2015 (11) TMI 1472 - AT - Central Excise

Duty demand - Estimation of production of production of goods used as Captive consumption - Non accounting of goods - assumptions and presumptions - Invocation of extended period of limitation - Held that - Duty demand is based on that - (a) chromium content of SS billets/flats manufactured during the period of dispute, (b) chromium content of Ferro chrome used for manufacture of stainless steel billets, and (c) recovery percentage chromium content from Ferro chrome. It is seen that show cause notice dated 21.3.2000 demanding duty for the period 1.4.97 to December, 1999 had also been issued on the same basis, though chromium content of SS billets and percentage recovery of chromium from ferro chrome were different. In view of this, we hold that Prima facie the judgement of apex court in the case of Nizam Sugar Factory (supra) would be applicable to the facts of the present case and therefore, the extended period would not be applicable and hence, the duty demand would be sustainable confined only to normal limitation period. Prima facie view is that the duty demand is based on estimated production of SS billets/flats which has been determined on the basis of a series of assumptions. There does not appear to be any cogent basis for these assumptions. The apex court in the case of Oudh Sugar Mills Ltd. vs .Union of India- 1962 (3) TMI 75 - SUPREME COURT OF INDIA has held that allegation of under reporting of production of clandestine removal of sugar on the basis of average percentage sugar recovery from sugar cane is not sustainable without tangible evidence of clandestine removal. In our view, the ratio of this judgement is squarely applicable to the facts of the present case. In this regard, we also find that no chemical test has been conducted to ascertain chromium content of SS billets or chromium content of Ferro chrome. There is also no basis for taking the recovery percentage of chromium from ferro chrome as 91.33% while in the earlier show cause notice dt.21/3/2000 recovery percentage of chromium from ferro chrome had been taken as 75%. Prima facie, the duty demand based on such arbitrary assumptions would not be sustainable. - Stay granted.

Issues Involved:
1. Overlapping Duty Demand
2. Applicability of Extended Period for Duty Demand
3. Basis of Duty Demand Calculation
4. Evidence of Clandestine Removal
5. Financial Hardship and Requirement of Pre-deposit

Issue-wise Detailed Analysis:

1. Overlapping Duty Demand:
The appellant argued that out of the total duty demand of Rs. 26,25,16,682/-, an amount of Rs. 11,15,22,355/- for the period 1.4.97 to 30.11.99 is already covered by an earlier show cause notice dated 21.3.2000. The Commissioner did not accept this plea due to lack of submitted records. However, the tribunal found that the Commissioner's findings were not sustainable and prima facie agreed that there was an overlapping duty demand, reducing the remaining duty demand to Rs. 15,09,94,327/-.

2. Applicability of Extended Period for Duty Demand:
The appellant contended that the extended period for issuing the show cause notice dated 1.5.2002 was not applicable because the department had already issued a show cause notice on 21.3.2000 for a similar period based on the same set of facts. The tribunal held that prima facie, the judgment of the apex court in the case of Nizam Sugar Factory vs. CCE, AP-2006 (197) ELT 465 (SC) was applicable, which would render the extended period inapplicable, thus confining the duty demand to the normal limitation period.

3. Basis of Duty Demand Calculation:
The duty demand was based on assumptions regarding the chromium content of SS billets/flats (13.1%), the chromium content of Ferro chrome (60.66% to 61.26%), and the recovery percentage of chromium from Ferro chrome (91.33%). These figures were derived from production records of only one day. The tribunal noted the inconsistency in the assumptions compared to an earlier show cause notice, where different percentages were used. The tribunal found that the duty demand was based on arbitrary assumptions without concrete evidence, making it unsustainable.

4. Evidence of Clandestine Removal:
The department presented evidence of clandestine removal based on internal documents and statements of certain individuals. However, the tribunal noted that cross-examination of these individuals was not allowed, and thus, such evidence was not reliable. Moreover, the duty demand was not based on these documents and statements but on the assumed chromium content and recovery percentages. Therefore, the tribunal found the evidence insufficient to sustain the duty demand for alleged clandestine removal.

5. Financial Hardship and Requirement of Pre-deposit:
The appellant claimed financial hardship due to the closure of the factory since 2008. The tribunal considered the appellant's financial condition and the prima facie case in their favor. Consequently, the tribunal waived the requirement of pre-deposit of duty, interest, and penalty for hearing the appeals and stayed the recovery thereof till the disposal of the appeals.

Conclusion:
The tribunal found significant issues with the basis of the duty demand calculation, the applicability of the extended period, and the reliability of evidence for clandestine removal. The tribunal waived the requirement of pre-deposit and stayed the recovery of the duty, interest, and penalty, allowing the appeals to proceed without immediate financial burden on the appellant.

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