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TMI Blog2025 (2) TMI 477X X X X Extracts X X X X X X X X Extracts X X X X ..... emises and took physical stock of raw materials and finished goods on estimated basis. The physical stock of raw materials etc., were found tallying with the books of accounts. However, a shortage of 12.165 MT of Sponge Iron was detected, on estimate basis. 3. The Show Cause Notice dated 23-08-2012 was issued by Ld. Commissioner alleging clandestine production/removal of 11542.000 MT of Sponge Iron during the period from 2008-09 to 2009-10 (upto 26-02-2010) on the based on the input/output norms of 1:1.67. As per this ratio with the usage of 1.67 MT of iron ore, 1 MT of sponge iron can be manufactured. On the basis of this input/output ratio of 1:1.67 , the Show Cause Notice alleged that during the said period, by consuming 160198 MT of Iron Ore Fe of 63% the Appellant "should have" manufactured "estimated production" of 95927 MT of Sponge Iron whereas the Appellant has produced 84385 MT of Sponge Iron which is short by 11542 MT. This has been taken as understated which is taken as cleared without payment of duty of Rs.1,59,38,571/-. 4. The Show Cause Notice also alleged under valuation of Rs.17,33,546/- for sale of 991.885MT of Sponge Iron in respect of clearances made to their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 008-09 to 2009-10 (upto 26-02-2010) they have manufactured following quantities of Sponge Iron. TABLE - "A" Year Sponge Iron manufactured (MT) 2008-09 42630.000 2009-10 (upto 26-02-2010) 41755.000 Total 84385.000 7.8 During the period under dispute they have purchased 86% to 94% of inferior quality of Iron Ore as tabulated below. It is stated that high grade Iron Ore contains Fe 63%+ and Iron Ore between Fe 59% to 63% in their quality. TABLE - "B" Purchase of Iron Ore Fe content wise (in MT) Year 2008-09 % 2009-10 (Upto 26-02-2010) % (1) (2) (3) (4) (5) 59-61% 77974.256 54.5% 39738.395 39.95% 61-63% 60064.859 42% 46257.676 46.51% 63%+ 5000.000 3.5% 13457.369 13.54% Total 143039.115 99453.440 7.9 During the period under dispute they had purchased 100% poor quality Coal (i.e. Grade E/F) having Fixed Carbon (FC) of 23% to 28%. The standard requirement of FC in Coal for manufacture of Sponge Iron is 45% (Grade A). TABLE - "C" Grade wise Coal purchased during 2008-09 to 2009-10 Year Grade FC% Quantity Purchased (MT) 2008 - 09 Grade E 27-28 74562.360 Grade F 23-26 18038.460 2009 - 10 Grade E 27-28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al and no adverse inference can be drawn therefrom. 7.16 The allegations in the instant case are entirely based on theoretical calculation without any cogent, tangible, affirmative and unimpeachable corroborative materials on record evidencing clandestine removal of impugned goods. There is no confession of guilt either. 7.17 The Appellant also relies on the following case laws : (i) Arya Fibres Pvt. Ltd. Vs. CCE (2014) 311 ELT 529 (Tri.-Ahmd.) (Para 40); (ii) Continental Cement Company Vs. UOI (2014) 309 ELT 411 (All.) (Para 12); (iii) CCE Vs. Agrasen Sponge Pvt. Ltd. (2025) 26 Centax 141 (Tri.-Cal.) (Para 17 to 19); (iv) Aryan Ispat and Power Pvt. Ltd. Vs. CCE (2023) (11) TMI 677-CESTAT-KOLKATA [13 to 17]; (v) Jai Balaji Industries Ltd. Vs. CCE reported in 2023-VIL-771-CESTAT-KOL-CE [Para 14.7, Para 15.5]. 7.18 In the instant case there is not a single evidence in support of the main charge of clandestine removal of 11452 MT of Sponge Iron, has been adduced by the Revenue. 7.19 In the instant case- (i) There is no evidence of actual production of 11542 MT of Sponge Iron; (ii) There is no evidence of removal of 11542 MT of Sponge Iron; (iii) There is no ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be corroborated with purported non accountal of consumption of 1136.100 MT of Iron Ore (raw material) on the basis of one "Daily Statement" [Doc. No. 15/2010] during the period from (23-02-2010 to 25-02-2010) which were purportedly utilized for manufacture of 680.305 MT of Sponge Iron involving duty of Rs.7,28,743/- (included in main demand of 11452 MT of Sponge Iron and no separate demand is raised). Understatement of production means the receipt and consumption of raw materials are duly accounted for but the production is suppressed. Here the "Daily Statement" purportedly deals with suppression of raw material which contradicts the allegation. 