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TMI Blog2011 (2) TMI 1211X X X X Extracts X X X X X X X X Extracts X X X X ..... 3/2007 , E/840/2008 - 176-180/2011 - Dated:- 25-2-2011 - S/Shri M.V. Ravindran, P. Karthikeyan, JJ. REPRESENTED BY : Shri S. Jaikumar, Advocate, for the Assessee. Shri P.R.V. Ramanan, Special Counsel, for the Department. [Order per : P. Karthikeyan, Member (T)]. M/s. Saravana Alloys Steels Pvt. Ltd. (hereinafter referred to as SAS) and its Directors filed appeals No. E/721-723/2007 Appeal No. E/840/2008. Appeal No. E/737/2007 has been filed by the revenue impugning the same Order-in-Original No. 9/2007 of the Commissioner as impugned in appeal No. E/721 to 723/2007 of the assessee and its Directors. Order-in-Original No. 9/2007 2. SAS was engaged in the manufacture of MS ingots and CTD bars. They had two induction furnaces of capacity of 2.5 MTs each and two electro thermal furnaces of capacity 7 MTs each. Starting with scrap as the input, SAS manufactured ingots first and thereafter, converted them into CTD bars. Investigation conducted by the Director General of Central Excise Intelligence revealed that SAS had indulged in large scale evasion of duty by resorting to clandestine production and removal of finished goods. Evidence recovered by the Director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee s accountant, Shri R. Shivakumar, a quantity of 3600 MTs of steel was accounted in excess of RG-1 figure for the months July and August 2004. This was indicated under Column-B of the printout retrieved. Under Column-A, the total production during the relevant period was found to have been recorded. Shri Saravanan, Director of SAS or the accountant Shri R. Shivakumar could not explain satisfactorily this quantity not reflected in the RG-1. Later, in cross examination, the accountant stated that the said quantity was recorded at the instance of one of the Directors for the information of investors. 5. The total quantity of final products held to have been clandestinely manufactured and cleared during the material period was determined by the Commissioner on the basis of the power consumed during the period. Shri Nagaraji, MD, SAS had admitted that the average power consumption recorded by them was higher (than the actuals). Shri G. S. Hegde, an expert in the field, employed by the Commissioner for determining the electricity consumption for production of assessee s final products visited the premises of the assessee, consulted concerned persons and furnished a report. According ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was passed in violation of principles of natural justice and the same was not a speaking order. It was based on conjectures and surmises. They submitted that in the reply to the show cause notice dated 25-4-2007, SAS had specifically requested for personal hearing. However, the Commissioner passed the impugned order confirming a huge demand of Rs. 8.25 crores without granting personal hearing. The impugned order was therefore liable to be quashed as illegal. It is submitted that demand was quantified based on the consumption norms recommended by Shri G. S. Hegde and that the norms ascertained by Shri G. S. Hegde were not reliable. SAS had two 2.5 tonne capacity inducto therm furnaces, which were very old. Shri Hegde had not determined power requirement for each furnace separately considering its capacity, size, make and age. He had also not determined the requirement, considering that assessee produced CTD bars of dimensions ranging from 8 mm to 25 mm separately. Shri G. S. Hegde s report did not follow a test run of the machines and also did not disclose any authority for arriving at the standard norm of 700-800 units for production of one tonne MS ingots and 100-125 units for one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, the request for cross examining Shri Hariprakash was denied. Shri Nagaraji and Shri K. Shaffiulla had given different versions about the loose sheets. Shri K. Shaffiulla had stated that he was not sure that all the scrap mentioned in one of the loose sheets were supplied to SAS. He submitted that pages 2-13 related to supplies made to SAS. Shri Nagaraji had admitted that pages 1-5 of the loose sheets pertained to purchases of scrap by SAS. In any case the period involved was 4/2005 to 6/2005 and the quantity involved 1016 tonnes. The duty involved would be Rs. 11.5 lakhs. Similar objections are raised regarding the finding of unaccounted purchase of scrap from M/s. R.G. Trading. The documents did not bear any signature or the name of the company. The author of these documents was not interrogated. The entries in the documents were vague. The Commissioner ignored retraction of the initial deposition of Shri M. A. Gaffer admitting that the entries in his diary reflected unaccounted sale of scrap to SAS. The statement of Shri M.A. Gaffer was not corroborated by independent, tangible and cogent evidence. The period involved was 7/2004 to 8/2004, quantity 648 tonnes and the consequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e condition of their admissibility as documents in evidence as envisaged in Section 36(2)(a) of the Act as held by the Tribunal in the said case. During cross examination, Shri R. Shivakumar had denied that figures in Column-B corresponded to actual data or actual clearance from the factory. Shri R. Shivakumar had never admitted that the quantity in Column-B represented unaccounted production and clearance. Shri N. Saravanan in his statement dated 18-4-2006 had also deposed to the same effect. Several judicial authorities are cited in support of the claim that statements could not be relied on as evidence, unless they are corroborated by independent evidence. Statements of Shri R. Shivakumar and the scrap dealers were retracted also in cross examination. Shri Nagaraji had given statements containing general information relating to the factory. Statements of Shri N. Saravanan were also similar. No adverse inference could be drawn from these statements. 10. The crucial finding in the impugned order is that SAS clandestinely manufactured and cleared its final products based on the power consumption determined for producing one tonne of MS ingots and one tonne of CTD bars. It was bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verages v. CCE - 1999 (114) E.L.T. 872 (T) upheld by the Apex Court as reported in 2002 (142) E.L.T. A84 (S.C.) (iii) Padmanabh Dyeing Finishing Work v. CCE - 1997 (90) E.L.T. 343 (iv) Madhu Foods Products Ltd. v. CCE - 1995 (76) E.L.T. 197. 12. It was submitted in view of the above judicial pronouncements, demand based on an estimate of electricity consumption alone without any corroborative evidence was not sustainable. The investigation conducted by the department could at the most raise suspicion or doubt but suppression of production had to be substantiated by corroborative evidence for unaccounted purchase of raw materials, unaccounted cash transactions, etc. There had to be also evidence for transport of inputs and finished goods or variation in stock of inputs and finished goods compared to the corresponding accounted figures. The Commissioner had followed the principles of preponderant probability relying on CC, Chennai v. D. Bhoormull - 1983 (13) E.L.T. 1546 (S.C.) and M/s. Gulabchand Silk Mills v. CCE - 2005 (184) E.L.T. 263 (Tri.-Bangalore), among others. It is submitted that the department could recover three invoices dated 31-8-2004 and 1-9-2004 covering a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -in-Original No. 12A/2008 dated 14-8-2008. The impugned order confirmed demand of differential duty on the same findings as in the Order-in-Original No. 9/2007. The period of dispute is 11/2006 to 6/2007. The demand is worked out based on the power consumption and the requirement of power for producing one tonne of MS ingots and one tonne of CTD bars as per the study of Shri G.S. Hegde. SAS has challenged this order also on the ground that the evidence relied in the notice for the period August 2001 to December 2005 were wrongly relied on in passing this order. 16. The revenue has sought to justify the impugned order stating that the Commissioner had reliable evidence in the form of admission statements of Shri N. Saravanan, Director, SAS for higher power consumption than what was recorded. Shri Nagaraji, MD had admitted unaccounted purchases of scrap from three dealers to the tune of 2906.381 MTs. Shri N. Saravanan had admitted unaccounted clearances of 24.72 MTs of CTD bars. Adoption of the production norms suggested by Shri G.S. Hegde is sought to be justified on the basis that the estimate was consistent with the technical opinion of Nuclear Group set up by the C.B.E.C. which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearance, therefore, has been worked out in both the orders based on an estimation relying on the expert opinion of Shri G.S. Hegde. 18. Shri G.S. Hegde was cross examined by the learned counsel for the assessee on 30-1-2008. He deposed in response to questions by the advocate that he had not arranged for a trial production at the assessee s plants during his study to ascertain the power consumption. He also stated that there were no standard data or literature available to arrive at a standard of power consumption. He had not taken into account the age of the two 2.5 tonne capacity furnaces at the assessee s plants, since two other 7 tonne furnaces were new. He admitted an error in his calculation in adopting 400 as the number of heats per month instead of the correct 150. He accordingly suggested appropriate revision of relevant power consumption to 53 KWH instead of 20 KWH. During the cross examination, he also admitted that the power consumption determined was a reasonable estimate. We note that the expert heavily relied on his knowledge and experience and admittedly was not guided by any technical literature laying down a reliable standard, prescribing adjustment for diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... K. Ramesh