2017 (2) TMI 194 - AT - Central Excise

Clandestine clearance - Penalty - Rule 25 of the CER - Held that - It is apparent that no notice was given to the appellants before changing the method adopted for estimating the value of clearances. We find that while appellants were contesting the calculation, the method adopted in order-in-original was not suggested by appellants. In these circumstances, We find that the impugned order cannot be sustained as it is not only provides a new method of estimation but also discards the method suggested in the notice. While there is a reasonable evidence of clandestine clearances, still the impugned order cannot be sustained as it travels well beyond the notice in the manner of estimation - Appeal allowed.

Summary

Issues:
Alleged clandestine clearance of goods without recording in official records; Estimation of production value based on power consumption and raw materials consumed; Challenge to the method of estimation and evidence of clandestine removal.

Analysis:

1. The appellant, M/s. DGP Hinoday Industries Ltd., faced allegations of clandestine clearance of goods without recording in official records. The appellant established a new unit in Pune and started production before reflecting it in their excise records, as evidenced by annual reports and statements of employees confirming production activities.

2. Investigations revealed significant raw material purchases and electricity consumption during the relevant period. Statements from Quality Assurance and Production Managers supported the claim of production activities, including the development and supply of castings to various customers without proper documentation.

3. The estimation of production value was a key issue, with the Revenue calculating it based on power consumption and raw materials consumed. The show-cause notice detailed the methodology, including the cost of iron castings determined by applying a cost: power ratio. However, the order-in-original adjusted the estimation method, leading to a revised production value and subsequent duty demand.

4. The appellant contested the estimation method, arguing against the change from power consumption to raw materials as the basis for calculating production value. The appellant challenged the lack of concrete evidence supporting clandestine clearances and discrepancies in the balance sheet figures used for estimation.

5. The Tribunal found the order-in-original unsustainable due to the abrupt change in the estimation method without prior notice to the appellants. While acknowledging potential clandestine clearances, the Tribunal emphasized the importance of adhering to the method outlined in the show-cause notice and the lack of sufficient evidence to support the revised estimation approach.

6. Ultimately, the Tribunal allowed the appeal, highlighting the procedural irregularities in changing the estimation method and the discrepancy between the notice and the order-in-original. The judgment emphasized the need for consistency in estimation methods and the requirement for substantial evidence to support allegations of clandestine activities.

This detailed analysis covers the issues of alleged clandestine clearance, estimation of production value, challenges to the estimation method, and the Tribunal's decision highlighting procedural irregularities and lack of concrete evidence.