P. Anjani Kumar DECISION
P. Anjani Kumar, Member (T)
1. The appellants are engaged in the manufacture of Copper ingots and are availing the exemption under Notification No. 56/2002-CE : MANU/EXCT/0123/2002 dated 14.11.2002 as amended; after conducting an audit of the records of the appellant, Revenue was of the opinion that the appellants have shown production in excess of the capacity or actual production with a view to avail refund of the duty paid. Revenue conducted one heat cycle for productions of ingots in the factory of the appellants and it was observed that 1200 Ltrs. of LDO (Light Diesel Oil)was consumed for production of 7267 kg of copper ingots; while the appellants consumed 382500 Ltrs. of LDO for manufacture of ingots/scrap in the year 2005-06; as per the above 2316356 kg of copper ingots could have been manufactured whereas, the appellants have shown production of 2500915 kg of copper ingots during the period; thus 184559 kg of copper ingots were shown to have been produced in excess without actually manufacturing the same; the appellants have wrongfully availed refund of Central Excise duty of Rs. 60,83,064/- fraudulently a show cause notice dated 21.05.2010 was issued to the appellant seeking the demand of wrongfully availed self credit. The show cause notice was adjudicated by the impugned order dated 28.04.2011 vide which the proposal in the show cause notice was dropped. Committee of Chief Commissioners having review the order have directed the commissioner to file an appeal against the same. Hence, this appeal by Revenue.
2. Shri Pawan Kumar and Shri Shivam Syal Ld. Authorized Representatives for the revenue reiterated the grounds of appeal and submitted ideal input output ratio for scrap to ingots was 1:0.9 whereas the respondent claim 1:09468; the test check conducted by the audit showed the ratio 1:09417; during the test check 1200 Ltrs. of LDO could produce 7267 Kg of copper Ingots; Shri Rakesh Chaudhary authorized signatory of the respondent was fully satisfied with the method of verification; the respondents suppress the actual consumption of LDO required for manufacturing unit quantity of final product from the department. Ld. Authorized Representative submits that Ld. Commissioner wrongly relied on the case of M/s. Oudh Sugar Mills Ltd. 1978 (2) ELT J-172 (SC) and concluded that the show cause notice was issued on the basis of presumptions and assumptions; the respondents suppressed the quantum of LDO consumed for production of a unit ingots; a show cause notice was issued after a factual verification of the actual production therefore, the same cannot be disregarded. They submit that the reliance on Polychem Products India Pvt. Ltd. 2005 (192) ELT Tribunal Delhi, is misplaced as the show cause notice was issued on the basis of physically verified data.
3. The Ld. Authorized Representative rely on the case of D. Bhoormull 1983 (13) ELT 546 (SC) and J.M. Aggarwal Tobacco company Pvt. Ltd. 2010 (261) ELT 1008 Tribunal Delhi and Shingar Lamps Pvt. Ltd. MANU/CE/1396/2002 : 2002 (150) ELT 290 (Tri.-Delhi) and submits that
• Department is not required to prove the case with mathematical precision.
• The burden to rebut many facts relating to the illicit business remain with the concerned person who has the knowledge of the same.
• Adjudicating Authority should weigh the independent evidence on record.
4. Shri Vinamar Gupta and Shri Vibhore Gupta, Ld. Counsels for the respondent submits that the consumption of LDO could be different depending on the atmospheric temperature, quality of raw material, condition of the furnace, initial temperature of furnace, per day frequency of the heats and the skill of the labourers and therefore, the entire production capacity for the year cannot be extrapolated on the basis of observation for a single heat. Ld. Counsel furthers submits that it was alleged that the fuel efficiency as per DIC (District Industries Centre) report was less than test report; however, copy of the DIC report was not provided; as per the DIC report the ratio between copper scrap and copper ingots was 1:0.9 whereas as per the test report it was 1:0.9417; the SCN itself did not take into account the report of the DIC, the same cannot be taken in the grounds of appeal. He relies on the following :
• CCE Vs. Sunita Textiles Ltd. -reported in MANU/CE/0050/1993 : 1993 (67) ELT 932.
• CDC Carbnoline (India) Ltd. Vs. CCE-reported in MANU/CC/0074/1998 : 1998 (103) E.L.T. 359.
• CCE, Hyderabad Vs. Swastik Coaters Pvt. Ltd.- reported in MANU/CC/0170/1998 : 1999 (107) E.L.T. 533.
• CCE, Bolpur Vs. Mangal Chand Metal Mtg. Co.- reported in MANU/CK/0167/1998 : 1999 (11) ELT 597.
5. Ld. Counsel further submits that it is incorrect to say that the onus to disprove the allegations lies with the respondent; the burden of proof lies with the prosecution; the case of J.M. Aggarwal (Supra) is about clandestine removal and not about excess production and the case of Shingar Lamps (Supra) is against the Revenue. In Polychem Products (Supra) it was held that unaccounted goods cannot be based on presumptions. Moreover, in the instant case, the principle of Revenue neutrality is applicable. He relies upon the following cases :
• Crystal crop. protection P. Ltd. MANU/CE/0822/2012 : 2013 (295) ELT 418 (Tri.- Del.)
