Commissioner Of Central Excise, Nagpur vs M/S. Shripra Alloys Ltd

(Arising out of Order-in- Appeal No. SVS/322/0323/NGP-II/2006 dtd. 13/10/2006 passed by the Commissioner (Appeals), Customs & Central Excise, Nagpur]

For approval and signature:

Honble Mr Ramesh Nair, Member(Judicial)

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1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the : CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy : seen of the Order?

4. Whether Order is to be circulated to the Departmental: Yes authorities? =======================================================

Commissioner of Central Excise, Nagpur : Appellants

VS

M/s. Shripra Alloys Ltd. Shri. Ashish Goradia : Respondent

Appearance

Shri. V.K. Shastri, Asstt. Commissioner(A.R.) for the Appellants None for the Respondent

CORAM:

Honble Mr. Ramesh Nair, Member (Judicial)

Date of hearing: 12/5/2015 Date of decision: /2015

ORDER NO.

Per : Ramesh Nair

This appeal is directed against Order-in- Appeal No. SVS/322/0323/NGP-II/2006 dtd. 13/10/2006 passed by the Commissioner (Appeals), Customs & Central Excise, Nagpur, wherein Ld. Commissioner (Appeals) dropped the demand of duty and penalty as was confirmed by the original authority. The fact of the case is that the appellant is engaged in the manufacture of Alloy Steel viz. Ingots, other Bars & Rods of silicon Magnese Steel and bars and rods of high speed steel falling under Chapter 72 of Central Excise Tariff Act 1985. On 19/4/2000, the officers of Preventive Branch, Central Excise, Nagpur visited the factory premises of the appellant and conducted physical stock verification. In scrutiny of statutory records, it revealed that in the finished product except slag stock of all other products viz. M.S. Non Alloys steel Ingots, Other alloy steel ingots, Ferrous waste and scrap etc. was found Nil. The officers conducted checks of raw material in the presence of two independent panchas and Shri. Prafulla Vaidya, Managing Director of M/s. Shripra Alloys Ltd. One Panchanama was drawn on 19/4/2004 and records were withdrawn and another panchanama was drawn on 20/4/2000 for the proceedings conducted on the day.

Four different samples of 500 grams were drawn form different corners of the heaps of read material as well as from gunny bags respectively. The sample was so called sponge iron alongwith the test memo were sent to the Chief Chemist, Central Excise Laboratory Mumbai to know whether the samples is of sponge iron or otherwise. On the basis of test report and comparison of physical stock with the booked stock, it was found that stock of 3433.540 MT was found short as compared to booked stock, accordingly show cause notice was issued, which was culminated into adjudication order No. 152/SS/ADC/2006-07 dated 19/4/2006 wherein Central Excise duty of Rs. 38,49,432/- with Rs. 16,056/- were confirmed on the shortage of inputs, interest under Section 11AB and penalty of Rs. 1 lakh under Rule, 173Q of erstwhile Central Excise Rules, 1944 read with Section 11AC of the Central Excise Act, 1944 was demanded. A penalty of Rs. 25,000/- also imposed on the Shri. Prafulla S. Vaidya, Managing Director of M/s. Shripra Alloys Ltd under Rule 209A of the erstwhile Central Excise Rules, 1944. Aggrieved by the said order the appellant filed appeal before the Commissioner(Appeals) who disposed of the appeal by dropping the demand therefore Revenue is before me.

2. Shri. V.K. Shastri, Ld. Asstt. Commissioner(A.R.) appearing on behalf of the Revenue submits that at the time of visit of the Central Excise officers in the presence of independent panchas and also in the presence of Managing Director of the company stock verification was done and there was shortage of inputs was found. Department has confirmed the demand not only on the basis of panchanama but there was further chemical test got conducted from chemical examiner therefore department carried out the process of physical stock verification, chemical test thereafter came to the conclusion that there was shortage of inputs and confirmed demand. It is his submission that once the shortage was found it has been accepted by Managing Director of the company and at the time of stock verification the position of shortage cannot be altered by any explanation therefore the original authority as rightly confirmed demand and the Ld. Commissioner has gravely erred in dropping such demand in the impugned order therefore order is not sustainable.

3. None appeared on behalf of the respondent however they filed written submission dated 27/8/2014. As per the written submission appellant submits that demand was wrongly confirmed as the quantification of the physical stock lying in the factory has not been correctly done by the officer; the physical stock of sponge iron was not considered on the basis of chemical examination report only on the ground that the chemical examiner report shows that the iron contain in stock is 60-63 % and chemical examiner as concluded that because of this low percentage of iron contains the material is not sponge iron. It is their submission that even though iron contains admittedly found 60-63%, conclusion of the chemical examiner report that it was not sponge iron is absolutely incorrect. They further submits that approximately 8500 MT of steel material had got mixed with slag lying in the factory as per the survey report of the Chartered engineer who were conducted the survey of stocks in the factory which was not considered for arriving at the shortage. It is his submission that the consumption of input were being made by applying backward calculation vis-a-vis the quantity of marketable final product because in each heap there used to be production of inferior quality of final products and all such stocks used to be re-melted in the next heat.

