2019 (6) TMI 190 - AT - Central Excise

Clandestine removal - M.S. Ingots - process loss of Ingots - demand based on consumption of electricity - HELD THAT - No experiment had been conducted in the factory of the appellant for arriving at the consumption norm of electricity in the factory of the appellant, it can only be stated that strong suspicion exist against the appellant concerning clandestine removal on the same but the same could not be substantiated. As has been held in the case of COMMISSIONER OF C. EX., MEERUT-I VERSUS RA CASTINGS PVT. LTD. 2010 (9) TMI 669 - ALLAHABAD HIGH COURT , the entire case appears to have been based on assumption presumption and it is a settled principle of law that suspicion howsoever strong cannot take place of proof - Further as has been held in COMMISSIONER OF C. EX., MEERUT-I VERSUS RA CASTINGS PVT. LTD. 2010 (9) TMI 669 - ALLAHABAD HIGH COURT , tax is on manufacture and it is to be proved beyond doubt that the goods have been actually manufactured, which are subjected to excise duty. Unfortunately, no positive evidence is coming on record to that effect. Unfortunately, no positive evidence is coming on record to that effect. Article 265 of the Constitution of India says that no tax shall be levied or collected except by authority of law. Unless the manufacture of the steel ingots is proved to the hilt by authentic, reliable and credible evidence, duty cannot be demanded on the basis of hypothesis and theoretical calculations, without taking into consideration the ground realities of the functioning of the factories. High consumption of electricity by itself cannot be the ground to infer that the factories were engaged in suppression of production of steel ingots. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Confirmation of duty demand, penalty on the company and director, alleged clandestine removal, high electricity consumption, cost of production vs. transaction value, reliance on case studies, reliance on expert opinions, sufficiency of evidence, comparison of sale price and production cost.

Detailed Analysis:

1. Confirmation of Duty Demand and Penalty: The judgment revolves around the confirmation of duty demand of ?1,40,38,004 along with interest and equivalent penalty on the company under Section 11AC of the Central Excise Act, 1994, and a penalty of ?15,00,000 on the director of the company under Section 26 of the Central Excise Rule, 2002 for alleged clandestine removal. Both appellants challenge this demand based on a case study analysis.

2. Factual Background and Case Study Analysis: The case involves a company engaged in manufacturing 'M.S. Ingots' under suspicion of suppressing turnover to evade taxes through clandestine removal. The analysis includes factors like electricity consumption, raw material usage, production costs, and output ratios based on a technical report prepared by Dr. N.K. Batra of IIT Kanpur. The appellant contests the findings, citing reasons such as inefficiency of equipment, quality of raw materials, and other operational challenges.

3. Appellant's Arguments: The appellant argues that the case study lacks normative standards, the cost of production exceeds transaction values due to market conditions, and the percentage of wastage during production is not fixed. They rely on legal precedents to support their case, emphasizing similarities with settled disputes in previous judgments.

4. Respondent's Defense: The authorized representative for the respondent supports the Commissioner's order, highlighting the lack of records and justifications provided by the appellant for losses during production. They cite legal precedents to argue for the confirmation of the duty demand and penalties.

5. Court's Analysis and Decision: The court examines the evidence presented, focusing on three key allegations against the appellant: process loss in production, excess electricity consumption, and discrepancies between sale price and production cost. The court finds that while suspicions exist, they are not substantiated by concrete evidence. Relying on legal principles, the court concludes that suspicion alone cannot replace proof, and taxes must be levied based on authentic and credible evidence. Ultimately, the court allows both appeals and sets aside the Commissioner's order.

This detailed analysis demonstrates the court's thorough consideration of the issues raised, the arguments presented by both parties, and the legal principles applied to reach a decision in favor of the appellants.