2014 (7) TMI 654 - AT - Central Excise

Clandestine manufacture and removal of Ingots without payment of duty - Allegation on the basis of electricity consumption - Revenue contends that manufacturing units are showing more electricity consumption for production per MT of MS ingots - Reliability on the case of R.A. Castings Put Ltd vs CCB reported in 2008 (6) TMI 197 - CESTAT NEW DELHI - Difference of opinion - Matter referred to larger bench with following questions of law - (a) Whether in view of the discussion in para 1 to 31 and in view of the decision of the Tribunal in the case of R.A. Castings Pvt Ltd (supra) the impugned orders are to be set aside and the appeal allowed; OR (b) Whether in view of the discussion in para 32A-68 above and in view of the Hon ble Supreme Court s judgment in the case of Triveni Rubber and Plastics (1993 (3) TMI 124 - SUPREME COURT OF INDIA) and this Tribunal s decision in the case of Rattan Steels Works (2008 (7) TMI 773 - CESTAT,CHENNAI), Nagpal Steel Ltd (1998 (1) TMI 340 - CEGAT, NEW DELHI) and Hans Casting Pvt Ltd (1998 (3) TMI 298 - CEGAT, NEW DELHI), the impugned orders are to be upheld and all the appeals dismissed.

Issues Involved:

1. Confirmation of demands based on electricity consumption.
2. Imposition of penalties for alleged clandestine removal of goods.
3. Validity of evidence such as expert reports and subsequent electricity consumption data.
4. Applicability of judicial precedents and legal principles in determining duty liability.

Issue-Wise Detailed Analysis:

1. Confirmation of Demands Based on Electricity Consumption:

The appellants were engaged in manufacturing MS Ingots using induction furnaces and consumed electricity from the Maharashtra State Electricity Board. The Revenue's case rested on the assumption that the manufacturing companies clandestinely produced and cleared their final products without paying duty, relying heavily on electricity consumption data. The Revenue used a study by Dr. N.K. Batra, which suggested that producing 1 MT of MS Ingots required between 555 and 1046 units of electricity. Based on this, the Revenue assumed 1026 units per MT as the standard for calculating duty demands.

The appellants contended that duty should be levied on actual production, not on deemed production based on a formula. They cited the decision in R.A. Castings Pvt Ltd vs CCE, where the Tribunal set aside a demand based solely on electricity consumption. The Tribunal held that in the absence of other evidence, demands could not be based only on electricity consumption. The Revenue's reliance on Dr. Batra's report was challenged as the report could not be verified, and Dr. Batra was not available for cross-examination.

2. Imposition of Penalties for Alleged Clandestine Removal of Goods:

The appellants argued that the burden of proving clandestine removal lies with the Revenue, which must provide evidence of unaccounted raw materials, sale of clandestinely removed goods, and other supporting documents. The Tribunal in R.A. Castings emphasized that electricity consumption alone is insufficient to determine production and impose penalties. The Revenue's argument that production can be determined based on electricity consumption was countered by the appellants, who pointed out that no experiments were conducted in their factories to verify actual electricity consumption.

3. Validity of Evidence Such as Expert Reports and Subsequent Electricity Consumption Data:

The Revenue produced additional evidence during the appeals, including data on electricity consumption for subsequent periods, showing lower consumption for the same units. The appellants argued that this evidence was irrelevant as it was obtained after the adjudication orders. The Tribunal considered whether additional evidence could be admitted and concluded that it could be if it was necessary to pronounce judgment in a more satisfactory manner.

4. Applicability of Judicial Precedents and Legal Principles in Determining Duty Liability:

The appellants heavily relied on judicial precedents, particularly the R.A. Castings case, to argue that electricity consumption alone cannot be the basis for duty demands. They also cited several other cases to support their contention that clandestine removal must be proved with concrete evidence. The Tribunal examined these precedents and noted that while general propositions may state that electricity consumption cannot be the sole basis for determining duty liability, the specific circumstances of each case must be considered.

Separate Judgments Delivered by Judges:

Per: S S Kang:

The Tribunal set aside the impugned orders and allowed the appeals, following the decision in R.A. Castings. It held that in the absence of evidence of unaccounted raw materials and clandestine clearance, demands based solely on electricity consumption were not sustainable.

Per: P K Jain:

A separate order was recorded, differing from the Vice President's view. It emphasized that the appellants' conduct and the substantial evidence of suppressed production justified the demands. The order upheld the impugned orders, citing the Hon'ble Supreme Court's judgment in Triveni Rubber and Plastics and other relevant cases.

Conclusion:

The Tribunal's decision was divided, with one member setting aside the demands and penalties based on the R.A. Castings precedent, while the other upheld the demands, citing substantial evidence of suppressed production and the need for a more comprehensive approach to determine duty liability. The matter was referred to the Hon'ble President for resolution.

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