By TIOL News Service

MUMBAI, APR 17, 2014: THE appellants are engaged, during the material period, in the manufacture and sale of MS Ingots. They used induction furnaces for melting sponge iron/MS scrap for manufacturing their final product viz. ingots for which they consumed electricity received from the Maharashtra State Electricity Board.

During investigation it was found that the appellants allegedly clandestinely manufactured and cleared their final product without payment of duty during the respective periods of dispute. In all the cases the Revenue is relying upon the data relating to energy consumption. As per the Revenue the manufacturing units are showing more electricity consumption for production per MT of MS ingots. The case of the Revenue mainly rests upon the study conducted by Dr. N.K. Batra, Professor of IIT, Kanpur. Revenue is also relying upon the opinion given by All Indian Induction Furnace Association.

Based on both the opinions, the Revenue has taken 1026 KW per MT as standard for consumption and quantum of Ingots and consequently the demand of duty in all the cases. The case of the Revenue is that if 1026 KW of electricity is used for the manufacture of 1 MT of MS Ingots then during the period in dispute all the manufacturers should have manufactured the quantities as alleged in the SCNs.

Vide different adjudication orders the demands were confirmed with interest and penalties were imposed.

In view of the Majority decision the appellant SRJ Peety Steels Pvt. Ltd. was granted 100% waiver of pre-deposit of adjudged dues. See 2013-TIOL-1945-CESTAT-MUM.

All the appeals were heard together.

Before the CESTAT, the appellants submitted that during the period in dispute the appellants were paying appropriate amounts of duty on the actual production of the final product. In the present cases the duty demand has been quantified not on the actual clearance of goods rather it is based on deemed production by applying a formula i.e. Deemed Production = Electricity Consumed + 1026 in absence of any evidence of actual production and clearance of excisable goods. Inasmuch as since the duty of excise is to be levied in terms of s.3 of the CEA, 1944 on the goods actually produced the demands are not sustainable. Moreover, the impugned goods are not notified u/s 3A of CEA, 1944 for charging duty on the basis of capacity of production . Reliance is placed on the decision in R.A. Castings Put Ltd 2008-TIOL-2732-CESTAT-DEL whereby the demand which was based only on consumption of electricity was set aside by the Tribunal and the Revenue appeal was dismissed by the Allahabad High Court and so also the SLP filed before the Supreme Court which was also dismissed. And that a similar view is also taken by the Tribunal in case of Venus Alloys Pvt. Ltd 2012-TIOL-2016-CESTAT-DEL & Amar Ispat Ltd 2008-TIOL-1360-CESTAT-MUM.

It is also submitted that the Appellant had also asked for copy of the report of Dr. N.K. Batra from the IIT, Kanpur and the Deputy Registrar, R & D of IIT, Kanpur vide letter dated November 01, 2007 informed that no technical opinion report of productivity of induction furnace by Dr. N.K. Batra is available on the record of IIT. Moreover, since Dr. N.K. Batra had expired he was not available for cross examination to test the basis of the report on the basis of which the demands are confirmed.

As regards the Miscellaneous applications filed by Revenue for producing additional evidence in respect of quantum of electricity consumed for the subsequent period to show that same units were now consuming less electricity for the manufacture of per one MT of MS Ingots, the appellant submitted that evidence gathered subsequent to the period of dispute and obtained after the orders passed by the adjudicating authority cannot be admitted in view of the apex court decision in Mohinder Singh Gill vs CCE, New Delhi reported in AIR 1978 SC 851. In the matter of reliance placed on the decision of the Settlement Commission, the appellant submitted that the application made before the Settlement Commission is not an admission of guilt and this was the stand taken by the Larger Bench decision in the case of   Bosch Chassis Systems India 2008-TIOL-1764-CESTAT-DEL-LB.

The Revenue representative submitted that in the case of R.A. Castings relied by the appellant the Tribunal proceeded with the presumption that the law was well settled that electricity consumption cannot be the only factor for determining duty liability and the said decision was upheld by the High Court on the ground that the findings were based on materials on record. Inasmuch as the High Court had nowhere held that production of steel ingots cannot be determined on the basis of electricity consumed, submitted the Revenue representative. Apart from reiterating the findings of the adjudicating authority, reliance is also placed on the decisions in Triveni Rubber & Plastics 2002-TIOL-547-SC-CX where the Supreme Court had upheld the demand based on production capacity of the unit.Some orders of the Settlement Commission wherein some of the manufacturers had admitted the duty demand and settled the dispute were also cited. Reliance is also placed on the decision in Ratan Steel 2008-TIOL-1454-CESTAT-MAD  to submit that the demand can be made on the basis of excess consumption of power.

The Vice President observed that the case of the Revenue is on the basis of electric consumption only.

After extracting passages from the order passed by the Tribunal & High Court in case of R A Casting Pvt Ltd 2008-TIOL-2732-CESTAT-DEL, and relied upon by the appellant where the demand confirmed on the basis of electric consumption based on the report of Dr. N.K. Batra and after taking into consideration the income from other sources in the Balance-sheet was set aside, the decision in Triveni Rubber and Plastics 2002-TIOL-547-SC-CX relied upon by the Revenue was distinguished and it was observed that in the present case, there is no evidence produced by the Revenue on record regarding use of unaccounted raw material for manufacture of goods and clandestine clearance of the goods; Demand cannot be made on the basis of assumption in the absence of evidence to support allegation of clandestine removal.

