M/S Mpk Products Pvt. Ltd vs Cce, Jaipur

Excise Appeal No. 1359-1362 of 2009 and 1905-1906 of 2010 with Misc. Application Nos. 52366-52369 of 2014

[Arising out of the Order-in-Original No. 15/2009 (CE) dated 12/03/2009 passed by The Commissioner, Central Excise Commissionerate  I, Jaipur.]

For Approval and signature :

Honble Shri Rakesh Kumar, Member (Technical)

Honble Shri S.K. Mohanty, Member (Judicial)

1. Whether Press Reporters may be allowed to see :

the Order for publication as per Rule 27 of the

CESTAT (Procedure) Rules, 1982?

2. Whether it would 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 of the order?

4. Whether order is to be circulated to the :

Department Authorities?

M/s Everest Rolling Mills Pvt. Ltd. ]

Shri Suresh Kumar Agarwal, Director ]

M/s MPK Products Pvt. Ltd. ] Appellants

Shri Suresh Kumar Sharma, Director ]

M/s Khetan Alloys Pvt. Ltd. ]

Shri Rajendra Kumar Khetan, Director ]

Versus

CCE, Jaipur Respondent

Appearance

Shri Bipin Garg, Advocate  for the Appellant.

Shri Pramod Kumar, Authorized Representative (Jt. CDR)  for the Respondent.

CORAM : Honble Shri Rakesh Kumar, Member (Technical)

Honble Shri S.K. Mohanty, Member (Judicial)

Final Order No. 51404-51409/2015 Dated : 23/04/2015

Per. Rakesh Kumar :-

The facts leading to filing of these appeals are, in brief, as under.

1.1 Each of three appellants are rolling mills engaged in the manufacture of Mild Steel Rolled products i.e. MS Bars, Angles, Flats etc. chargeable to Central Excise duty under heading 7214 of the Central Excise Tariff. While Shri Suresh Kumar Aggarwal is the Director of M/s Everest Rolling Mills Pvt. Ltd. (hereinafter referred to as M/s Everest), Shri Suresh Kumar Sharma is the Director of M/s MPK Products Pvt. Ltd. (hereinafter referred to as M/s MPK) and Shri Rajendra Kumar Khetan is the Director of M/s Khetan Alloys Pvt. Ltd. (hereinafter referred to as M/s Khetan). The period of dispute in the case of M/s Everest is from May 2003 to September 2003, the period of dispute in the case of MPK is from April 2003 to September 2006 and in the case of M/s Khetan, the period of dispute is from May 2004 to September 2006.

1.2 The raw material for the appellant unit is MS Ingots. The factory premises of M/s Nirmal Inductoment Pvt. Ltd. (hereinafter referred to as NIPL) were searched on 03/10/05 and from the records recovered from them, it appeared that M/s Everest during the period from 02/08/05 to 01/10/05 had received 261.96 MTs of MS Ingots from NIPL, but in their records they had shown the receipt of only 118.260 M.T. of MS Ingots from NIPL and 143.32 MT of MS Ingots appeared to have been received by M/s Everest from NIPL without accountal. Similarly, in the case of M/s MPK, from the records of NIPL from 02/8/05 to 01/10/05 it appeared that M/s MPK had received 80.38 MT of MS Ingots from NIPL but M/s MPK in their records had showed only 40.17 M.T. of Ingots and hence the receipt of 40.21 M.T. of MS Ingots by MPK appeared to be unaccounted. In the case of M/s Khetan, it was found that as per the records of NIPL, M/s Khetan during the period from 02/8/05 to 01/10/05 had received 79.95 M.T. of MS Ingots from NIPL but as per the records of M/s Khetan, they had received only 40.03 M.T. and thus it appeared that they had received of 39.53 MT of MS Ingots by M/s NIPL without an accounted.

1.3 M/s NIPL as per their records had supplied the MS Ingots without issue of invoice to a number of other rolling mills also. M/s NIPL filed an application before the Settlement Commission for settlement of their case.

