2015 (1) TMI 992 - AT - Central Excise

Clandestine removal of goods - Shortage of goods - Imposition of penalty where duty has been paid during investigation - Held that - During the course of investigation finished goods were found short and the appellant has paid the duty thereon. Thereafter conclusion was drawn by the department that as they have paid the duty therefore these goods have been removed clandestinely. In this case, there are other charges on the appellants that goods have been removed clandestinely by the appellants but the charges of clandestine removal have been dropped and therefore, in these circumstances, it cannot be held that goods have been cleared clandestinely. Although the appellants has paid the duty that might be to settle the issue at that stage, but from the records it is not coming out that the charge of clandestine removal has been proved with any supportive evidence except the goods were found short during the course of investigation. In these circumstances, although the appellant is not contesting the duty demand, therefore the same is not issue before me. Further I find that in this case, when the appellant has paid the duty but there is no demand of interest proposed, in these circumstances I hold that charge of clandestine removal stands unapproved. Therefore question of imposing penalty does not arise on the appellant. As the appellant is not contesting demand of duty of ₹ 3,03,523/- therefore appellant cannot claim refund thereof in consequence of this order. In the result, impugned order qua demand of duty of ₹ 13,70,150/- along with interest and imposition of penalty on the main appellant and penalties on co-appellant is set aside. - Decided in favour of assessee.

Issues:
- Duty confirmation along with interest and penalties on the appellant and co-appellants for shortage of finished goods and alleged clandestine removal.
- Authentication of electricity consumption for manufacturing MS ingots.
- Procurement of scrap clandestinely and its utilization in manufacturing MS ingots.
- Imposition of penalties on the appellants.

Analysis:
1. Duty Confirmation and Clandestine Removal:
The main issue in this case revolved around the confirmation of duty, interest, and penalties on the appellants for the shortage of finished goods and alleged clandestine removal. The investigation revealed discrepancies in the production process, leading to demands amounting to significant sums. However, the adjudicating authority found that the charge of clandestine removal based on electricity consumption was not sustainable, as the report used was not considered authenticated. Consequently, the demand related to excess electricity consumption was dropped, and the charge of clandestine manufacture and removal was set aside. The demand of duty of &8377; 13,70,150/- was found unsustainable, as no duty was proposed in the show cause notice regarding the procurement of scrap, leading to the setting aside of this demand along with interest and penalties.

2. Authentication of Electricity Consumption:
The authentication of electricity consumption for manufacturing MS ingots was a crucial aspect of the case. The report by Dr. N K Batra, Professor of IIT Kanpur, was challenged for its authenticity, leading to the dismissal of the charge related to excess electricity consumption. The Apex Court precedent in the case of R A Casting was cited to support the argument that the formula derived from the report was not acceptable, thereby impacting the allegations of clandestine manufacture and removal.

3. Procurement of Scrap Clandestinely:
Another significant issue was the procurement of scrap clandestinely and its subsequent use in manufacturing MS ingots. Katcha slips found during the investigation indicated the purchase of scrap, which was allegedly utilized in the production process and then cleared clandestinely. The charge against the appellants was based on this procurement method and subsequent utilization, leading to the demand of duty, interest, and penalties. However, as no duty demand was proposed in the show cause notice regarding the scrap procurement, the demand related to this aspect was set aside.

4. Imposition of Penalties:
The imposition of penalties on the appellants was a contentious issue. While the Revenue authorities argued for penalties based on the alleged clandestine activities and shortage of finished goods, the appellants contested these penalties. The decision hinged on whether the charges of clandestine removal and manufacture were substantiated with concrete evidence. Ultimately, the Tribunal ruled in favor of the appellants, setting aside the demand of duty, interest, and penalties related to the alleged clandestine activities.

In conclusion, the judgment highlighted the importance of substantiated evidence in cases involving duty confirmation, clandestine activities, and procurement methods. The authentication of reports and adherence to procedural requirements were crucial factors in determining the outcome of the case, leading to the setting aside of significant demands and penalties against the appellants.

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