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TMI Blog2023 (4) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... removal for which there should be cogent and relevant material to pen down the assessee on a charge of clandestine removal. In the instant case, it is found there was no material which was available with the Commissioner to come to such a conclusion. As pointed out earlier, the genesis of the entire matter is the audit objection. There are two known ways of dealing with an audit objection. Firstly, the respondent department will examine the objection and answer the audit para by giving an explanation. In the event, the same is found to be not acceptable and the findings are reiterated, then the department will have to conduct an enquiry into the aspect and satisfy itself that there are materials to proceed against the assessee and then issue the show cause notice clearly disclosing the case the assessee has to meet. Unfortunately the observation made in the audit objection was taken by the department as gospel truth and without conducting any enquiry or investigation as the authority straight away proceeded to issue the show cause notice. In fact, the reply given by the assessee to the Superintendent, Central Excise department at the first instance was not even taken note of and m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44 and there is no material to show any unrecorded manufacture or clearance of the finished goods? 2) Whether on the facts and in the circumstances of the case the impugned order of the tribunal upholding the demand made on the above basis was perverse? 2. We have heard Mr. J.P. Khaitan, learned Senior Advocate assisted by Mr. Ananda Sen, Ms. Anupa Banerjee and Mr. Dipak Dey appearing for the appellant and Mr. Vipul Kundalia, learned Senior Standing Counsel assisted by Ms. Manasi Mukherjee for the respondent department. 3. The appellant is engaged in the manufacture of excisable goods namely, sponge iron falling under Tariff Item No. 7203-1000 of the Central Excise Tariff Act, 1985 and holding Central Excise Registration since 2002. The basic raw material used in the manufacture of sponge iron, iron ore, coal, and iron ore palettes. The issue involved in this appeal is whether the appellant assessee manufactured and clandestinely cleared goods without payment of Central Excise duty. An audit was conducted during 2014 which ultimately led to the issuance of show-cause notices dated 20th August, 2014, 17th April, 2014 and 3rd February, 2016. It was stated that in the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of filing such returns by the assessee were also furnished. The reply submitted by the assessee was divided under various sub-headings, the first with regard to submissions on facts, nextly dealing with the allegations of clandestine removal, the correctness of invoking the extended period of limitation, as to why the proposal for levy of penalty is arbitrary and without authority of law. The adjudicating authority by order dated 13th February, 2017 confirmed the proposal in the show-cause notices. Aggrieved by the same, the assessee preferred appeal before the Tribunal which has been dismissed by the impugned order. 4. The reason for issuing show-cause notice to the assessee was based on the quantity of production difference between the annual installed production capacity statement as declared in the ER-7 statement and the ER-1 return. The annual installed capacity of the assessee s unit is 60,000 metric tonnes which has been mentioned in the ER-7 statement. 5. The department alleged that the assessee suppressed their production by showing lesser production in the ER-1 return and removed the products clandestinely by intentionally evading the payment of Central Excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and mills, accurately adding the same quantity of water in the crusher and mills etc. Thus, it was pointed out that the recovery of sugar must necessarily depend upon the performance, it cannot be assumed that even in an ordinary well run factory performance would be uniformly good or uniformly the same. Similarly, the value of the fibre percentage in the cane as mentioned in the report was also considered. Ultimately, it was held that the findings arrived at by the Collector that certain quantity of sugar were not accounted for by the appellant therein has been arrived at without any tangible evidence and is based only on inferences involving unwarranted assumptions and the findings is thus vitiated by error of law. 6. In Continental Cement Company Versus Union of India 2014 (309) ELT 411 (All), it was held that to prove clandestine removal, evidence is required on purchase of raw materials, use of extra electricity, sale of final products, clandestine removal, transportation, payment, realization of sale proceeds, modes and flow-back of funds etc. It being a serious charge, it is required to be proved by the revenue by tangible and sufficient evidence and mere statements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ules and those returns were accepted by the Department without any demur or objection. With regard to the ER-1 return, it was submitted that it is a monthly return prescribed under Rule 12 of the Central Excise Rules and Rule 9(7) of the Cenvat Credit Rules and the return is to be filed within the 10th day from the close of the month to which it relates. In the said returns, the particulars of all the monthly production, clearance of excisable goods, rate of duty, value of excisable goods cleared and duty payable and payment particulars of such duty in cash and from Cenvat Credit account and claim/utilization of Cenvat Credit were disclosed. It was further stated that ER-4 return is prescribed under Rule 12(2)(a) of the Central Excise Rules and it is an annual financial information statement wherein the assessee discloses the value of raw material and other inputs, quantity/ value of manufactured excisable goods and details of the direct/indirect expenses incurred by the assessee during the year. Similarly, ER-5 returns is an annual return of information relating to principal inputs wherein the assessee discloses similar information on monthly basis as disclosed in ER-5 return on y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive of the annual capacity of production whereas Section 3A of the Act provides for levy of duty of deemed production of notified excisable goods determined on the basis of capacity of production of the factory irrespective of the actual quantity of excisable goods manufactured/ produced. After pointing out this distinction, the assessee stated that Sponge Iron manufactured by the assessee is not notified goods under Section 3A and hence, no duty thereon can be demanded on the basis of annual capacity of production/ installed capacity. With regard to the charge of clandestine removal, the assessee pointed out that it is a very serious charge and must be proved with tangible, cogent and affirmative evidence, however, in the case of the assessee the entire demand is based on an audit objection without conducting any investigation, or enquiry, nor having any evidence on record. Thus, in the absence of any enquiry it has to be held that the allegation of clandestine production and removal is based on assumption, presumption, hypothesis and speculation. 10. The assessee referred to various decisions of the courts and that of the tribunal for the proposition that the charge of cland ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and clandestine removal of excisable goods without payment of excisable duty. Therefore the burden of proof is on the department to establish that the charge of clandestine removal for which there should be cogent and relevant material to pen down the assessee on a charge of clandestine removal. In the instant case, we find there was no material which was available with the Commissioner to come to such a conclusion. As pointed out earlier, the genesis of the entire matter is the audit objection. There are two known ways of dealing with an audit objection. Firstly, the respondent department will examine the objection and answer the audit para by giving an explanation. In the event, the same is found to be not acceptable and the findings are reiterated, then the department will have to conduct an enquiry into the aspect and satisfy itself that there are materials to proceed against the assessee and then issue the show cause notice clearly disclosing the case the assessee has to meet. Unfortunately the observation made in the audit objection was taken by the department as gospel truth and without conducting any enquiry or investigation as the authority straight away proceeded to issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is-statement or suppression on the part of the assessee which has not been brought on record. Thus, the extended period of limitation could not have been invoked as well as the penalty could not have been imposed since there is no charge of willful mis-statement or suppression made against the assessee. The entire show cause notice has been built up on theory of assumption and presumption solely based upon the installed capacity of the two kilns in the assessee s factory without noting the factual details placed by the assessee, more particularly the period during which the kilns were shut down and as to how the department was fully aware of the shut down as the intimation given by the assessee were all acknowledged by the department. That apart, in the earlier audit inspections which were conducted no adverse report was drawn against the assessee even though they had not adopted the very same process. Thus, we hold that the department has failed to discharge the onus cast upon him to prove the charge of clandestine removal. 13. In the result, the appeal is allowed and the order passed by the tribunal as well as the adjudicating authority are set aside and the substantial questi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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