Solo Steel Co. (P) Ltd vs Commissioner Of Central Excise, ...

(Arising out of Order-in-Appeal No. SB/78/Th.I/10 dated 29/06/2010 passed by Commissioner of Central Excise (Appeals), Mumbai-I)

For approval and signature:

Honble Mr. M.V. Ravindran, 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 : No 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?

====================================================== Solo Steel Co. (P) Ltd. Appellant Vs. Commissioner of Central Excise, Thane-I Respondent

Appearance: Shri A.M. Chituri, Consultant Shri K.R. Rathi, Advocate, for Appellant Shri S.V. Nair, Supdt. (AR), for Respondent

CORAM: Honble Mr. M.V. Ravindran, Member (Judicial)

Date of Hearing : 27/10/2015 Date of Decision : 27/10/2015

ORDER NO

Per: M.V. Ravindran

This appeal is filed against Order-in-Appeal No. SB/78/Th.I/10 dated 29/06/2010.

2. Filtering out unnecessary details, the relevant facts that arise for consideration, appellant is a manufacturer of MS Ingots and is registered with the department. On a visit made to the appellants factory, officers noticed, shortage of MS scrap to the tune of 30.85 Metric Tonnes. A show cause notice was issued after recording statements of various persons, demanding of Central Excise duty of Rs. 93,736/-, interest thereof and also for imposition of penalties under provisions of rules 25 of the Central Excise rules 2002, alleging appellant has manufactured the ingots out of such short found raw materials and cleared without payment of appropriate duty. Appellant did not file any reply to the show cause notice nor appear for the personal hearing granted by the adjudicating authority. The adjudicating authority based upon the records available before him, confirmed the demands raised and also imposed penalties and demanded amount of interest and ordered for penalties of Rs. 4,35,000/-, on shortage of scrap.

3. Aggrieved by such an order, an appeal was filed before the first appellate authority. The first appellate authority after granting a personal hearing, upheld the order-in-original.

4. Learned counsel brings to my notice that the discrepancies in the stack taking done by the departmental officers. It is her submission that the entire exercise and recording the shortage was done on eye estimation. She would draw my attention, to the statement recorded of the factory manager, its indicates that there was no weighing done but entire stock is taken by eye estimation, it is her further submission that the demand of duty liability is on the ground that the short found MS scrap is converted and clandestinely cleared. It is her submission that the issue is now squarely covered by the majority order given by this bench, in the case of Aum Aluminium P. Ltd. Vs. CCE Vadodara 2014 (311) ELT 354 (Tri.A) and also for the submission that rule 25 cannot be invoked for in the case, as demand of duty is on the raw materials.

5. Learned departmental representative on the other hand would draw my attention to the very same Panchnama annexed to the appeal memoranda and submits that the appellant himself has accepted the shortage of MS scrap, hence question of disputing the shortage of Scrap now, by the counsel is incorrect; it is his further submission that the responsible person from appellants factory has accepted the shortage of the scrap and has also paid the duty, interest and 25% of the amount as penalty under section 11AC of Central Excise Act, 1944. It is his further submission that the various grounds taken by the learned counsel is before the tribunal, and not taken before the lower authorities, having accepted the shortage now cannot turnaround and submit that the entire exercise is incorrect.

6. After hearing both sides and perusal of the records, I find that the amount confirmed by the lower authorities is incorrect for more than one reason.

6.1. Firstly, the records attached to the Panchnama and statements of the factory manager, clearly indicate that the weighment and shortage of raw materials as ascertained was based upon eye estimation. The statement of factory manager clearly indicates that said weighment done by the officers of 1242 Metric Tunes of MS scrap, will be time consuming and the entire exercise is based on eye estimation. I also find that there is nothing on the record to show that weighment was done by the officers systematically.

6.2 Secondly, the show cause notice indicates that the demand of the duty is on the presumptive manufacturing of Ms ingots out of the shortage of MS scrap noticed by the officers during the course of panchnama on 17.03.2007, both the lower authorities have not recorded any evidence to come to such a conclusion that the appellant had manufactured such ingots and cleared the same clandestinely.

7. I find that the similar issue was decided by the majority order in the case of Aum Aluminium P. Ltd. (supra). I reproduce the relevant paragraphs of the order.

61.?I find that in the peculiar facts of this case, for confirming the charges and for accepting the evidence adduced, a series of assumptions and presumptions are to be made, which is addressed hereunder :

(i) The production capacity of the plant and machinery for manufacture of Aluminum Sections, though being old, is able to produce the entire installed capacity of 600 MT per annum. As per the appellant, the production capacity with such machines, is not sufficient to manufacture the alleged huge quantity alleged to be removed in clandestine manner, and moreover the experts i.e. chartered engineers after visiting and considering the working of the plant, has certified that the production that can be produced by working of the machine, can at most be 430 MT per annum.