Noting that the evidence relied upon in the Show Cause Notices and in the adjudication orders is the same as in the case of   R.A. Castings Put Ltd  viz. opinion of Dr. N.K. Batra and All India Induction Furnace Association and the same opinion is taken into consideration for confirming the demands and since similar demand was set aside by the Tribunal in the case of R.A. Castings Pvt Ltd (supra) the ratio of said decision is fully applicable to the facts of the present cases and hence the orders are required to be set aside and the appeals are allowed.

The Member(Technical) mentioned that his views are at variance with that of the Vice President and, therefore, proceeded to record a separate order.

He narrated the evolution of Central Excise Act and the CER, the era of physical control and its transformation to the Self Removal Procedure by reposing a ‘certain' amount of trust on the manufacturers and the increasingly higher level of trust bestowed on the manufacturers since the past 30 years, the new CER, 2002, and the rules 6, 8, 9, 10, 11 & 12 in particular.

Moving further, the Member(T) also noted that there can be situations as in the present set of appeals where the assessees are not truthful about their duty liabilities and in such a scenario the Central Excise officer is required to arrive at the escaped duty liability based on certain computations which are always challenged by the manufacturers as presumptive &as being without any evidence relating to other aspects such as procurement of other raw materials or clearance of finished goods or other technical reasons so that no step towards finding out the truth can be ventured.

After observing that the input for manufacture of ingots is bazaar scrap on which no duty is payable and these records of consumption are maintained by appellant but the other input is electricity which records are not controlled by manufacturers but by Electricity Board/company, the Member (T) extracted in detail the allegations leveled against each of the appellants where the Revenue has claimed that self-assessment made by the appellants are not proper and related records and returns filed do not represent the TRUTH and appellants have suppressed the production and clearance of goods.

And after narrating the details in respect of each of the appellants, the Member (T) observed -

++ In view of above, Revenue came to the conclusion that returns filed by the appellants and hence self-assessment made by the appellants do not reflect the TRUTH and appellants have indulged in suppression of production and clandestine clearance.

++ Revenue, in its best judgment took 1026 units per M.T. (which is most favourable to appellants) as the standard for estimating the production of M.S. Ingots. Duty was demanded for the differential quantity of the estimated production and that not shown in returns/ self-assessment.

++ In number of cases in connection with other investigations by the DGCEI certain documents were recovered from certain persons/appellants, appellants had admitted those liabilities and paid duty either on their own or on approaching the Settlement Commission.

++ An interesting development took place after issuance/adjudication of above demands. Jurisdictional Central Excise Officials started general surveillance on units manufacturing M.S. Ingots, Perhaps in view of general surveillance as also the fact that self-assessment based upon electricity consumption more than 1026 units is not acceptable to department, appellants modified their self-assessment pattern. During this period (July/August 2009 to January 2010), the electricity consumption per M.T. of M.S. Ingots came down to somewhere around 1000 units/M.T. It is to be noted that there was no change in the technology or machinery manufacturing the M.S. Ingots during this period/period covered by demand notices. There is no change in the composition of inputs.

++ Since normally the assessment is to be made by the manufacturer himself and in case the Central Excise officers have some reasons to believe or based upon any other input that the self-assessment has not been done truthfully, the Central Excise official can indicate these reasons/details to the manufacturer and the manufacturer in turn can give his explanation and based upon the explanation the Central Excise official could decide whether self-assessment is correct or arrive at the correct assessment of duty. In case it is not possible to arrive at the precise duty amount, the duty will be required to be computed based upon the best judgment based upon the available details including the details submitted by the assessee in pursuance of notice.

++ In some cases, for days/weeks together, there is large consumption of electricity but no production. All such discrepancies have been detailed in the demand notices. However,   there is no explanation whatsoever for any of these discrepancies.

++ During the hearing before this Tribunal for any query, the only answer of the learned senior advocate was the Tribunal decision in the case of R.A. Castings.

In the matter of Additional evidence presented by Revenue, the Member (T) cited more than two dozen case laws and many more across his order &distinguished the case law cited by the appellant of Mohinder Singh Gill vs CCE, New Delhi AIR 1978-SC-851 and after remarking that the objection against admission of evidence is only to circumvent and   justify the untruthful self-assessment done by them observed -

++ Rule 27 of CESTAT (Procedure) Rules, 1982 provides for admission of additional evidence. There can be no doubt that the said power has to be exercised sparingly by judiciary. The power has to be used for bringing out TRUTH so that Justice triumphs. In the present case, the so-called additional evidence is nothing but Appellants' own data relating to power consumption of the subsequent period, when Revenue started keeping general surveillance. Moreover, data is not for one or two days but for about six months. In fact, in our view, this data is a far better substitute for what was earlier envisaged under Rule 173E of Central Excise Rules, 1944. This data which is appellant's own, goes to the very root of dispute. Appellants were given ample chance to rebut the data or provide explanation for the same. However, no explanation whatsoever is coming forward. Revenue has submitted these in rebuttal to the affidavits submitted by various appellants.

Holding that there was no doubt that the appellants were not doing self-assessment truthfully and contents of monthly returns were not truthful and they were indulging in suppression of production and, therefore, evading duty& hence extended period of limitation is correctly invoked and penalties on the assessees are correctly imposed, the Member (T) upheld the impugned orders and dismissed all the appeals. The Member (T) also added that the other appellants are active senior management officials/owners/partners and the said manipulation could not have happened without their active support, and, therefore, penalties were correctly imposed on them.

In view of difference of opinion between the Vice President and Member (Technical), the matter is placed before the President for reference to the 3rd Member.

(See 2014-TIOL-582-CESTAT-MUM)