Alfa Castings (P) Ltd. Vs. Collector of Central Excise - Court Judgment

Excerpt:
1. the appellants are engaged in the manufacture of m.s. ingots. on 28-12-1990 officers of the central excise visited appellants premises and, as a result of physical verification of raw materials and finished goods noted certain discrepancies. it was alleged that there were shortages compared to statutory accounts. it was also alleged that, based on note book recovered from transporter, that appellants had transported 18 consignments of ingots out of which only 4 consignments had been removed under the cover of gate passes. it was also found that though as per furnace specification given by the furnace manufacturers 650 units of electricity should be consumed for one m.t. ingots the electricity, consumption ranged between 900 units to 1,000 units per m.t. the collector of central excise on initiation of proceedings against them held that, based on consumption of electricity, they had removed substantial quantity of goods without payment of duty.2. arguing on behalf of the appellants the ld. counsel submitted that no norms have been fixed under rule 173e and therefore a demand could not be sustained merely on the basis of consumption of electricity. he submitted that they explained to the collector the power is consumed also in running other utility equipment machines and therefore the specifications given by the manufacturers could not be relied upon in working out possible production of ingots. these specifications moreover are meant for ideal running conditions which are absent in their case. considerable consumption of electricity takes place for example when there is a power trip and such power trips in fact are frequent. the shortage as such were based on mere estimation since no actual weighment of stock was carried out. similarly some entries found in the note books recovered from the transporter could not be relied upon in proving the evasion of duty. ld. dr cited in support of his contention cases reported in 1996 (16) rlt 410 : 1995 (7) rlt 288 : 1995 (9) rlt 69 : 1994 (2) rlt 481.3. arguing on behalf of the revenue the ld. dr submitted that collector has given necessary allowance by taking instead of 650 units, 1,000 units per m.t. of electricity and reduced demand substantially. the works manager had admitted that 900 to 1,100 units are needed for manufacture of one m.t. and therefore collector has taken into account consumption of 1,000 units for per m.t. of ingots.4. we have heard both sides. collector had duly recorded that other machines are installed in factory besides furnaces where power is consumed. he has however not given any findings as to how much power such machines would need. similarly collector has duly recorded plea of the appellants that specifications indicated by manufacturers of furnace are only for ideal conditions. while explaining the manufacturing process of ingots, the party has stated that unless the factory is closed furnace is also to be kept cool by circulating coil of the furnaces. scrap is first shreaded in the shreading machine and thereafter transferred to the platform. furnace is heated end crucible fired. the scrap is manually fed in the furnace and chemicals added.the slag that is formed is removed and more chemicals and scrap is fed and then removed. the process continues till the pure molten mass of iron is obtained. "the molten mass of the crucible is then passed in the riser and molten mass of iron is then filled in themselves from the bottom and after the same is sets in, these are moved by crane. some ingots sticks to the moulds. these ingots are removed from the moulds by hammering. the ingots are not of uniform weight." 5. the party has contended that the most important factor affecting production is power break down. roughly it takes three and half hours for one heat. however, if there is a power break down after three hours then not only the entire production of one heat is lost but 5 to 6 hours are required to remove the solidified iron mass and restart the furnaces. another factor that affects the production is spillage of molten iron during the process of manufacture. it is quite common that while melting, the molten iron spills like boiling milk. this not only results in the loss of production of heat but also the entire process has to be stopped. the party also submitted a chart of break down of electricity from electricity board indicating the tripping, break down, shut down, grid failure etc. which is a matter of routine and that continuous supply of power during the two shifts is hardly available.another factor that effects production is the quality of scrap as different kinds of scrap have different melting points. after the scrap is fed, small quantity is removed and tested in laboratory and during this period the furnace continues to consume electricity as the scrap has to be kept melting and boiling.6. while accepting that there is force in the arguments of the party collector has not arrived at the findings as to what precise deviation from the specifications indicated by the manufacture of furnaces would result from such conditions which do not conform to ideal conditions the furnace is expected to run on the basis of 650 units of electricity 1 m.t. norm. he has also referred to statement of shri mukesh kumar of vandhana steel pvt. ltd. according to whom requirements of electricity consumption per m.t. of ingots is about 1,100 units to 2,000 units. in spite of this he has not indicated why he has gone only by norm of 1,000 units. one statement of shri harpal singh indicated consumption from 900 to 1,100 units whereas the statement of mukesh kumar referred to in collector's adjudication order indicates consumption from 1,100 to 2,000 units. no reasons have been explained why a figure of 2,000 units should have been rejected. in fact if commissioner wanted to go by the specifications indicated by manufacturers of furnace and give necessary allowance for other factors he ought to have arrived at a finding as to how many units would be required to produce steel against back drop of variables indicated by the appellants. in the absence of this taking figure of 1,000 units is a purely subjective exercise. ld.collector seems to have gone by the statement of shri harpal singh, works manager. the statement however has not indicated how much electricity consumption would be needed for other machines or could be related to variable factors. in any case, collector has himself doubted his statement for working out production based on consumption of ferro manganese.7. of course, specifications indicated by the furnace manufacturers can raise a strong presumption which could have effect of shifting the onus to some extent to the appellants. once however appellants furnish explanation which they thought would explain the deviations from the specifications indicated by the manufacturers collector ought to have given detailed findings in support of his conclusion. demand of duty cannot be sustained on mere presumption however strong it may be unless there is corroborative evidence in support of the presumption. while it is true that clandestine removal is an activity which is carried out in stealth the circumstantial evidence at the same time must be such as would lead to preponderance of probability. we are therefore of the view that the matter would have to go back by way of remand since there are no findings based on records in support of conclusions arrived at by the collector. we, therefore set aside the impugned order and remand the matter to the commissioner of central excise for de navo decision after taking into account the pleas made by the appellants in regard to power consumption and thereafter arrive at definite findings. since this is the main limb of the case we are leaving other matters also open to be decided through de novo adjudication by the collector.appellants shall be at liberty to produce such additional evidence as they consider would support their contention.

