2015 (4) TMI 734 - AT - Central Excise

Clandestine manufacture and clearance of goods - Penalty u/s 11AC - Held that - As regards the private ledger account recovered from SSSRM which contained entries regarding supply of MS Ingots by the appellants to them, these accounts being third Party documents could be used against the appellants, only if, the cross examination of the persons from whom these documents have been recovered had been allowed. This is necessary in view of the Apex Court judgment in the case of Kishan Chand Chellaram vs CIT reported in 1980 (9) TMI 3 - SUPREME Court . In this case, the cross examination of the concerned persons of SSSRM had not been allowed. In view of this, merely on the basis of the entries in the private ledger account maintained by SSSRM regarding supply of MS Ingots by the appellants to them the allegation of clandestine removal of MS Ingots against the Appellant against the appellants would not be sustainable more so, when other than the ledger entries of SSSRM there is no other evidence of clandestine removal of MS Ingots by the appellants to SSSRM. When the studies regarding power consumption for per MT of MS Ingots produced has been conducted in respect of the appellant s unit by an Institute of the Government of India, there is no reason for discarding the report of that Institute and adopting the power consumption of 689 units per MT in respect of another induction thermal unit of M/s NIPL. There is absolutely no evidence of procurement of raw material scrap/ sponge iron or any other evidence regarding clandestine clearance and transportation of the finished products. In view of this, merely on the basis of power consumption of the appellant unit and an arbitrarily adopted ratio of 689 units MT which does not pertain to these units the allegation of unaccounted production of MS Ingots and its clandestine removal would not be sustainable. - Decided in favour of assessee.

Summary

Issues:
1. Alleged duty evasion based on power consumption and private ledger account entries.

Analysis:
The case involved three appellants accused of duty evasion in the manufacture and clearance of MS Ingots based on higher power consumption and unaccounted transactions. The investigation stemmed from the recovery of a private ledger account at a steel rolling mill, implicating the appellants in supplying MS Ingots without proper documentation. The investigating officers compared the power consumption of the appellants with another manufacturer, leading to duty demands and penalties issued through Show Cause Notices (SCNs). The Commissioner confirmed the duty demands and penalties, prompting the appellants to file appeals challenging the orders.

The appellants argued that the duty evasion allegations were unfounded as they disputed the power consumption ratio used by the authorities. They contended that the power consumption per metric ton of MS Ingots in their units was different from the norm applied, citing studies conducted by a government institute to support their claim. They highlighted previous tribunal and court judgments emphasizing the need for actual experiments to determine power consumption accurately. The appellants also questioned the credibility of the private ledger account entries as evidence of clandestine removal without proper cross-examination of the individuals involved.

On the other hand, the Department defended the impugned orders, asserting that the power consumption ratio was justified based on the evidence of unaccounted manufacture and clearance of MS Ingots. They argued that the appellants' actual production was underreported, leading to inflated power consumption figures. The Department maintained that the private ledger account entries and the power consumption data supported the duty evasion allegations.

After considering both sides' submissions and examining the evidence, the Tribunal found that the reliance on the private ledger account entries without proper cross-examination was insufficient to sustain the allegations of clandestine removal. Additionally, the Tribunal emphasized the importance of conducting actual experiments to determine accurate power consumption, as highlighted in previous legal precedents. Given the discrepancies in power consumption ratios and the lack of concrete evidence supporting duty evasion, the Tribunal concluded that the impugned orders were not sustainable. Consequently, the appeals were allowed, and the impugned orders were set aside.

In conclusion, the judgment addressed the issues of alleged duty evasion based on power consumption and private ledger account entries, emphasizing the need for reliable evidence and accurate assessments in determining duty liabilities in excise matters.