2025 (3) TMI 962 - AT - Central Excise

Levy of Excise duty - sale of Ziking (slag) a by-product of the manufacture of Silico Manganese - clearance of Ziking has been ascertained on the basis of documents available in the laptop and pendrive recovered from Shri Mahesh Paswan - admissible evidence or not - alleged shortage of stock of Silico Manganese - it is the contention of the appellants that the stock taking was done on eye estimation basis - Penalty. Levy of Excise duty - sale of Ziking (slag) a by-product of the manufacture of Silico Manganese - HELD THAT - In this case the fact which is not in dispute is that this Ziking (slag) emerges during the course of manufacture of the final product which may be a low grade Silico Manganese. However it is a fact on record that Ziking (slag) is a by-product and not the final product manufactured by the appellant. In these circumstances reliance placed on Monnet Ispat and Energy Ltd. 2016 (8) TMI 543 - CESTAT NEW DELHI where it was held that It is an admitted fact that Silico Manganese slag and Ferro Chrome slag emerge involuntarily during the course of manufacture of the final product. Since the appellant had no intention to manufacture slag the same in my opinion should not be considered as excisable goods. Since the slag seized to the excisable goods the question of dutibility or exemption does not arise. Therefore the embargo created in Rule 6(3) of the Cenvat Credit Rules 2004 for payment of amount equal to 5% 6% or 10% of the value of exempted goods has no application in the circumstances of the present case. It is found that the issue as to whether a by-product is liable to duty has been examined by the Tribunal at Bangalore in the case of Haryana Steel and Power 2015 (11) TMI 771 - CESTAT BANGALORE wherein it was held amendment in Section 2(d) will not change the scenario inasmuch as the manufacture of waste refuse scrap etc. cannot be considered to be manufactured items in terms of Section 2(f) of the Central Excise Act. Since Ziking (slag) is a by-product which emerges during the course of manufacture of the final product the same is not liable to duty - Further the said clearance of Ziking has been ascertained on the basis of documents available in the laptop and pendrive recovered from Shri Mahesh Paswan which are not admissible as evidence on the basis of which substantial demand has also been dropped by the ld. adjudicating authority - demand not sustainable. Alleged shortage of stock of Silico Manganese - HELD THAT - It is found that for such a huge quantity not much time was spent during physical verification of the stock and stock taking was done only on eye estimation basis. Merely on eye estimates shortage of stock cannot be alleged. In view of this on the said shortage the demand of duty is not sustainable against the appellants - the impugned order qua confirmation of demands of duty of Rs.23 52 292/- on sale of Ziking (slag) and Rs.6 42 584/- on account of alleged shortage of goods set aside. Penalty - HELD THAT - As no demand is sustainable against the appellant no penalty is imposable on the appellants. Conclusion - i) Since Ziking (slag) is a by-product which emerges during the course of manufacture of the final product the same is not liable to duty. ii) Merely on eye estimates shortage of stock cannot be alleged. iii) As no demand is sustainable against the appellant no penalty is imposable on the appellants. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the sale of Ziking (slag), a by-product of the manufacture of Silico Manganese, is subject to excise duty.
• Whether the alleged shortage of stock of Silico Manganese justifies the demand for duty.
• Whether the evidence obtained from the laptop and pendrive of an employee is admissible for confirming the duty demands.
• Whether penalties imposed on the appellants are justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Excise Duty on Ziking (slag)

• Relevant legal framework and precedents: The appellants argued that Ziking (slag) is a by-product and not excisable. They relied on precedents such as Monnet Ispat and Energy Ltd. v. Commissioner of C.Ex. and S.T., Raipur, which held that by-products emerging involuntarily during manufacture are not excisable goods.
• Court's interpretation and reasoning: The Tribunal agreed with the appellants, noting that Ziking (slag) emerges as a by-product during the manufacture of Silico Manganese and is not intended to be manufactured. Thus, it should not be considered excisable.
• Key evidence and findings: The Tribunal noted that the demand was based on assumptions regarding the market price of Ziking, without concrete evidence.
• Application of law to facts: The Tribunal applied the principle that by-products not intended for manufacture are not excisable, citing previous Tribunal and Supreme Court decisions.
• Conclusions: The demand of Rs.23,52,292/- on the sale of Ziking (slag) was deemed unsustainable.

Issue 2: Alleged Shortage of Stock of Silico Manganese

• Relevant legal framework and precedents: The appellants contested the shortage claim, arguing that stock taking was done on an eye estimation basis, which is unreliable.
• Court's interpretation and reasoning: The Tribunal found that the method used for stock verification was inadequate, as it relied heavily on estimation rather than precise measurement.
• Key evidence and findings: The Tribunal noted that the physical verification process was rushed and inadequately documented, leading to unreliable results.
• Application of law to facts: The Tribunal emphasized the need for accurate and verifiable methods in stock verification, which were lacking in this case.
• Conclusions: The demand of Rs.6,42,584/- for the alleged shortage was held to be unsustainable.

Issue 3: Admissibility of Evidence from Electronic Devices

• Relevant legal framework and precedents: The Tribunal considered whether data from an employee's laptop and pendrive could substantiate the duty demands.
• Court's interpretation and reasoning: The Tribunal found that the data from these devices were not admissible as evidence, as substantial demands based on this data had already been dropped by the adjudicating authority.
• Key evidence and findings: The Tribunal highlighted the lack of direct evidence linking the data to the alleged duty evasion.
• Conclusions: The Tribunal concluded that the electronic data did not justify the duty demands.

Issue 4: Imposition of Penalties

• Relevant legal framework and precedents: The imposition of penalties was contingent upon the sustainability of the duty demands.
• Court's interpretation and reasoning: Since the demands were not sustainable, the Tribunal found no basis for imposing penalties.
• Conclusions: The Tribunal held that no penalties were imposable on the appellants.

3. SIGNIFICANT HOLDINGS

• Core principles established: By-products that emerge involuntarily during the manufacturing process are not subject to excise duty. Reliable and verifiable methods must be employed in stock verification to substantiate duty demands.
• Final determinations on each issue: The Tribunal set aside the demands of Rs.23,52,292/- on the sale of Ziking (slag) and Rs.6,42,584/- for the alleged shortage of goods. It also held that no penalties were justified against the appellants.
• Verbatim quotes of crucial legal reasoning: "Since the appellant had no intention to manufacture slag, the same, in my opinion, should not be considered as excisable goods. Since the slag seized to the excisable goods, the question of dutibility or exemption does not arise."