Clandestine Removal

PJ/Case Laws/2011-12/1378

Clandestine Removal - proof of

Case: MITHUNLAL GUPTA v/s COMMR. OF C. EX., NASHIK

Citation: 2011 (270) E.L.T. 231 (Tri.-Mumbai)

Issue:- Charge of Clandestine Removal – Demand confirmed by placing reliance on the report of IIT professor but reports by two Chartered Engineers for electricity consumption not relied – prima facie case made out in assessee’s favour – stay granted.

Brief Facts:- Appellant, M/s. Bhavshakti Steelmines P. Ltd. (BSPL) was engaged in the manufacture of MS ingots. Duty demand of Rs. 1,40,30,004/- was been confirmed with interest on the ground that BSPL were indulging in suppression of turnover of MS ingots by not recording the actual production and clearing the same clandestinely without payment of duty. The period of demand is 2003-04 and 2004-05 and the demand is on the basis of electricity consumption as compared to the technical report obtained by the Revenue. Penalty equal to the duty has also been imposed on BSPL and penalty of Rs. 15 lakh has also been imposed on Mithunlal Gupta, Director of BSPL (second appellant).

Aggrived by the impugned order, appellant are in appeal before the Tribunal.

Appellant’s Contention:- Appellant contended that the whole case of the Revenue is based on the report of Dr. M.K. Batra, Professor of Material Engineering of IIT Kanpur who conducted a case study and prepared a report in December 2000 (Technical opinion report on productivity of induction furnace. Appellant submits that there is no other evidence gathered to support the case of clandestine removal against them at all. Further, appellant also submitted that according to Dr. Batra's report that electricity consumption varies from 555 units to 1046 units/MT and in this case 1026 unit has been adopted for the purpose of demand of duty. They submitted that the induction furnace discussed in the report of Dr. Batra used different technology whereas the appellant’s induction furnace was a local make and used different technology. Further, Appellant also submitted that major difference between the induction furnaces considered by Dr. Batra and the appellant's induction furnace is that induction furnace considered by Dr. Batra is double converter whereas the induction furnace of BSPL is a single converter.

Appellant further submitted that the Chief Commissioner while forwarding the report of Dr. Batra to the Commissioners for action at their end had clearly directed the officers that while investigating, the officers should get the assistance of independent technical experts and this has not been done in this case at all. They drew attention to the fact that a corrigendum to show-cause notice was issued wherein appellant was informed that the supplier of the induction furnace whose address was given by them did not exist. Appellant elaborately explained that their reply to the show-cause notice had explained this aspect. Contrary to the claim of the department, there was no specific statement that the unit did not exist but the person who gave the statement had stated that he had understanding for manufacturing of induction furnace. In any case, there is no dispute about the existence of the induction furnace but the department's case is quantum of production induction furnace is capable of.

Appellant also submitted that the issue is covered in favour of BSPL and them by the decision of Hon'ble Allahabad High Court in the case of R.A. Castings P. Ltd. & Ors. decided in the case of Central Excise Appeal dated 9-9-2010 [2011 (269) E.L.T. 337 (All.)].

Further Appellant submitted that the cost of production worked out by the department was shown to be wrong by producing certificate from the qualified chartered accountant. Appellant submitted that the department had erred in working out cost of production since opening balance, closing balance etc. were not taken into account. For both the years in question, they had submitted separate cost of production certificates which showed that the sale price of the finished goods was more than the cost of production in relevant to the view of the fact that they had made profits in both the years from MS ingots. Further, he also drew attention to some of the cases in Sridhar Casting wherein the department had found that the appellant had shown profits by stock market trading and trading activity unlike the case of the appellant in this case.

Respondent’s Contention:- Revenue objected that MS ingots is a commodity very prone to evasion and it is well settled that hard evidence in the case of clandestine removal is extremely difficult to obtain. Revenue submitted that in this case loss due to process and wastage accounted to 17-18% which was very high. Revenue drew attention to the fact that normal loss percentage would have been less than 10% whereas in the case of appellant it happened to be 8% more. Further Revenue submits that the consumption of electricity is very high and the report on which the department's case is based is of a reputed professor specialised in the field of metallurgy. It is a case study specially made after study of induction furnace. The very fact that the study gives a wide range of consumption from 555 to 1046 itself shows that the professor has taken factors relating to machinery, electricity failure, quality of raw material etc. into account while giving figures. Further, Revenue also drew attention to the fact that the cost of production as worked out on the basis of electricity consumption in the case of appellant is more than the cost of finished goods. Further, Revenue also submitted that the submissions of the BSPL relating to process loss have no basis whatsoever and therefore are not acceptable.

Reasoning of Judgment:- The Tribunal held that in this case the appellants have produced reports from two Chartered Engineers both of which have given the opinion that electricity consumption shown by the appellant is reasonable when factors like type of furnace used and the quality the furnace are taken into account. The learned Commissioner in his order has not at all discussed these two reports. The Tribunal also found that the Chief Commissione when he forwarded the report of Dr. Batra had written to the field formations that they should also take expert opinion which has not been done. This is because, the appellants have contended that the type of furnace used by them is a single converter whereas the type of furnace considered by Dr. Batra is a double converter. They held that it is a very important aspect which has not been considered by the Commissioner at all. Thus the two Chartered Engineer’s opinion has not been contradicted by the Revenue and the type of furnace mentioned by the appellants is different. It was necessary for the department to have considered these reports and failing to do so has weakened the case. Another point that has been taken into account by the learned Commissioner in confirming the demand is that on certain days there was excess electricity consumption but there was no corresponding production. This has been explained by the appellant that on those days it was quite possible that the electricity might have failed in between when the furnace was on and when electricity fails in between the whole quantity lying in the furnace goes wastage. Another point that has been considered, even though not relied upon is the quantum of wastage.

As regards the case of Rattan Steel Works, even though the case was similar to the present one, there was difference inasmuch as in that case the partner had admitted clandestine removal and the recorded evidence also revealed that records had been destroyed which related to sale of ingots and purchase of raw materials. However, in this case, partner had explained the higher consumption of electricity and had not admitted clandestine removal at all.

Prima faciecase made out for waiver of pre-deposit and for grant of stay.

Decision:- Stay granted.

Comment:- We have seen the number of cases which are made on electric consumption but the other factors are not considered by the department. All such cases are going against the department. But they keep on making such cases. Huge demands are issued and the poor manufacturer has to face the same. If these demands are confirmed, his factory will be closed. But ultimately all such demands are dropped. But there is no accountability on the part of the officers. If such huge demands are ultimately dropped then action should be taken against the officers so that they can also feel the mental pressure faced by assessee on demand raised on such filmsy grounds.

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PJ/Case Laws/2011-12/1378

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