As rightly observed by the Honble Member (J), the working of the machines in the appellants factory was verified to ascertain the production capacity of the machines installed. This verification was done at the instance of the adjudicating authority. It is indeed noted by the Honble Member (Judicial) that the authority had caused inspection of the working of the appellants manufacturing activity of finished goods Aluminum Section, by a team of officers. Though their report is not on record, but the adjudicating authority, in his Order-in-Original at Paragraph 5.1.3, has recorded tacitly that the appellant had no capacity to manufacture Aluminum Sections more than 430 MT per annum. There is no evidence of additional employees having been employed to enhance the production, nor is there any evidence of excess wages having been paid to the existing employees. However, it is to be assumed that the factory was continuously running in full and the appellant could have manufactured the finished goods by clandestinely manufacturing the same. The justification given by the adjudicating authority that the aluminum sections could have been manufactured from job workers, is a meek response to the factual matrix that the appellant had no capacity to manufacture more than 430 MT per annum of aluminum sections.

(ii) It is presumed and assumed by the adjudicating authority that the appellant had the capacity to produce the final product held as cleared clandestinely i.e. finished goods Aluminum Sections. It is presumed that the appellant had procured furnace oil and not accounted the same and has also procured aluminum scrap for the purpose of manufacturing of aluminum billets from which further manufacturing of aluminum sections took place. The adjudicating authority has relied upon the evidences of procurement of furnace oil from IOCL/HPCL.

The said evidences does not carry the case of the Revenue any further as the furnace oil which was allegedly purchased and unaccounted by the appellant was from IOCL/HPCL. It is common knowledge that IOCL/HPCL effects the delivery of the furnace oil on advance payment and such advance payment has to be made by demand draft. In the first round of litigation before Tribunal, the Tribunal has noted this point and directed the adjudicating authority to verify and call for the records of payments made for the furnace oil cleared in the name of appellant. In these de novo adjudication proceedings, I find that the adjudicating authority has not given effect to the direction given by the Tribunal. Suffice it to say that the said direction would have given some evidence to arrive at proper conclusion, I find that the adjudicating authority should have gone into details of the payments made for the purchases of furnace oil recorded in appellants name and could have come to a conclusion as to who made the payments for the furnace oil which was cleared from IOCL/HPCL and remained unaccounted by the appellant. In the absence of any such information, despite clear direction from the Tribunal, I find it difficult to hold that the furnace oil was procured by the appellants and utilized the same without accounting for in records. Furthermore, it gives a chance and scope to explore the possibility to the appellants contention that Shri G.G. Bansal, one of their senior employee, was engaged in the activity of trading in furnace oil by procuring the same in the name of the appellant. It would also be not out of place to mention that during the relevant period, the furnace oil was allotted only to those persons who have quota. In my view, in the absence of further investigation as to who made the payment for the furnace oil cleared in appellants name, the same cannot be attributed to as unaccounted purchases of appellant.

(iii) It is presumption that the appellant had or could have manufactured the aluminum sections from the job workers, is totally without any evidence as adjudicating authority was not able to bring on record as to who were the job workers who manufactured the aluminum sections for the appellant which were clandestinely removed. Secondly, the adjudicating authority has also not produced any evidence as to removal of billets from the appellants factory to the job worker. All the removal of billets from the appellants factory to job workers, if any, is as per proper procedure.

Assuming that the appellant could have manufactured the aluminum sections from their job workers, the question remains as to who has to discharge the duty liability on such aluminum sections i.e. finished goods. It is well settled law that the job worker who manufacture the final product out of the raw material supplied, becomes a manufacturer and is liable to discharge duty on such finished product. The discharge of duty liability by a job worker is deferred and shifted to a principal who has supplied the raw material, only in the cases where the principal has agreed or filed a declaration to follow the procedure for the purpose of manufacturing the goods in the job workers premises. In the entire case of records, I find that, though the adjudicating authority has based his findings on presumption of manufacturing of aluminum sections at job workers premises, there is no evidence regarding the name of the job worker, premises of the job worker, and the undertaking given by the appellant, if any, for manufacturing such finished goods from the job workers and giving a declaration to discharge the duty liability. It is also to be recorded that there is no inculpatory statement of any of the persons regarding the clandestine manufacturing of aluminum sections from job worker. In the absence of any evidence, this presumption is totally erroneous and cannot be held against the appellant.

(iv) It is assumed by the adjudicating authority that the appellants activity of not recording the furnace oil and isolated purchases of aluminum scrap and not accounting the same in books of records, has resulted in manufacturing of aluminum sections, which were clandestinely removed.

