Third Party Records cannot form the Basis of Clandestine Removal, unless Corroborated by Independent Evidence: CESTAT [Read Order]

The Mumbai bench of Customs, Excise & Service Tax Appellate Tribunal has held that third party records cannot form the basis of clandestine removal, unless corroborated by independent evidence.

The appellant M/S Orange City Alloys Pvt. Ltd.engaged in the manufacture of MS Ingots. Such goods are manufactured by using electric induction furnaces. The main raw materials for manufacture of MS Ingots are Sponge Iron, Iron & Steel scrap, Pig Iron and Ferro Alloys etc.The appellant also availing Cenvat Credit of duty paid on inputs in terms of CenvatCredit Rules, 2004. The raw materials are charged in the crucible of induction furnace to convert the same into molten mass, which is poured in the moulds to obtain ingots/runners/risers and the said process is termed as one heat.

The Department had gathered information that the appellant was evading the payment of Central Excise duty through suppression of production (showing less production than actual) in their statutory records and clearing the same without payment of Central Excise duty. Information was also gathered that in many cases, the material transported to and from the appellant was weighed at M/s. A. B. C.the said weighbridge have issued weighment slips for the excisable materials belonging to the appellant. Accordingly, show cause proceedings were initiated by the department against the appellants, proposing confirmation of the Central Excise duty demand along with interest and for imposition of penalties. During visit department conducted two heats in the factory of the appellant, which showed the electricity consumption of 1008 units per MT and 1058 units per MTand concluded that the average power consumption for manufacturing steel ingots in the appellant factory was 900-925 units/MT up to 17.10.2005 and 860 units/MT thereafter, which is much higher than the electricity consumption mentioned in the reports furnished by the expert in the field of metallurgy.

The Authority observed that the report of the department reflects that there was fluctuation of 50 units in thecourse of a single day in two consecutive heats. Therefore, it is evident thatthe fixed norm of 925 Units or 860 Units, as the case may be, adopted by the department did not find support from any authoritative journals and technical write-ups furnished by the expert in the field. Further, it is also evident from the records that above power consumption as reported by the department is matching with the figures reflected by the appellants in their records, meant for scrutiny by the statutory authorities. The law is well settled that consumption of electricity per heat depends upon several factors such as nature and character of scrap, efficiency of the labour, upkeep of furnace, the desired characteristics of the final material, power fluctuation, etc. Therefore, no uniform criteria could be applied to determine the quantity of final product produced on the basis of electricity consumption.There is no prescribed fixed ratio between the power consumption and the production of ingots. Therefore, the adoption of consumption norm of electricity by the department at the range of 925 Units/ 860 Units for calculating the so-called unaccounted production, in our considered view is not tenable.

Further observed by the Authority that We find that the appellants had furnished adequate records to prove their genuineness in the transactions, but the original authority has completely brushed aside such submissions. On the contrary, we find that no iota of evidence to such effect was relied upon by the Revenue to substantiate such charge. We find from the available records that the allegation of clandestine removal of ingots cannot be made against the appellants on the basis of some entries figuring in the ABC weighbridge records. In this context, we have perused the replies filed by the appellants before the adjudicating wing, by convincing that there is no discrepancy in the records maintained by the appellant regarding receipt of raw materials and sale of finished product. It is a settled law that the third party’s records cannot form the basis of clandestine removal, unless corroborated by independent evidence, which is lacking in these cases. Thus, recordsrecovered from ABC Weighbridge by the department to allege suppressedproduction and clearance of ingots by the appellants without payment of excise duty, is not sustainable under the law.

The division bench presided by Honorable MR. S.K. Mohanty, Member (Judicial) and Honorable Mr. P. Anjani Kumar, Member (Technical) has held that “we are of the considered opinion that the charges levelled against the appellants for clandestine manufacture and removal of final products, without payment of duty are not substantiated with cogent and reliable evidence. We find that a case of this magnitude needs to be corroborated by establishing other facts such as purchase of raw material, deployment of labour, additional consumption of electricity, manufacture of final products, removal and transportation of the same to customers premises and payments received for the same. We find that in the instant case, no other criteria has been investigated and established. The whole case is sought to be made by surmises and conjectures. Therefore, we are of the considered opinion that the allegations of clandestine removal against the appellants do not stand judicial scrutiny. Consequently, levy of duty and imposition of penalties on the appellants are not also substantiated. In the result, the impugned orders are liable to be set aside and we do so”.

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