2020 (2) TMI 603 - AT - Central Excise

Clandestine removal - shortage of stock - demand based on electricity consumption - whether the demand is based on assumptions and presumptions or not - corroborative evidences or not - CENVAT credit - HELD THAT - The rusted wire rods found during the course of stock taking an recorded in the panchnama have arisen out of the stock of wire rods recorded in the production records maintained by the respondents, and hence they continue to be part of the stock available with them. It is not the case of the department in appeal that this rusted stock have been accounted elsewhere in the production records as old and rusted wire rods in coil form/ scarp. Commissioner is correct in his conclusion that the goods were entered in the production records maintained by the respondents only after quality inspection and clearance. During the period of demand it was for the respondent assessee to determine at which stage the he enters the finished goods in his production records unlike the earlier period when an RG-1 stage was prescribed by the department. There seem to be no error in the approach adopted by the respondent in entering the goods in the production records only after the completion of quality control checks. Undisputedly though production was happening on the national/ public holidays, the goods could not have been entered in the production records awaiting the quality inspection which would happen on subsequent days. After comparing all the records and returns it is found that production declared by the respondents in the ER- 1 returns is higher than the production recorded in the private records. Nothing has been put forth in the appeal by the revenue that the findings and discussions are incorrect in any way. ER- return is the statutory return prescribed under Central Excise Law. If the total production declared in ER-1 return is higher than that computed production on the basis of private records, there are no merits in submission made by the revenue, that production in RG-1 register do not tally with private records. Hence the issue on this account is answered in favour of the respondents. CENVAT credit - HELD THAT - It may be pointed out that admissibility of CENVAT Credit is linked to the fact of receipt of duty paid inputs within the manufactory under the cover of duty paying document (viz invoice) - In the present case the demand for denial of Cenvat Credit is sought to be made on the basis of consumption, which is contrary to the scheme of Cenvat Credit Rules. Once there is no dispute about the actual receipt of duty paid inputs under the cover of duty paying documents, the Cenvat Credit cannot be denied subsequently by referring to consumption of the same. Appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Shortages found in physical verification of stocks.
2. Lesser production of steel ingots shown on account of per MT electricity consumption.
3. Nil production on certain days when there was electricity consumption recorded.
4. Difference found in production recorded in RG-1 register and the private records.
5. Irregular credit on zinc ingots.

Detailed Analysis:

Issue 1: Shortages found in physical verification of stocks
The Commissioner concluded that the actual shortage in stocks of wire rods was 35.134 MT, not 84.434 MT as initially alleged. This discrepancy was due to the non-inclusion of 49.2 MT of old rusted wire rods in the stock verification. The rusted wire rods, although not considered in the initial stock taking, were part of the stock and should have been included. The Commissioner’s reasoning was that rust is a natural phenomenon in the iron and steel industry, and the existence of rusted wire rods should be counted as stock, even if they are considered scrap. The demand for central excise duty on the shortage of 35.134 MT, amounting to ?1,18,050/-, was found sustainable.

Issue 2: Lesser production of steel ingots shown on account of per MT electricity consumption
The Commissioner found that the demand of duty worked out in the show cause notice was based on assumptions and formulas without concrete evidence. The benchmark of 775 units of electricity consumption per MT of ingots was not reliable, as there was significant variation in power consumption per MT of ingots produced on different days. The Commissioner noted that duty evasion cannot be alleged on the basis of sweeping generalizations and assumptions. The assumption of 775 units consumption was not reliable, and the demand based on this assumption was not sustainable.

Issue 3: Nil production on certain days when there was electricity consumption recorded
The Commissioner accepted the explanation that production on national/public holidays was not recorded in the statutory records on the same day due to the absence of quality control staff. The goods were entered in the production records only after quality inspection, which was done on subsequent days. The Commissioner concluded that this practice did not violate any provisions of the Central Excise rules, and the demand of duty based on this allegation was not sustainable.

Issue 4: Difference found in production recorded in RG-1 register and the private records
The Commissioner analyzed and compared the production data in the statutory returns/records and the private records. It was found that the production declared in the ER-1 returns was higher than the production recorded in the private records. The Commissioner concluded that the allegation of suppressed production was incorrect, as the production figures in the ER-1 returns were more than those in the private records. The demand based on this allegation was not sustainable.

Issue 5: Irregular credit on zinc ingots
The Commissioner found that there was complete reconciliation between the inventory, receipt, and consumption figures of duty-paid zinc. The DGCEI had not considered the zinc received from job workers. The Commissioner concluded that the charge of excess CENVAT credit availment was not sustainable, as no CENVAT credit had been availed on a quantity of 59.539 MT of zinc, which was more than the quantity of 50.703 MT on which CENVAT credit was proposed to be denied. The demand for denial of CENVAT credit was not sustainable.

Conclusion:
The appeal filed by the Revenue was dismissed, and the impugned order was upheld. The cross objections were disposed of accordingly. The judgment emphasized that demands for duty cannot be based on assumptions and must be supported by concrete evidence. The Commissioner’s findings were based on a thorough analysis of the records and were found to be reasonable and justified.