1.4 Based on the records of NIPL regarding supplied of MS Ingots to various manufacturers including the three appellants in this case, it appeared that the appellants were receiving unaccounted MS Ingots for use in the manufacture of rolled products and such unaccounted manufacture of rolled products was being cleared clandestinely without payment of duty. Though the inquiry was made with the Directors of the appellant company, they denied the receipt of any unaccounted goods from NIPL. However, the officers inquired into the electricity consumption of the appellant units. In this regard, the officers studied the electricity consumption of another rolling mill M/s Shree Sharma Steel Rolling Mills, Jaipur (hereinafter referred to as SSSRM) and it was found that the average electricity consumption of this rolling mill is 102.09 units per MT. By adopting this yard stick of the power consumption for manufacture of one M.T. of rolled products, the officers, after determining the total electricity consumption of the appellant units during the period of dispute, determined their production of rolled products by dividing their total electricity production during the period of dispute by 102.09 units per M.T. On this basis, in the case of M/s Everest, their production of rolled product during the period from May 2003 to September 2006 was determined as 15677.27 M.T. as against their recorded production of 6838.44 M.T. during this period and accordingly it was alleged that they have cleared 8838.82 M.T. of rolled products involving duty of Rs. 2,88,00,377/- clandestinely without payment of duty. In the case of M/s MPK products, their production during the period from April 2003 to September 2006 was determined as 8750.98 MT against which they had shown the production of 4070.479 M.T. and, thus, it appeared that M/s MPK, during the period from April 2003 to September 2006 had cleared clandestinely 4680.51 MT of rolled products involving duty of Rs. 1,60,85,657/- without payment of duty. In the case of M/s Khetan, the officers estimated their production during the period from May 2004 to September 2006 as 14176.32 MT against which the production shown in their records was 5657.041 MT and thus it appeared that they have cleared 8570.32 MT of rolled products involving duty of Rs. 2,89,14,441/- clandestinely without payment of duty.

1.5 It is basis of the above investigation that three show cause notices issued to the appellants for demand of the Central Excise duty mentioned above from them alongwith interest thereon under Section 11AB and also for imposition of penalty on them under Section 11AC and the Central Excise Act 1944 and for imposition of penalty on their Directors Shri Suresh Kumar Aggarwal, Shri Suresh Kumar Sharma and Shri Rajendra Kumar Khetan under Rule 26 of the Central Excise Rules. The above show cause notices were adjudicated by the Commissioner of Central Excise, Jaipur one by three separate order-in-original No. 15/09/CE/Commr dated 12/3/09, No. 10/09/CE/Commr dated 12/9/09, No. 10/10/CE/Commr dated 01/4/10 by which the above-mentioned duty demands were confirmed against the appellant companies alongwith interest on the duty under Section 11AB of Central Excise Act, 1944 and beside this, while penalty of equal amount was imposed on each appellant company under Section 11AC ibid, penalty under Rule 26 of the Central Excise Rules, 2002 of Rs. 25,00,000/-, Rs. 10,00,000/- and Rs. 20,00,000/- was imposed on Shri Suresh Kumar Aggarwal, Director M/s Everest, Shri Suresh Kumar Sharma, Director M/s MPK and Shri Rajendra Kumar Khetan, Director of M/s Khetan respectively.

1.6 Against the above order of the Commissioner, these appeals have been filed.

1.7 The miscellaneous applications have been filed for extension of stay orders.

2. Heard both the sides.

3. Shri Bipin Garg, Advocate, the learned Counsel for the appellant, pleaded that the appellant have not received any unaccounted quantity of MS Ingots from NIPL, that though the Department alleges that M/s Everest, M/s MPK and M/s Khetan during the period from 02/8/05 to 01/10/05 have received 143,32 MT, 40.21 MT and 39.93 MT respectively of MS Ingots from NIPL without any accountal and without invoices, this allegation is based only the ledger book entries of NIPL, that other than the entries in the ledger book of NIPL, there is no other independent evidence of unaccounted receipt of MS Ingots by the appellant from NIPL, that it is well settled law that the duty demand against the assessee cannot be confirmed merely on the basis of third party records and in this regard he relies upon the judgments of the Tribunal in the cases of CCE, Indore vs. Rajratan Synthetics Ltd. reported in 2013 (297) E.L.T. 63 (Tri.  Del.), CCE, Coimbatore vs. Chola Spinning Mills (P) Ltd. reported in 2009 (92) R.L.T. 731 (CESTAT  Che.), Rama Shyama Papers Ltd. vs. CCE, Lucknow reported in 2004 (168) E.L.T.

