2019 (8) TMI 1516 - AT - Central Excise

Clandestine removal - manufacture of LABSA (90% of Acid Slurry) main product and spent Sulphuric Acid emerges as by-product - suppression of quantum of production of LABSA (Acid Slurry) in respect of their own finished goods - demand based on input-output ratio - period from April 2010 to March 2011 - HELD THAT - In production for the period 2010-11 LABSA 90% produced is 34832 tons. Besically in their allegation Revenue has accepted the yield of 1.47 for conversion job whereas they have defined the same as chemical process without any basis which has been used for their own production and are being used for years together. Also in the case of conversion job undertaken by the appellant the raw materials received from M/s A.R. Stanchem Pvt. Ltd. in terms of the provisions of Rule 4(5)(a) of the Cenvat Credit Rules 2004 were converted into LABSA and by product Spent Sulphuric Acid and were returned to the said company as per the purchase orders placed on the appellant. M/s A.R.Stanchem Pvt. Ltd. received such goods in their factory and entered them in their DSA and paid duty at the time of clearance of such goods from their factory. It is pertinent to mention that the finished goods LABSA and Spent Sulphuric Act are of same quality and the processing tank is also common in factory as it is not possible to manufacture goods separately. On analyzing total consumption of LAB and Sulphuric Acid during the material period and the ratio of LAB to LABSA 90% and ratio of Spent Sulphuric Act it would be evident that while the ratio of LABSA 90% to LAB is 1 1.47 the ratio of Spent Sulphuric Act to Sulphuric Act was 1 0.82 and 1 0.81 in respect of own manufacture and conversion job respectively. Thus there is hardly any difference between in respect of own manufacture and conversion job - It is also pertinent to mention that the Department has mistaken the production of Spent Acid to be the production of excess Acid Slurry and has proceeded on the erroneous assumption that appellant herein has manufactured excess quantity of Acid Slurry and clandestinely removed the same. The demand stands confirmed against the appellant on the findings of clandestine removal of main finished goods (LABSA) which in turn is based upon input output ratio. This is the case of the Department that the appellants have deliberately shows more quantity of spent sulphuric acid and more clearance of spent acid. Further the cases of clandestine removal cannot be built on the input-output ratio as has been held by the Tribunal in a number of decisions. Thus apart from the input output ratio there is no evidence on record to show clandestine manufacture and clearance of the goods. Such cases are required to be established beyond doubt on the basis of concrete and positive evidences - appeal allowed - decided in favor of appellant.

Summary

Issues: Alleged suppression of production of LABSA (Acid Slurry) leading to demand of Central Excise duty, interest, and penalty for the period from April 2010 to March 2011.

Analysis:
1. The appellant, engaged in manufacturing LABSA (90% of Acid Slurry), was accused of suppressing the production of LABSA, leading to a show-cause notice for Central Excise duty, interest, and penalty. The appellant contested the allegations, arguing that the difference in production figures was due to variations in the quality of raw materials used in own manufacture and conversion jobs. The appellant highlighted the fixed LAB to LABSA ratio and explained the impact of varying sulphuric acid quantities on the production process, challenging the findings of the Adjudicating Authority.

2. The Tribunal observed that the Revenue accepted a yield ratio of 1:1.47 for conversion jobs but raised artificial disputes regarding the percentage of Spent Sulphuric Acid, leading to differences in finished product percentages. The Tribunal noted that the LABSA and Spent Sulphuric Acid were of the same quality and processed in a common tank, making it impossible to manufacture goods separately. Analyzing the consumption ratios, the Tribunal found minimal differences between own manufacture and conversion jobs, dismissing the artificial disputes raised by the Revenue.

3. The Department alleged clandestine removal of excess Acid Slurry based on input-output ratios, accusing the appellant of deliberately showing more spent sulphuric acid. However, the Tribunal emphasized the lack of concrete evidence or materials to support these claims, labeling the Department's allegations as illogical and baseless. Citing precedents, the Tribunal clarified that cases of clandestine removal must be proven beyond doubt with substantial evidence, which was lacking in this case.

4. Ultimately, the Tribunal set aside the impugned order, ruling in favor of the appellant due to the absence of conclusive evidence supporting the allegations of clandestine removal. The Tribunal emphasized the importance of concrete and positive evidence in establishing such cases, providing consequential relief to the appellant and overturning the demand for Central Excise duty, interest, and penalty.

This detailed analysis of the judgment highlights the key arguments, findings, and conclusions related to the alleged suppression of LABSA production, providing a comprehensive overview of the legal proceedings and the Tribunal's decision.