Vs. Commissioner of Central Excise and Service Tax 225 (....
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....eal may be dismissed. 4. Heard both the sides. Perused the appeal papers and other documentary evidence placed before us. 5. The total demand is on account of : (a) Alleged manufacture and clearance of goods clandestinely (b)) Alleged undervaluation of cleared goods 5.1. The demand under these heads would be as under: - Sl. No. Type of allegation Amount of duty in demand (Rs.) 1. Clandestine production and clearance of Sponge Iron 49,48,817 2. Clandestine production and clearance of Sponge Iron 7,29,29,511 3 Clandestine production and clearance of Ferro Alloys 31,42,249 4 Clandestine production and clearance of Ferro Alloys 2,83,01,569 5 Clandestine production and clearance of Billet 4,30,342 Total demand on account of alleged clandestine removal: 10,97,52,488 Type of allegation Amount of duty in demand (Rs.) 1 Undervaluation of Sponge Iron 1,04,66,448 2 Undervaluation of Ferro Alloys 1,60,74,921 3 Undervaluation of Pellet 4,54,98,149 Total demand on account of alleged undervaluation: 7,20,39,518 6. I....
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....her entries which have to be considered when this figure is arrived at. CA's Certificate enclosed at Page 130-131. Mere comparison with ER 1 and working out the manufacture without any corroborative evidence towards electricity and other major raw materials consumption is not correct. No corroborative evidence towards clandestine removal of upwards of 31052MT of sponge Iron. 3. Clandestine production and clearance of Ferro Alloys 31,42,249 By applying the ratio on the excess purchase of various raw materials of 1315.655 M.T. excess production of 413.970 M.T. arrived at No scientific basis to assume the production. No verification has been conducted in respect electricity consumption. No corroborative evidence towards clandestine manufacture and clearance 4. Clandestine production and clearance of Ferro Alloys 2,83,01,569 ER 4 Figure compared with the Purchase Value shown in the Trial Balance to arrive at the purchase quantity and then arrive at the clandestine manufacture as per the ratio No scientific basis to assume the production. No verification has been conducted in respect of other raw materials / electricity consumption. No corroborative evi....
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....on Amount of duty in demand (Rs.) Reason for the Demand Points noted by the Bench 1. Undervaluation of Sponge Iron 1,04,66,448 The comparison between the amount of sale of Sponge Iron shown in E.R .- 4 and the amount declared in E.R .- 1, indicates an excess amount of Rs. 846.80 lakhs in E.R .- 4, which has arisen from the undervaluation of Sponge Iron In E.R .- 4 return, the value of finished goods sold is auto- generated figure by adding opening inventory value with production value and by subtracting closing inventory value. The auto-generated sale value figure in E.R .- 4 does in no way represent real sale value . The reconciliation of Qty of Sponge Iron as per ER-4 vis-à- vis ER-1 for FY 2013-14 is provided by the appellant in the Page 125 of the Appeal book 2. Undervaluation of Ferro Alloys 1,60,74,921 The comparison between the amount of sale of Sponge Iron shown in E.R.-4 and the amount declared in E.R.-1, indicates an excess amount of Rs. 1300.56 lakhs in E.R.-4, which has arisen from the undervaluation of Ferrow Allows In E.R.-4 return, the value of finished goods sold is autogenerated figure by adding opening invent....
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....curement and consumption of these materials. Total Value of the clandestine clearance would be to the extent of approximately Rs. 120 crores. In the entire proceedings, except for comparing the ER 4 quantities with ER 6 and ER 4 with Trial Balance, no other cogent effort has been made to fortify the allegation. From the Show Cause Notice, it is seen that not even Statement of the Director or senior officials of the company has been recorded to know the details of the alleged excess consumption. As rightly submitted by the appellant, no evidence whatsoever has been brought in, in the form of any statements recorded from the purported buyers, sellers of raw materials, details of excess electricity consumption, statement of vehicle owners / drivers and no private records towards cash receipts / payments have been seized. This shows that the proceedings have been initiated entirely based on the presumptions and assumptions by simply converting the alleged excess consumption into finished goods as per fixed ratio and demand has been issued and confirmed. Without proper corroboration, the allegation of clandestine removal would have no legs to stand on, which has precisely happened ....
