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2016 (1) TMI 967 - CESTAT NEW DELHI

2016 (1) TMI 967 - CESTAT NEW DELHI - 2016 (333) E.L.T. 483 (Tri. - Del.) - Clandestine manufacture and removal of Aluminum Alloy ingots and Zinc Alloy ingots - validity and genuineness of information, records and documents - onus to prove - The raw material used were aluminum scrap and aluminum ingots and they availed CENVAT Credit on these raw materials being inputs. - Availing Cenvat Credit without receipt of inputs - sale of abnormal quantity of Ash and Residue and burning loss amounting to .....

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Even in interpreting the data in the pen drive and taking some support from the select statements of persons, we find that the data applicable to a particular period was extrapolated for the whole period of demand by presuming a standard projection. This apparently is not legally sustainable.

When the allegation of unaccounted clearances and substitutions of inputs of huge quantities were made, the minimum requirement is to have independent support of such allegation by way of evidenc .....

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e.

Large number of statements were recorded and also relied upon; but these statements were not put to test by way of cross-examination and analysis or supported by documentary evidence. The statements could be of help if they support evidences which exist and which requires re-affirmation. In the present case, the statements which deal with interpretation of data in pen drive have not thrown any substantial ground to the case built up by the Revenue.

Revenue failed to prov .....

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ants are engaged in the manufacture of Aluminum Alloy ingots and Zinc Alloy ingots. The raw material used were aluminum scrap and aluminum ingots and they availed CENVAT Credit on these raw materials being inputs. The appellants imported the aluminum scrap and purchased Aluminum ingots from M/s. Bharat Aluminum Company (herein after referred to as M/S. BALCO) and M/s. Hindalco Industries Ltd. (hereinafter referred to as HINDALCO) and various other dealers. They were also doing job work of manufa .....

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nt of duty on their finished goods as reflected in their PLA account vis-a-vis CENVAT account (iii) That appellants had shown sale of abnormal quantity of Ash and Residue and burning loss amounting to more than 15% of the total consumption of raw material. Whereas the burning loss in similar process accounts to be 2-3% and Ash and Residue up to 5%. That, the cumulative wastage or burning loss cannot be more than 7-8% (iv) That the appellants were taking credit on the basis of invoices issued fro .....

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er, Production Planning and Central (PPC). They resumed this pen drive and other documents under panchnama. Subsequently a search was conducted on the next day (25.06.2008) for the purpose of stock verification of raw material lying in the factory premises. Stock verification was done on daily basis and concluded on 4.7.2008. 3. After stock taking, it was found that a total stock of Aluminum scrap/ingot of 1082895 kgs. was lying in the factory premises of appellant. As per RG23A Pt. I (Daily Raw .....

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of aluminum dross was also emerging during the process of manufacturing. The appellants were further processing this aluminum dross by which different grade of dross namely champak, Mota and Barik was obtained. The loose unprocessed aluminum dross was weighed and found to be 40200 kgs. Also 49583.6 kgs of Barik dross, 11128 kgs of Chamak and 50997 kgs of Mota dross and 4185 kgs of Aluminum dross ingots were found unaccounted in records. These were seized on 2.08.2008 4. A show cause notice dated .....

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he investigation within one month. The department approached the Honble Supreme Court and while dismissing the SLP, the Honble Supreme Court observed that the department was at liberty to issue a further show cause notice if necessitated. A show cause notice dated 5.2.2009 was issued raising the allegation that the job workers have not returned some quantities of raw material to the appellant. Another show cause notice dated 17.3.2010 was issued which pertains to the present appeal. The said s .....

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clandestinely without issue of sale invoice. (iii) CENVAT Credit of ₹ 1,08,68,346/- on Aluminum scrap availed and utilized is inadmissible as these were diverted by the appellant without issue of sale invoice or any accounting thereof. (iv) CENVAT Credit of ₹ 7,40,68,846/- on the balance quantity i.e., 4427307 kgs of Aluminum scrap availed and utilized is inadmissible as these were sold unaccounted during the period April, 2006 to April, 2008. (v) Appellants are liable to pay Central .....

