2016 (1) TMI 560 - AT - Central Excise

Clandestine manufacturing and clearing of the said M.S. Ingots - shortage of raw materials and excess of finished goods - the case of the revenue is that appellant had not recorded the production in their factory premises and clandestinely removed the goods. To come to such conclusion they relied upon the electricity consumption and the statements of various transporters. - Held that - there is no evidence which indicated that appellant had procured raw materials which were unaccounted. There is an addendum issued to the show-cause notice which indicates that appellant had procured additional raw material from M/s. Sidhbali which was unaccounted but we find that the said allegation is not supporting the case when various personnel of the main appellant were confronted with such statement of M/s. Sidhbali, stated that they have not received the goods from M/s. Sidhbali. Further, we find that sponge iron is not the only input required for the manufacture of M.S .Ingots, Revenue has not brought on records to show that various other inputs which are required for manufacturing of M.S. Ingots were also procured clandestinely and were unaccounted. Secondly, the allegations of clandestine removal of manufactured goods is very serious allegation and needs to be substantiated by Revenue authorities with tenable evidence to show that there was large scale manufacturing of commodities. As regards the demands confirmed by the adjudicating authority in respect of shortage of goods, learned Counsel fairly submits that they are not contesting the issue but submits that penalty imposed be set aside. In view of the foregoing, we hold that except for the confirmation of demand on the shortages as noticed by the adjudicating authority we set aside the impugned order confirming the demands raised on the appellant as regards clandestine removal of finished goods. As we have set aside the demands raised, we find that there is no reason to visit the appellants with any penalty. Decided substantially in favor of assessee.

Issues Involved:

1. Allegations of clandestine removal of M.S. Ingots.
2. Accuracy of stock verification and raw material shortages.
3. Use of electricity consumption as evidence for clandestine production.
4. Validity of statements and their retraction.
5. Limitation period for issuing show-cause notices.
6. Unaccounted income and its relation to clandestine sales.
7. Penalties imposed on the appellants.

Detailed Analysis:

1. Allegations of Clandestine Removal of M.S. Ingots:
The main appellant, a manufacturer of M.S. Ingots, was accused of evading Central Excise duty through clandestine manufacturing and clearing of goods. The authorities based their findings on discrepancies in stock, statements from various personnel, and electricity consumption data. The Tribunal, however, found that the allegations were not substantiated by tangible evidence. The reliance on the report of Dr. N.K. Batra, which was found to be non-existent, was deemed incorrect. The Tribunal emphasized that allegations of clandestine removal must be supported by concrete evidence, such as unaccounted raw materials and documented instances of clandestine sales, which were absent in this case.

2. Accuracy of Stock Verification and Raw Material Shortages:
The authorities found shortages of raw materials and excess finished goods during their visit. The Tribunal noted that the stock verification process was inaccurate and the findings were not supported by sufficient evidence. The appellant argued that the stock-taking was flawed, and the Tribunal agreed, citing previous decisions where similar allegations were dismissed due to lack of concrete evidence.

3. Use of Electricity Consumption as Evidence for Clandestine Production:
The authorities used electricity consumption data, based on a report by Dr. N.K. Batra, to infer clandestine production. The Tribunal rejected this approach, highlighting that the report was non-existent and had been discredited in previous cases. The Tribunal reiterated that electricity consumption alone cannot be the basis for such serious allegations without supporting evidence of unaccounted raw materials and documented instances of clandestine production and sales.

4. Validity of Statements and Their Retraction:
The statements of various personnel, including the Director, were used to support the allegations. The Tribunal found that these statements were recorded in English, a language not understood by the Director, and were retracted later. The Tribunal held that the retracted statements, especially when recorded under questionable circumstances, cannot be relied upon without corroborative evidence.

5. Limitation Period for Issuing Show-Cause Notices:
The appellant argued that the show-cause notice dated 11.09.2009, covering the period from 24.03.2005 to 18.06.2008, was time-barred as they had been regularly filing returns. The Tribunal did not specifically address this issue in the final decision, focusing instead on the lack of substantive evidence for the allegations.

6. Unaccounted Income and Its Relation to Clandestine Sales:
The authorities claimed that an unaccounted income of Rs. 91,24,870/- was related to clandestine sales. The appellant explained that this amount was from hiring trucks, but the explanation was deemed unsatisfactory. However, the Tribunal found no evidence linking this income to clandestine manufacturing and sales, thus rejecting the authorities' claim.

7. Penalties Imposed on the Appellants:
The Tribunal upheld the penalties related to the confirmed demands on shortages of goods but set aside the penalties related to the allegations of clandestine removal. The Tribunal emphasized that penalties cannot be imposed without concrete evidence of clandestine activities.

Conclusion:
The Tribunal set aside the impugned orders confirming the demands based on allegations of clandestine removal, except for the demands related to shortages of goods. The penalties related to the clandestine removal allegations were also set aside. The decision underscored the need for tangible evidence to substantiate serious allegations of clandestine manufacturing and sales.

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