494 (Tri.  Del.) and Sunhill Ceramics Pvt. Ltd. vs. CCE, Rajkot reported in 2007 (217) E.L.T. 353 (Tri.  Ahmd.), that in view of this, the allegation of unaccounted receipt of MS Ingots by the appellants from NIPL during the period from 02/8/05 to 01/10/05 and its use in the manufacture of unaccounted rolled products and its clearances without payment of duty is without any basis, that in any case, the Department has not demanded duty from the appellants companies on this basis, that the Department has adopted the yard stick of power consumption of SSSRM  102.09 units per MT of the rolled products in respect of the rolling mills of the appellants and on this basis has estimated their production, that the power consumption in the case of the appellant units varies from 225 unit per MT to 275 units per MT, that the rolling mills of the appellants had been inspected by the National Institute of Secondary Steel Technology (NISST) under the Ministry of Steel, Government of India and the NISST had conducted study of the power consumption of the appellant unit and according to the report of NISST, which is also part of the records of each of these appeals, the average power consumption of the appellant units is 230 unit per MT, that there is also notification dated 22/8/05 issued by the Government of Rajasthan under the composition scheme for manufacturers of rolled products of mild steel, that this notification has been issued by the Government of Rajasthan for the purpose of charging sales tax and in this notification the average power consumption of the medium size rolling mills manufacturing rolled products from Ingots has been taken as 225 units per MT, that in view of this, adopting the yard stick of 102.09 units per MT of SSSRM to the appellant units is totally arbitrary, that the rolling mill of SSSRM is an automatic rolling mill while the rolling mills of the appellant companies are manual, that the fact that rolling of M/s SSSRM is automatic rolling mill stand admitted by the Commissioner in para 40.05 of its order in the case of M/s Everest but the Commissioner has wrongly dismissed the appellants plea on the ground that the rolled products being manufactured M/s SSSRM consume more power, that in any case the power consumption also depends upon the thickness of the rolled products being manufactured and the lesser is the thickness of the rolled products, the more would be the consumption, that in view of this, without going into the specifications of the rolled products being manufactured by the appellants and the type of their machinery it is totally arbitrary to adopt the power consumption normal of SSSRM to the appellant units, that the proceedings had been initiated on the same basis against two other rolling mills M/s Natani Rolling Mills Pvt. Ltd., Jaipur and M/s Shiv Prasad Mills Pvt. Ltd., Jaipur and the Commissioner, Central Excise, Jaipur  I vide order-in-original dated 28/12/12 in the case of M/s Natani Rolling Mills and order-in-original dated 31/12/12 in the case of M/s Shiv Prasad Mills has dropped the proceedings, that in view of this, there is absolutely there is no justification for confirmation of duty demands in the cases of the appellant, that in the case of M/s MPK during November 2004 the average power consumption was 1354.44 Units per MT and the reason for the same was that the production during November 2004 was only 3.617 MT, that there is absolutely no justification for adopting the power consumption norm of 102.09 units per MT of SSSRM which is an automatic rolling mill to the rolling mills of the appellant companies which are manual, as while the daily production of SSSRM of 220 MT to 250 MT, in the case of the appellant unit, the daily production is 12 MT to 15 MT, that at the most, the power consumption norm could be applied only of the appellant units after determining the same by conducting study in this regard, that it is absolutely incorrect to apply the power consumption norm of another unit to the rolling mills of the appellant companies without ascertaining their actual power consumption by conducting experiment, that merely on the basis of the power consumption norms the duty demand cannot be confirmed against the appellant companies, more so, when no study or experiment has been conducted in the case of the appellant units to determine their actual power consumption, that in this regard he relies upon the judgment of the Tribunals in the case of R.A.

