2016 (1) TMI 967 - AT - Central Excise

Clandestine manufacture and removal of Aluminum Alloy ingots and Zinc Alloy ingots - validity and genuineness of information, records and documents - onus to prove - The raw material used were aluminum scrap and aluminum ingots and they availed CENVAT Credit on these raw materials being inputs. - Availing Cenvat Credit without receipt of inputs - sale of abnormal quantity of Ash and Residue and burning loss amounting to more than 15% of the total consumption of raw material. Held that - the whole case is built up on data contained in the pen drive and certain statements of persons. Admittedly, the data contained in pen drive is not disputed by the appellant. The whole dispute evolve on the interpretation of the data contained therein. In such a situation, it is necessary for the Revenue to support their interpretation by clear corroborative evidences and not by inferences and assumptions. Even in interpreting the data in the pen drive and taking some support from the select statements of persons, we find that the data applicable to a particular period was extrapolated for the whole period of demand by presuming a standard projection. This apparently is not legally sustainable. When the allegation of unaccounted clearances and substitutions of inputs of huge quantities were made, the minimum requirement is to have independent support of such allegation by way of evidence of transport, cash transaction, third party documents or affirmations etc. Here in this case, corroborations are lacking. We are aware that in the case of clandestine removal it is not required for the Revenue to prove precise and comprehensive details of each such clearances with 100 per cent accuracy. However, this does not mean that even in the total absence of corroborative evidence without at least establishing a preponderance of probability the case for confirmation of demands can be made. Large number of statements were recorded and also relied upon; but these statements were not put to test by way of cross-examination and analysis or supported by documentary evidence. The statements could be of help if they support evidences which exist and which requires re-affirmation. In the present case, the statements which deal with interpretation of data in pen drive have not thrown any substantial ground to the case built up by the Revenue. Revenue failed to prove its case - demand set aside - Decided in favor of assessee.

Issues Involved:

1. Fraudulent availment of CENVAT Credit on CG/EC ingots.
2. Clandestine removal of sorted saleable material from aluminum scrap.
3. Diversion of aluminum scrap without accounting.
4. Unaccounted sale of aluminum scrap.
5. Short payment of duty on aluminum dross cleared in the guise of ash and residue.

Issue-wise Detailed Analysis:

Issue No. 1: Fraudulent availment of CENVAT Credit on CG/EC ingots

The department alleged that the appellants availed and utilized CENVAT Credit of Rs. 3,39,24,526 on CG/EC ingots which were not used in the manufacture of final products but were removed clandestinely. The case was built on data from a pen drive seized during a search, which indicated that out of 7851.640 MT of CG/EC ingots purchased, only 6145.759 MT were used in manufacturing, and 1614.911 MT were unaccounted for. The appellants argued that the entire quantity was used, except for the closing stock and some sales, and provided a reconciliation statement. The tribunal found that the original authority's reliance on presumptions and lack of corroborative evidence like transportation details, buyer information, and financial transactions made the denial of credit legally unsustainable.

Issue No. 2: Clandestine removal of sorted saleable material from aluminum scrap

The department claimed that the appellants removed 2366.119 MT of sorted saleable material from aluminum scrap without reversing the credit, amounting to Rs. 3,97,14,666. The case was based on data from the pen drive and the allegation that sorted materials were sold without invoices. The appellants contended that all segregated materials were either used in manufacturing or sold on payment of duty, as reflected in statutory records. The tribunal found no supporting evidence for the department's allegations, such as discrepancies in stock or evidence of local purchase to cover up the removal, and thus the allegations were not sustainable.

Issue No. 3: Diversion of aluminum scrap without accounting

The department alleged that the appellants availed and utilized CENVAT Credit of Rs. 1,03,10,874 on 698.393 kgs of aluminum scrap without actual receipt. This was based on discrepancies in the pen drive data and handwritten entries in Daily Material Receipt Advice sheets. The appellants explained that the discrepancies were due to quality control processes and that all materials were accounted for in statutory records. The tribunal found the department's conclusions based on tick marks and handwritten notes to be speculative and unsupported by evidence of non-receipt or clandestine removal, thus rejecting the allegations.

Issue No. 4: Unaccounted sale of aluminum scrap

The department alleged that the appellants sold 4427.307 MT of aluminum scrap unaccounted, on which credit of Rs. 7,40,68,846 was availed. This was inferred from the pen drive data where "u" was interpreted as unaccounted transactions. The appellants argued that "u" denoted under-process materials like dross and rejections, which were reused in manufacturing. The tribunal found the department's interpretation unsustainable without corroborative evidence and noted the absurdity of the allegation that the appellants procured and substituted such large quantities of raw materials without any supporting evidence.

Issue No. 5: Short payment of duty on aluminum dross cleared in the guise of ash and residue

The department alleged that the appellants cleared aluminum dross as ash and residue, evading duty of Rs. 4,17,58,397. The case was based on data from the pen drive and handwritten notes matching sale invoices for ash and residue. The appellants contended that the rates noted were for costing purposes and that aluminum dross is not excisable as per Supreme Court decisions. The tribunal found the demand unsustainable due to lack of corroborative evidence and the legal position that aluminum dross is not excisable.

General Conclusions:

1. The case was primarily built on data from a pen drive and statements, without sufficient corroborative evidence.
2. The department's reliance on presumptions and extrapolation of data was legally unsustainable.
3. Allegations of unaccounted clearances and substitutions required independent support, which was lacking.
4. Statements were not tested by cross-examination or supported by documentary evidence.
5. The tribunal set aside the impugned order and allowed the appeals, finding the department failed to establish the charges with sufficient evidence.

Final Decision:

The tribunal set aside the impugned order and allowed the appeals, concluding that the department's case was based on speculative interpretations and lacked corroborative evidence. The demands and denial of credits were found to be legally unsustainable.

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