2018 (6) TMI 76 - AT - Central Excise

Clandestine removal of finished goods - excise duty demand - sponge iron - captive consumption - suppression of facts - penalties - Held that - The investigation undertaken by Revenue has conclusively established that the production has not been fully accounted in the statutory record maintained in the Excise Division. The total quantum of production of sponge iron has been determined by the adjudicating authority on the basis of various records recovered during investigation and confirmed and admitted by the appellant‟s employees - the total quantum of sponge iron manufactured but not accounted has been arrived at 92.142 MT. The total quantum of finished products manufactured therefrom has been worked out and the excise duty demanded on such quantum of finished products. We find the above basis is fair and is backed by the documents recovered during search - findings of lower authority upheld. Shortage of 5007.290 MT of sponge iron found during physical verification - Held that - Since the shortage stands admitted, we find no reason to interfere with the demand raised on the finished products on the basis of the above shortage - demand of Central Excise duty which stands confirmed by the Adjudicating Authority against PIL-I, alongwith the penalty imposed, upheld. Penalties on the Directors as well as various employees - Held that - the adjudicating authority in paragraphs 52 to 59 has elaborately discussed the roles played by various employees of the appellant in the suppression of the actual production and clearance of the finished products without accounting and without payment of duty - penalties upheld. Penalties imposed on the transporter - Held that - These transporters have played the key role in transporting the finished products such as bloom, billets, ingots clandestinely removed from the factory of the appellant without payment of duty, accompanied by trading bills/ challans - penalties upheld. Penalties on various alleged buyers of the finished products - Held that - Such buyers have been identified only from the details found in the trading invoices - Revenue authorities have failed to carry out any investigation against them. No evidence is found in record that such buyers have actually received the goods. No statements have been recorded from any of the buyers - penalties not justified. Appeal allowed in part.

Summary

Issues Involved:
1. Allegation of clandestine manufacture and removal of sponge iron and finished products (bloom, billets, ingots).
2. Shortage of sponge iron and finished goods detected during physical verification.
3. Validity of the appellant's claim of selling iron ore at the railway siding.
4. Role of electricity consumption in estimating production.
5. Imposition of penalties on directors, employees, transporters, and buyers.
6. Appeals filed by the Revenue against the reduction in duty demand and penalties.

Detailed Analysis:

1. Allegation of Clandestine Manufacture and Removal:
The primary issue was whether M/s Prakash Industries Limited (PIL) engaged in clandestine manufacture and removal of sponge iron and finished products, evading excise duty amounting to ?16.92 crores and ?94.59 lakhs respectively. The investigation revealed suppression of receipt of iron ore amounting to 2,76,896.820 MT, which was not recorded in statutory records. This unaccounted iron ore was allegedly used for clandestine manufacture of sponge iron and subsequent finished products. Various incriminating documents and discrepancies in production records supported the allegation.

2. Shortage of Sponge Iron and Finished Goods:
During a search operation, a shortage of 5007.290 MT of sponge iron was detected at PIL-I, and 89.579 MT of finished goods at PIL-II. The duty due on these shortages was paid. The shortage was attributed to unaccounted production and clandestine removal of finished products, as corroborated by physical verification and statements from company officials.

3. Validity of Iron Ore Sales Claim:
The appellant claimed that a portion of the iron ore received at the railway siding was sold and not brought to the factory. However, the appellant failed to provide evidence of such sales or payment of VAT/Sales Tax. The adjudicating authority concluded that the claim of cash sales was an alibi to account for the proceeds of unaccounted finished products.

4. Role of Electricity Consumption:
The initial adjudication estimated production based on electricity consumption, including power generated by a wind farm in Tamil Nadu. The appellant argued that electricity was also used in other parts of the factory and for infrastructure. The adjudicating authority, in the present round, recalculated the demand based on documentary evidence rather than theoretical estimates, confirming the suppression of production and clandestine removal.

5. Imposition of Penalties:
Penalties were imposed on various directors and employees of PIL for their roles in the suppression of production and evasion of duty. The adjudicating authority detailed their involvement in paragraphs 52 to 59 of the order. Penalties on transporters were upheld as they facilitated the clandestine removal of goods. However, penalties on buyers were set aside due to lack of investigation and evidence of their involvement.

6. Appeals by Revenue:
Revenue appealed against the reduction of the duty demand from ?46 crores to ?17.90 crores and the corresponding penalties. The Tribunal found that the adjudicating authority had carefully recalculated the demand based on documentary evidence and dismissed the appeals filed by Revenue.

Conclusion:
The Tribunal upheld the demand of Central Excise duty and penalties imposed on PIL-I and its employees but set aside penalties on buyers due to insufficient evidence. Appeals by Revenue were dismissed, affirming the recalculated demand based on concrete evidence rather than theoretical estimates. The judgment emphasized the importance of substantiating claims with credible evidence and thorough investigation.