Castings Pvt. Ltd. vs. CCE, Meerut  I reported in 2009 (237) E.L.T. 674 (Tri.  Del.), that Departments appeal against this judgment was rejected by Honble Allahabad High Court vide judgment reported in 2011 (269) E.L.T. 337 (All.) and the SLP filed against the judgment of Honble Allahabad High Court was dismissed by the Apex court in the judgment reported in 2011 (269) E.L.T. A108 (S.C.), that same view has been taken by the Tribunal in the case of Bhawani Shanker Castings Ltd. vs. CCE, Jalandhar reported in 2009 (246) E.L.T. 332 (Tri.  Del.) and the Departments appeal against this judgment was dismissed by Honble Punjab & Haryana High Court vide judgment reported in 2012 (275) E.L.T. A57 (P&H), that same view has been taken by the Tribunal in the cases of Trikoot Iron and Steel Casting Ltd. vs. CCE, Meerut reported in 2015 (315) E.L.T. 65 (Tri.  Del.) and in the case of Pragati Steels Pvt. Ltd. vs. CCE, Kanpur reported in 2012 (286) E.L.T. 253 (Tri.  Del.), that recently the Tribunal in the case of SRJ Peety Steels Pvt. Ltd. and others vs. CCE, Aurangabad reported in 2014  TIOL  1530  CESTAT  MUM has held merely on the basis of arbitrarily adopted power consumption norm, as duty demand cannot be confirmed against the steel ingots manufacturers, that Apex court in the case of Oudh Sugar Mills Ltd. vs. Union of India reported in 1978 (2) E.L.T.

(J 172) (S.C.) has held that allegation on clandestinely production and clandestine removal based only calculations of raw material fed into the process or working of the machinery as noticed during test inspection without any tangible evidence on record of clandestine manufacture and its removal, is not sustainable, that in the present case not even inspection/study has been conducted to ascertain the power consumption norm and power consumption norms of another rolling mills  SSSRM has been arbitrarily adopted to the rolling mills of the appellant companies and that in view of above, the impugned orders are not sustainable.

4. Shri Pramod Kumar, the learned Jt. CDR, defended the impugned order by reiterating the findings of the Commissioner and pleaded that each of the appellant units during period from 02/8/05 to 01/10/05 had received unaccounted MS Ingots from the ingots manufacturer NIPL, that this fact is evident form the ledger book of NIPL for this period, that this shows that the appellant units were engaged in the receipt of unaccounted MS Ingots and unaccounted manufacture of rolled products and their clandestine clearance, that in view of this, the Investigating Officers have correctly applied the power consumption norm of SSSRM for determining the actual production of rolled products, that power consumption in the case of M/s Everest has varied from 289 units per MT in July 2005 to 150 units per MT in June, 2003, and that the power consumption norm of SSSRM is correct, as even though the SSSRM is an automatic rolling mils, the product being manufactured by that unit are TMT bars which consume more power and, therefore, on an average the power consumption norm of the appellant unit would be comparable with the power consumption norm of SSSRM. Shri Pramod Kumar also pleaded that when as per the records of NIPL they had supplied certain quantity of MS Ingots to the appellants during the period from 02/8/05 to 01/10/05 and these unaccounted supplies including unaccounted supply to other rolling mills have been admitted by them before the Settlement Commission and their case has been settled by the Settlement Commission for an amount of Rs. 55,00,000/-, the inevitable conclusion would be that during this period, the appellants units were receiving unaccounted ingots from NIPL and were using the same for unaccounted manufacture of rolled products, which were being cleared clandestinely without payment of duty and when there is clear evidence on record to prove that the appellant were indulging in duty evasion, their production has been correctly estimated on the basis of their power consumption. He, therefore, pleaded that there is no infirmity in the impugned orders.