7.26 The Appellant further submits that in the impugned order on the basis of some "Incoming Memos" [Doc.No.01/2010], (wrongly treated as BIN Cards), for the period 28-01-2010 to 25-02-2010 it is alleged/held that during said period the Appellant has not accounted for receipt of 3014.420 MT of Iron Ore which is purportedly used for manufacture of 1805.042 MT of Sponge Iron (included in total 11452 MT and no separate demand is raised) which purportedly corroborates the charge of understatement of production of 11452 MT of Sponge Iron. "In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1:1.89 is worked out on the basis of ER-1, ER-4 and ER-5 returns filed by the Appellant with the department. In their ER-1 return filed every month the Appellant disclosed the production and clearance of their final products. 9.4 In the ER-4 returns filed on dated 25-11-2009 and dated 30-11-2010 for the year 2008-09 and 2009-10, they inter alia disclosed the production of Sponge Iron and consumption of Iron Ore, Coal etc. 9.5 In their ER-5 return for the year 2008-09 and 2009-10 filed on dated 30-05-2008 and 30-04-2009 the Appellant disclosed the input/output ratio of Iron Ore to Sponge Iron. 9.6 The Appellant submits that by their letters dated 28-11-2008, 04-09-2009, 03-05-2010 and 28-07-2010 (Page 276, 279, 282, 285) they separately submitted the input/output ratio, installed capacity, electricity consumed, production of finished goods and consumption of Iron Ore, Coal etc., the Jurisdictional Range Superintended. 9.7 The Appellant submits that in the above background of the case the entire sets of facts relating to the input/output ratio, capacity utilization, electricity consumption, production of finished goods, consumption of Iron Ore, Coal etc. were shutdown etc. we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue. The appellant contends that if the appellant's input / output ratio is considered, then there would be no question of shortage and hence the resultant allegation of clandestine manufacture and clearance would get negated. 17. On going through the relevant portion of the Show Cause Notice and the Order In Original [ Para 7.9 and 7.9 ], we find that the Revenue has considered the input / output ratio of 1 : 1.67 as sacrosanct based on the expert opinion of Institute of Mineral Technology , Govt of India and another opinion of Popuri Engineering & Consultancy Services, Hyderabad. There is nothing to indicate that the Revenue has made independent study of the working of the appellant's plant to take some sample outputs to study the pattern of input / output ratio. As per the data of Purchase of Iron Ore Fe Content, Grade-wise Coal purchased, Input / output ratio declared by the appellant in their Annual Returns, reproduced in the previous paragraphs by way Table, the year-wise details show that the input / output ratio ranges between 1 : 1.92 in 2008-09 to 1 : 1.87 during the period April 2009 to February 2010. The contents of the Table are all declared figures and are verifia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lants in Odisha, including that of ASPL, opined that the consumption to production ratio is 1.67:1 and the average power consumption is in the range of 70-100 KWH for production of 1 M.T. of Sponge Iron. ii) M/s Industrial Technical Consultant, Raipur, who are experts in the field of designing/drawing and providing sponge iron technology have opined that the consumption to production ratio is 1.67:1 and the average power consumption is in the range of 90 KWH for production of 1 M.T. of sponge Iron. 2.5. During the period April, 2007 to January, 2010 (excluding the month form July, 2008 to October, 2008), the Noticee has recorded average consumption of 2.32 M.T. of Iron Ore for manufacture of 1 M.T. of Sponge Iron. Taking in account of the input-output ratio of 1.67:1 as per expert opinion, the estimated production of sponge iron comes to 58481.71 M.T., but the Sponge Iron Production recorded in the Daily Stock Account of the of the Noticee was found to be 42045.00 M.T. Therefore, it appeared that, 16436.71 M.T. of sponge iron has been manufactured surreptitiously, which has been removed clandestinely from their factory without payment of duty. 2.8. Thus, from the above, it is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 19-5-2009. The department confirmed the duty demand along with interest for the period of five years alleging suppression of clandestine removal of the final product and also imposed penalty mainly based on the production approximation and on the statement of Director