2017 (6) TMI 972 - AT - Central Excise

Clandestine manufacture and removal - abnormal variation in electricity consumption - Held that - The sole basis of demand is given in para 3 of the said notice. It is mentioned that the norms of electricity consumption per M.T. should be 70-80 units. No basis or reason with background or technical analysis has been given regarding the norms of electricity usage - When audit of accounts were conducted, the officers made certain calculation of possible normal consumption of power. Based on purported excess consumption, the whole case has been made. There is no legal sanction for such course of action - demand set aside - appeal allowed - decided in favor of appellant.

Issues: Calculation of Central Excise duty based on electricity consumption variation for Sponge Iron production, lack of technical analysis in show cause notice, reliance on Settlement Commission case, validity of demand without corroborative evidence, applicability of Supreme Court and Tribunal decisions on electricity consumption norms, burden of proof on Revenue, consideration of operation scale in determining power consumption norms.

Analysis:
1. The issue in this case revolves around the calculation of Central Excise duty by the Revenue based on the abnormal variation in electricity consumption for the production of Sponge Iron by the appellants. The Revenue alleged unaccounted manufacture and clearance of Sponge Iron due to the significant difference in power consumption per metric ton. The Original Authority imposed a substantial demand and penalty under Section 11AC of the Central Excise Act, 1944.

2. The appellant contested the findings, arguing that the demand was solely based on the electricity consumption variation without providing a proper basis or technical analysis in the show cause notice. The appellant highlighted that the previous case before the Settlement Commission was not related to power consumption calculations and that the demand for another period was pending before the Tribunal. The appellant emphasized the lack of specific details or evidence regarding the alleged unaccounted clearance of goods.

3. The show cause notice lacked a clear explanation or technical analysis regarding the norms of electricity usage and how the Revenue calculated the differential duty based on a limit of 100 units per metric ton. The Tribunal noted that the demand was primarily based on the electricity consumption variation without factual or technical basis. The reference to previous cases and settlements before the Settlement Commission was deemed irrelevant to the current proceedings.

4. The Revenue argued that the demand was justified based on the standard consumption of electricity for Sponge Iron production, even though the basis of such standards was not adequately explained in the show cause notice. The Revenue contended that the wide variation in electricity consumption justified the inference of unaccounted manufacture and clearance of excisable goods.

5. The Tribunal analyzed the legal precedents cited by both parties, including the decision of the Hon'ble Supreme Court and previous Tribunal judgments regarding electricity consumption norms for excisable goods. The Tribunal emphasized the need for technical examination and experimentation to establish valid norms for demanding Central Excise duty based on electricity consumption. The lack of proper technical analysis and investigation by the Revenue rendered the demand unsustainable.

6. The Original Authority repeatedly mentioned the appellant's failure to prove that the electricity consumption variation was within normal industry standards. The Tribunal highlighted the burden on the Revenue to provide positive evidence of unaccounted clearances, considering factors such as the scale of operation. The Tribunal noted that the demand solely based on excess electricity consumption without corroborative evidence was not legally sustainable.

7. Ultimately, the Tribunal set aside the impugned order and allowed the appeal, emphasizing the lack of corroborative evidence and the absence of a legal basis for demanding Central Excise duty solely based on electricity consumption variation. The Tribunal concluded that the demand lacked proper investigation and technical analysis, making it invalid without sufficient proof.

This detailed analysis of the judgment highlights the key legal issues, arguments presented by both parties, relevant legal principles, and the Tribunal's decision based on the evidence and legal precedents cited during the proceedings.

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