2023 (11) TMI 1128 - AT - Central Excise

Availment of irregular credit - Clandestine Removal - failure to maintain proper records of receipt, issue and consumption of raw materials/inputs required for manufacture of the finished goods, being MS ingots and MS fabrication - HELD THAT - From analysis of data in the balance sheet for the period 2004 05 to 2007-08, it appeared that there is great variation in production parameters including the power consumption per unit of production of ingots. The basic raw materials required for manufacture of MS ingots are sponge iron, pig iron and/or scrap. Sponge iron was also used in plants using coal-based technology and gas-based technology. The percentage of usage of charge mix was maximum 30% in the case of gas based sponge iron, and it may be as high as 80% in case of coal-based sponge iron. The yeild was also higher by 2% in case of gas-based sponge iron. Admittedly, Appellants have maintained sufficient records of their transactions, production, etc. They have furnished regular returns and other prescribed forms which have not been found to be untrue or wrong - It is further found that the demand raised for alleged clandestine production and clearance of finished goods and raw materials is vague and not based on any proper prescribed norms. Further such demand is hit by the ruling of Hon ble Supreme Court in the case of COMMISSIONER OF C. EX., MEERUT-I VERSUS RA CASTINGS PVT. LTD. 2010 (9) TMI 669 - ALLAHABAD HIGH COURT . CENVAT Credit - HELD THAT - The items in question, viz., MS angles, bars, coils, beams, plates, channels, etc., have admittedly been used in the factory of production. It is found that part of these inputs have been used in the fabrication of EOT Crane, which is used for material handling inside the factory. It is further found that some of the items like MS bars, which are required to stir the molten steel during production, get melted and become part of the molten steel in the furnace and thus, gets consumed in the manufacture of finished goods. Further, inputs like new plates and coils have been used in repair of the furnace lining, which has to be done periodically. Thus, the Appellants have rightly taken Cenvat credit and the disallowance of credit is bad during the period under dispute. The impugned order set aside - appeal allowed.

Summary

Issues Involved:
1. Non-maintenance of statutory records.
2. Determination of production based on theoretical calculations.
3. Determination of production based on power consumption.
4. Validity of demand and penalty based on assumptions and presumptions.
5. Disallowance of Cenvat credit for inputs used in the fabrication of capital goods.

Summary:

Non-maintenance of Statutory Records:
The Tribunal found that the Appellant had maintained sufficient records of their transactions and production. The CBEC circular No. 536/32/2000-CX dated 30/6/2000 had dispensed with the maintenance of certain statutory records. Therefore, the allegation of non-maintenance of records was deemed unsustainable.

Determination of Production Based on Theoretical Calculations:
The Tribunal held that the engagement of Mr. Ravi Kumar to ascertain power consumption and the subsequent theoretical estimation of production based on industry standards were bad in law. This exercise was unsupported by corroborative evidence and contradicted by the ruling in RA Castings [2011 (269) ELT A108 (SC)].

Determination of Production Based on Power Consumption:
The Tribunal found that the estimation of production based on power consumption was unsupported by concrete evidence. The learned Commissioner's reliance on theoretical data without considering factors like raw material quality, furnace efficiency, and other operational variables was flawed. The absence of test production further weakened the Revenue's case.

Validity of Demand and Penalty Based on Assumptions and Presumptions:
The Tribunal noted that no excess stock of finished goods or raw materials was found during the factory visit. The entire allegation was based on assumptions without material evidence of clandestine removal. No statements from buyers or incriminating documents were found. The onus of proving clandestine removal was on the Revenue, which failed to provide positive and concrete evidence.

Disallowance of Cenvat Credit for Inputs Used in Fabrication of Capital Goods:
The Tribunal found that the items in question, such as MS angles, bars, coils, beams, plates, and channels, were used within the factory for fabricating capital goods like EOT Crane and maintaining the furnace. These items were essential for production and maintenance, and their use justified the Cenvat credit claimed by the Appellant. The disallowance of credit was thus deemed incorrect.

Conclusion:
The Tribunal allowed the Appeals, set aside the Impugned Order, and nullified all penalties. The demands raised by the Revenue were found to be unsustainable in law. The Appeals were allowed with consequential benefits in accordance with law.