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....entire estimated production has been arrived at based on certain formula with no statutory backing, we do not find any merits in the OIO passed by the Adjudicating Authority. Accordingly, we set aside the impugned order on merits." ● Mittal Pigment Pvt. Ltd. Vs. Commissioner of C.Ex. [2018 (360) ELT 157 (Tr .- Del. )1 "6.1 Further the department has not gone beyond the approximation of yield which they have shown as 70 to 84% in col. 3 of Annexure-A attached to the show cause notice and average yield overall had been shown as 77.60% which has been made the basis for issuance of the show cause notice (SCN) as well as for confirming the duty of Central Excise by the impugned order dated 19-5-2009. The department confirmed the duty demand along with interest for the period of five years alleging suppression of clandestine removal of the final product and also imposed penalty mainly based on the production approximation and on the statement of Director of the unit, Shri Agarwal, who is one of the appellants in this case. 6.2 The department has not gone beyond the approximation and the statement of Shri Agarwal. Any prudent person would not so conclude o....
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....ch 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, further corroborative evidence is also required. For this purpose no investigation was conducted by the Department. 14. In the instant case, no investigation was made by the Department, even the consumption of electricity was not examined by the Department who adopted the short cut method by raising the demand and levied the penalties. The statement of so called buyers, namely M/s. Singhal Cement Agency, M/s. Praveen Cement Agency; and M/s. Taj Traders are based on memory alone and their statements were not supported by any documentary evidence/proof. The mischievous role of Shri Anil Kumar erstwhile Director with the assistance of Accountant Sri Vasts cannot be ruled out. 15. In view of the above, we are of the opinion that when there is no extra consumption of electricity, purchase of raw materials and transportation payment, then manufacturing of extra ....
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....ion of facts on the part of the assessee/appellant." 12.1. Therefore, we set aside the confirmed demand for the extended period on account of time bar also. 13. To summarize: - (a) The appellant has been able to provide proper evidence towards the difference in the quantification shown in the ER 1, ER 4 and ER 6 Returns, Trial Balance and the actual clearance. (b) The Revenue has failed to bring in any evidence to corroborate their allegation of clandestine manufacture and clearance or towards the alleged under valuation. (c) No case of suppression has been made out since the present SCN has been issued for 2013-14, even as on the same issue earlier proceedings had been initiated for 2012-13, wherein the demand came to be set aside by this Tribunal. Hence, the confirmed demand for the extended period is set aside on account of time bar. 14. In the result, we set aside the impugned order and allow the appeal with consequential relief, if any, as per law. (Operative part of the order was pronounced in open court) ============= Document 1 S. K. PATODI & CO. Chartered Accountant TO WHOM IT MAY CONCERN We, M/s S.K.Patodi & Co., Chartered....
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...., but included in ER-4 } AS PER ER-4 AS PER ER-1 Quantity & Value of Sponge Iron sold mentioned in Para- 5 of SCN ( Inclusive of Captive Consumption but exclusive of Sales Return ) 124432.19 M.T 2279164900 Clearance Quantity & Value of Sponge Iron mentioned in Para- 5 of SCN 116920.72 M.T 2194484905 Add :- Captive Consumption quantity shown in ER-1, but not considered In SCN 8062.40 M.T Less :- Duty pald Sales return Quantity of Sponge Iron is Included in ER-1, but excluded from ER-4. 552.59 M.T Quantity of Sponge Iron cleared as per ER-1 : 124430.53 M.T Quantity of Sponge Iron cleared as per ER-4 : 124432.19 M.T Note :. The difference between Sale value shown In ER-4 and Clearance Value shown in ER-1 does not represent actual difference In sale value. The difference is owing to auto generation of sale value In ER-4. It would be pertinent to mention that auto generation of quantity sold by giving effect of Opening Inventory plus production less closing Inventory is a proper and accepted method in accounting principle, but as because value of opening and closing inventory are future realizable values and unit production cost is only cost of sale and not....