2023 (5) TMI 403 - AT - Central Excise

Clandestine removal - denial of benefit of concessional rate afforded to small scale industry (SSI) units by N/N. 8/2003-CE dated 1st March 2003 - shortages ascertained by physical inspection - demands based on energy consumption - Evasion of duty - HELD THAT - The issue of clandestine clearances allegedly prevalent in the steel sector had been in controversy for long and as pointed by the Learned Counsel the Tribunal in several decisions has held that the deriving of presumed production with reference to electricity consumption is not sufficient for recovery by recourse to section 11A of Central Excise Act 1944. From the decision of the Tribunal in RA CASTINGS PVT. LTD. VERSUS COMMISSIONER OF C. EX. MEERUT-I 2008 (6) TMI 197 - CESTAT NEW DELHI holding that he Central Excise authorities have no jurisdiction to examine or determine whether the share transactions of the assessee-company are genuine or not and whether the income from share trading duly verified accepted and assessed to the income-tax authorities could be disregarded by them to treat the same as proceeds of ingots alleged to have been clandestinely produced and sold by the appellants. The entire action of the Revenue in this regard is without jurisdiction. Thus it is clear that the law does not permit detriment of duty liability and other consequences solely on the ground that energy consumption is not reflective of actual production. The lack of legal sanction for determination of clandestine removal merely from unexplained energy consumption is now too well settled to be disturbed. As no evidence other than the outcome of the test of 2008 and that too for two hours been employed for determination of production for a five year period commencing in 2004 the conclusion of goods having been clandestinely produced and cleared is clearly unacceptable. As it is by addition of allegedly clandestinely removed production that exemption extended to small scale industry (SSI) has been denied recovery of Rs. 78, 99, 000/- is also without legal sanction. Determination of duty liability on shortage of stock - HELD THAT - Reliance placed by Learned Counsel on the decision of the Tribunal in CHANDPUR ENTERPRISES LTD. VERSUS COMMR. OF C. EX. SERVICE TAX MEERUT-I 2014 (8) TMI 970 - CESTAT NEW DELHI and in VEHALANA STEEL ALLOYS PVT. LTD. VERSUS COMMR. OF C. EX. MEERUT-I 2016 (2) TMI 450 - CESTAT NEW DELHI holding that estimate of shortages does not suffice for recovery of duties clearly comes to their assistance. It is seen from the records of the present dispute that the alleged shortages are outcome of estimate without proper weighment. Accordingly demand of Rs.23, 645/- on shortage of 7.546 metric tons valued at Rs.2, 29, 557 also fails. Appeal allowed.

Summary

Issues:
1. Recovery of duty liability on unrecorded production.
2. Alleged evasion of duty on clandestine clearances.
3. Refutation of evidence and allegations by the appellant.
4. Justification of deviation from the norm in production.
5. Onus placed on the assessee to prove deviation.
6. Culpability of the assessee in suppressing production.
7. Controversy regarding clandestine clearances in the steel sector.
8. Lack of legal sanction for determination of clandestine removal.
9. Duty liability on shortage of stock.
10. Recovery of duties based on estimates.

Analysis:
1. The judgment pertains to an appeal against an order for the recovery of duty liability on unrecorded production by a steel rolling mills company. The duty liability was alleged to be evaded on clandestinely cleared goods between specific periods, disentitling the company from concessional rates. The assessment was based on supervised operations and circumstantial evidence, leading to the imposition of penalties and interest under relevant sections of the Central Excise Act, 1944.

2. The appellant contested the allegations of evasion, citing lack of concrete evidence and reliance on circumstantial factors. The adjudicating authority found the partner's statements to confirm the evasion. The appellant questioned the absence of direct evidence and relied on legal precedents regarding the burden of proof in such cases.

3. The appellant argued against the mathematical equation derived from supervised production, highlighting the limitations and variables affecting actual production. The appellant criticized the extrapolation of electricity consumption as the sole basis for determining production, emphasizing the need for considering all operational factors.

4. The judgment addresses the justification for deviation from the norm in production and the onus placed on the assessee to prove such deviations. The appellant raised concerns about peripheral inferences and market realities not considered in the assessment of alleged evasion.

5. The authorized representative supported the original authority's findings, emphasizing the culpability of the assessee in suppressing production for illicit clearance. The representative cited recorded statements as evidence supporting the evasion allegations.

6. The issue of clandestine clearances in the steel sector was discussed, referencing previous tribunal decisions highlighting the insufficiency of relying solely on electricity consumption for duty recovery. Legal precedents emphasized the necessity of concrete evidence to prove allegations of clandestine removal.

7. The judgment concluded that the lack of legal sanction for determining clandestine removal solely from energy consumption data invalidated the duty recovery. The recovery of duty liability based on unexplained energy consumption was deemed unacceptable, and the denial of SSI exemption was without legal basis.

8. Regarding the duty liability on stock shortages, the judgment referenced tribunal decisions stating that estimates without proper weighment are insufficient for duty recovery. The demand based on estimated shortages was deemed invalid.

9. Ultimately, the impugned order was set aside, and the appeal was allowed based on the lack of legal sanction for determining clandestine removal and the insufficiency of evidence supporting duty recovery based on estimates and circumstantial factors.