2018 (12) TMI 1108 - AT - Central Excise

Clandestine removal - MODVAT/CENVAT Credit - MS ingots - Kar Vivad Samadhan Scheme (KVSS) - Department has mainly relied upon the documents alleged to be recovered from the transporter Shri Rajarathina Transporters - Held that - The department has not been able to establish the reason for applying a different formula for demanding duty for the overlapping period. It is also mentioned that when it is already concluded that the department has failed to establish procurement of unaccounted raw materials and when there is no discrepancy with regard to the stock of raw materials and finished products, noted by the department, the allegation of clandestine clearance of finished products of such huge quantity has to be supported by reliable and cogent evidence which is not present. The physical verification of stock, no discrepancy with regard to raw materials has been noted by the department. Even though statements of various traders were taken, the stock as recorded in the RG-I register and that was lying in the factory did not show any difference. The other evidence relied is with regard to the cash deposits made in the account of Shri Prem Kumar, who is the director of the company. The amounts in his Karur Vysya Bank account has been explained by him stating that he had other business of construction activities and amounts are with regard to such business. The department has rejected and not accepted this explanation. No verification has been done in this regard. Merely because there are certain cash deposits in the account of the director of the company, it cannot be concluded that these are amounts received from sale of clandestinely removed finished products - thus, the department has failed to establish the allegation that the appellant availed fraudulent MODVAT credit to the tune of ₹ 18,93,298/-. The demand on this count cannot sustain and therefore requires to be set aside - The department has not been able to establish clandestine clearance of finished products also and the demand on this count is also set aside. The department has not been able to establish the clandestine removal of goods or wrongful availment of MODVAT credit - the charges against other appellants also cannot sustain - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Allegation of clandestine clearance of finished products.
2. Allegation of wrongful availment of MODVAT credit.
3. Validity of evidence and statements relied upon by the department.
4. Application of different quantification formula for overlapping periods.
5. Imposition of penalties on various parties involved.

Detailed Analysis:

1. Allegation of Clandestine Clearance of Finished Products:
The appellant, M/s. Elango Industries Ltd. (M/s. EIL), was accused of evading central excise duty by clandestinely clearing MS ingots without payment of duty. The department's case was primarily based on documents recovered during search operations, statements from various individuals, and discrepancies in electricity consumption records. The Tribunal noted that the department failed to provide reliable and cogent evidence to support the allegation of clandestine removal of such a large quantity of finished products. The minor differences in quantities noted in some instances were insufficient to prove the clandestine clearance of 1752.34 MTs of MS ingots. The Tribunal emphasized that the physical verification of stock did not reveal any discrepancies, and the department had not adequately corroborated the statements of brokers and other individuals involved.

2. Allegation of Wrongful Availment of MODVAT Credit:
The department alleged that M/s. EIL had availed fraudulent MODVAT credit amounting to ?18,93,298/-. This allegation was primarily based on the statements of various traders and suppliers, who were later exonerated by the Commissioner, and the Tribunal upheld this exoneration. The Tribunal found no substantial evidence to support the claim of wrongful availment of MODVAT credit. The minor differences in quantities shown in commercial invoices and excise invoices were not sufficient to substantiate the allegation of fraudulent credit availment. The Tribunal concluded that the department had failed to establish the procurement of unaccounted raw materials and, therefore, the demand on this count could not be sustained.

3. Validity of Evidence and Statements Relied Upon by the Department:
The Tribunal scrutinized the evidence presented by the department, including documents recovered from the transporter, private records, and statements from individuals. The Tribunal highlighted that the statements made by individuals under coercion could not be relied upon without corroboration. The private records recovered from the transporter were deemed unreliable, especially since the transporter had been exonerated in earlier proceedings. The Tribunal emphasized that the department's reliance on uncorroborated and isolated entries in private records was insufficient to establish the allegations against the appellant.

4. Application of Different Quantification Formula for Overlapping Periods:
The Tribunal noted that the department had adopted different methods for quantifying the demand for overlapping periods covered by two show cause notices. In the earlier proceedings, the duty demand was quantified based on production capacity and electricity consumption, which was settled under the Kar Vivad Samadhan Scheme (KVS Scheme). However, in the subsequent notice, the department quantified the demand based on evidence from dealers and buyers of finished goods. The Tribunal found this inconsistent and unsustainable, particularly for the overlapping period of seven months. The Tribunal reiterated that the department could not adopt a different formula for the overlapping period when the production capacity based on electricity consumption had already been the basis for quantifying the demand in the earlier notice.

5. Imposition of Penalties on Various Parties Involved:
The Tribunal observed that the penalties imposed on various parties, including the directors and transporters, were based on the same uncorroborated evidence that failed to establish the primary allegations. Since the department could not substantiate the charges of clandestine removal and wrongful availment of MODVAT credit, the penalties imposed on the appellants and other parties could not be sustained. The Tribunal set aside the impugned order in its entirety, including the penalties, and allowed the appeals with consequential relief.

Conclusion:
The Tribunal concluded that the department had not been able to establish the allegations of clandestine removal of goods or wrongful availment of MODVAT credit. Consequently, the charges against the appellants and other parties involved could not be sustained. The impugned order was set aside, and the appeals were allowed with consequential relief.

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