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liation of data. This is very important as the impugned order is more than 400 pages long without sequential coherence and having over lapping findings with not so clear analysis of facts. 6. It would be worthwhile to give a brief over view of the fact and evidence placed before us. In this case all the statutory records were maintained correctly and there is no allegation of incorrect entries in the statutory records. The appellant was importing aluminum scrap (input) and was procuring aluminum .....

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and clearances of final product in RG-1 register. 7. According to the department, the figures for RG-1 register was provided by PPC department. This department used to maintain every data from the issue of raw material to the sale of final products. Such data was being maintained in a pen drive by the PPC department headed by Sh. Tulsi Ram Yadav, Assistant Manager of the appellant company. The said pen drive was resumed on 24.06.2008. The data contained in the pen drive was retrieved by the depa .....

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They were availing CENVAT Credit on inputs which are basically aluminum scrap and aluminum ingots. Aluminum scrap is imported and aluminum ingots are procured indigenously. The basic raw material used by appellants for manufacture of Aluminum Alloy is Aluminum scrap. The entire aluminum scrap was imported. It is their case that they did not use indigenous aluminum scrap because only two types of aluminum scrap is available indigenously, i.e.., utensil scrap and wire scrap. Utensil scrap is not .....

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basis of chemical composition for being used. Copper, Zinc, Magnesium etc which were segregated from the scrap were used for making master alloys or used directly. 8. The appellants manufactured different types of Aluminum Alloy such as ADC12, HS1, AC4B, LM6, LM24, etc. Besides aluminum scrap, the appellant used CG aluminum ingots which were procured from Hindalco, Balco etc. The iron content in the CG ingots varied from 0.2% to 0.5%. CG ingots of high iron content of 0.4% to 0.5% was categorize .....

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ys with 30% aluminum and 70% special high grade zinc in order to ensure uniformity of chemical composition while manufacturing. The making of Aluminum alloy required copper, manganese and magnesium. Due to the difference in melting temperature of these elements and aluminum, the appellant used to manufacture copper master alloy, magnesium master alloy, manganese master alloy etc. to ensure uniform chemical compositions. The manufacture of different types of master alloys were recorded in the sta .....

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and Residue, since the metal content is insignificant which is not viable for further metal extraction. 11. It is alleged by the department that the appellants were mis-declaring the imported aluminum scraps Twitch whereas in reality they were importing aluminum scrap zorba which is a restricted variety of scrap for import. Twitch variety do not contain more than 5% of free zinc, free magnesium etc. and may contain at least 95% of aluminum. On the other hand any scrap containing less than or eq .....

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revealed unaccounted receipt and issue of inputs. It also revealed that appellant was procuring Aluminum scrap from market, without accountal thereof and removing clandestinely high value goods like CG ingots, imported scrap by substituting zorba quality of scrap in their manufacture. They were clearing aluminum dross in the guise of ash and residue without paying duty. As the entire case of Revenue is based on the data received from pen drive for better appreciation of the discussion, the vari .....

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-decrypted and Daily Stock (May 2008) decrypted which contained three sheets namely Received , issue and actua (e) File name -Raw material classification VKS Sheet-1 which contained one sheet. (f) File name HGS For June, 2008, MARKETING QUATATION FILE-decrypted.XIS (Sheet)ADC-12-A (g) File -Recon-PP (Physical adj 2005-06) Stock Reconcil April to December Stock Reconcil April to March, 2008 and 2009. 12. Besides the above, loose documents were also seized which included Daily Material Receipt an .....

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btained in the pen drive, it revealed that only 6145.759 MT of CG/EC ingots were actually consumed in the manufacture of final product. Out of the remaining quantity of 1705.881 MT of CG/EC ingots a quantity of 90.970 MT was found as balance (as on 31.5.2008) stated in Daily Stock sheet of pen drive. Therefore the balance of 1614.911 MT of CG/EC ingots has not been used in the manufacture of final products. Therefore CENVAT Credit of ₹ 3,39,24,526/- on these CG/EC ingots not used in manufa .....

