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TMI Blog2012 (9) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... vant facts is inbuilt in clandestine production of excisable goods and its removal without payment of duty, and the same, prima facie, stands established in these cases - assessees directed to deposit X X X X Extracts X X X X X X X X Extracts X X X X ..... teel Castings (P) Ltd.], the investigations revealed that the party had been using silico-manganese alloy in the manufacture of M.S. ingots and that a certain quantity of this alloy was required for the manufacture of one Ton of the final product. In this case, the department recorded statement of a melter (who was in-charge of production) under Sec. 14 of the Central Excise Act and relied upon his statement for the purpose of quantification of demand of duty. Accordingly, the duty amount was worked out on the basis that 8 kgs of silico-manganese alloy were required for the manufacture of one Tonne of M.S. ingots. There are also cases in which the Revenue sought to make out a case of clandestine manufacture of M.S. ingots by the parties concerned, on an altogether different ground. In such cases, the correspondence between the manufacturers and the furnace suppliers was made use of. The manufacturers had apparently entered into a spate of correspondence with the suppliers of furnace on the poor performance of furnace. For instance, M/s. Orange City Alloys Pvt. Ltd., in letters written to the supplier (Megatherm Electronics Pvt. Ltd.) of furnace, complained that the energy consumpti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r manufacture of one Tonne of steel ingots varies between 555-1026 units depending upon the thermal efficiency, electricity efficiency and nature of mix-up of raw materials." A copy of Dr. N.K. Batra's report is also available on record and the same indicates that the correct range of electricity consumption reported by the professor is 555-1046 units (and not 555-1026) per MT of ingots. Apparently, wherever the adjudicating authority relied upon the IIT professor's technical opinion, he adopted 1026 KWH per MT as a basis for calculating the quantity of ingots clandestinely manufactured by the parties concerned. Be that as it may, both sides have advanced arguments against reliance being placed on Dr. Batra's report. Ld. counsel for the appellants concerned would rely on the Tribunal's decision in R.A. Castings Pvt. Ltd. v. Commissioner of Central Excise, Meerut-1 [2009 (237) E.L.T. 674 (Tri.-Del.)] wherein it was held that electricity consumption could not be the only factor for determination of duty liability especially when the Commissioner was required to prescribe norms first as per rules and that the norm of 1046 units per MT adopted by the department was arbitrary. Ld. couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by them and it was found on this basis that they had suppressed production of M.S. ingots to the extent of over 29,000 MTs. The electricity bills were accepted as valid proof of consumption of energy for clandestine manufacture of ingots. Accordingly, pre-deposit of certain amount of duty was ordered. The stay order passed by the Tribunal was challenged by the party in a Writ Petition before the Hon'ble High Court but the same came to be dismissed. The party then approached the Hon'ble Supreme Court in Civil Appeal and the Apex Court sustained the Tribunal's order with a modification of the quantum of duty to be pre-deposited. The Tribunal had required 50% of the duty as pre-deposit, which was reduced to 20% by the Apex Court. 5. The ld. counsel have also pleaded time-bar against a part of the demand of duty. It is submitted that it was not open to the department to invoke the extended period of limitation in these cases. On the other hand, the ld. JCDR submits that the extended period of limitation is invocable in all cases of clandestine removal of excisable goods. 6. The ld. counsel for M/s. Ishu Super Steel Pvt. Ltd. and the ld. counsel for M/s. Kalika Steel All ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial period, enabled the Government to introduce a compounded levy scheme in respect of M.S. ingots if this commodity was considered to be evasion-prone. The item was not so notified. The ld. JCDR points out that this aspect was also considered by the adjudicating authority. 11. We have examined the records and considered the submissions. Having regard to the nature of these cases, we would like to discuss, at the outset, the judicial decisions cited by both sides. In the case of R.A. Castings Pvt. Ltd. (supra), a coordinate bench of the Tribunal held that electricity consumption could not be the only factor for determination of duty liability in respect of manufacture of steel ingots. In that case, the assessee was held to have indulged in unaccounted production and clearance of M.S. ingots and accordingly, demand of duty was raised on them. The production was estimated on the basis that 1046 units of electricity would be consumed in the production of 1 MT of ingots, which norm was based on a technical study report of Dr. N.K. Batra, Professor of IIT, Kanpur, who reported that an induction furnace should consume electricity in the range of 555 to 1046 units for the manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the assessee's counsel) and held that, for determination of normal production during a given period of