Whether production estimated on average electricity consumption basis and difference deemed as clandestine removal justifiable?

PJ/Case Laws/2012-13/1358

Case:- PRAGATI STEELS PVT. LTD. Vs. C.C.E., KANPUR

Citation:- 2012 (286) E.L.T. 253 (Tn. - Del.)

Brief Facts:-The appellant in both the cases manufacture M.S. Ingots. In the case of M/s. Etah Steels Pvt. Ltd., they in addition to M.S. Ingots, also manufacture Iron and Steel Castings, and hubs for animal drawn vehicles. The M.S. Ingots are manufactured from scrap in induction furnace. In both the cases, the Department issued show cause notices to the appellants alleging suppression of production and clandestine removal of M.S. Ingots without payment of duty, on the basis that they have under-reported their production and clearances of M.S. Ingots, which is clear from the excessive power consumption for manufacture of per metric ton of Ingots - 2400 unit in case of M/s. Pragati Steel and 1700 units per M.T. in case of M/s. Itah Steel, whereas according to the department, the average consumption should be around 1067 units per M.T. It is on this basis, that in both the cases, the department estimated the production of M.S. Ingots and after comparing the same with the production recorded in the RG-1 register, has raised duty demands on alleged clandestine clearances without payment of duty. Both the show cause notices were adjudicated by the respective Adjudicating Authorities, who confirmed the duty demands -and also imposed penalty. The duty demands were confirmed by taking the average consumption of electricity per M.T. as 1100 units based on some experiment conducted in the case of M/s. Hans Casting which was adopted in both these cases. On appeal to Commissioner (Appeals), the Commissioner (Appeals) in both the cases upheld the original Adjudicating Authority's orders. Aggrieved by this order appellant filed appeal before CESTAT.

Appellant’s Contention:-The Appellant pleaded that in both the cases the show cause notices have been issued only on the basis that the average consumption of electricity for manufacture of per M.T. of M.S. Ingots is 1067 units and subsequently while adjudicating the show cause notices, the Adjudicating Authority adopted the average consumption figure as 1100 units per MT., that the figure of 1100' Per M.T. was adopted on the basis of some experiment conducted in the unit of M/s. Hans Casting, that no experiment whatsoever was conducted in the factories of the appellants for ascertaining the average power consumption, that the machinery of one appellant cannot be compared with the machinery of other manufacturers, that other than the average power consumption per MT., there is no other evidence collected by the department indicating that the appellants had under reported their production and clearances of M.S. Ingots, that on similar basis, cases of duty evasion had been booked by the department against R.A. Castings Pvt. Ltd. in Meerut-I Commissionerate and the Tribunal in this case, vide its judgment reported in 2009 (237) E.L.T. 674 (Tri. - Del.) set aside the duty demand observing that the electricity consumption cannot be the only factor for determining the duty liability in the case of an induction furnace unit, especially when the Commissioner did not prescribe the norms of electricity consumption per metric ton as per rules and there is no evidence regarding unaccounted purchase of raw material, under reporting of production or unreported clearances of finished goods, that this judgment of the Tribunal has been upheld by Hon'ble Allahabad High Court vide judgment dated 9-9-2010 [2011 (269) E.L.T. 337 (All.) = 2012 (26) S.T.R. 262 (AIL)), that the Department filed SLP to Hon'ble Supreme Court against the judgment of Hon'ble Allahabad High Court and the same was dismissed by the Apex Court vide judgment dated 31-1-2011 [2011 (269) E.L.T. A108 (S.C.)], that in view of this, the impugned orders-in-appeal are not sustainable.
The appellant further pleaded in rejoinder that in case of U.P. Alloys Pvt. Ltd. v. C.C.E., Kanpur (supra), cited by the respondent an experiment for determining the average power consumption per M.T. has been conducted but the department discarding that norm, had adopted the average power consumption of some other units and had raised the duty demand, which was not allowed, while in these cases, no such experiments had been conducted for determining the average power consumption and therefore the judgment in case of M/s. U.P. Alloys is not applicable to the facts of these cases. The appellant also pleaded that in the case of M/s. Etah Steel, the department while calculating the average power consumption per M.T. has ignored the fact in addition to M.S. Ingots they manufacture other iron products iron & steel castings and the Steel hubs for animal drawn vehicles and the entire power consumption is not in respect of the manufacture of M.S. Ingots.

Respondent’s Contention:-The Respondent defended the impugned order reiterating the findings of the Commissioner (Appeals) and pleaded that while average power consumption in the case of M/s. Pragati Steel is 2104 units per MT., the average power consumption in the case of M/s. Etah Steels 1700 unit per MT., which is too high, that it shows that the production of finished product had been under reported, that the Tribunal in the case of U.P. Alloys Pvt. Ltd. v. CCE, Kanpur reported in 2007 (213) E.L.T. 412 (Tri. - Del.) had directed that the electricity consumption per M.T. determined on the basis of experiment conducted in the factory should be adopted for estimating the actual production, and in that case the manufacturer had stated that the power consumption varies between 900 units per M.T. to 1100 units per M.T., that the power consumption of 2104 units per M.T. in case of M/s. Pragati Steel and 1700 units per M.T. in the case of M/s. Etah Steel is too high, that at this rate of power consumption, the manufacture of M.S. Ingots is not commercially viable and that in view of this, there is no infirmity in the impugned orders-in appeal.

Reasoning of Judgment:-The Tribunal has carefully considered the submissions from both the sides and perused the records. In both the appeals, the only basis of the department's case against the appellant is that their average power consumption per M.T. should be 1100 units and it is on this basis the production of M.S. Ingots in the case of both the appellants has been estimated and after comparing the same with the production recorded in their RG-1 register, the allegation of under reporting of production and clandestine clearance of unreported production, without payment of duty has been made. No experiment for determining the average power consumption for production of one M.T. of M.S. Ingots has been conducted and the figure of 1100 per M.T. has been adopted from some experiment conducted in the unit of M/s. Hans Casting. In Tribunal’s view, the power consumption of one induction furnace unit cannot be compared with the power consumption of other unit without ascertaining the type of furnace, the technology used, the age of the machinery, power supply pattern and, the type of scrap used and for this, the only reliable method is to conduct actual experiment in the unit and ascertain the average power consumption per M.T. which has not been done in these cases. In view of this, The Tribunal view that adopting of power consumption norm of another unit is arbitrary and the confirmation of duty demand on this basis would not be sustainable. The Tribunal finds that same view has been taken in the case and the Tribunal judgment in the case of R.A. Castings Pvt. Ltd. v. CCE, Meerut-1 (supra), which has been upheld by the Hon'ble Allahabad High Court and the department's appeal has been dismissed by the Apex Court. In view of this, the impugned orders are not sustainable.

Decision:-The Order is set aside and appeals are allowed.

Comment:- The analogy drawn from this case is that demand cannot be confirmed on the assessee on the basis of assumptions and presumptions and the average electricity consumption of one unit cannot be taken as a base to calculate production of other unit.

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PJ/Case Laws/2012-13/1358

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