Judgment
Per M. Veeraiyan:
These two appeals by the same appellant arise out of a common order in original and common order in appeal. Accordingly, same are disposed off by this common order.
2. Heard both sides.
3. The relevant facts, in brief, are that the appellants are manufacturer of M.S. ingots falling under sub-heading No.7206.90 of CETA, 1985. They were issued with 4 show cause notices as detailed below:
Sl.No.
SCN No. and date
Period covered
Duty demanded
01.
V(17)171-Dem/96/2020 dated 20.09.96
April, 96 to June , 96
Rs.6,06,020/-
02.
V(15)198-Dem/96/2319 dated 01.11.96
July, 96 to September, 96
Rs.3,62,952/-
03.
V(15)36-Dem/97/371 dated 03.02.97
Oct. 96 to Dec. 96
Rs.80,387/-
04.
V(15)210-Dem/97/1409 dated 25.06.97
Jan. 97 to April 97
Rs.4,64,630/-
Total Duty Demanded
Rs.15,13,989/-
The basis for issue of the show cause notices was the order passed by the Collector, Kanpur in respect of M/s Alfa Castings Pvt. Ltd. treating average electricity consumption per M.T. of M.S. ingots as 1000 units and demanding differential duty on ascertained unaccounted product. The original authority confirmed the demands of duty on excess estimated production treating 1000 units per M.T. as norm for the period April 1996 to April 1997 and imposed penalties. On appeal, the Commissioner (Appeals) set aside the orders of the original authority and remanded back to the original authority for fresh consideration as in similar situation the CEGAT had remanded the matter to the Commissioner (Appeals). At the time of de novo proceedings, the outcome of production survey conducted at M/s Hans Casting Pvt. Ltd. on 3 different dates 14.3.01, 17.3.01 and 21.3.01 was furnished which was as follows:
Date
Total Electricity consumed
Total production (in MT)
Electricity consumption per M.T.
14.3.2001
8800 units
10.26 MT Ingots 0.440 MT runner/riser
858 units/MT or 822 units/MT [after considering the weight of runner and riser]
17.3.2001
11200 units
10.135 MT ingot 0.425 MT runner/riser
1105 units/MT or 1061 units/MT [after considering the weight of runner and riser]
21.3.2001
1290 units
10.85 MT ingot 0.440 MT runner/riser
1239 units/MT or 1139 units/MT [after considering the weight of runner and riser
Average electricity consumption
1067 units per M.T.
The original authority dropped the demand relating to the period July 1996 to December 1996 on the ground that the average electricity consumption was below 1000 units per M.T. However, he confirmed the demand of Rs.4,16,582/- relating to the period April 1996 to June, 1996 as against the demand proposed in the show cause notice amounting to Rs.6,06,020/- and he also confirmed the demand of Rs.40,649/- relating to the period January 1997 to April, 1997 as against the proposed demand of Rs.4,64,630/-. He also imposed penalties on the appellant. The order of the original authority stands upheld as far as the demand of duty was concerned but the penalty was reduced to Rs.90,000/-.
4.1 Learned Advocate appearing for the appellants assails the impugned orders on various grounds. He submits that their unit was started in 1994; no specific investigation was conducted by visiting their unit or by conducting any test in their factory; initially , show cause notice was issued treating 1000 units per M.T. of M.S. ingots as the norm and later on, on the basis of the tests conducted at Hans Casting Pvt. Ltd. , the average norm of 1067 units per MT was arrived at. Now the duty demand stands partially confirmed in respect of 2 show cause notices adopting the norm of 1067 units per M.T. of M.S. ingots.
4.2 The first show cause notice was issued on 20.9.96 covering the period April 1996 to June 1996. Two more show cause notices were issued without conducting verification. The reliance placed on the order of the Commissioner (Appeals) against one M/s Alfa Casting Pvt. Ltd. without comparing the relevant factors was not justified. Subsequently, changing the base from 1000 units to 1100 units per M.T. in de novo adjudication proceeding was also not justified. Relying on the outcome of tests conducted at 3rd unit for arriving at assumed excess production and holding that there was clandestine removal of the said excess production was not at all justified.
4.3 He submits that even in respect of tests conducted at Hans Casting Pvt. Ltd. on three dates the electricity consumption varied widely from 857 units to 1105 units to 1239 units. Under these circumstances, the adoption of 1067 units as average consumption is questionable.
4.4 The actual consumption of electricity varies due to several factors. If the machines are run uninterrupted, the second heat will require less electricity than the first heat. If there was a power failure, then the material in process requires to be re-melted and the consumption of electricity goes up substantially. If the raw materials are of poor quality then the power consumption goes up. All these changes are applicable even in respect of the activities in the same factory premises.
4.5 In view of the above, to compare the electricity consumption of another unit which itself was having varying consumption pattern was not justified.
4.6 He also submits that no other evidence such as procurement of other raw materials, the man-power deployment, private records indicating any excess production or any evidence of clandestine removal has been relied upon. Under these circumstances, the findings of excess production and clandestine removal are based purely on assumption and presumption. He also relies on the decision of the Tribunal vide Final Order No.198/09-SM(BR.) dated 16.1.2009 in Appeal No.1595/2007-SM wherein in respect of M/s U.P. Alloys Pvt. Ltd., the power consumption for production of 1 MT of M.S. ingots was adopted as 1100 units. If the same is adopted then there is no basis for demand.
