2016 (10) TMI 872 - HC - Central Excise

Validity of order-in-original confirming the demand based on SCN - show cause notice issued on presumption and surmises - M.S. Ingot - unrealistic electricity consumption, high cost of production vis-a-vis income from sale, unrealistically low amount of expenditure towards salary of employees and though manufacturing activity incurs losses - principles of natural justice - Held that - the variation is from 555 units to 1800 kWH/Per Ton. This is mainly because of the nature of the machinery utilized by the noticee. Looking to the facts of the present case, the electricity consumption pattern as has been given in Annexure- RUD-7, as stated in paragraph 4 of the show cause notice, which is at page no. 63 of this memo of writ petition which reveals that this petitioner has consumed electricity absolutely in consonance with the report given by Joint Plant Committee, constituted by the Ministry of Steel, Government of India and for few months it is even less than that. Thus, there are varieties of report available in the markets, one could not have been chosen by the respondents, arbitrarily, without carrying out the experiment of consumption of electricity for one ton of manufacturing at the noticee s manufacturing unit. This type of experiment is a must by the department, whenever respondents are canvassing the ground of electricity consumption pattern vis-a-vis clandestine removal of finished products. Otherwise, without such experiment, if any one of the aforesaid report relied upon, then it is arbitrariness on the part of the respondents and whenever there is any arbitrariness, there is always violation of Article 14 of the Constitution of India because for few of the noticees such type of reports are not relied upon whereas for rest of the assessee, as per the choice of the respondents, such type of reports will be relied upon and in fact, this has happened in this case - Thus, without experiment is being carried out at the premises of the noticees, use of any of the committee s report for electricity consumption pattern always leads to arbitrariness on the part of the respondent-department. Whenever arbitrariness is present, equality is absent. Equalities and arbitrariness are strong enemies of each other. When equality is present, arbitrariness is absent. This Court is not much going into detail of further arbitrariness in the Order-in-Original about the lower remuneration to the employees of the petitioner no. 1 as well as the manufacturing unit is running in loss and the profit is made from non-core activities etc. There appears to be very high sounding reasons, but, if they are viewed with zoom lens camera, it appears that nothing is proved by the respondents. Low remuneration is a relative word and therefore, statement of the employees of the noticee, ought to have been reduced to writing by the respondents- department. If the employees are stating that they are getting more remuneration than what is shown in the books of account by the noticee, then these statements ought to have been reduced in writing and they must be referred in the show cause notice. Copies of the gist of the statements should be given to the noticee and those employees must be kept ready for cross examination. This type of procedure ought to have been followed by the respondents- department. Instead of doing this exercise, allegation has been levelled that there is low remuneration paid by the noticee, is not sufficient at all. The Order-in-Original is based upon mere presumptions and possibilities, and, nothing has been proved at all by the respondents, especially unaccounted manufacturing of M.S. Ingots and the clandestine removal thereof - matter remanded for adjudication of the SCN - petition allowed.

Issues Involved:
1. Validity of the show-cause notice dated 26.09.2014.
2. Adequacy of the Order-in-Original dated 03.03.2016.
3. Violation of principles of natural justice.
4. Reliance on Dr. N.K. Batra's report and electricity consumption patterns.
5. Adequacy of evidence for proving clandestine removal of goods.

Detailed Analysis:

1. Validity of the Show-Cause Notice Dated 26.09.2014:
The petitioners challenged the show-cause notice issued by the Commissioner, Central Excise and Service Tax, Ranchi, for the period from September 2009 to March 2014. The notice was primarily based on allegations of unrealistic electricity consumption, high production costs, low salary expenditures, and continued operation despite incurring losses. The notice also referenced reports by Dr. N.K. Batra, Nucleus Group, and the All India Induction Furnace Association, though only Dr. Batra's report was supplied to the petitioners.

2. Adequacy of the Order-in-Original Dated 03.03.2016:
The Order-in-Original was contested on the grounds that it was based on presumptions and lacked substantive evidence. The petitioners argued that the electricity consumption pattern cited was arbitrary and not supported by a scientific survey. Additionally, the respondents failed to provide the Nucleus Group and All India Induction Furnace Association reports, despite multiple requests from the petitioners.

3. Violation of Principles of Natural Justice:
The petitioners claimed a gross violation of natural justice principles as the documents referenced in the show-cause notice were not supplied. The court noted that adequate opportunity to be heard was not given, as evidenced by the lack of response to the petitioners' requests for documents and the absence of a reply from the petitioners being cited in the Order-in-Original.

4. Reliance on Dr. N.K. Batra's Report and Electricity Consumption Patterns:
The court criticized the reliance on Dr. N.K. Batra's report, noting that it had been repeatedly discredited in various judicial decisions. The court emphasized that electricity consumption patterns could only serve as corroborative evidence and not as substantive proof of clandestine removal. The court directed that any future reliance on such reports must be preceded by experiments conducted at the noticee's premises to determine accurate electricity consumption for manufacturing.

5. Adequacy of Evidence for Proving Clandestine Removal of Goods:
The court highlighted the lack of substantive evidence to support the allegations of clandestine removal. It listed several types of evidence that should have been collected, such as details of raw material purchases, manufacturing records, packing material usage, employee statements, stock discrepancies, and transportation records. The court found that the respondents had not undertaken the necessary efforts to gather such evidence.

Conclusion:
The court quashed and set aside the Order-in-Original dated 03.03.2016, citing the lack of adequate evidence and the violation of natural justice principles. The matter was remanded to the Commissioner, Central Excise and Service Tax, Ranchi, for fresh adjudication, with specific instructions to conduct experiments at the petitioner's premises if relying on electricity consumption patterns and to collect substantive evidence as outlined in the judgment.

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