This is again an assumption without any evidence. It is the findings in the Order-in-Original by the adjudicating authority that for manufacturing of aluminum sections, the aluminum billets have to be manufactured. It is also on record that aluminum billets are manufactured by melting aluminum scrap in furnace, wherein the furnace oil is used for heating of furnace. In my considered view, the worst case against the appellant, if any, could be clandestine manufacturing of aluminum billets in the appellants factory. The entire show cause notice along with its annexures do not propose the charge of clandestine manufacturing and clearance of aluminum billets from the appellants factory. The entire show cause notice and annexures thereto proceeds on the ground that the appellant had clandestinely manufactured the aluminum sections and cleared the same without payment of duty. It is also on record that, for manufacturing of aluminum sections from the aluminum billets, only power is consumed for working of dies and moulds, and no further material is consumed. It is demonstrated from the records that the power consumption of the appellants factory during the relevant period remained same, as per the standard for the manufacturing activity of aluminum sections. It is also on record that the appellant did not have any Diesel Generating sets for the production of electricity which could have consumed for manufacturing of aluminum sections, allegedly clandestinely manufactured. In the absence of any such evidence, the presumption of consumption of furnace oil and aluminum scrap which was not accounted by the appellant, does not lead the Revenues case any further, than to a suspicion that the appellant could have clandestinely manufactured aluminum billets, which is not the charge in proceedings.

(v) It is to be assumed that transporters records which were unearthed by the investigating authority indicated that in the booking registers/memos/LRs, many consignments were cleared by the appellant for which there was no corresponding Central Excise documents found in the factory premises of the appellant.

This evidence which has been relied upon by the Revenue, will not carry the case of Revenue any further, as admittedly, the booking registers, memos, registers were maintained by the transporters. It is also seen that during the cross-examination, the transporters have specifically admitted and accepted that the booking registers/memos, does not conclusively establish that the goods have been transported by them, as these are only tentative indication of requirement of the vehicle for movement of the goods. It is also seen that all the transporters have in their statements, categorically stated that the goods transported by them from the appellants factory were covered by valid Central Excise invoices and it has not been disputed by the Revenue, nor it is the case of the Revenue that the appellant was issuing duplicate/parallel invoices. It is also to be noted that the transporters were paid by the appellant only way of account payee cheque, which were duly recorded in the books of account and there is no finding. Co-relating such payments made to the transporters to the clearances which were sought to be allegedly clandestinely affected by the appellant. I find that the Hon. Member (Judicial) was correct in relying upon the judgment of Raj Petroleum Products, Durga Trading Co. (supra), Brims Products (supra). Raj Sundeep Co. Gian Singh (supra), for the proposition that the transporters records are not relevant for the purpose of proving allegations of clandestine removal of the goods. It is also to be admitted that there is no presumption under Section 36A regarding truth and accuracy of third party records, in which cases, such transporters are not being jointly tried with the accused, which is a fact in this case.

(vi) There is no further investigation as to whom the goods were clandestinely cleared and sold, despite the fact that there was seizure of finished goods from the premises of M/s. Vinviv and M/s. Allied Aluminum on the pretext that the same were clandestinely removed goods. The said goods were released on the ground that there was no evidence of identifying the said goods from whom the clandestine clearances were made. In this case, it is admitted fact that 95% of the goods sold by the appellant are cleared to M/s. Vinviv and M/s. Allied Aluminum, M/s. Chitra Hardware. If that be so, in the absence of corroborative or cogent documentary evidence, the entire case of the Revenue falls.

(vii) There is no dispute on the fact that in adjudication proceedings, the charge of clandestine removal is definitely to be established on the basis of preponderance of probabilities. However, it cannot be merely on the basis of presumptions and assumptions. Suspicion however grave cannot replace the proof. As rightly pointed out by the Honble Member (J) with detailed findings, the link between the documents recovered in search and the activities of the appellants in their factory is required to be proved. However, I find that due to various reasons, the Revenue has failed to prove the same.

I find that the Revenue has failed to substantiate the findings recorded in the impugned order regarding production capacity, to persuade me to reject the contention of the appellant that there is failure on the part of respondent to adduce any evidence in relation to clandestine manufacture of huge quantity of final goods alleged as removed clandestinely to sustain the charge of clandestine removal. Once unaccounted production is not established, even otherwise there can be no clandestine removal thereof. Unaccounted removals have in any case not been established on the basis of the evidence available on record.

The ratio laid down by the Honble Apex Court in Oudh Sugar Mills Ltd. v. Union of India, 1978 (2) E.L.T. J172 (S.C.), is clearly applicable in the peculiar facts of the instant case inasmuch as the demand cannot be sustained without any tangible evidence, based only on inferences involving unwarranted assumptions.

8. In view of the forgoing, the impugned order is unsustainable and liable to set aside and I do so.

9. Appeal is allowed with the consequential relief, if any.

(Dictated in Court)

(M.V. Ravindran) Member (Judicial)

akp 1 6 APPEAL No. E/1756/10-Mum