5. We have considered the submissions from both the sides and perused the records.

6. The appellant are manufacturers of rolled products, the raw material for which is MS Ingots. There is no dispute that NIPL was one of their supplier of MS Ingots. The investigation in respect of the appellant unit started when the unit of NIPL was visited by the Central Excise officers on 03/10/05 and their sales of MS Ingots to various rolling mills were ascertained on the basis of the entries in their private ledger books. It was found that NIPL were not showing the entire quantity of MS Ingots sold by them to various customers in the RG-1 register and were paying duty on much lesser quantity. Since the appellant unit  M/s Everest, M/s MPK and M/s Khetan were among the customers of NIPL, the quantity of MS Ingots supplied by NIPL to these units during period from 02/8/05 to 01/10/05 as per the entries of NIPL ledger book was compared with the supplies as per NIPL records in respect of which the invoices had been issued. It is on this basis it is alleged that during the period from 02/8/05 to 01/10/05 M/s Everest, M/s MPK and M/s Khetan have received 143.32 MT, 40.21 MT and 39.93 MT of unaccounted MS Ingots from NIPL. However, the duty demand against M/s Everest, M/s MPK and M/s Khetan is not on this basis. The above evidence in form of entries in the private ledger book of NIPL has been treated as the evidence of unaccounted receipt of MS Ingots by the appellants and its use in unaccounted manufacture of rolled products and their clandestine clearance. The duty demand has been calculated by estimating the production of rolled products of the appellant units during the period of dispute on the basis of their power consumption by applying the norm of 102.09 units per MT in respect of SSSRM. It is on this basis that the duty demands of Rs. 2,88,00,377/-, Rs. 1,60,85,657/- and Rs. 2,89,14,441/- have been confirmed against M/s Everest, M/s MPK and M/s Khetan respectively alongwith interest and imposition of equal amount of penalty on them under Section 11AC and beside this, imposition of penalty under Rule 26 of the Central Excise Rules, 2002 on their Directors.

7. Thus the evidence in support of Departments allegation of duty evasion against the appellants is  (a) entries in the private ledger book of NIPL which showed supply of certain quantity of MS Ingots to the appellants during period from 02/8/05 to 01/10/05 for which no invoices have been issued by NIPL and (b) power consumption per MT of rolled products in the case of SSSRM  102.09 units per MT while the same in the case of the appellant units is from 225 units per MT to 275 units per MT.

7.1 Though the Department also refers to the statements of the Directors of the appellant unit but on going through the same, it is seen that there is nothing inculpatery in their statement admitting the receipt of unaccounted raw material and its use in unaccounted production of rolled products and its clearance.

7.2 The point of dispute is as to whether on the basis of the above evidence, the Commissioners orders confirming the above-mentioned duty demands against the appellants and imposing penalty on them can be upheld.

8. The Apex court in the case of Kishin Chand Chella Ram vs. Commissioner of Income Tax reported in 1980 (Supp) SCC  660 (para 6) has held that when the allegation of tax evasion against an assessee is based on the entries in records and account books of another person such an allegation of tax evasion cannot be upheld against the assessee unless the cross examination of the person from whom records had been recovered has been allowed. In this case, no such cross examination of the concerned persons of NIPL who had made entries in the ledger books had been allowed. Therefore, the entries in the ledger book of NIPL by themselves cannot be treated as an evidence of the appellants having received certain quantity of unaccounted MS Ingots and having used that quantity in unaccounted production of rolled products and their clandestine clearance. In this regard we are also supported by the Tribunals judgments in the cases of CCE, Indore vs. Rajratan Synthetics Ltd. reported in 2013 (297) E.L.T. 63 (Tri.  Del.), CCE, Coimbatore vs. Chola Spinning Mills (P) Ltd. reported in 2009 (92) R.L.T. 731 (CESTAT  Che.), Rama Shyama Papers Ltd. vs. CCE, Lucknow reported in 2004 (168) E.L.T. 494 (Tri.  Del.) and Sunhill Ceramics Pvt. Ltd. vs. CCE, Rajkot reported in 2007 (217) E.L.T. 353 (Tri.  Ahmd.).

