2018 (10) TMI 893 - AT - Central Excise

Clandestine manufacture and removal - MS Ingots - confiscation - penalty - demand were based on statements which were retracted later - demand also based on notebooks maintained by Sh. Anbu, Cashier pertaining to the payments made to production contractor, maintenance contractor and maintenance supervisor and three notebooks alleged to be maintained by one of the chemists - Non-accounting of MS Scrap of 170.150 MT - Seizure of unused invoices - Alleged excess consumption of electricity. Whether the allegation of clandestine manufacture and removal of steel ingots by the appellants is sustainable? - Whether the Department relied on uncorroborated statements and documents whose ownership was not established? Whether seizure and confiscation of 4.544 MT of MS ingots in the factory of M/s. Prince TMT Steels Pvt. Ltd. is maintainable? 3 Note books/pads allegedly maintained by Shri V.R. Sibiraj, Chemist and 4 Note books maintained by Shri Anbu, Cashier - It was alleged that Shri C.K. Abdurahiman, General Manager PRPL has accepted the same - Held that - On a comparison of the above records with statutory RG-I figures, the officers concluded that there was unaccounted production of 2014.185 MT of ingots. The Commissioner has given a finding that Shri Sibiraj, Chemist and Shri C.K. Abdurahiman, General Manager have accepted the maintenance of records. The Commissioner also found that the above production is corroborated by the note books/pads which evidence payments to production contractor and the fact that the appellants have not accounted for 152.690 MT of MS scrap received (as against 170.150 MT) during 5.7.2006 to 11.07.2006 as per the vehement slips seized from the appellants. The appellants contended that reliance on retracted statement without independent corroboration of materials is not correct in law. Moreover as there was no discrepancy found either in the raw material, stock or finished goods stock, the allegation of unaccounted purchase of scrap, clandestine manufacture and removal would not sustain. It is very pertinent to note that neither the impugned order nor the show-cause notice mentions any other party/person, not even one, to whom the appellants have allegedly cleared MS Ingots clandestinely. The appellants have alleged that the Department is not sure of the evidence, in the form of note books/pads it has collected, so much as it seeks to rely on the same in the case against the appellants while discarding the same in respect of show-cause notices issued to their sister concerns. We find that the stand of the Department was not uniform. Two different show-cause notices based on same set of records and evidences, proceeded on different quantities. Such an approach casts doubt on the maintainability of such evidence. Shri C.K. Abdurahiman, General Manager, Shri Anub Sha, Director, Prince TMT, Shri Sibiraj, Chemist and Sh. Anbu, Cashier have retracted their statements. They were again called for statements and their statements were recorded confirming the original statements. However, during the cross examination they have again retracted the statements. In fact issues raised and were not answered or attended - The records were not relied upon by the department itself in the proceedings against M/s PTSPL, M/s BCPL and Shri Aftab, the production Contractor. Therefore, the corroboration with respect to one of the two facts i.e. production is to be held not corroborated. Clandestine removal is a serious charge and requires to be proved at least to the level of preponderance of probability - Only records which came for consideration pertain to production. It was not proved as to who was the author of the records. Clandestine procurement of Raw material was alleged on the basis of statements. No discrepancy was found in the raw material, finished goods stock in the premises of the appellants. It is not a case of pre-announced audit of the unit by authorities. Electricity consumption - Held that - Though the invoice mentioned the furnace to be 6 MT, it is evidenced by the drawings supplied by M/s. Inductotherm (India) Pvt. Ltd that the furnace was of 8 MT. The appellants submitted that the invoice No. 3618/21.10.2005 issued by Inductotherm (India) Pvt. Ltd was for 6 MT only. The furnace was of 6 MT only but with lining as applicable to 8 MT furnace. Heat registers maintained by them prove that the capacity was 6 MT only - clandestine removal is a serious charge and for alleging the same the department has to meticulously prove the purchase of main Raw material and other inputs; manufacture of final goods; clandestine removal of the same; transportation; receipt of the same in the customer s premises and the financial transactions. The edifice of the allegation in the show cause notice was sought to be built mainly on four pillars. (i). Production records alleged to have been maintained by Shri Sibiraj, Chemist (ii). Production records alleged to have been maintained by Shri Anbu Cashier about payments to production contractor (iii). Consumption of electricity and (iv). Capacity of furnace. All other aspects were either not investigated or investigated perfunctorily. Out of these four, first two were negated by the department itself while issuing SCNs to the sister concerns i.e. M/s PTSPL, M/s BCPL and Shri Aftab - The third one was nullified by the sample run conducted by VAT department on the directions of Hon ble High Court of Keralan. The fourth one was not investigated to thoroughly establish as discussed above. Demand not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Allegation of clandestine manufacture and removal of steel ingots by the appellants.
2. Seizure and confiscation of 4.544 MT of MS ingots in the factory of M/s. Prince TMT Steels Pvt. Ltd.

Detailed Analysis:

1. Allegation of Clandestine Manufacture and Removal of Steel Ingots:
The Department alleged that M/s. Prince Rolling (P) Ltd. (PRPL) clandestinely manufactured and cleared 2014.185 MT of MS ingots between February 16, 2006, and July 11, 2006, based on seized notebooks and statements from company officials. The appellants contended that the statements were retracted and not corroborated by independent evidence. They argued that no discrepancies were found in stock during the raid, and the Department's reliance on uncorroborated private records and retracted statements was insufficient to establish clandestine removal. The Tribunal noted inconsistencies in the Department's approach, such as different figures in various show-cause notices and the lack of corroborative evidence like raw material procurement, transportation, and financial transactions. The Tribunal found that the Department's evidence was not reliable and that the serious charge of clandestine removal was not substantiated.

2. Seizure and Confiscation of 4.544 MT of MS Ingots:
The Department seized 4.544 MT of MS ingots from M/s. Prince TMT Steels Pvt. Ltd. (PTSPL), alleging excess stock. The appellants argued that the method of estimation used by the officers was not accurate and that the variation was minimal (0.65%). The Tribunal agreed, noting that the estimation method was not reliable for penal consequences and that the slight variation did not justify confiscation.

Conclusion:
The Tribunal allowed the appeals, finding that the Department failed to substantiate the allegations of clandestine manufacture and removal of MS ingots and that the seizure and confiscation of the ingots were not justified. The Tribunal emphasized the need for corroborative evidence in cases of clandestine removal and found the Department's reliance on uncorroborated private records and retracted statements insufficient.