The Ld. Commissioner(Appeals) after appreciating the entire evidence on record and explanation put forth by the appellant disagree with the conclusion of Chemical examiner in the chemical analysis report by relying upon the standard literature on sponge iron which recognizes that sponge iron is susceptible to oxidation on being expose to moisture. The appellant further submits that difference in stock if any is mainly for the reason that entries of consumption is made on theoretical basis by making the backward calculation from weight of finished goods therefore in this method there is always differences in the physical stock and the booked stock. The respondent time and again given all the plausible explanation during the adjudication process to the adjudicating authority but all the explanation brushed aside only on the ground that every is after thought whereas their explanation and the survey report of chartered engineer could have been re-examined as the stock of the inputs were lying in the factory and it was always available for re-check or re-examination of the material. The respondent further submits that department has lead any evidences whatsoever to prove that raw-material found short was in the first instances was the modvated raw-material and secondly same had been removed from the factory.

The entire proceedings are based on conjectures and surmises that the raw material found short had been removed from the factory without payment of Cenvat credit amount.

4. I have carefully considered rival submissions.

5. From the facts of the case, I found that the demand was confirmed on shortage of inputs found by the preventive officers. During the verification of stock physical weighment of the goods was not conducted. The stock was verified high ---basis and on the basis of input output ratio which worked out on the basis of chemical examiner report. It is observed that the stock of input i.e. Sponge Iron etc. was lying in the factory in the form of head and some of the heaps were not taken into account. For the reason that either same was not considered as sponge iron or as per the chemical examination report it containes 61.3 and 62.8 % of iron contains. Though on the spot, at the time of verification of the stock by the officers, Managing director of the appellant company has accepted the shortage but he also stated that he will give his explanation later. Subsequent to visit the officers appellant has given proper explanation for the shortage such as quantification of demand was not correct for the reason that demand was calculated at the current rate whereas actual credit should have been worked out ;the stock was lying for the last two years therefore it has exposure to the nature absolutely undergone some changes.

Chemical examiner report in the one hand it says iron contains 62.8 % but in other hand it says material does not have characteristics of sponge iron. The department has not produced any evidence to establish that material lying in stock identified by respondent as sponge iron is something other than sponge iron. Department could not produce any evidence regarding clandestine removal of input said to have been found short and respondent subsequently submitted photograph which shows that heap of rejected material lying in the factory which was ignored by the department. When this discrepancy was pointed out, the department could have taken sample from said heap and ascertain what was the material this fact was intimated to the officers during the statement at least at that stage samples could have been taken. Respondent got factory surveyed by chartered engineer who had certified 8500 MT steel material mix with slag etc is lying with the factory. This vital fact was ignored by the adjudicating authority that has all the opportunity to check this fact as the material was lying as it is in the factory.

The respondent got rejected material tested at chemical laboratories which has confirmed that samples contains 46.35% iron. Respondents contention though out before the adjudicating authority was that they were accounted consumption of input on the basis of production shown in the RJ1 register which is practice in vogue in the trade. Since rejected heaps are not accounted in RJ 1 input used rejected material were not adopted. All of the plausible explanation given by the respondent have strong force. The department had all the opportunity to re-checked the material in the factory instead the adjudicating authority has straightway brushed aside all the explanation given by the respondent. However, Ld. Commissioner has very carefully considered all the material submitted before the lower authority as well as before him and allowed the appeal of the appellant with very detailed findings which is reproduced below:

From the submission of respondent made from time to time before the lower authorities, Ld. Commissioner has rightly considered and given very detail findings with proper reasoning on each and every aspect. In the present case it is not the case of Revenue that the inputs found short were either clandestinely removed or otherwise disposed of by producing any evidence. Taking into consideration that the consumption being booked by the respondent on estimation basis and also it has com on record that some of the heaps of the material was not considered for stock and some of the heaps even as though the iron contains were existing it was not taken into account on the ground that percentage of iron contains is on lower side. In view of the above discussion I do not find any infirmity in the order passed by Ld. Commissioner(Appeals) and I am with the fully agreement with his findings therefore impugned order is sustained. Appeals filed by the Revenue is dismissed.

(Order pronounced in court on _______________)

Ramesh Nair Member (Judicial)

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