2014 (2) TMI 719 - AT - Central Excise

Duty demand - Clandestine removal based on evidence produced by the Revenue - Held that - steel units engaged in the manufacture of MS ingots are using electricity as one of major raw materials which is controlled by the Electricity Board situated in their respective jurisdiction. Accounting of electricity is very proper and main indicator of production of steel ingots. Normal electricity consumption for production one MT of M.S. ingot usually ranges between 700 to 870 units. Details in para 6 supra indicate the fact. We have noticed wide variation of consumption of electricity showing consumption of unit ranges 773 to 1752. For a unit to be economically viable, it is understood that each manufacturer will take abundant precaution that no loss of power due to wide fluctuation in consumption occurs otherwise cost of finished goods becomes so high that there are losses. Continued higher consumption in almost all the months (sample details in para 3) is clear indicative of motive of the appellants to suppress the production. Tribunal has taken into account all the factors which prima facie points out towards suppression of production. It is also observed that when department has discharged initial burden of proof showing excess consumption of electricity later the appellant have no valid explanation to justify the excess consumption of electricity. Mere fluctuation in the electricity supply or the quantity of raw materials etc. are not reasons will make such large variation of consumption of electricity. The appellants pleading that there is no evidence of unaccounted procurement of raw materials and unaccounted sale of finished goods, transportation of these goods are not sustainable because the person, who indulged in the clandestine removal of goods, he will not keep the records thereof. Revenue has prima facie proved preponderance of probability is in their favour and it is a fit case where some pre-deposit has to be ordered for hearing their appeals. Accordingly, we order that pre-deposit of Rs.1.50 crore will be made by the appellants within twelve weeks from today as a condition to hear their appeals. Subject to above deposit, pre-deposit of balance amount of dues and entire amount of penalty imposed on both appellants shall stand waived and its recovery stayed during pendency of the appeals - Conditional stay granted.

Summary

Issues Involved:
1. Allegation of clandestine removal of goods.
2. Variation in electricity consumption.
3. Shortage of stock during physical verification.
4. Discrepancy in ingot moulds.
5. Unaccounted 'other income' and sale slag.
6. Presumption and assumption in issuing show cause notice.
7. Evidence of transportation and sale of clandestinely removed goods.
8. Standard norms for electricity consumption in production.

Detailed Analysis:

Allegation of Clandestine Removal of Goods:
The appellants were accused of clandestinely removing goods without payment of duty, leading to a demand of central excise duty amounting to Rs. 8,15,89,512/- along with interest and penalties. The basis for this allegation was primarily the abnormal variation in electricity consumption for the production of M.S. Ingots.

Variation in Electricity Consumption:
The audit revealed significant fluctuations in electricity consumption for the production of M.S. Ingots, ranging from 773 to 1752 units per MT. The standard consumption for such production is typically between 700 to 870 units. This wide variation was seen as an indicator of suppressed production and clandestine removal of goods.

Shortage of Stock During Physical Verification:
During a physical verification on 30.11.2009, a shortage of 18.600 MT of M.S. Ingots was observed when compared to the book balance. This discrepancy further supported the allegation of clandestine removal.

Discrepancy in Ingot Moulds:
The appellants had purchased 875 ingot moulds during 2007-08 and 2008-09, but only 72 were found physically available. The remaining 803 moulds were allegedly used for the production of suppressed M.S. Ingots weighing 25953 MT.

Unaccounted 'Other Income' and Sale Slag:
The appellants showed 'other income' and sale slag in their financial records, but there were discrepancies in the figures reported. For instance, the 'other income' reported in the trial balance for 2008-09 differed from the final audit report. The revenue alleged that this income was derived from the sale of clandestinely produced M.S. Ingots.

Presumption and Assumption in Issuing Show Cause Notice:
The appellants contended that the show cause notice was issued based on presumption and assumption without tangible evidence. They cited the Supreme Court's judgment in Oudh Sugar Mills vs. Union of India, which held that findings based on unwarranted assumptions are vitiated by an error of law.

Evidence of Transportation and Sale of Clandestinely Removed Goods:
The appellants argued that there was no evidence of transportation or sale of the alleged clandestinely removed goods. They claimed that the revenue failed to produce any evidence of transportation to customers.

Standard Norms for Electricity Consumption in Production:
The revenue referred to various studies and reports indicating that the normal electricity consumption for producing one MT of M.S. Ingots ranges from 555 to 1046 units. They cited judgments where similar variations in electricity consumption were used to establish clandestine removal.

Conclusion:
The tribunal concluded that the wide variation in electricity consumption was a clear indicator of suppressed production. The appellants failed to provide a valid explanation for the excess consumption of electricity. The tribunal also noted that the revenue had discharged its initial burden of proof, and the appellants' arguments regarding the lack of evidence for unaccounted procurement and sale were not sustainable. Consequently, the tribunal ordered a pre-deposit of Rs. 1.50 crore as a condition to hear the appeals, with the balance amount and penalties stayed during the pendency of the appeals.