4.7 He also relies on the decision of the Tribunal in the case of Parshuram Cement Ltd. vs. C.C.E., Lucknow reported in 2003 (160) ELT213 to contend that no inference of excess production and clearance of goods can be drawn on the basis only of consumption of electricity during a particular period in the absence of any corroboration from any other source.
5. Learned SDR strongly supports the order of the Commissioner (Appeals). He submits that there cannot be wide variation in electricity consumption per MT in different units. He also submits that taking into variation of consumption on three different dates in respect of Hans Casting Pvt. Ltd., average consumption per MT has been arrived at and the same has been adopted as the basis for demand. He also submits that the appellants have not contested the test results claiming that machinery used by them or technology used by them is in any way different from what has been used by M/s Hans Casting Pvt. Ltd. respect of which the test was done at the direction of the Tribunal. He relies on the decision of the Hon’ble Supreme Court in the case of Triveni Rubber and Plastics vs. C.C.E., Cochin reported in 1994 (73) ELT 7 (SC) to contend that the production calculated on the basis of average consumption of electricity is in order. He also relies on the decision of the Tribunal in the case of L. kant Paper Mills (P) Ltd. vs. C.C.E., Kanpur reported in 1999 (109) ELT 585 to contend that the power consumption is a valid factor in order to determine the quantum of production.
6. I have carefully considered the submissions from both sides. A reading of the show cause notices reveals that serious charges of unaccounted production and clandestine removal has been made merely based on the order dated 29.2.1998 passed by the Collector (presently known as Commissioner ) in the case of Alfa Casting Pvt. Ltd. No evidence like variations in respect of other inputs or records relating to alleged unaccounted manufacture or clandestine removal has been relied upon. Show cause notices have been issued even without recording any statement from the concerned persons. No tests have been conducted in the appellant s premises regarding average power consumption of the unit for producing 1 MT of M.S. ingots. No doubt, in the case of Hans Casting Pvt. Ltd., certain experiments were done in pursuance of Tribunal s order and on that basis order confirming differential duty has been made against them. However, to extend the outcome of test results in respect of M/s Hans Casting Pvt. Ltd. to the present appellant is akin to examining one patient and prescribing medicine to another patient. It is common knowledge that the power consumption of machinery can vary with reference to make of the machinery, condition of the machinery, the nature of raw materials used , the technology used for the production etc. It is not to say that there was no reason for doubting the consumption figures of the present appellant. However serious doubt/suspicion may be, the same cannot take the colour of evidence. If there was any malpractice in this case, then it is a case of missed opportunity by the investigating officers. From the reading of the show cause notices issued, it is apparent that there has been no investigation worth mentioning. If there was evasion, it was a case of missed opportunity in conducting investigation to unearth the evasion. No demand can be confirmed merely on the basis of average consumption of electricity in another unit, by making serious allegation of suppression of production or clandestine removal without any corroborative evidence.
7.1 It is submitted across the Bar that the unit is closed since last several years and therefore, the question of conducting any experiment on the unit at this stage also does not arise.
7.2 The reliance placed on the decision of the Hon’ble Supreme Court in the case of Triveni Rubber and Plastics is misplaced. The said decision related to interpretation of Rule 173E of Central Excise Rules which reads as under:
“Rule 173-E.?Determination of normal production. - Any Officer duly empowered by the Collector in this behalf may fix the quantum and period of time when the production in the assessee s factory was considered normal by such officer having regard to the installed capacity of the factory, raw material utilisation, labour employed, power consumed and such other relevant factors as he may deem appropriate. The normal quantum of production during a given time so determined by such officer shall form the norm. The assessee shall, if so required by the said officer, be called upon to explain any shortfall in production during any time as compared to the norm. If the shortfall is not accounted for to the satisfaction of the said officer, he may assess the duty due thereon to the best of his judgment, after giving the assessee a reasonable opportunity of being heard."
As per Rule 173E, Collector or the officer authorised by him can fix normal production having regard to the installed capacity of the factory, the raw material utilisation, labour employed , power consumed and any other relevant factor. When the actual production is less than such normal production they were required to explain the shortage failing which duty can be assessed on best judgment basis. In this case, no such relevant factors like installed capacity, labour employed, raw material utilisation have been taken into account and no normal production was determined. Show cause notice was based merely on the basis of the order of the Collector in respect of another unit , confirmation of demand in de novo proceeding is based on the outcome of results of experiments conducted at Hans Casting Pvt. Ltd. which was done at the instance of the Tribunal.
8.1 The investigation in this case can at the best be considered as half-hearted. The show cause notices making serious allegation were not founded on any worthwhile evidence.
8.2 As rightly pointed out by the learned Advocate for the appellants , the Tribunal in the case of U.P. Alloys Pvt. Ltd. has upheld the power consumption at 1100 units per MT which was based on test conducted in the said factory. In other words, based on test conducted at U.P. Alloys Pvt. Ltd. 1100 units per MT has been adopted for demanding duty on excess production and in the case of Hans Casting Pvt. Ltd. the average consumption has been based on experiment conducted in the said unit. Undisputedly, no experiments were conducted in the appellant’s unit. No other evidence which can bring out suppression of production and clandestine removal has been relied upon in the show cause notices.
9. Therefore, the appellants have made out a case for interfering with the orders of the lower authorities for lack of evidence.
10. The orders of the lower authorities are set aside and the appeals are allowed with consequential relief as per law.