Whether allegation of clandestine clearance can be made on basis of electricity consumption?

PJ/Case Law /2016-17/3239

Case:-R.K. POLYTUBES VERSUS COMMISSIONER OF CENTRAL EXCISE, RAIPUR-I

Citation:- 2015(320) E.L.T. 813(Tri-Delhi)

Brief Facts:-Both the appeals are being disposed of by a common order as they arise out of same impugned order of Commissioner vide which he has confirmed the demand of duty of Rs. 69,74,004/- against M/s. R.K. Polytubes along with imposition of penalty of identical amount and confirmation of interest. In addition, he imposed penalty of Rs. 20 lakhs on M/s. Fairdeal Agencies who are traders in the goods manufactured by M/s. R.K. Polytubes.

As per facts on record M/s. R.K. Polytubes is engaged in the manufacture of PVC pipes and tubes. Their factory was visited by Central Excise officers on 16-2-1999, who conducted various checks and verifications. There was some shortages and excesses found in the stock of raw material and as also of their final product. The said shortages and excesses stand dealt by the Revenue by way of another show cause notice and are not the subject matter of present proceedings.

The officers also further scrutinized the records and resumed one private production register and a file from the factory itself. The said private production register relates to the goods manufactured during the period from 1-1-1999 to 16-2-1999. The officer also recorded statements of various persons and scrutinized records maintained by M/s. Fairdeal Agencies, a trading firm. It was found that M/s. Fairdeal Agencies have received much more quantum of goods than the quantum manufactured and reflected in the statutory records of M/s. R.K. Polytubes. Infact entries made in the ledger of M/s. Fairdeal Agencies did not reveal that goods received from M/s. R.K. Polytubes stand reflected therein but there were no corresponding entries in the statutory accounts of records of M/s. R.K. Polytubes. Further, the officers made inquiries from the raw materials supplied by M/s. Alpha Organics and M/s. Sigma Chemicals duly entered in their records by way of bills/invoices which was not entered in the appellant’s records.

The Revenue also verified the electricity consumed by the appellant during the entire period from 1997-1998 and 1998-1999 and found that there was excess consumption of electricity, thus leading to a charge on the part of the Revenue that appellant have manufactured excess quantum of their final product than what they have reflected in their statutory records. Inasmuch as the electricity consumption during the period from 1-1-1999 to 16-2-1999 showed by the other manufactures revealed excess production of their goods. Revenue on the same basis entertained a view that the production of the appellants should have been much more.
On the above basis, proceedings were initiated against the appellant for confirmation of demand of duty and for imposition of penalty. The said proceedings resulted in passing of order by the Commissioner vide which he confirmed the demand as proposed in the notice and imposed penalties on both the appellants.

Appellant’s Contention:-After hearing learned advocate Shri J.M. Sharma appearing for the appellant and Shri M.S. Negi, learned DR appearing for the respondent, we find that primarily the demands stand raised against the appellant on the following four counts.
1.    Private production register which was recovered during the search pertains to period 1-1-1999 to 16-2-1999;
2.    Stock ledger book of M/s. Fairdeal Agencies - a trading firm;
3.    Raw material supplied by M/s. Alpha Organics, Indore and Sigma Chemicals to the appellant supported by bill/invoices, etc.;
4.    The statement of Shri Ravi Gupta, partner of company.
Learned advocate is not disputing the confirmation of demand of duty based on private production register as also on stock ledger book of their trading firm as also of raw material supplied by the input supplier. His only grievance is in respect of demand confirmed on the basis of consumption of electricity, which has been arrived at by taking into account the total consumption of electricity during the relevant period and the electricity consumed during the period from 1-1-1999 to 16-2-1999 was inclusive of clandestine production as reflected in the private records. However, the learned advocate has strongly assailed the said part of the impugned order on the ground that same is based upon assumption and presumption. The consumption of electricity is dependent on number of factors like frequency of load shedding, type of goods produced, thickness and quality of PVC pipes, etc. The said consumption of electricity based upon various factors varies from one unit to another unit for same final product and has been held not to be sufficient evidence as held by various Courts and Tribunal [2009 (237) E.L.T. 674 (T)] in number of decisions. He relied upon the latest decision of the High Court of Allahabad in the case of CCE, Meerut I v. R.A. Castings Pvt. Ltd. [2011 (269) E.L.T. 337 (All.) = 2012 (26) S.T.R. 262 (All.)] as approved by Hon’ble Supreme Court as reported in[2011 (269) E.L.T. A108 (S.C.)]. As such, he submits that electricity consumption cannot be made the sole basis for confirmation of demand of duty. Inasmuch as there is no other evidence, he prays for setting aside the demand.
Respondent’s Contention:-Countering the arguments, learned DR submits that the appellant has already accepted that during the period from 1-1-1999 to 16-2-1999, they have indulged in clandestine production and clearance of goods, as reflected in private production register. Demand for the prior period has been confirmed by taking into account the admitted position of consumption of electricity during the period from 1-1-1999 to 16-2-1999. He further submits that appellant has himself admitted that he was receiving more goods than the goods reflected by them in their statutory records. This fact establishes that appellant was indulging in clandestine activity. Accordingly, he prays for rejection of the appeal.