Judgment:
1. The Appellants are engaged in the manufacture of M.S. Ingots. On 28-12-1990 officers of the Central Excise visited appellants premises and, as a result of physical verification of raw materials and finished goods noted certain discrepancies. It was alleged that there were shortages compared to statutory accounts. It was also alleged that, based on note book recovered from transporter, that appellants had transported 18 consignments of ingots out of which only 4 consignments had been removed under the cover of gate passes. It was also found that though as per furnace specification given by the furnace manufacturers 650 units of electricity should be consumed for one M.T. ingots the electricity, consumption ranged between 900 units to 1,000 units per M.T. The Collector of Central Excise on initiation of proceedings against them held that, based on consumption of electricity, they had removed substantial quantity of goods without payment of duty.

2. Arguing on behalf of the appellants the ld. Counsel submitted that no norms have been fixed under Rule 173E and therefore a demand could not be sustained merely on the basis of consumption of electricity. He submitted that they explained to the Collector the power is consumed also in running other utility equipment machines and therefore the specifications given by the manufacturers could not be relied upon in working out possible production of ingots. These specifications moreover are meant for ideal running conditions which are absent in their case. Considerable consumption of electricity takes place for example when there is a power trip and such power trips in fact are frequent. The shortage as such were based on mere estimation since no actual weighment of stock was carried out. Similarly some entries found in the note books recovered from the transporter could not be relied upon in proving the evasion of duty. Ld. DR cited in support of his contention cases reported in 1996 (16) RLT 410 : 1995 (7) RLT 288 : 1995 (9) RLT 69 : 1994 (2) RLT 481.

3. Arguing on behalf of the Revenue the ld. DR submitted that Collector has given necessary allowance by taking instead of 650 units, 1,000 units per M.T. of electricity and reduced demand substantially. The Works Manager had admitted that 900 to 1,100 units are needed for manufacture of one M.T. and therefore Collector has taken into account consumption of 1,000 units for per M.T. of ingots.

