2017 (1) TMI 1641 - HC - Central Excise

Clandestine manufacture and removal - MS Ingots - demand based on assumptions and presumptions - As per the petitioner, highest case of the department is that there is some possibilities of clandestine removal of the M.S. Ingots, which is a final product of this petitioner - consumption of electricity - no substantive evidence - Held that - Several decisions have been given by the Tribunals which have been confirmed by Hon ble High Courts that electricity consumption alone if adopted as a basis of the demand, the same is not tenable. The respondents can take the electricity consumption pattern as a corroborative piece of evidence, but, in absence of substantive proofs - The electricity consumption report like Dr. N.K. Batra report can hardly be treated as a substantive evidence. Time and again, the decisions have been given by the Tribunals, but, the respondents departments are turning deaf-ear to. In this case, the respondents are relying upon Dr. N.K. Batra s report. All these are nothing, but, the possibilities, for clandestine removal, but, for proving the clandestine removal, the substantive piece of evidence is must. The department has not done any home work and the show cause notices dated 30.07.2008, 04.02.2009, 18/19.11.2009 (Annexure-1 Series) have been issued. This type of shortcut should not have been followed by the department. There is no shortcut for success. The documents and evidences could have been collected very easily by the department, if at all, department is of the opinion that there is a clandestine removal of finished product viz M.S. Ingots by the petitioner. The respondents are directed not to mention Dr. N.K. Batra s report in their show cause notice unless an experiment is carried out by the respondent department in the factory premises of the notice for production of 1 MT or for production of more than sufficiently large quantity like 1000 units etc. in any other cases, because electricity consumption depends upon the nature of machinery. Even two refrigerators of same kind and type and capacity may not have the same consumption of electricity, because one may be new and another may be old. The Order-in-Original is based upon mere presumptions and possibilities, and, nothing has been proved at all by the respondents, especially unaccounted manufacturing of M.S. Ingots and the clandestine removal thereof. - This Court is remanding the matter to the Commissioner, Central Excise & Service Tax, Jamshedpur. This Court is not much going into detail of further arbitrariness in the Order-in-Original. There appears to be very high sounding reasons, but, if they are viewed with zoom lens camera, it appears that nothing is proved by the respondents. Petition allowed by way of remand.

Summary

Issues Involved:
1. Challenge to the Order-in-Original dated 29th February 2008.
2. Allegations of clandestine removal of M.S. Ingots.
3. Violation of principles of natural justice.
4. Reliance on Dr. N.K. Batra's report.
5. Adequacy of evidence for unaccounted manufacturing and removal.
6. Electricity consumption pattern as a basis for allegations.
7. Availability of alternative remedy.

Detailed Analysis:

1. Challenge to the Order-in-Original dated 29th February 2008:
The petitioner challenged the Order-in-Original on the grounds that it was based on presumptions and surmises without substantial evidence. The court quashed the Order-in-Original, stating that the decision was based on mere probabilities and lacked concrete proof.

2. Allegations of Clandestine Removal of M.S. Ingots:
The department's case was based on the possibility of clandestine removal of M.S. Ingots, inferred from electricity consumption patterns. The court highlighted that such allegations require substantive evidence, which was not provided by the department. The court emphasized that proof of unaccounted manufacturing and removal must include detailed records of raw material purchases, manufacturing processes, packing materials, employee records, and transportation documents.

3. Violation of Principles of Natural Justice:
The petitioner was not allowed to cross-examine Dr. N.K. Batra, whose report was heavily relied upon in the show cause notice. The court found this to be a gross violation of the principles of natural justice, as cross-examination is essential for verifying the authenticity and accuracy of the report.

4. Reliance on Dr. N.K. Batra's Report:
The court criticized the department's reliance on Dr. N.K. Batra's report, noting that it has been repeatedly used since 2003 without providing an opportunity for cross-examination. The court stated that the report could only serve as a corroborative, not substantive, piece of evidence. The court directed the department to conduct experiments at the factory premises of the noticee to determine the actual electricity consumption pattern before issuing show cause notices based on such reports.

5. Adequacy of Evidence for Unaccounted Manufacturing and Removal:
The court noted that the department failed to provide adequate evidence to substantiate the allegations of clandestine removal. The court listed various types of evidence that should have been collected, such as records of raw material purchases, manufacturing details, packing materials, employee records, and transportation documents. The lack of such evidence rendered the allegations baseless.

6. Electricity Consumption Pattern as a Basis for Allegations:
The court stated that electricity consumption patterns could only be used as corroborative evidence and not as the sole basis for allegations of clandestine removal. The court cited several decisions where reliance on electricity consumption alone was deemed insufficient. The court directed the department to conduct experiments at the factory premises to determine the actual electricity consumption pattern.

7. Availability of Alternative Remedy:
The respondents argued that the petitioner had an alternative remedy of appealing to the Central Excise and Service Tax Appellant Tribunal (CESTAT). However, the court entertained the writ petition, citing the violation of principles of natural justice and the inadequacy of the evidence provided by the department.

Conclusion:
The court quashed the Order-in-Original dated 29th February 2008 and remanded the matter to the Additional Commissioner, Central Excise & Service Tax, Jamshedpur, for fresh adjudication. The court directed the department to conduct experiments at the factory premises to determine the actual electricity consumption pattern and to collect substantive evidence before issuing show cause notices based on allegations of clandestine removal. The writ petition was allowed, and the matter was disposed of in accordance with the court's directions.