IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST BLOCK NO 2, R K PURAM, PRINCIPAL BENCH, NEW DELHI-110066
COURT NO. II
Appeal Nos. E/59145-59147/2013-DB
Arising out of Order-in-Original No.COMMISSIONER-RPR-DENOVO-CEX-56-2013, Dated: 16.04.2013
Passed by Commissioner of Central Excise-RAIPUR (Appeal)
Date of Hearing: 28.06.2018
Date of Decision: 17.10.2018
SHIV SHAKTI STEEL PVT LTD
GAURAV JHUNJHUNWALA DIRECTOR
ANAND SARAF DIRECTOR
COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX
Appellant Rep by: Ms Surbhi Sinha, Adv.
Respondent Rep by: Shri M R Sharma, DR
CORAM: Anil Choudhary, Member (J)
Bijay Kumar, Member (T)
CX – Suppression of production and clandestine removal of Sponge Iron – demand confirmed of Rs.1,09,39523/- with equal penalty on appellant company and penalty imposed on Directors – appeal to CESTAT.
Held: In the present case, there is no evidence of excess purchase of raw material, transportation thereof, sale of finished goods, realization of sale proceeds, excess power consumption, transportation of finished goods – during search, no goods were found in excess or short – there is no positive evidence brought on record by the revenue to alleged suppression of production/clandestine removal of goods – allegations of clandestine manufacture and removal are vague and liable to be set aside – Despite the name of the customers, truck no. & other details mentioned in the private records, no attempt has been made to investigate the matter at the end of the buyers, transporters, etc. – impugned order set aside with consequential relief to the appellants: CESTAT [para 16 to 18]
Case laws cited:
Asstt. ACIT Vs. Narmada Chematurpetrochem Ltd., 2012 (278) ELT 178 (Guj.)… Para 16
Triveni Engineering and Industries Ltd. Vs. CCE, 2016 (334) ELT 195 (All.)… Para 16
Oudh Sugar Mills Ltd. v. Union of India – 2002-TIOL-307-SC-CX-CB… Para 17
FINAL ORDER NOS. 53127-53129/2018
Per: Anil Choudhary:
1. The issue in this appeal by the appellant company is whether they have been rightly fastened with duty of Rs. 1,09,39,523/- along with equal amount of penalty for alleged suppression of production and clandestine clearance of the finished goods. The other appellants are in appeal against penalties imposed on them being the directors of the appellant company.
2. The appellants are engaged in the manufacture of sponge iron and are registered with the Department and paying central excise duty on the clearance of sponge-iron finished product. The appellant company have got two coal-fired rotary kilns for production of sponge iron. One Kiln having production capacity of 100 TPD (tonnes per day) and the other kiln of 225 TPD.
3. A team of central excise officers visited the premises of the appellant on 15 December 2008 and a punchnama was drawn. Several documents were resumed for further examination, as it appeared to revenue that there is a prima facie case of suppression of production and clandestine removal of the finished goods.
4. The brief facts as per the show cause notice are that-
4.1. It is the case of the department that during scrutiny of the loose papers kept in File No. 9 revealed that at page no. 147 and 149, the date wise raw material consumption and production of sponge iron during the month of August, 2008 have been recorded. Upon comparison of the production of sponge iron recorded in such loose papers with that of records in Daily Stock account it appears that the appellant has suppressed production of sponge iron by 780 MT during the month of Aug, 08. involving duty of Rs. 23,30,416/-.
Further on scrutiny of Daily Production Reports kept at page no. 101 to 145 and 151 to 159, it revealed that the said reports are for the period 17.11.1008 to 07.12.2008 and 09.12.2008 to 12.12.2008, the same are showing kiln wise consumption of raw material and production of sponge iron with the remarks- difficulty faced during the shifts of the day. Upon comparison with Daily Stock Account, it appears that the appellant had suppressed production of 440 MT of sponge iron. The above suppression of production further gets corroborated from the Process Log Sheets maintained by the appellant.
The department have relied upon the statement of Shri Shyam Sunder Ahirwal-Assistant Process Manager, wherein he has submitted that said process log sheets and daily production reports have been maintained in their factory premises. He further stated that average feed rate of iron ore in Kiln No. 1 is 6MT/hr and in Kiln No. 2 is 9.5 MT/hr and the maximum feed rate of iron ore is 11.5 MT/hr. Therefore, depending upon the quality of iron ore, the yield of sponge iron ranges in between 50 to 60% of the total iron ore fed into the kiln. Upon comparison with the daily stock account, it appeared that appellant suppressed production of 46 MT.