9. The next question arises as to whether merely on the basis of the power consumption norm of SSSRM, the actual production of rolled products of the appellant units can be estimated on the basis of their power consumption and whether on this basis the duty on the alleged unaccounted production can be demanded. There is no dispute that no experiments or studies have been conducted by the Department in respect of the rolling mills of the appellant companies to determine their average power consumption for production of one MT of rolled products. The appellants contention is that while the rolling mill of SSSRM is an automatic rolling mill whose production is 220 to 250 MT of rolled products per day, the rolling mills of the appellants are manual rolling mills which produce of rolled product per day 12 MT to 15 MT and the power consumption per MT of the rolled products of the appellant units is not comparable with the same in the case of SSSRM. In this regard, we find that the Commissioner in para 40.05 of the order in the case of M/s Everest has accepted that the rolling mills of SSSRM is automatic rolling mill, but he has still applied the power consumption norm of SSSRM to the appellant unit, on the ground that the products being manufactured by SSSRM are CTD bars which consume more power while the products being produced by the appellant consume lower power.

In our view this assumption is an arbitrary assumption without any basis and without conducting any study or experiment in this regard. On the other hand, the rolling mill each of the three appellants was studied by NISST, an Institute under the Ministry of Steel of Government of India and as per the study of NISST, the power consumption in the case of the rolling mills of each of the appellants is around 230 units per MT. Beside this, we also find that in the notification dated 22/8/05 issued by the Government of Rajasthan under composition scheme for manufacturers of rolled products of mild steel which is a notification issued for charging sales tax under compounded levy scheme from rolling mills, the power consumption norm of ingots based immediate scale rolling mills without any repeaters is mentioned as 225 units per MT. The lower power consumption norm of 180 units per MT is in respect of Ingots based large scale/semi automatic manufacturing units. There is no dispute that the rolling mills of the appellants are not even semi-automatic but are manual and, therefore, in terms of this notification of the Government of Rajasthan their power consumption norm would be 225 units per MT.

In view of this, we hold that the power consumption of SSSRM cannot be applied to the appellant units for estimating their actual production on the basis of their power consumption, more so, when absolutely no study or experiment has been conducted by the Department in support of its claim that the actual power consumption of the appellant unit is 102.09 units per MT. The Apex court in the case of Oudh Sugar Mills Ltd. vs. Union of India (supra) has held that the allegation of clandestine production and removal based only on calculations of raw material fed into the process or working of machinery as noticed during test inspection without any tangible evidence on record in support of clandestine production and its removal, would not be sustainable. In our view, the ratio of this judgment of the Apex court is applicable to this case, as in these cases not even inspection or study has been conducted to determine their actual power consumption norm. Beside this, neither any evidence unaccounted purchase of raw material nor there is any evidence of clandestine/ unaccounted clearances of final product.

Merely on the basis of an arbitrarily adopted power consumption norm, the production of an assessee on the basis of his power consumption cannot be estimated and duty demand cannot be affirmed against him on this basis. We find that same view has been taken by the Tribunal in the case of R.A. Castings Pvt. Ltd. vs. CCE, Meerut  I (supra) and this judgment of the Tribunal has been affirmed by Honble Allahabad High Court vide its judgment reported in 2011 (269) E.L.T. 337 (All.) and the SLP filed against the judgment of Honble Allahabad High Court was dismissed by the Apex court in the judgment reported in 2011 (269) E.L.T. A108 (S.C.). Same view has been taken by the Tribunal in the case of Bhawani Shanker Castings Ltd. vs. CCE, Jalandhar (supra) and this judgment also has been affirmed by Honble Punjab & Haryana High Court vide judgment reported in 2012 (275) E.LT. A57 (P&H).

7. In view of the above discussion, we hold that the impugned orders are not sustainable. The same are set aside. The appeals are allowed. Miscellaneous applications for extension of stay also stand disposed.

(Pronounced in open court on 23/04/2015.)

(Rakesh Kumar)

Member (Technical)

(S.K. Mohanty)

Member (Judicial)

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