time, it was not necessary that all the factors mentioned in the Rule should simultaneously be present. Having found the assessee's accounts fabricated and untrue, the Apex Court rejected the assessee's suggestion that the figures of raw material utilized, particulars of labour employed etc. should have been taken into account by the Collector while estimating the production. In the result, the Collector's order determining the quantum of production on the basis of consumption of electricity came to be sustained. This decision of the Hon'ble Supreme Court was followed by the Tribunal in Rattan Steel Works' case, wherein similar objections of the assessee were overruled and, in the absence of valid or convincing explanation for the excess consumption of power, the demand worked out on the basis of consumption of electricity in clandestine manufacture of finished goods was sustained. We find that both Triveni Rubber and Plastics (supra) and Rattan Steel Works (supra) go to support the Revenue's case in the present batch of appeals. 13. The JCDR has also heavily relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raw material, labour charges and other manufacturing overheads were also included in the cost of manufacture, the difference between the production cost and the assessable value would further increase on negative side implying that the unit was continuously suffering a great loss. No prudent manufacturer would run a unit at loss continuously for years together. Having thus rejected the contentions of the assessee, the Tribunal directed them to pre-deposit 50% of the duty under Sec. 35F of the Central Excise Act. The Writ Petition filed by the party against this direction for pre-deposit was rejected by the High Court. It was in the Civil Appeal filed by the assessee against the High Court's order that the Hon'ble Supreme Court directed the assessee to make pre-deposit though to the reduced extent of 20%. Again, the Apex Court's order in M/s. Bhagwati Ispat case lends great support to the Revenue in the present batch of appeals. We may also point out that Bhagwati Ispat case was not brought to our notice when the stay order was passed on 9-7-2010 in the case of Nashik Strips Ltd. (supra). 14. The ld. JCDR has also cited stay order dated 22-3-2010 passed by this bench in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cturer, the question relating to the absence of further corroborating evidence does not arise. Once it is the case of the appellants themselves that they had maintained detailed records pertaining to the production in the factory and such records having been produced, which apparently revealed certain quantity of production of goods having been suppressed and not disclosed in the statutory records, it certainly amounts to discharge of the initial burden of the department in establishing the case of the department about clandestine manufacture and removal of the goods by the manufacturer. The onus then shifts upon the manufacturer to establish that the entries in such private records do not relate to the production in the factory or that the entries do not relate to manufacture and removal of the goods. In the case in hand, the appellants have totally failed to discharge his onus. In such circumstances, the question of further evidence in the form of buyer's records or transporters examination or electricity records or record pertaining to excessive raw material need not be referred to." 16. We may also quote from Bhagwati Ispat (supra) : "In the instant case the number of un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y consumption is the case of Shree Steel Castings (P) Ltd. Here the demand of duty (for the period, April 2003-December 2007) is based on consumption of Silico-Manganese alloy stated by their melter, Muniraj Singh, who had, in a statement dated 13-3-2008, stated that 7-8 kgs of Silico-Manganese were used to produce one MT of steel ingots. According to the melter, 50 kgs (0.050 MT) of Si-Mn were used to produce 6.105 MTs of steel upto May 2005 in a furnace of 5 MT capacity and 70 kgs. of the alloy were used to produce 8.435 MTs of steel thereafter in a 7-MT furnace. It was from these figures that the department found the Si-Mn content of steel to be 8 kgs. per MT. The counsel for the party submitted that only 0.45% Mn and 0.15% Si were required to be present in M.S. ingots as per IS standards. When the required amount of Si-Mn was less than 1 kg. per ton of M.S. ingots, the melter's statement was not reliable. Counsel also pointed out that the above evidence of the melter was not accepted by the Commissioner (Appeals) for the period, January to August 2008 vide Order-in-Appeal No. 164/2010 dated 1-6-2010. The reason for not relying on the evidence was that the melter had also stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein Dr. N.K. Batra's opinion was wrongly quoted as 555-1026 KWH per MT. No doubt, in these cases where the expert's opinion was misquoted, there is slight overestimation of suppressed production of ingots when compared to Shridhar Castings case. The difference is less than 2% of 1046 but cannot be neglected, considering the enormous quantum of energy found to have been consumed in excess without accountal during the period of dispute in each case. This aspect will be borne in mind. We also note that, in all cases where the demand of duty is based on electricity consumption per MT of steel ingots, there are also materials on record to corroborate the evidence of unaccounted excess consumption of electricity. This is why we are not inclined to follow R.A. Castings as a precedent, the final order in R.A. Castings case wherein no corroborative evidence was found by the Bench. 