to determine the same parameter. According to his study, the power consumption varied from 1510 to 1870 units for one tonne of CTD bars in the same plant. We find that the Commissioner has not given any reasons in the impugned orders for rejecting the technical opinion furnished by a competent expert though at the instance of the assessee. As rightly argued by the learned counsel for the assessee, it was open to the Adjudicating Authority to question Shri K. Ramesh and elicit his basis arriving at a different norm. The assessee had argued that the report of Shri K. Ramesh was reliable since the norm had been determined in a more scientific manner. On perusal of the two opinions, we do not find a valid reason to prefer one to the other. However, it was eminently possible for the Adjudicating Authority to ascertain as to which of the opinion could be safely relied on in the proceedings. In the circumstances, we note that the finding of clandestine production and clearance is based solely on an estimate, whose reliability is uncertain. In the Hans Castings Pvt. Ltd. v. CCE, Kanpur - 1998 (102) E.L.T. 139, in a similar case of alleged evasion by clandestine production and cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e material, etc. Therefore, we find that ascertaining clandestine production of steel ingots solely on the basis of power consumption is not safe or reliable. In a case of clandestine removal of biscuits in the case of M/s. Madhu Food Products (supra), the Tribunal found as follows : 15. On examination of the above decisions of various Courts and Tribunals, we find that the production has been calculated on the basis of consumption of electricity. No doubt some irregularities have been found in the maintenance of the statutory records, there is no evidence on record either by way of seizure of goods in transit or elsewhere or any private records being seized to show that there was clandestine removal. No evidence has been brought on record to prove that the goods were removed from the factory premises without payment of duty, even the estimated production is an estimate only which is subject to a number of limitations. We, therefore, hold that in the absence of any documentary proof, that the goods estimated to be produced and not brought on record were removed without payment of duty, demand for duty on such estimated goods cannot be confirmed. In the absence of this documentar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellants on different occasions by the Excise Department no discrepancy was found in the stock of raw material and the finished goods. In the absence of all these circumstances, it could not be concluded simply on the basis of the consumption of the electricity that there had been clandestine manufacture and removal of the goods by the appellants during the period in question (August, 1993 to December, 1995). In Padmanabh Dyeing Finishing Work v. CCE, Vadodara - 1997 (90) E.L.T. 343 it has been observed by the Tribunal that in the absence of direct evidence regarding removal of the goods without payment of duty, electricity consumption was not enough to work out the production power of the assessee. To the same effect is the ratio of the law laid down in Hans Castings Pvt. Ltd. v. CCE, Kanpur - 1998 (102) E.L.T. 139 by the Tribunal it is well settled that suspicion, however, grave cannot take place of legal proof. It was for the Revenue to establish that there was excess production than the one entered in the statutory record and removal of the same in a clandestine manner without payment of the duty by the appellants during the period in dispute but the material/evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherwise, it would not have been difficult for the revenue to seize any such final products clandestinely cleared or to gather evidence of such clearances in the form of invoices for purchase of scrap or sale of finished goods or transport documents. The compelling conclusion would be that the impugned demands have no reliable basis and are liable to be set aside. 22. For the period 2001-2005, the duty confirmed was Rs. 7,59,27,962/- for a quantity of 30443.27 rolled products. In the wake of introduction of transaction value effective from 1-7-2000, duty is liable to be paid on the basis of transaction value of each clearance. The impugned order does not indicate as to which clearances of which particular goods were liable to discharge the duty confirmed. This is also one of the infirmities of the impugned orders pointed out by the assessee. All the demands confirmed are solely on the basis that the assessee had consumed power in excess of the norm determined by Shri G.S. Hegde for production of finished goods which were cleared without payment of duty. As we have held that this norm is not an overriding benchmark which is reliable, the demands of duty confirmed in the orders im ..... X X X X Extracts X X X X X X X X Extracts X X X X
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