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rom Hindalco, Balco etc were clubbed together in the Raw material register under the heading Aluminum . No records were intimated/presented to the department showing segregation of scrap, generation of dross. All these were maintained by PPC Section in the pen drive. 14.2 The data relating to the consumption of CG ingots was received from the pen drive in the excel file name LOSS MONTHWISE-1 (Sheet name TOTAL ). The data of purchase of CG/EC ingots was taken from the purchase invoices. On 31.5.2 .....

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EC ingots were to be matched with sale invoices issued by appellant it was found that appellant has not issued any sale invoices for sale of CG/EC ingots on these dates. For eg., as per excel file DAILY STOCK (April, 2008) Sheet Issue for the month of January, 2008 shows dispatch as follows: 13.01.2008 30 MT 14.01.2008 20 MT 15.01.2008 20 MT 16.01.2008 30 MT 28.01.2008 30 MT 30.01.2008 22 MT 14.3 But it was found that appellant has not issued any sale invoice for the sale of CG/EC ingots on the .....

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ngots were found in DAILY MATERIAL RECEIPT ADVICE sheets of the documents resumed. To hide the fact of diverting/removing of CG/EC ingots, the appellants had devised a system to club the CG/EC ingots with the quantity of Aluminum scrap in their Daily Raw Material Register (RG 23A-Pt.1). On analysis of the data stored in pen drive it is found that appellant had a closing balance of 100 MT or less of CG/EC ingots everyday. Therefore, taking a standard of 100 MT of balance per day the data in Annex .....

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ed in Annexure-3 is not admissible to the appellants. 14.5 Submission on the part of appellant. The department has completely failed to bring on record any positive evidence of clandestine removal of 1614.911 MT of CG/EC ingots. In the absence of any positive evidence regarding dispatch of the said quantity of CG ingots from the premises of the appellant, such as any statement of transporter to support the removal of CG/EC ingots from the factory, or the statement of any person alleging the purc .....

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e of final products for the period covered by the SCN completely tallies with the raw material issued as per RG 23A Part-1 maintained as per law. It is further admitted by department that the quantity of finished goods manufactured during the above period is found to tally with the quantity of finished goods entered in RG-1 register maintained for production and removal of finished goods. That the case of department is fully based on speculations, surmises and erroneous inferences drawn from the .....

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LM6 etc which have definite composition. The appellant has to ensure that the raw materials charged in the furnace has the correct composition which will result in the manufacture of the aluminum alloy ingot of desired specification. In case of any variation in composition of the finished product, the whole material charged which may vary from 6MT to 40MT may have to be rejected. It is therefore of critical importance to prepare each batch of the charge mix keeping in mind the composition of fin .....

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Control (PPC) department, as it is this department of the appellant company which is to decide the optimum use of raw material. The said requirement could not have been kept in the statutory records as there is no requirement under the Act or the Rules to keep the said information in statutory records. That it was also not practical to keep the information in such records. 14.8 The scrap and CG ingots were segregated according to their chemical property both manually and by using machines. The s .....

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ng the period April, 2006 to May, 2008 the appellant had manufactured 828.853 M of Zinc Master Alloy which is reflected in the RG-1 register under the heading scrap melt. A quantity of 255.032 MT of aluminum CG ingots was consumed to make Zinc Master alloy taking melting loss @ 2.5%. This use of CG ingots is over and above the use of CG ingots for manufacture of aluminum alloy ingots. It is submitted that the excel sheet LOSS MONTHWHISE-1 would show that appellant has consumed the entire quantit .....

