2014 (12) TMI 1176 - AT - Central Excise

Cenvat Credit - Removal of inputs as such on estimation basis - difference between the consumption of aluminium wire rods calculated by the departmental officers based on the approximate mass per K.M. of various types of aluminium alloys standard conductors given in the ISI standard and the consumption of aluminium wire rod as recorded by the appellant company in their central excise records. - Held that - If the total consumption during the period of dispute is seen the consumption as per the appellant s records would be less than the maximum possible consumption as per the ISI standard. Therefore merely on the basis of the approximate weight of wire in terms of KG per KM for different types of aluminium conductors given in the ISI standard the allegation of clandestine removal of modvat credit availed aluminium wire rods cannot be made. We are supported in this view by Apex Court judgment in the case of Oudh Sugar Mills 1962 (3) TMI 75 - SUPREME COURT OF INDIA wherein Apex Court has held that allegation of duty evasion by clandestine removal based only on the calculation of the raw material fed into the process or on the working of the machinery as noticed during test inspection is not sustainable when there is no tangible evidence in support of such an allegation. In view of this the impugned order confirming the modvat credit demand of 91, 57, 546/- against the appellant company alongwith interest thereon and imposing penalty of equal amount under Section 11AC is not sustainable and the same is set aside. - Decided in favor of assessee.

Summary

Issues Involved:
1. Confiscation of aluminium wire rods and imposition of penalties.
2. Demand of Modvat credit on alleged clandestine removal of aluminium wire rods.
3. Penalty on individuals involved.

Detailed Analysis:

1. Confiscation of Aluminium Wire Rods and Imposition of Penalties:

The appellant, a manufacturer of aluminium conductors, was found during a search on 25-11-1999 to have discrepancies in their stock of Modvat credit availed raw material, specifically a shortage of 1670 Kg. of aluminium wire rod involving Modvat credit of Rs. 81,937/-. Additionally, 4272 Kg. of aluminium wire rods were cleared to M/s. Dicco Conductors without reversing the Modvat credit, involving Rs. 61,034/-. The total value of wire rods cleared was Rs. 3,81,462/-, which were seized. The search also revealed weighment slips indicating the clearance of 22.015 MT of aluminium scrap and 29.265 MT of aluminium wire rod without payment of duty/reversal of Modvat credit, involving central excise duty of Rs. 2,11,344/- and Modvat credit of Rs. 4,01,223/-, respectively.

The Commissioner confirmed the Modvat credit demand of Rs. 91,57,546/- on 782.436 MT of aluminium wire rods allegedly removed clandestinely, imposed penalties, and ordered confiscation of the goods. The appellant contested only the Modvat credit demand but not the confiscation and duty demands on the specific quantities of aluminium wire rods and scrap. The Tribunal upheld the Commissioner's order regarding the confiscation and duty demands for these specific quantities.

2. Demand of Modvat Credit on Alleged Clandestine Removal of Aluminium Wire Rods:

The main contention was the Modvat credit demand of Rs. 91,57,546/- on 782.436 MT of aluminium wire rods alleged to have been cleared clandestinely. The department's calculation was based on the mass per KM of aluminium wire of different diameters as per ISI standard IS 398. The appellant argued that the weight per KM given in the ISI standard is approximate and cannot be applied universally. They cited the Apex Court's judgment in Oudh Sugar Mills v. Union of India, which held that allegations of duty evasion based solely on raw material consumption or machinery working are unsustainable without tangible evidence.

The Tribunal agreed with the appellant, noting that the ISI standard provides only approximate weights and that the actual consumption recorded was less than the maximum possible consumption based on the ISI standard for most years in question. The Tribunal concluded that the allegation of clandestine removal based on approximate weights was not sustainable without tangible evidence. Consequently, the Modvat credit demand of Rs. 91,57,546/- and the corresponding penalty were set aside.

3. Penalty on Individuals Involved:

The Commissioner had imposed a penalty of Rs. 20.00 Lakhs on Alok Sharma, Managing Director, under Rule 209A of the Central Excise Rules, 1944. Since the Modvat credit demand was set aside, the Tribunal found no justification for the penalty. Moreover, Rule 209A penalties require evidence of involvement in dealing with excisable goods known to be liable for confiscation, which was not present in this case. Therefore, the penalty on Alok Sharma was also set aside.

Conclusion:

The Tribunal upheld the confiscation and duty demands related to specific quantities of aluminium wire rods and scrap but set aside the Modvat credit demand of Rs. 91,57,546/- and the penalties associated with it, including the penalty on the Managing Director. The appeal filed by the Managing Director was allowed, and the appeal filed by the appellant company was partly allowed.