2009 (3) TMI 688 - Commissioner - Central Excise

Issues Involved:
1. Alleged clandestine manufacture and removal of ingots.
2. Basis of allegations on electricity consumption.
3. Appellant's defense regarding electricity consumption.
4. Ex-parte decisions by the Additional Commissioner.
5. Lack of corroborative evidence for clandestine removal.
6. Legal precedents regarding production based on electricity consumption.

Detailed Analysis:

1. Alleged Clandestine Manufacture and Removal of Ingots:
The core issue revolves around a Show Cause Notice issued on 23-2-2004, proposing the recovery of duty amounting to Rs. 28,43,983.00 for ingots allegedly clandestinely manufactured and removed without payment of duty by the Appellant from February 1999 to November 2001. The allegation is primarily based on the consumption of electricity during non-production hours.

2. Basis of Allegations on Electricity Consumption:
The Additional Commissioner based the allegations on substantial power consumption during non-production hours. The Notice alleged that despite significant power consumption from 17:00 Hrs. to 23:00 Hrs. and 23:00 Hrs. to 06:00 Hrs., no production was recorded in the Furnace Log Sheet (FLS) or RG-I, suggesting suppression of production to evade duty. The calculations were detailed in tables within the Notice.

3. Appellant's Defense Regarding Electricity Consumption:
The Appellant argued that the electricity consumption reflected in the bills had no connection with the actual production of finished goods. They cited various factors contributing to high power consumption, including:
- Inexperienced labor causing material rejection and re-melting.
- Frequent mechanical breakdowns and poor quality of raw materials.
- Maintenance activities such as patching furnace linings and heating furnaces during non-production hours.
- Disputed electricity bills with the State Electricity Board and expert opinions from Das Electric.

4. Ex-Parte Decisions by the Additional Commissioner:
The Additional Commissioner decided the Notice ex-parte and confirmed the demand for Rs. 28,43,983.00 along with interest and imposed an identical penalty. The Commissioner (Appeals) remanded the matter twice for fresh decisions, directing the consideration of expert opinions and other defenses raised by the Appellant. However, the Additional Commissioner reaffirmed the demand and penalties in subsequent ex-parte decisions, citing the credibility of the Appellant's contentions as doubtful and unreliable.

5. Lack of Corroborative Evidence for Clandestine Removal:
The Additional Commissioner relied heavily on electricity consumption records, furnace log sheets, and the installed capacity of machinery to infer excess production. However, the Appellant contended that the entire exercise was based on assumptions and lacked tangible evidence. They argued that no evidence was provided regarding the procurement of raw materials, identity of customers, financial transactions, or seizure of goods to substantiate the allegations of clandestine manufacture and removal.

6. Legal Precedents Regarding Production Based on Electricity Consumption:
The judgment referenced several legal precedents where courts and tribunals held that production cannot be determined solely based on electricity consumption. Notable cases include:
- Containers Corporation v. CEGAT (1986): Power consumption cannot be directly related to the production of excisable goods.
- Oudh Sugar Mills Ltd. v. UOI (1978): Show Cause Notices based on average production without tangible evidence are flawed.
- Kapadia Dyeing, Bleaching and Finishing Works v. Collr. of Central Exc (1999): Normal production should consider multiple parameters, not just power consumption.
- Commissioner of Central Excise, Bhubaneswar-I v. Minakshi Steels (2005): Charges of clandestine removal based on assumptions are not sustainable.
- Madhu Foods Products v. Collector of Central Excise, Hyderabad (1995): In the absence of documentary proof, demands based on estimated production are not maintainable.

Conclusion:
The judgment concluded that the entire case built on the consumption of electricity and furnace log sheets was speculative and lacked corroborative evidence. The Department failed to investigate crucial aspects such as machinery capacity, manpower, raw material procurement, and financial transactions. The Appellant's explanations for high electricity consumption were not adequately considered. Consequently, the charge of clandestine removal was not proven beyond doubt, and the benefit of doubt was extended to the Appellant. The impugned order was set aside, and the Appeal allowed with consequential relief to the Appellant.

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