2008 (6) TMI 197 - AT - Central Excise

Removal of manufactured goods clandestinely - consumption cannot be the only factor or basis for determining the duty liability - clandestine manufacture and removal of excisable goods is to be proved by tangible, direct, affirmative and incontrovertible evidences which was not done - The law is well settled that in every case of alleged clandestine removal, the onus is on the Revenue to prove what it alleges with positive and concrete evidence - In the absence of any positive evidence brought by the Revenue to discharge its onus, the demand is not sustainable.

Issues Involved:
1. Alleged suppression of production and clandestine removal of M.S. Ingots.
2. Validity and reliability of the technical report by Dr. N.K. Batra.
3. Justification of high electricity consumption as evidence of excess production.
4. Legitimacy of profits from share trading and their consideration as fictitious entries.
5. Admissibility of evidence and cross-examination requests.
6. Invocation of extended period of limitation for demand of duty.
7. Imposition of penalties on the appellant-companies and their directors.

Detailed Analysis:

1. Alleged Suppression of Production and Clandestine Removal of M.S. Ingots:
The main question was whether the appellants manufactured and removed M.S. Ingots clandestinely without paying duty. The excess production was calculated based on electricity consumption norms from Dr. Batra's report. However, the Tribunal found that no experiments were conducted in the appellants' factories to determine the actual consumption norms, rendering the estimation arbitrary and unreliable.

2. Validity and Reliability of the Technical Report by Dr. N.K. Batra:
The appellants challenged the reliability of Dr. Batra's report, which suggested a range of 555 to 1046 units of electricity per MT of steel ingots. They argued that the report was theoretical, outdated, and based on literature from 1977 and 1985. Moreover, the report was unsigned and not available for cross-examination since Dr. Batra had passed away. The Tribunal agreed that the report lacked credibility and could not be the sole basis for determining duty liability.

3. Justification of High Electricity Consumption as Evidence of Excess Production:
The Tribunal noted that various reports suggested different norms for electricity consumption, ranging from 555 to 1800 KWH/T. The wide variation made the adoption of any single norm arbitrary. The Tribunal emphasized that high electricity consumption alone could not justify the conclusion of excess production without concrete evidence of clandestine manufacture and removal.

4. Legitimacy of Profits from Share Trading and Their Consideration as Fictitious Entries:
The appellants contended that their profits from share trading were legitimate and duly assessed by income-tax authorities. They argued that the Central Excise authorities had no jurisdiction to question these financial transactions. The Tribunal held that the Central Excise authorities could not disregard verified and accepted financial records and that the alleged fictitious profits could not be linked to clandestine removal without concrete evidence.

5. Admissibility of Evidence and Cross-Examination Requests:
The Tribunal found that the appellants were denied the opportunity to cross-examine the investigating officers and share brokers, whose statements were used against them. The Tribunal held that the statements could not be relied upon without cross-examination, and the lack of direct evidence of clandestine removal further weakened the Revenue's case.

6. Invocation of Extended Period of Limitation for Demand of Duty:
The Tribunal noted that the show cause notice was issued in December 2006 for the period from December 2001 to March 2005. The extended period of limitation was challenged by the appellants, who argued that the report by Dr. Batra was available since December 2000, and no action was taken for six years. The Tribunal found merit in this argument, further undermining the Revenue's case.

7. Imposition of Penalties on the Appellant-Companies and Their Directors:
Given that the demands of duty were not sustainable on merits, the Tribunal held that the imposition of penalties on the appellant-companies, their directors, and other appellants was also unjustified. Consequently, all penalties were set aside.

Conclusion:
The Tribunal concluded that the demands of duty were not sustainable due to the lack of reliable evidence and the arbitrary nature of the electricity consumption norms. The penalties imposed on the appellant-companies and their directors were also set aside. The appeals were allowed with consequential relief as per law.

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