2024 (12) TMI 1531 - AT - Central Excise

Clandestine manufacture and removal of sponge iron - input-output ratio - electricity consumption - case of the Revenue is that to manufacture 1 MT of Sponge Iron 1.67 MT of iron ore is required and to manufacture 1 MT of Sponge Iron 162 KW power is required - extended period of limitation. HELD THAT - In this case demand sought to be raised against the Respondent on the basis of estimated production as per input/output ratio of 1 1.67MT and electric consumption is 162 KW for manufacture of 1 MT Sponge Iron. All these basis for confirmation of demand are on estimate basis and there is no tangible evidence has been brought by the Revenue on record from where the Respondent procure other raw materials to manufacture such a huge quantity of Sponge Iron like coal and iron ore. In the case of Arya Fibres Pvt. Ltd. 2013 (11) TMI 626 - CESTAT AHMEDABAD this Tribunal has laid down law for establish clandestine removal clearance in cases of allegation made of clandestine manufacture and clearance of the goods - As none of the test has been conducted to establish clandestine manufacture and clearance of the goods by the Respondent therefore the impugned demand are not sustainable against the Respondent. Extended period of limitation - HELD THAT - The periodical audit took place and no deficiency were found no objections were raised regarding clandestine removal of goods by the Respondent therefore whole of the demand is also barred by limitation as Show Cause Notice has been issued by invoking extended period of limitation. Conclusion - i) The allegations of clandestine production and removal require tangible evidence and cannot be based solely on theoretical calculations or expert opinions. ii) As none of the test has been conducted to establish clandestine manufacture and clearance of the goods by the Respondent therefore the impugned demand are not sustainable against the Respondent. iii) The demand was barred by limitation as there was no evidence of fraud or suppression to justify the extended period. Appeal of Revenue dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The core issues considered in this judgment are:

1. Whether the alleged clandestine production and removal of sponge iron by the Noticee, M/s. Agrasen Sponge (P) Ltd., was substantiated by the evidence presented.

2. Whether the input-output ratio and electricity consumption used as a basis for estimating clandestine production are valid and reliable.

3. Whether the demand for excise duty based on estimated production is sustainable under the Central Excise Act.

4. Whether the demand is barred by limitation due to the delay in issuing the Show Cause Notice.

ISSUE-WISE DETAILED ANALYSIS

1. Clandestine Production and Removal of Sponge Iron

- Relevant legal framework and precedents: The case hinges on the interpretation of the Central Excise Act and the requirement for tangible evidence to prove clandestine production and removal. Precedents such as Arya Fibres Pvt. Ltd. and Continental Cement Company emphasize the need for concrete evidence in such cases.

- Court's interpretation and reasoning: The Tribunal noted that allegations of clandestine removal are quasi-criminal and require affirmative evidence. It emphasized that mere reliance on expert opinions and theoretical norms without corroborative evidence is insufficient.

- Key evidence and findings: The evidence presented was primarily based on expert opinions regarding input-output ratios and electricity consumption. However, there was a lack of direct evidence of clandestine removal, such as transportation documents or records of cash transactions.

- Application of law to facts: The Tribunal applied the principle that in the absence of concrete evidence, the demand for excise duty cannot be sustained. It reiterated that theoretical calculations without supporting evidence do not establish clandestine activity.

- Treatment of competing arguments: The Tribunal considered the Revenue's reliance on expert opinions but found them insufficient as they did not account for variations in raw material quality and other factors.

- Conclusions: The Tribunal concluded that the allegations of clandestine production and removal were not substantiated by the evidence presented.

2. Validity of Input-Output Ratio and Electricity Consumption

- Relevant legal framework and precedents: The Tribunal referred to past decisions that questioned the reliability of using input-output ratios and electricity consumption as sole bases for determining clandestine production.

- Court's interpretation and reasoning: The Tribunal noted that the input-output ratio and electricity consumption figures were based on ideal conditions and did not account for variability in raw material quality and other operational factors.

- Key evidence and findings: The expert opinions suggested a standard input-output ratio of 1.67:1 and electricity consumption of 70-100 KWH per MT of sponge iron. However, the Noticee's actual consumption was higher, leading to the Revenue's allegations.

- Application of law to facts: The Tribunal found that the reliance on these figures was misplaced without corroborative evidence of actual clandestine removal.

- Treatment of competing arguments: The Tribunal acknowledged the expert opinions but emphasized the need for tangible evidence beyond theoretical calculations.

- Conclusions: The Tribunal held that the input-output ratio and electricity consumption figures alone could not substantiate the allegations.

3. Demand for Excise Duty Based on Estimated Production

- Relevant legal framework and precedents: Section 3 read with Section 2(f) of the Central Excise Act requires duty to be based on actual production, not estimates.

- Court's interpretation and reasoning: The Tribunal emphasized that excise duty demands must be based on actual production figures, not theoretical estimates.

- Key evidence and findings: The demand was based on estimated production derived from input-output ratios and electricity consumption, without evidence of actual production or removal.

- Application of law to facts: The Tribunal applied the legal requirement for actual production evidence, finding the demand unsustainable.

- Treatment of competing arguments: The Tribunal dismissed the Revenue's reliance on estimates, reiterating the need for actual evidence.

- Conclusions: The Tribunal concluded that the demand based on estimated production was not legally sustainable.

4. Limitation and Delay in Issuing Show Cause Notice

- Relevant legal framework and precedents: The Central Excise Act provides a limitation period for issuing Show Cause Notices, which can be extended in cases of fraud or suppression.

- Court's interpretation and reasoning: The Tribunal noted that the Show Cause Notice was issued more than a year after the audit, with no evidence of fraud or suppression by the Noticee.

- Key evidence and findings: The audit did not raise objections regarding input-output ratios or electricity consumption, suggesting no suppression of facts.

- Application of law to facts: The Tribunal found the demand barred by limitation due to the absence of evidence justifying the extended period.

- Treatment of competing arguments: The Tribunal considered the Revenue's arguments for the extended period but found them unsupported by evidence.

- Conclusions: The Tribunal held that the demand was barred by limitation.

SIGNIFICANT HOLDINGS

- The Tribunal reiterated the principle that allegations of clandestine production and removal require tangible evidence and cannot be based solely on theoretical calculations or expert opinions.

- It emphasized the need for actual production evidence to substantiate excise duty demands, aligning with precedents such as Arya Fibres Pvt. Ltd. and Continental Cement Company.

- The Tribunal found that the demand was barred by limitation, as there was no evidence of fraud or suppression to justify the extended period.

- The final determination was to uphold the adjudicating authority's decision to drop the proceedings against the Noticee, dismissing the Revenue's appeal.