• Shree Nath Industries MANU/CJ/0136/2018 : 2018 (364) ELT 904 (Tri.-Chan.)
• Larknon Ferrous Metals Ltd. MANU/CJ/0110/2016 : 2016 (344) ELT 1100 (Tri.- Chan.)
6. Regarding the test check, the Ld. Counsel submits that it was conducted after keeping the furnace idle at room temperature for 66 hours; actual production over the year cannot be ascertained on the basis of a single heat; consumption of LDO depends on various factors; it has been held in the following cases that production cannot be alleged only on the basis of consumption of fuel:
• Nav Karnataka Steels Pvt. Ltd. MANU/CB/8413/2007 : 2008 (225) ELT 454 (Tri.- Bang.)
• A Arti Leathers Pvt. Ltd. MANU/CM/0674/2000 : 2001 (136) ELT (Tri.-Mumbai)
• Padmanabh Dyeing & Finishing Work MANU/CM/0108/1996 : 1997 (90) ELT 343 (Tribunal)
• Pure Enterprises Pvt. Ltd. MANU/CM/0076/1999 : 1999 (111) E.L.T. 407 (Tribunal).
• Mukesh Dye Works MANU/CM/1011/2005 : 2006 (196) ELT 237 (Tri.- Mumbai)
7. Ld. Counsel further submits that extended period cannot be invoked as no discrepancy was found in the production records; show cause was issued after four years of conduct of the test; receipt of raw material and clearance of final product was verified by DIC officers; refund has been granted by the department after due verification; regular returns were being filed.
8. Heard both sides and perused the record of case.
9. The case of the Revenue is that the respondents have shown excess manufacture in order to avail excess refund to the tune of Rs. 60 lakhs. All that the Revenue could show as evidence is the consumption of LDO per heat on the basis of test heat conducted by the officers during the course of the audit. It was found during the test run that 1200 Ltrs. of LDO (Light Diesel Oil) was consumed for production of 7267 kg of copper ingots, while the appellants consumed 382500 Ltrs. of LDO for manufacture of ingots/scrap in the year 2005-06; as per the above 2316356 kg of copper ingots could have been manufactured whereas, the appellants have shown production of 2500915 kg of copper ingots during the period; thus 184559 kg of copper ingots were shown to have been produced in excess without actually manufacturing the same. We find that Revenue has missed out the fact that consumption of fuel depends on the atmospheric temperature, quality of raw material, condition of the furnace, initial temperature of furnace, per day frequency of the heats and the skill of the labourers.
10. Revenue has not discussed this aspect at all. Moreover, the consumption of raw material i.e. copper scrap was not analyzed. Even the stock of fuel, raw material and final product was not taken at the time of audit so as to ascertain where the records maintained by the respondents were correct or otherwise. It is very surprising that the clearance of, allegedly excess produced, goods to different parties was not established; not even statement of a single buyer has been recorded; no verification at the transporter's to falsify the claim of the appellants that they have supplied the ingots manufactured by them to others. Without conducting any such investigation, department cannot establish claim of excess manufacture just by extrapolating the results of study of a single heat or a few heats. We appreciate the department's contention that clandestine removal or removal of excess production cannot be proved with mathematical precision. At the same time allegations cannot be sustained merely on the basis of a mathematical formula.
11. We find that the charge levelled against the respondents is a serious charge. A charge of this nature cannot be summarily proved without conducting any commensurate investigation. It is now a settled principle that clandestine removal is a charge and has to be proved with all other concerned activities. We find that the coordinate Bench of the Tribunal, in the matter of Nova Petrochemicals v. CCE, Ahmedabad-II, in its Final Order Nos. A/11207-11219/2013, dated 26-9-2013, 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 o by cash, of such goods by the manufacturers or persons authorized by him;
(f) Use of electricity for in excess of what is necessary for manufacture of goods otherwise manufactured and validity cleared on payment of duty
(g) Statements of buyers with some details of illicit manufacture and clearance;
(h) Proof of actual transportation of goods, cleared without payment of duty
(i) Links between the documents recovered during the search and activities being carried on in the factory of production; etc.
12. In view of the above, we are not enthused to accept the proposition made in the show cause notice and the grounds of appeal. We find that the adjudicating authority has correctly analysed the facts of the case and has drawn legally sustainable conclusions. Therefore, we are of the considered opinion that the arguments of the Revenue are not acceptable and the ratio of the case laws relied upon by the Revenue are not applicable. We find force in the arguments put forth by the respondent.
13. For the aforesaid reasons, Revenue appeal is dismissed.
(Order pronounced in the open court on 18.03.2024)
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