4. We have heard both sides. Collector had duly recorded that other machines are installed in factory besides furnaces where power is consumed. He has however not given any findings as to how much power such machines would need. Similarly Collector has duly recorded plea of the appellants that specifications indicated by manufacturers of furnace are only for ideal conditions. While explaining the manufacturing process of ingots, the party has stated that unless the factory is closed furnace is also to be kept cool by circulating coil of the furnaces. Scrap is first shreaded in the shreading machine and thereafter transferred to the platform. Furnace is heated end crucible fired. The scrap is manually fed in the furnace and chemicals added.

The slag that is formed is removed and more chemicals and scrap is fed and then removed. The process continues till the pure molten mass of iron is obtained. "The molten mass of the crucible is then passed in the riser and molten mass of iron is then filled in themselves from the bottom and after the same is sets in, these are moved by crane. Some ingots sticks to the moulds. These ingots are removed from the moulds by hammering. The ingots are not of uniform weight." 5. The party has contended that the most important factor affecting production is power break down. Roughly it takes three and half hours for one heat. However, if there is a power break down after three hours then not only the entire production of one heat is lost but 5 to 6 hours are required to remove the solidified iron mass and restart the furnaces. Another factor that affects the production is spillage of molten iron during the process of manufacture. It is quite common that while melting, the molten iron spills like boiling milk. This not only results in the loss of production of heat but also the entire process has to be stopped. The party also submitted a chart of break down of electricity from Electricity Board indicating the tripping, break down, shut down, grid failure etc. which is a matter of routine and that continuous supply of power during the two shifts is hardly available.

Another factor that effects production is the quality of scrap as different kinds of scrap have different melting points. After the scrap is fed, small quantity is removed and tested in laboratory and during this period the furnace continues to consume electricity as the scrap has to be kept melting and boiling.

6. While accepting that there is force in the arguments of the party Collector has not arrived at the findings as to what precise deviation from the specifications indicated by the manufacture of furnaces would result from such conditions which do not conform to ideal conditions the furnace is expected to run on the basis of 650 units of electricity 1 M.T. norm. He has also referred to statement of Shri Mukesh Kumar of Vandhana Steel Pvt. Ltd. according to whom requirements of electricity consumption per M.T. of ingots is about 1,100 units to 2,000 units. In spite of this he has not indicated why he has gone only by norm of 1,000 units. One statement of Shri Harpal Singh indicated consumption from 900 to 1,100 units whereas the statement of Mukesh Kumar referred to in Collector's adjudication order indicates consumption from 1,100 to 2,000 units. No reasons have been explained why a figure of 2,000 units should have been rejected. In fact if Commissioner wanted to go by the specifications indicated by manufacturers of furnace and give necessary allowance for other factors he ought to have arrived at a finding as to how many units would be required to produce steel against back drop of variables indicated by the appellants. In the absence of this taking figure of 1,000 units is a purely subjective exercise. Ld.

Collector seems to have gone by the statement of Shri Harpal Singh, Works Manager. The statement however has not indicated how much electricity consumption would be needed for other machines or could be related to variable factors. In any case, Collector has himself doubted his statement for working out production based on consumption of ferro manganese.

7. Of course, specifications indicated by the furnace manufacturers can raise a strong presumption which could have effect of shifting the onus to some extent to the appellants. Once however appellants furnish explanation which they thought would explain the deviations from the specifications indicated by the manufacturers Collector ought to have given detailed findings in support of his conclusion. Demand of duty cannot be sustained on mere presumption however strong it may be unless there is corroborative evidence in support of the presumption. While it is true that clandestine removal is an activity which is carried out in stealth the circumstantial evidence at the same time must be such as would lead to preponderance of probability. We are therefore of the view that the matter would have to go back by way of remand since there are no findings based on records in support of conclusions arrived at by the Collector. We, therefore set aside the impugned order and remand the matter to the Commissioner of Central Excise for de navo decision after taking into account the pleas made by the appellants in regard to power consumption and thereafter arrive at definite findings. Since this is the main limb of the case we are leaving other matters also open to be decided through de novo adjudication by the Collector.

Appellants shall be at liberty to produce such additional evidence as they consider would support their contention.