Similarly, Scrutiny of loose papers placed at page 27,29 and 31, on comparison with the daily stock account, it appeared that the appellant had suppressed production of 714 MT of spongeiron.
Similarly, scrutiny of daily production reports kept in File No. 50 for the period 21.02.2008 to 09.07.08, upon comparison with the daily stock account, it appeared that the appellant had suppressed production of 457 MT and scrutiny of process log sheets as record no. 5, it was ascertained by excluding the period of kiln hold, from the total shift hours multiplied by the average feed rate of iron ore i.e. 6 MT/hr from Kiln No.1 and 9.5 MT/hr from Kiln No.2 and upon comparison with the daily stock account, it appears that the appellant had suppressed production of 1400.35 MT of spongeiron.
4.2. Further, on scrutiny of loose papers withdrawn from the factory premises of the appellant, marked as File No. 1, it was found that, in some of the loose papers, the details of dispatches, truck no., quantity and name of the customers to whom the excisable goods have been sold, was recorded. Shri Chandradeep Pathak- Dispatch Clerk has stated that the said loose papers have been recovered from their factory premises. Upon comparison with the sales invoices, it appears that the appellant had clandestinely removed 312.330 MT of sponge iron for the period April, 08 to Dec, 08. Similarly, scrutiny of loose papers, marked as File No.21, similar details were recorded like the details of dispatches, truck no., quantity and name of the customers. upon comparison with the sales invoices, it appears that the appellant had clandestinely removed 403.590 MT of sponge iron for the period March, 08 to Nov, 08. Similar details have also been found in gate register (Record No. 43), it appears that the appellant had clandestinely removed 48.190 MT and 28.580 MT of sponge iron respectively.
Similarly, on scrutiny of the daily Analysis Reports sheets, it was found that it contains details of chemical analysis of sponge iron and on some pages, it was found that details of analysis of sponge iron dispatched were mentioned. Therefore, on comparison with the sales invoices, it was found that the appellant have cleared 119.380 MT of sponge Iron.
4.3. From the above facts, it appeared to the revenue, that the appellant had suppressed production of sponge iron by 3351.335 MT valued at Rs. 6,10,79,702/- involving Central Excise Duty of Rs. 85,77,991/- and clandestinely removed 912.070 MT of sponge iron valued at Rs. 1,63,14,716/- involving Central Excise duty of Rs. 23,61,532. Accordingly, the show cause notice was issued to the appellant proposing demand of Rs. 1,09,39,523/- under Section 11A along with interest and penalty and with respect to the other appellants, penalty was proposed under Rule 26 of the Central Excise Rules, 2002.
5. This is the second round of litigation before this Tribunal. Earlier The said show cause notice was adjudicated by the learned Commissioner, who vide ex-parte order dated 23.06.2010 confirmed the duty demand along with penalties imposed on the appellants. The said order was challenged by the appellants before this Tribunal, whereby vide Final order dated 19.12.2011, this Tribunal after setting aside the order, remanded the matter to the learned Commissioner for de-novo adjudication, however, directed the appellant to pay Rs. 30 Lakhs as pre-deposit within a period of eight weeks. The appellant, being aggrieved, with the condition to pay Rs.30 Lakhs, challenged it before Hon’ble High Court of Chhattisgarh. The Hon’ble High Court vide order dated 11.12.2012 deleted the condition to pay 30 lakhs, however, it directed the appellant to furnish solvent security for the due satisfaction of the dues proposed to be recovered from the appellant pursuant to the show cause notice referred above. Thereafter, the appellant filed review/modification of order dated 11.12.2012 before the Hon’ble High Court, that the State Bank of India is not ready to give uthem the documents of mortgaged property, so that solvent security could be furnished. The Hon’ble High Court vide order dated 05.03.2013 dismissed the review petition filed by the appelant. Meanwhile, the department seized iron ore worth of Rs 1.5 crore of the appellant as security. Thereafter, the impugned order-in-Original has been passed confirming the duty demand along with penalties imposed on the appellants as in the earlier order.