20. Ld. JCDR, at the time of hearing, filed appealwise summary of facts of the case and findings of the adjudicating authority. Copies were also served on the counsel for the appellants. The crucial evidentiary findings noted by the JCDR are tabulated below appealwise :- Appeal No. Appellant Period Ele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber of days while electricity consumption was very high. (b) Cost of electricity and raw material shown to be 92% -130% of selling price of ingots. (c) The sanctioned auxiliary load was only 6% of the total sanctioned load but claimed to be 25%-30% by appellant in their statement. (d) 1% burning loss reduced by Income Tax authorities at the time of assessment and the same accepted by the assessee, proving suppressed production of 52.05 MTs of ingots. (e) Clandestine clearance for specific case admitted before Settlement Commission. E/1248/09 Gajlaxmi Steel Pvt. Ltd. 4/04.1/08 2004-05-1634 2005-06-1811 2006-07-1590 2007-08-1425 (a) same as (a) above. (b) Cost of electricity &. raw material shown to be 87.36% - 92.96% of selling price of ingots. (c) The sanctioned auxiliary load was only 9.11% of the total sanctioned load, but claimed to be 20% by the appellant in statement. (d) Income of ₹ 2.50 lakhs added by Income Tax Dept. against excess burning loss shown by the assessee, and this assessment was not challenged. (e) same as (e) above. E/1271/09 Mahaveer Steel 4/03-3/08 2003-04-1305 2004-05-1363 2005-06-1473 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvironment. (b) Cost of electricity & raw material shown to be 81.81%-103.05% of selling price of ingots. (c) Sanctioned auxiliary load was only 6.67% of total sanctioned load but claimed to be 25% by appellant in statement. E/1429/09 Meta Rolls & Commodities 5/05 - 3/08 2005-06-1596 2006-07-1183 2007-08-1371 (a) High electricity consumption but less production on a number of days. (b) Sanctioned auxiliary load was only 6.6% of total sanctioned load but claimed to be 25% - 30% by appellant in statement. (c) Clandestine clearance for specific case admitted before Settlement Commission. E/01/10 Mauli Steel 4/03-3/08 2003-04-1515 2004-05-1572 2005-06-1884 2006-07-1854 2007-08-1686 (a) Cost of electricity & raw material shown to be 107% of selling price of ingots. (b) Auxiliary load required to be sanctioned by MSEB was only 8.83% of total load, but claimed to be 30% by appellant in statement. (c) Same as (c) above. (d) "Credit balance written off" in Balance Sheet, ₹ 7.97 lakhs in 2004-05 and 35.73 lakhs in 05-06, but no documentary evidence produced. E/02/01 Om Sairam Steel 11/03-3/08 2003-04 - 1738 2004-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... selling price of ingots. (b) Sanctioned auxiliary load was only 15.35% of total sanctioned load but claimed to be 36% by appellant in statement. (c) Clandestine removal of 504.145 MTs of ingots during Aug.-Oct. 2006 admitted by appellant. (d) Rs. 1,30,000/- added to income by Dy. Commissioner of Income Tax for assessment year 2005-06 on account of suppressed production by assessee. (e) NIL production shown on a number of days despite considerable electricity consumption. E/139/10 Jailaxmi Casting 6/05-3/08 2005-06-1290 2006-07-1470 2007-08-1185 (a) cost of electricity & raw material shown to be 91.96% -118.34% of selling price of ingots. (b) Sanctioned auxiliary load was only 10.68% of total sanctioned load but claimed to be 20% by appellant in statement, (c) Appellant paid ₹ 5.5 lakhs as duty in a case of clandestine removal of ingots involving duty of ₹ 17 lakhs, booked by DGCEI. (a) cost of electricity & raw material shown to be 91.96% -118.34% of selling price of ingots. (b) Sanctioned auxiliary load was only 10.68% of total sanctioned load but claimed to be 20% by appellant in statement, (c) Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se is further supported by the Madras High Court's judgment in the case of Alagappa Cements Pvt. Ltd. v. CEGAT & C.C.E., Trichy [2010-TIOL-770-HC-MAD-CX = 2010 (260) E.L.T. 511 (Mad.)] cited by ld. JCDR. In that case, the party was alleged to have clandestinely manufactured and removed Portland cement without payment of duty. Their records had shown a large quantity of limestone (raw material) having been quarried but the missing quantity of clinker (intermediate product) produced from the limestone was not explained. The High Court held thus :- "The inference drawn by the second respondent based on shortage of clinkers and the excess quantity of limestone quarried during the relevant period was sufficient enough for the authorities to conclude as to the ultimate quantity of Portland cement which could have been produced from such excess quantity, which were not noted in the stock register, was well justified and we do not find any illegality or irregularity in such a conclusion drawn by the authorities for the levy of duty and the demand of duty imposed." Similarly, in the instant cases, when the department discharged their initial burden of proof by showing excess consumption of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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