2017 (11) TMI 1770 - HC - Central Excise

Clandestine manufacture and removal - MS Ingots - demand based on assumptions and presumptions - As per the petitioner highest case of the department is that there is some possibilities of clandestine removal of the M.S. Ingots which is a final product of this petitioner - consumption of electricity - no substantive evidence - Held that - Several decisions have been given by the Tribunals which have been confirmed by Hon ble High Courts that electricity consumption alone if adopted as a basis of the demand the same is not tenable. The respondents can take the electricity consumption pattern as a corroborative piece of evidence but in absence of substantive proofs - The electricity consumption report like Dr. N.K. Batra report can hardly be treated as a substantive evidence. Time and again the decisions have been given by the Tribunals but the respondents departments are turning deaf-ear to. In this case the respondents are relying upon Dr. N.K. Batra s report. All these are nothing but the possibilities for clandestine removal but for proving the clandestine removal the substantive piece of evidence is must. The department has not done any home work and the show cause notices dated 30.07.2008 04.02.2009 18/19.11.2009 (Annexure-1 Series) have been issued. This type of shortcut should not have been followed by the department. There is no shortcut for success. The documents and evidences could have been collected very easily by the department if at all department is of the opinion that there is a clandestine removal of finished product viz M.S. Ingots by the petitioner. The respondents are directed not to mention Dr. N.K. Batra s report in their show cause notice unless an experiment is carried out by the respondent department in the factory premises of the notice for production of 1 MT or for production of more than sufficiently large quantity like 1000 units etc. in any other cases because electricity consumption depends upon the nature of machinery. Even two refrigerators of same kind and type and capacity may not have the same consumption of electricity because one may be new and another may be old. The Order-in-Original is based upon mere presumptions and possibilities and nothing has been proved at all by the respondents especially unaccounted manufacturing of M.S. Ingots and the clandestine removal thereof. - This Court is remanding the matter to the Commissioner Central Excise & Service Tax Jamshedpur. This Court is not much going into detail of further arbitrariness in the Order-in-Original. There appears to be very high sounding reasons but if they are viewed with zoom lens camera it appears that nothing is proved by the respondents. Petition allowed by way of remand.

Summary

Issues Involved:
1. Amendment in the writ petition.
2. Validity of the show cause notices and Order-in-Original.
3. Reliance on electricity consumption patterns as evidence.
4. Violation of principles of natural justice.
5. Remand for fresh adjudication.

Issue-wise Detailed Analysis:

1. Amendment in the Writ Petition:
The interlocutory application (I.A. No. 8817 of 2017) was filed for amendment in the writ petition. The court allowed the amendment, noting that it would not change the nature of the writ petition but rather facilitate the resolution of the dispute.

2. Validity of the Show Cause Notices and Order-in-Original:
The petitioner challenged the show cause notices and Order-in-Original dated 30.03.2010/09.04.2010 on the grounds of presumptions and surmises about unaccounted manufacturing of M.S. Ingots and clandestine removal. The petitioner argued that the electricity consumption pattern used as a basis was baseless and not supported by conclusive evidence. The court noted that the show cause notices were primarily based on unrealistic electricity consumption patterns and relied on Dr. N.K. Batra's report, which has been criticized and deemed unreliable in several judgments.

3. Reliance on Electricity Consumption Patterns as Evidence:
The court emphasized that electricity consumption patterns could only serve as corroborative evidence and not substantive proof of clandestine removal. The court highlighted that the burden of proof lies on the respondents to establish unaccounted manufacturing and clandestine removal with substantive evidence, which was not done in this case. The court criticized the reliance on Dr. N.K. Batra's report without conducting experiments at the petitioner's factory premises to determine the actual electricity consumption for manufacturing M.S. Ingots.

4. Violation of Principles of Natural Justice:
The court found that the principles of natural justice were violated as the adjudicating authority did not address the main contentions raised by the petitioner and failed to provide reasons for differing from the decisions relied upon by the petitioner. The court referred to the Supreme Court's decision in Assistant Commissioner, Commercial Tax Department, Works Contract Act and Leasing, Kota v. Shukla and Brothers, which mandates that orders should give reasons for arriving at any conclusion, showing proper application of mind.

5. Remand for Fresh Adjudication:
The court quashed and set aside the Order-in-Original dated 30.03.2010/09.04.2010 and remanded the matter to the Commissioner, Central Excise & Service Tax, Jamshedpur for fresh adjudication. The court directed that if the respondents rely on Dr. N.K. Batra's report, an experiment must be conducted at the petitioner's factory premises to determine the actual electricity consumption pattern. The court also directed the collection of substantive evidence as far as possible.

Conclusion:
The court allowed the writ petition, quashed the Order-in-Original, and remanded the matter for fresh adjudication, emphasizing the need for substantive evidence and adherence to principles of natural justice.