6. Being aggrieved, the appellants are before this Tribunal.
7. The learned Counsel for the appellant argued that the charge of suppression of production and/or clandestine removal of goods cannot be upheld without corroborative evidence. It was submitted that The Ld. Commissioner in the impugned order has upheld the demand of duty by holding that the Appellant had suppressed production of Sponge Iron on the basis of discrepancy figures as per private records i.e. loose sheets, daily production report, process log sheet and process log register, in comparison with daily stock register (RG-1). The Appellant submits that the duty demand cannot be confirmed merely on the basis of the discrepancies noticed between the private records and the daily stock Register. There is no corroborative evidence of alleged suppression of production/clandestine removal, such as procurement of raw material, dispatch of finish goods, excessive consumption of electricity and consideration for procurement of excess raw material and receipt of consideration of alleged clandestinely removed finished goods, etc. It is settled law that the charge of excess production /clandestine clearance is required to be proved by the Department on the basis of corroborative evidence and not merely on assumptions and presumptions or conjectures and surmises. The learned Commissioner have estimated the production suppressed on the basis of feed rate of raw material in the kiln, which is erroneous and untenable. The learned Commissioner failed to appreciate the fact that the physical stock of goods- raw material and finished goods almost matches with the book records. The demand have been confirmed on the basis of assumptions and presumptions. Unless there is clinching evidence of purchase of raw material, use of electricity, the mode of financial flow back of funds, charge of clandestine removal is not substantiated and is fit to be set-aside. Suspicion howsoever strong cannot take place of positive evidence which is required for proving a charge of clandestine removal. Further under the law it is the onus of the revenue to establish evasion of duty as alleged, by leading evidence.
8. That in the present case the Department have drawn an inference of excess production mainly on the basis of discrepancy between the private records and daily stock account, disregarding the burden of proof required to be discharged by it. Such inference being solely based on assumption and presumption without any independent positive evidence in the nature of procurement of inputs from other sources, actual production and clearance of suppressed production, financial flow back, evidence of related parties like buyers, transporters, et cetera. That on the basis of some vague assumptions the revenue have estimated production on the basis of some unsubstantiated feed rate, compared with the data recorded in the books of accounts, and demanded duty on the differential production. Mere estimation of suppressed production without any evidence of removal, does not lead to the inevitable evidence of clandestine removal. Further without having evidence of removal, no Excise duty can be demanded. The liability to duty arises for Central Excise, only when both the events namely manufacturing of the excisable goods and their removal take place.
9. The Ld. AR for the revenue points out that the loose papers kept in file No. 9 from page No. 147 and 149, these contain date -wise data of the consumption of raw material and production of sponge iron during the month of August 2008. On comparing the production of sponge iron recorded in such loose papers with the figures entered in the daily stock account – RG 1, it appeared that the appellant have suppressed production of sponge iron by 780 MT during the month of August 2008. Further it is observed that the manufactured quantity of sponge iron shown in the loose sheets during the period August 5, 2008 to August 10, 2008 was exactly tallying with the figures of production of sponge iron recorded in the daily stock account – RG1. That it is appeared that the data contained in file No. 9 which is annexure to the panchnama was reliable. The contention of the appellant that such loose sheets were reflective of production plan/target for the month of August 2008 and not the actual production figures could not be made basis for assuming suppressed production is vague. It was further contended that from perusal of consumption of raw material as per register, reveals that the quantity of sponge iron shown as manufactured in RG 1 register was in consonance with the raw material issued for the manufacture during the month of August 2008.
10. The adjudicating authority rejected the contention as unsubstantiated by observing that the reasons of non-achievement of targets are not forthcoming.
11. It further appeared that the daily production reports prepared by the production department of the appellant, kept at page No. 101 to 145 and 151 to 159, of file No. 9, it appeared that the production department of appellant submitted the said reports to the management showing kiln wise consumption of raw material and production of sponge iron, with the remarks of difficulties faced during the shift of the day, if any. The Ld. AR further observed that the contention of the appellant that the Daily production reports only is for the purpose of use of management for control over the conversion process and performance of the kiln, so as to get optimum yield, but were not reflective of the actual production of sponge iron, was disbelieved. The Ld. Commissioner observing that it goes beyond his comprehension as to how the appellant intends to bring home their contentions that the production process is controlled by their production personnel on the basis of speculative production report prepared for each day. It was further observed that the authenticity of the process log sheets showing consumption of raw material and kiln operation details establish that the same were recovered/withdrawn from the factory premises of the appellant.
12. Ld Commissioner also relied on the statement of Mr. Sharma the process manager who had deposed that he had been looking after the overall manufacturing process including the feeding of raw material and operation of kiln, that they had been maintaining process log sheet for recording technical operations and preparing daily production reports in the factory. Such process log sheets and daily production reports were maintained in the factory for recording the consumption of raw materials and manufacture of sponge iron. The said manager also stated regarding the average feed rate of iron ore in the kiln.
13. As regards the appellant’s contention that the quantity of such Sponge iron alleged to have been clandestinely manufactured have been determined on the basis of per hour feed rate of iron ore, assuming optimum yield. While assuming average yield at the rate of 55%, the Department have ignored the fact that there was no standard yield of sponge iron. The yield depends on quality of iron ore, quality of coal, quality of Dolomite and various other factors like intermittent setback or stand-off in plant and machinery, number and efficiency of labour deployed, power supply, etc.. The input output ratio varies from unit to unit.