Reasoning Of Judgment:- We have considered the submissions made by both sides. The appellants are not disputing the demands confirmed on the basis of entries made in the daily production records as also in the ledgers of the traders and also on the basis of raw materials supplied by the inputs supplier. The challenge in the present appeal is only to confirmation of demand on the basis of usage of electricity.

We find that apart from the electricity consumption, which according to the Revenue is much on the higher side when compared to the electricity consumed during the period 1-1-1999 to 16-2-1999, there is virtually no evidence against the appellant reflecting upon the excess production and clearance. We note that the clandestine removal is a serious charge against the assessee and inasmuch as the burden for the same is upon the Revenue, the same is required to be discharged by production of tangible and positive evidence. The contention of the learned DR that during the period 1-1-1999 to 16-2-1999, the appellants admittedly produced the higher quantum of their final products and the percentage of electricity consumption is based upon the said fact, may carry some weight leading to doubt against the assessee but the same cannot be held to be conclusive evidence so as to arrive at a finding against appellant. Merely because during the period in question the appellant was indulging in clandestine activities, would not ‘ipso facto’ lead to establish that they have been indulging in such activities even during the past period. To manufacture such a quantum of their final product, they need raw material and the actual production of the same and then the clandestine clearance to their buyers. The Revenue has neither established that as to who supplied the raw material to the appellant during the said longer period of two years. There is also no statement of any person actually doing the manufacturing activity so as to reveal that excess manufacture was done by them during the period. Further no buyer of the assessee stand identified by the Revenue. We also note that the statement of Shri Ravi Gupta only clarifies the position for the period from 1-1-1999 to 16-2-1999 and does not relate to clandestine activities for the past period. In the nutshell it can be said that there is virtually no evidence on record, except the electricity consumed, to establish the clandestine activity of the appellant.

We find that Tribunal in the case of M/s. R.A. Casting cited (supra) has considered the identical point and has categorically held that consumption of electricity, in the absence of any other corroboratory evidence, cannot be made the basis for arriving at the finding of clandestine manufacture and removal of goods. The said order stands affirmed by the Hon’ble High Court of Allahabad and further does not stand admitted by the Hon’ble Supreme Court. As such, we find that in terms of the said decision in the case of R.A. Castings, confirmation of demand of duty based upon the electricity consumption cannot be upheld. We hold accordingly.

Inasmuch as the appellants have accepted demands in respect of certain grounds, and inasmuch as bifurcation of such demand is not available before Tribunal, we remand the matter to the original adjudicating authority for quantifying the duty liability of the appellant along with the penal liability in terms of observations made and the findings arrived at.

Inasmuch as the matter is being remanded in respect of M/s. R.K. Polytubes, we deem it fit to leave the matter to the Commissioner to decide the penal liability of M/s. Fairdeal Agencies, trading unit. The appellants are at liberty to contest the said imposition on the facts and evidence as also on the legal issues.

Both the appeals are disposed of in the above terms.

Decision:-Appeals disposed off.

Comment:- The crux of the case is that consumption of electricity, in the absence of any other corroboratory evidence, cannot be made the basis for arriving at the finding of clandestine manufacture and removal of goods. The consumption of electricity is dependent on number of factors like frequency of load shedding, type of goods produced, thickness and quality of PVC pipes, etc. The said consumption of electricity based upon various factors varies from one unit to another unit for same final product and has been held not to be sufficient evidence as held by various Courts and Tribunal [2009 (237) E.L.T. 674 (T)] in number of decisions.

Prepared By: - Rakshay Tater

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PJ/Case Law /2016-17/3239

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