2016 (12) TMI 93 - HC - Central Excise

Validity of SCN - issued on presumption and surmises - clandestine removal of the M.S. Ingot - Held that - 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. Several Orders- in-Original have been pointed out during the course of arguments by the counsel for the petitioners wherein electricity consumption pattern allegation levelled in show cause notice and ultimately after adjudication, the show cause notice has been dropped. 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. 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 is remanded for adjudication of the show cause notice dated 04.09.2014 and the matter will be decided afresh, keeping in mind the aforesaid principles, especially if the respondents are relying upon Dr. N.K. Batra s report, the experiment shall be carried out at the premises of petitioner no. 1, as stated herein above, for manufacturing of one ton or any such quantity which should be sufficiently large, so as to understand the pattern of consumption of electricity for manufacturing of M.S. Ingots as well as keeping in mind the nature of evidences as referred in para 5(v) may also be collected as far as possible. Petition allowed.

Issues Involved:
1. Validity of the show-cause notice based on presumptions and surmises.
2. Alleged violation of the principles of natural justice.
3. Reliance on Dr. N.K. Batra's report without providing cross-examination.
4. Failure to supply relevant documents to the petitioner.
5. Use of electricity consumption patterns as evidence for clandestine removal.
6. Adequacy of the Order-in-Original passed by the Commissioner.

Detailed Analysis:

1. Validity of the Show-Cause Notice:
The petitioners challenged the show-cause notice dated 04.09.2014 and the Order-in-Original dated 19.01.2016 on the grounds that they were based on presumptions and surmises. The department alleged possibilities of clandestine removal of M.S. Ingots based on electricity consumption patterns and other factors such as high production costs and low employee wages. The court found that the show-cause notice was issued primarily on presumptions without conclusive evidence.

2. Alleged Violation of the Principles of Natural Justice:
The petitioners argued that there was a gross violation of the principles of natural justice as the documents referred to in the show-cause notice, such as the Nucleus Group report and the All India Induction Furnace Association report, were not supplied to them. The court held that the principles of natural justice were violated as the petitioners were not provided with all the documents relied upon in the show-cause notice.

3. Reliance on Dr. N.K. Batra's Report:
The petitioners contended that Dr. N.K. Batra's report, which was heavily relied upon by the respondents, was not a conclusive piece of evidence and that cross-examination of Dr. N.K. Batra was not made available. The court noted that Dr. N.K. Batra's report had been criticized in various judicial decisions and emphasized that cross-examination was essential. The court directed that Dr. N.K. Batra's report should not be used unless an experiment is conducted at the factory premises of the noticee.

4. Failure to Supply Relevant Documents:
The court observed that the Nucleus Group report and the All India Induction Furnace Association report, which were referred to in the show-cause notice, were not supplied to the petitioners. This failure to provide relevant documents was a significant factor in the court's decision to quash the Order-in-Original.

5. Use of Electricity Consumption Patterns:
The court highlighted that the electricity consumption pattern could only serve as corroborative evidence and not as substantive proof of clandestine removal. The court criticized the reliance on Dr. N.K. Batra's report without conducting experiments at the noticee's factory. The court directed that any future reliance on electricity consumption patterns must be substantiated by experiments conducted at the specific factory premises.

6. Adequacy of the Order-in-Original:
The court found that the Order-in-Original was based on mere presumptions and possibilities without concrete evidence. The court emphasized that substantive evidence, such as details about raw material purchases, manufacturing records, packing material usage, employee statements, and transportation records, was necessary to prove clandestine removal. The lack of such evidence rendered the Order-in-Original inadequate.

Conclusion:
The court quashed and set aside the Order-in-Original dated 19.01.2016 and remanded the matter for fresh adjudication. The court directed that if the respondents rely on Dr. N.K. Batra's report, they must conduct experiments at the petitioner’s premises to determine the electricity consumption pattern accurately. The respondents were also instructed to collect substantive evidence as outlined in the judgment. The court reiterated that reliance on electricity consumption patterns alone was insufficient to prove clandestine removal and emphasized the need for a thorough and fair investigation.

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