of the unit, Shri Agarwal, who is one of the appellants in this case. 6.2 The department has not gone beyond the approximation and the statement of Shri Agarwal. Any prudent person would not so conclude on extra production by approximation and by a mere statement of the Director of the company. Unless there are further corroborations in the form of documentary evidences, which could be like despatch details for the production, receipt details of the said material, transactions of the sale money, transportation details of such goods, details of additional consumption of electricity for such suppressed production a prudent individual would not agree with the present conclusions of the Revenue. There is nothing on record from the Revenue side to come to a reasonable conclusion to say that there has been preponderance of probability of such suppressed production on the part of the appellant. The evidences in the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e observed from the above decisions as well as the decisions relied within these cases, mere expert opinion on its own, without any cogent, corroborative evidence has no value and does not carry the Revenue further. 22. Going by the factual matrix, read with the cited case laws, makes us to come to a conclusion that on the first count of (a) that is whether the clandestine manufacture has taken place, the Revenue has faltered and has effectively failed. On this count alone the impugned order gets dismissed and appeal is allowed. 23. Now we are also required to take up the (b) as to whether the clandestine clearance stands proved by the Revenue. 24. We find that the entire focus of the Revenue in this case has been on proving the clandestine manufacture based on the input/output ratio as given by expert third party. We do not see any effort has been made by the Revenue on this front. We have seen from the above submissions of the appellant : (i) There is no evidence of removal of 11542 MT of Sponge Iron; (ii) There is no evidence of acceptance of buyers; (iii) There is no evidence of flow of back of funds; (iv) There is no evidence of out of account purchase of raw m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he matter of Nova Petrochemicals v. CCE, Ahmedabad-II, this Tribunal in its Final Order Nos. A/11207 11219/2013, dated 26-9-2013 this bench has held as under in Para 40 : "After having very carefully considered the law laid down by this Tribunal in the matter of clandestine manufacture and clearance, and the submissions made before us, it is clear that the law is well settled that, in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenues which mainly are the following : (i) There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions; (ii) Evidence in support thereof should be of : (a) raw materials, in excess of that contained as per the statutory records; (b) Instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty. (c) Discovery of such finished goods outside the factory (d) Instances of sales of such goods to identified parties. (e) receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons authorized by him; (f) use of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a very major one. Hence, we set aside this demand on merits. 29. With reference to the confirmation of demand on account of under-valuation of sponge iron, when cleared to their another unit, we find that the Revenue has not brought in any evidence to show as to how this undervaluation would have resulted in any commercial benefit to the appellant. Since the both units share a common balance sheet at the end of the Financial Year and the Excise Duty paid by the appellant is available as eligible Cenvat Credit at the end of the receiving unit, the situation is that of Revenue neutral. Hence, we set aside the confirmed demand of Rs.1,42,845/-. 30. Coming to the arguments of the appellant on account of time bar, we find from the Tables given in the earlier paragraphs that the details of consumption have been filed by way of Annual Returns. All their purchase and sales details are part of their Profit and Loss Account. They have filed their ER 1, ER-5 & ER-5 Returns and the appellants are working under the jurisdiction of the Range / Division, which did not question the consumption pattern till the present Show Cause Notice was issued. Even in the present notice, the major porti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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