2017 (4) TMI 940 - AT - Central Excise

Clandestine manufacture and removal - Ms Ingots - Held that - The Appellant has given certificate issued by the Chartered Engineer that the Capacity of two furnace installed in the Appellant Unit is 5 Mt each. However during the test check by the officers the capacity of molten material was found to be 5.450 MT and 5.600 MT. In this context if some more quantity can be processed in the furnace than its installed capacity the same cannot be made a ground to allege that the assessee always processed the goods more than the installed capacity. The Appellant in his submission has stated that the pressed Scrap will take less space rather than non pressed scrap and therefore the processing capacity of furnace would vary. We are of the view that otherwise also the processing capacity of the furnace would depend upon the nature and quality of raw material as well as other factors. The maximum capacity result of a heat cannot be applied in each and every heat. Therefore the results of yield would vary and cannot remain constant. Even otherwise the capacity of furnace can not be a ground to demand duty. It has to be shown that the goods were indeed manufactured in the Appellant factory and the same were cleared - In absence of evidence of receipt of raw material and clearance of finished goods, absence of buyers and receipt of any money consideration, the charges of clandestine removal cannot be sustained. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Duty demand on removal of MS Ingots and by-products.
2. Confiscation of MS Ingots and MS Scrap.
3. Penalties imposed under Section 11AC of the Central Excise Act and Rule 26.
4. Allegations of unaccounted scrap and clandestine removal.
5. Reliability of statements and evidence.

Issue-wise Detailed Analysis:

1. Duty Demand on Removal of MS Ingots and By-products:
The tribunal examined the demand of ?92,12,475/- on MS Ingots and ?73,440/- on by-products. The demand was based on the assumption of unaccounted receipt of MS Scrap and production capacity. The tribunal found that the demand was primarily based on the statements of Shri Kishore Kothari and Shri Umakant Mahajan, which were later retracted and negated during cross-examination. The tribunal emphasized that statements alone, without corroborative evidence, cannot substantiate the demand. Furthermore, the alleged receipt of unaccounted scrap and the consequent production of MS Ingots were not supported by any independent evidence such as transportation records or buyer confirmations. The tribunal concluded that the demand was not sustainable and set it aside.

2. Confiscation of MS Ingots and MS Scrap:
The tribunal addressed the confiscation of 35.585 MT of MS Ingots and 108.180 MT of MS Scrap. It was argued that the excess stock was due to production from the night shift, which had not yet been recorded due to the timing of the officers' visit. The tribunal found no contrary evidence to dispute this claim. Additionally, the alleged excess stock of MS Scrap was based on weighbridge slips without physical verification. The tribunal held that the confiscation was not justified as there was no concrete evidence of unaccounted stock. Consequently, the confiscation orders were set aside.

3. Penalties Imposed Under Section 11AC of the Central Excise Act and Rule 26:
Penalties were imposed on various individuals, including directors and accountants, based on the alleged duty evasion and unaccounted stock. Since the tribunal found the duty demand and confiscation orders unsustainable, it also set aside the penalties. The tribunal reasoned that without a substantiated duty demand or evidence of clandestine removal, penalties could not be justified.

4. Allegations of Unaccounted Scrap and Clandestine Removal:
The tribunal scrutinized the allegations of unaccounted scrap and clandestine removal of MS Ingots. The allegations were primarily based on statements and assumed production capacities. The tribunal noted that the statements were retracted and not corroborated by independent evidence. It highlighted the lack of investigation into transportation records, buyer confirmations, and physical verification of stock. The tribunal concluded that the allegations were based on assumptions and lacked substantial evidence, leading to the dismissal of the charges.

5. Reliability of Statements and Evidence:
The tribunal emphasized the importance of corroborating statements with independent evidence. It referred to legal precedents that retracted statements require corroboration to be reliable. The tribunal found that the statements used to support the demand and confiscation were not corroborated by any independent evidence. It also noted that cross-examinations negated the statements, further undermining their reliability. The tribunal held that the reliance on uncorroborated statements was insufficient to uphold the demand and penalties.

Conclusion:
The tribunal set aside the impugned order, dismissing the duty demands, confiscation orders, and penalties. It emphasized the need for corroborative evidence to substantiate allegations of unaccounted stock and clandestine removal. The appeals were allowed with consequential reliefs, and the penalties on individuals were also set aside.

← Previous Next →