By TIOL News Service

NEW DELHI, SEPT 22, 2016: ON their visit to the factory premises of the appellant, the CE officers recovered the Daily Analysis Report of laboratory and raw material issue register, Daily store report showing the use and stock position of various materials used in the production of excisable goods namely, B.P. Sets (Bottom Pouring Sets) of different sizes, silico manganese, Ferro Silicon, Aluminium etc., which are for exclusive use in Induction furnace.

It is alleged that a B.P Set is used for each heat, thus the number of B.P.sets used in a day reveals the number of heats materialized. The officers on the basis of log sheets of Induction furnace for 16.07.2005 and 17.07.2005 calculated the capacity of induction furnace as 7.9 MT. By multiplying the number of B.P.Sets used for the period 01.03.2005 with 7.9 MT, it was alleged that there has been suppression of 5435.934 MT of M.S. Ingots during the said period.

It was further alleged that the consumption for per ton M.S Ingots in Appellant's unit is 911 units, whereas the industrial average is 850 MT per Unit, which shows that the allegation made against the assessee are correct.

Resultantly, SCN was issued and duty demand of Rs.1,50,97,991/- was confirmed with equal penalty against the appellant and a penalty of Rs.10 lakhs was imposed on the Commercial Executive.

After considering the submissions made by both sides, the CESTAT while noting that the demand has been confirmed inter alia based on the log sheets observed thus -

+ We find that no person has been identified as author of such log sheets. though the said documents were seized from the factory of the Appellant, but no efforts were undertaken to check the veracity of the said documents. None of the documents seized from the premises has been investigated to know the author/ person who had prepared such documents.

+ No actual practical test was conducted to ascertain the capacity of the furnace which was the easiest thing to do. Further, the purchase invoices clearly show that the capacity of furnace is 6 MT each.

+ There is no force in the allegation that the capacity of furnace is 7.9.MT. Even the capacity of the furnace cannot be the criteria to allege clandestine removal. The excess or unaccounted consumption of raw material together with its production, removal and transportation has to be shown to substantiate the charges of clandestine removal.

+ Allegation of suppressed production is based merely upon use of B.P. Sets considering that one B.P. Set is used for one heat and thus the number of B.P. Sets means the number of heat materialized. We are not inclined to accept this logic made by the revenue for the reason that the consumption of consumables cannot be the criteria to determine the production of goods. It would be more farfetched imagination to assume that only on the basis of use of consumables, which is a refractory material in multiple piece and prone to breakages/ defect, can be ground to allege clandestine production and clearance of goods. Further no practical test of its use has been carried out.

+ Reliance has been placed on use of Ferro Silicon and Silicon Manganese. We find that it is used in very small percentage and the use depends upon the composition of major raw materials, and, therefore, the number of times it was issued for production cannot be considered as equal to number of times the heat were materialized.

+ The most important aspect for alleging clandestine removal is that there has to be extra consumption of major raw material which are Sponge Iron and Pig Iron and their production. Even there is no evidence of a single consignment cleared from the Appellant's unit without payment of duty. No buyer or transporter of alleged suppressed production has been brought on record. Nor any evidence in the form of receipt of consideration has been brought on record.

+ The demand on the basis of log sheet or use of B.P. Sets or Ferro Manganese and Silicon Manganese are not sustainable. Our view is also based upon the fact appearing in Para 4 of the show cause notice that at the time of visit to the factory of the Appellant, no discrepancy in stock of raw material and finished goods was found which could indicate any clandestine removal of goods.

+ It is alleged that the consumption in Appellant's factory is 911 Units per MT, whereas the Industry average is 850 MT. We accept the contention of Appellant that no practical test was conducted to ascertain the actual consumption coupled with fact that the consumption of electricity is not the criteria to allege clandestine removal. Moreover, it is not known as to from where the consumption of 911 units and industry average of 850 MT has been derived.

Holding that the CE duty demand against the appellant is not maintainable, the same was set aside and the appeal of the assessee was allowed. Consequently, the penalty imposed on the Commercial Executive was also dropped.

Both the appeals were allowed with consequential relief.

(See 2016-TIOL-2482-CESTAT-DEL)