14. The learned Commissioner further observed with regard to the hard copies of emails sent by appellant to the head office at Kolkata, annexure to the SCN, intimating the production of sponge iron in the kiln on dates 27 to 29 November 2007, in comparison with the daily stock account it appeared that the appellant have suppressed production of sponge iron. The learned Commissioner further observed with regard to the production of sponge iron on the said 3 dates, is less on the basis of the feed rate. Further the liability of duty on appellant had been worked out on the basis of the variance as found in the production record/documents with the actual production record/daily stock account.
15. As regards the contention of the appellant in the reply dated 12 March 2012 and on the basis of some loose papers and the Daily production reports, suppressed production is worked out at annexure 02 of the SCN. It was submitted that on bare perusal of the said documents, reveals that out of total daily production is reports for less than 30 days, the suppression of production is alleged only for 22 days, wherein also the difference in quantity with that of the quantity recorded in RG 1 register comes to less than 5%. It is also contended by the appellants that on some dates particularly on 20 March 2008, 31st March to May 2008 and 4 July 2008, the recorded production was actually on higher side.
16. Having considered the rival contentions, we find that as per Panchanama, during search, on physical verification of goods by the officers of central excise, no excess or shortage of either finished goods or raw materials were found. Further, we find that on some of the occasions the production of sponge iron is more recorded in daily stock account (RG-1) as compared to the private records, relied upon by the department. This raises serious doubt about the actual production of sponge iron mentioned in private record. We agree with the learned counsel for the appellant that private record does not show actual figure of production. We further find that with respect to demand of Rs. 85,77,991/- there is neither allegation nor evidence of removal of goods, without payment of duty. It is well settled law that duty of excise is to be paid at the time of removal of goods as held by the Hon’ble High Court of Gujarat in the case of Asstt. ACIT Vs. Narmada Chematurpetrochem Ltd., 2012 (278) ELT 178 (Guj.),wherein it was held that mere production or manufacturing of goods by itself is not sufficient to demand duty of excise. The Hon’ble Court has held that liability to pay excise duty arise only when both events namely manufacturing of excisable goods and removal of such goods, takes place. Similar view has been taken by Hon’ble High Court of Allahabad in the case of Triveni Engineering and Industries Ltd. Vs. CCE, 2016 (334) ELT 195 (All.). We further find with respect to demand of Rs. 23,61,452/- on account of clandestine removal of goods, there is no corroborative evidence relied upon by the department. Despite the name of the customers, truck no. & other details mentioned in the private records, no attempt has been made to investigate the matter at the end of the buyers, transporters, etc. We find that the Hon’ble High Court of Allahabad in the case of Continental Cement Company Vs UOI (supra) has held as follows: –
“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, further corroborative evidence is also required. For this purpose no investigation was conducted by the Department.”
17. We find in the present case, there is no evidence of excess purchase of raw material, transportation thereof, sale of finished goods, realization of sale proceeds, excess power consumption, transportation of finished goods. We further find that, during search no goods were found in excess or short. We also rely on judgment of Hon’ble High Court of Patna in the case of CCE Vs Brims Products (supra), where the Hon’ble High Court held that assumptions and presumptions cannot take place of positive legal evidence which is required for proving the charge. We also find that the Hon’ble High Court of Delhi in the case of Flevel International Vs. CCE, (supra) held as follows:-
“50. The Court also finds that no attempt has been made to undertake any serious investigation even as regards the details furnished by the appellant or those gathered in the course of investigation. In cases of clandestine removal a certain standard is expected of the Department before a finding can be reached against an assessee. In Oudh Sugar Mills Ltd. v. Union of India – 1978 (2) E.L.T. (J172) (S.C.) = 2002-TIOL-307-SC-CX-CB , the Supreme Court pointed out that the inference drawn by the authorities only on the basis of the entries in the ledgers would be insufficient. It was pointed out that in the factory where the turnover was considerable and the operations conducted involved a human element in a significant way it would not be right to base the conclusions only on surmises.”
18. We find that in the present case, there is no positive evidence brought on record by the revenue to alleged suppression of production/clandestine removal of goods. Accordingly, we hold that the allegation of clandestine manufacture and removal are vague and liable to be set aside. Since, duty is not sustainable, therefore penalties imposed on the appellants are also set aside. Accordingly, we set aside the impugned order with consequential relief to the appellants in accordance with law.
(Order pronounced in the open court on 17.10.2018)