2011 (2) TMI 1211 - AT - Central Excise

Clandestine production and removal of finished goods - Calculation of production on the basis of power consumption - held that - It is settled principle of law that adverse conclusion cannot be arrived at against an assessee based on presumption. It is the onus of the department to prove clandestine manufacture and removal of goods from the factory. In the entire period of dispute, spanning seven years, the department has not been able to lay hands on records or documents showing or suggesting clandestine production and clearance of the finished goods by the assessee in such a large scale as to warrant demands totaling about Rs. 10 crores. In the absence of evidence, we cannot sustain a finding of excess production and clearance involving the duty confirmed against the assessee. - As we have held that this norm is not an overriding benchmark which is reliable, the demands of duty confirmed in the orders impugned are set aside. Consequently, the demands of interest as well as penalties imposed are also set aside.

Issues Involved:
1. Violation of principles of natural justice and lack of personal hearing.
2. Reliability of power consumption norms used to estimate production.
3. Denial of cross-examination and its impact on the validity of evidence.
4. Admissibility and reliability of computer printouts as evidence.
5. Unaccounted purchase of scrap and its implications.
6. Clandestine removal of goods based on electricity consumption alone.
7. Limitation period for issuing show cause notices.
8. Justification of penalties imposed and the quantum of duty demanded.

Detailed Analysis:

1. Violation of Principles of Natural Justice and Lack of Personal Hearing:
The appellant argued that the impugned order was passed without granting a personal hearing, violating principles of natural justice. The Commissioner confirmed a significant demand without hearing the appellant, which was deemed illegal and liable to be quashed.

2. Reliability of Power Consumption Norms Used to Estimate Production:
The demand was quantified based on power consumption norms recommended by Shri G. S. Hegde. The appellant contended that the norms were unreliable as they did not consider the specific conditions of the furnaces, such as their age, capacity, and the variety of CTD bars produced. The expert opinion was based on estimates without a test run of the machines and lacked consideration for machine failures, power failures, and wastage.

3. Denial of Cross-Examination and Its Impact on the Validity of Evidence:
The denial of cross-examination of Shri G. S. Hegde was argued to be a violation of principles of natural justice. The appellant cited various case laws to support that such evidence should be discarded. The Commissioner relied on the technical opinion report of the Nucleus Group without providing a copy to the appellant, further violating natural justice principles.

4. Admissibility and Reliability of Computer Printouts as Evidence:
The computer printouts used as evidence did not meet the conditions under Section 36B(2) and B(4) of the Central Excise Act, 1944. The printouts were not shown to have been regularly used or properly operating during the relevant period. The data in the printouts were not corroborated by independent evidence, making them inadmissible.

5. Unaccounted Purchase of Scrap and Its Implications:
The findings of unaccounted scrap purchases were based on loose sheets recovered from dealers, which lacked the appellant's name or signature. The dealers either denied the documents belonged to them or provided inconsistent statements. The appellant argued that the findings were not corroborated by tangible evidence.

6. Clandestine Removal of Goods Based on Electricity Consumption Alone:
The clandestine production and clearance were primarily based on an estimate of power consumption. The Tribunal found that such estimates were unreliable and fluctuated due to various factors like raw material quality, power supply variations, and human errors. The Tribunal cited several cases where demands based solely on electricity consumption were not sustainable without corroborative evidence.

7. Limitation Period for Issuing Show Cause Notices:
The first show cause notice was issued on 11-8-2006 for the period 8/2001 to 12/2005, after search proceedings conducted on 2-9-2004. The appellant argued that the demand was barred by limitation for the initial period of one year after the search operations.

8. Justification of Penalties Imposed and the Quantum of Duty Demanded:
The penalties imposed and the quantum of duty demanded were challenged on the grounds that the findings were based on unreliable estimates and lacked corroborative evidence. The Tribunal found that the duty confirmed was not sustainable without evidence of physical clearance of goods or procurement of unaccounted raw materials.

Conclusion:
The Tribunal set aside the demands of duty, interest, and penalties confirmed in the impugned orders, allowing the appeals filed by the assessee-company and its Directors. The appeal filed by the revenue to enhance the duty and penalties was rejected. The judgment emphasized the need for reliable and corroborative evidence to substantiate claims of clandestine production and removal.

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