CESTAT sets aside Excise Duty Demand based on Private Diaries and Loose Sheets [Read Order]

After visiting the factory premises and undertaking investigation and verification, it was alleged that the appellant, Akshaya Steel Works Pvt. Ltd. has cleared 17930.033 MT of finished goods clandestinely during the period Feb, 2008 to Dec, 2008 and Mar, 2009. A Show Cause Notice was issued demanding Excise Duty of Rs. Rs.8,14,17,461/- along with interest and penalty. The SCN was also issued to the Director proposing to impose penalty on him. After due process, the Adjudicating authority confirmed the demand along with interest and penalty against the appellant company and penalty on the Director. Being aggrieved by the impugned Order in Original, the appellants have filed the present appeal before the Tribunal.

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The appellant manufactures Rolled products like Angles and Channels. They also undertake the job-work for other manufacturers like Tata Steel, SAIL and Adhunik Alloys Ltd, etc. For manufacture of their final product they use M.S. Ingots, M.S. Billets (Concast Billets) as their raw materials. They purchase M.S. Billets (Concast Billets) of 05 meters to 06 meters length weighing approximately 470 Kg per piece. They also purchase M.S.Ingots of size 1.2 meters to 1.4 meters length weighing approximately 102 kg per piece.

The appellant claims Cenvat Credit for the inputs used in the jobwork undertaken for SAIL, Tata Steels, as the job-work undertaken amounts to manufacture. Angles, Rolling items are manufactured, which are properly accounted for in the DSA Register and in the ER 1 Returns. They are cleared on payment of Excise Duty. Copies of the Job-work orders given by Tata Steels and SAIL are enclosed in the Paper Books submitted along with the Appeal.

For undertaking the job-work of primary and secondary cutting, the appellant has engaged the services of the contractor Ramashankar Singh by way of a Work Order dated 1.1.2008. Copy of the work order given to him is enclosed. Copies of their Invoices and records maintained by the appellant‟s Supervisor have also been enclosed along the with the Paper Books of the appeal.

The cut billets and ingots are fed to the reheating furnace. After this,the semi-hot billets and ingots are converted into MS Flats, Angles, Bars and Rods of different dimensions and sizes. Statements of Sri Rajender Sachdev, Director of the Appellant Company was also recorded on dated 22-11-2011, 12-12-2011, 13-122012, 14-12-2011, 17-01-2012, 20-01-2012 and 15-03-2012 (Page 476, Page 482, Page 484, Vol.-II). Sri Rajendra Sachdev, Director, in his statement dated 22-11-2011 stated that he was not aware of maintenance of said “Private Diary” and “Loose Sheets” and therefore he cannot explain the contents thereof

On the basis of “Private Diaries”, “Loose Sheets” cited above, the Show Cause Notice dated 20-12-2012 was issued alleging that during February, 2008 to December, 2008 the appellants have suppressed production of 17,863.883 MT of their final product which were purportedly clandestinely removed without payment of duty. It was further alleged that 5(Five) nos. of fake parallel invoices were purportedly used by the Appellant for removal of 66.150 MT of final products without payment of duty of Rs.1,56,709/- during March‟2009. The show cause demanded excise duty of Rs.8,14,17,461/- (Rs.8,12,60,752/- + Rs.1,56,709/-) along with interest and penalty on the company and penalty on the Director.

It is alleged that the “Loose Sheets” seized on the day of search on 02-04-2009 contains day wise “total production” of final product manufactured by the Appellant during August‟2008 to October‟2008 and December‟2008. Counsel submitted that the “Private diaries” and “Loose sheets” on the basis of which the entire demand is raised in the instant case relates to processing of raw material and not for the production of the final produt.

The consequence would be that, in the absence of the circumstances specified in Section 9D(1), if the adjudicating authority relies on the statement, recorded during investigation in Central Excise, as evidence of the truth of the facts contained in the said statement, it has to be held that the adjudicating authority has relied on irrelevant material. Such reliance would, therefore, be vitiated in law and on facts.

It is evident that the appellant is undertaking job-work of manufacturing the Angles / Flats on behalf of these companies. For the raw materials received, he avails the Cenvat Credit and on the finished goods they are paying the Excise Duty. The party has claimed that a substantial portion of the total demand, that is out of alleged clandestine removal of 17930 MT of Rolled Products [Finished goods], the normal clearance of 7323.715 MT is on account of their despatches to these parties. While they have made such a claim before the Adjudicating authority [without quantifying], the Adjudicating authority has not considered this point raised, which involves Excise Duty of over Rs. 4.73 crores. In the Order-in-Original, the Adjudicating Authority has not come out with any contrary statement that the quantification was done after considering this aspect.

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A two member bench R. Muralidhar, Member (Judicial) and Rajeev Tandon, Member (Technical) found that all the documentary evidence used for quantifying the demand was very much available with the Revenue latest by 2010. But still they have waited till 20.12.2012 to issue the Show Cause Notice. Nothing is coming up in the SCN was what kind of investigation and follow up verification was being undertaken by the Revenue during the intervening period.

Mere recording of the statement of the Director multiple times from 22.11.2011 to 15.03.2012, that is much later than the visit date of 2.4.2009, does not prove that this was on account of continued investigation. The quantification of demand is based on the Private Diaries and Loose Sheets resumed on 2.4.2009. Once the Dept. has knowledge of the contravention, the SCN has to be issued within the time frame.

The Tribunal set aside the entire demand on account of time-bar and allowed the appeal. Since the demand against the appellant is found not be sustainable , the tribunal set aside the penalty imposed on the Appellant Director.

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