2007 (11) TMI 231 - AT - Central Excise

Demand confirmed on account of clandestine removal as assessee show less production of the finished products indicating excess consumption of furnace oil per MT of the finished products - no finding with regard to the consumption of electricity allegation of clandestine removal on above basis(theoretical formula) is set aside in absence of any corroborative evidence - order travels far beyond the scope of SCN duty confirmed only on quantity of billets found short penalty reduced

Summary

Issues Involved:
1. Duty demand based on clandestine removal.
2. Duty demand based on furnace oil consumption.
3. Duty demand based on stock discrepancies.
4. Imposition of penalties.

Detailed Analysis:

1. Duty Demand Based on Clandestine Removal:
The appellants were found to have clandestinely removed finished products, evidenced by 26 slips detailing unaccounted removals. The duty liability of Rs. 12,40,739/- for these removals was undisputed and had already been discharged by the appellants. Thus, this part of the demand was upheld.

2. Duty Demand Based on Furnace Oil Consumption:
The major demand of Rs. 4,30,70,253/- plus education cess of Rs. 57,831/- was based on the alleged clandestine production and removal of finished products, calculated using furnace oil consumption data. The revenue's case relied on statements from rolling mill supervisors indicating a consumption rate of 40 litres of furnace oil per MT of finished product. However, the Commissioner, in the impugned order, used an average consumption rate of 58 litres per MT, deviating from the show cause notice. The appellants argued that furnace oil is a consumable, not a raw material, and cannot be used to estimate production. They cited various reports and industry norms showing variable consumption rates and highlighted that the Commissioner had adopted a different basis without proper notice. The Tribunal found that the use of furnace oil consumption as a basis for determining production was unsatisfactory and not corroborated by sufficient evidence. Consequently, the demand based on furnace oil consumption was set aside.

3. Duty Demand Based on Stock Discrepancies:
The appellants were found to have discrepancies in their stock, with excess billets found on one occasion and shortages on another. The Commissioner combined these discrepancies to arrive at a net quantity, demanding duty of Rs. 14,33,177/-. The appellants contended that excess and shortage should not be combined. The Tribunal agreed, confirming the duty only on the quantity of billets found short, amounting to Rs. 5,26,650/-.

4. Imposition of Penalties:
Given the evidence of clandestine clearance, penalties were imposed on all appellants. However, considering that only part of the duty demand was confirmed, the penalties were reduced. The penalties under Section 11AC and Rule 26 of the Central Excise Rules, 2002, were specified for each appellant.

Conclusion:
The Tribunal confirmed the duty demands for clandestine removal (Rs. 12,40,739/-) and stock shortages (Rs. 5,26,650/-), while setting aside the demand based on furnace oil consumption (Rs. 4,30,70,253/- plus Rs. 57,831/-). Penalties were imposed but reduced in light of the partial confirmation of demands. The appeals were disposed of accordingly.