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31/5/2008 90.970 MT Less Trading sale 29.739 MT Balance quantity of CG ingots consumed 7730.931 MT 14.9 Out of 7851.640MT of CG/EC ingots consumed 643.012MT was reclassified according t o their iron content as D.ing (Dilution ingots) because the same was containing high iron. These could be used only for correction/dilution. The segregation of 643.012 MT of D.ing is supported by data of pen drive. Again as per data 4961.310 MT of dross was generated. Out of this 1853.243MT dross was processed by .....

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is. Appellant was producing dross ingots from under process material and being used in house, it was not necessary to maintain separate record. That therefore, the inference drawn by department that appellant had clandestinely procured 1669.490 MT of dross ingots locally is baseless. The production of Copper master alloy and manganese master alloy and other alloy using CG ingots is reflected in statutory records as scrap melt. The allegation that appellant diverted imported scrap and substituted .....

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erial. But for other items like silicon, copper and zinc, the department has not taken any such objection. According to appellant u denotes underprocess . The entire demand on this issue is based on the assumption that appellant had procured huge quantity of raw material without bills, and had clandestinely removed a similar quantity of input material comprising of CG/EC ingots, high value items segregated from imported scrap. There is no evidence to establish the removal of such huge quantity o .....

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MT of aluminum scrap imported and therefore CENVAT Credit of ₹ 3,97,14,666/- is not admissible. 15.1 Case put forward by Revenue On perusal of records it was found that appellant was selling elements like copper, Manganese, Zinc etc which were sorted from the aluminum scrap procured for manufacture of final products, without reversing the credit. The excel file RECON MONTHLY DROSS (Sheet April, 1) showed that several elements like Brass, Lead, Stainless Steel, Magnesium, etc obtained from .....

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and therefore was profitable for appellants to sell these elements after sorting of the imported scrap. Further, the LOSS MONTHWISE-1 (Sheet TOTAL) did not show consumption of these sorted material which would establish that these were not used in manufacture of final product. As the sorted material was not found used in manufacture, or stocked in the factory the only conclusion possible is that these have been removed clandestinely without issue of sale invoices. 15.2 The appellants were engage .....

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ndestine removal of 2366.119MT or any other quantity of material sorted out of aluminum scrap is completely baseless and without any material on record to substantiate or corroborate this. The department did not find any discrepancy in raw material in spite of complete verification of raw material. There is neither any evidence of sale of sorted out material nor any evidence of procurement of raw material for substitution. The appellants have filed manufacturing process by flow chart dated 1.4.2 .....

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steel recovered from furnace is sold as burnt iron on payment of duty. All these are reflected in RG-1 register. It is submitted that appellant used, copper, zinc, Manganese CU/BR Jali, Brass etc in the manufacture of aluminum alloy ingots also in production of master alloys. 15.4 Further, that if the appellant had removed and sold such huge quantity of sorted material without issuance of bill, the department ought to have found shortage in stock while verification of stock. The contention of t .....

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hout bills. The impugned order has been passed is absurd and without taking into consideration the reply of the appellants and is not sustainable. 16. Issue No. 3 The appellant availed and utilized cenvat credit of ₹ 1,03,10,874/- on Aluminum Scrap of 6,98,393 kgs and the same was diverted without issue of sale invoice and without accounting. Therefore, the credit is not admissible. 16.1 Case put forward by Revenue:- On scrutiny of the excel file DAILY STOCK (APRIL 2008)-decrypted and DAIL .....

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NVAT Credit on the basis of documents only and prepared the MATERIAL RECEIPT ADVICE of these quantities without actual receipt thereof. The DMR resumed in the form of loose sheets showed hand written entries made on left side and also right side on the bottom of pages. So also against certain items there were tick mark whereas some items were marked with a cross. The demand on this count is calculated on two grounds (i) the raw material was not received as per above stated excel file of pen driv .....

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and May 08 received tallied with entry in statutory record. Therefore, a credit of ₹ 1,03,10,874/- (i.e., 108,68,346-557472) was not admissible as this quantity though entered in statutory records was found either striked off or crossed or not ticked in the excel file DAILY MATERIAL RECEIPT ADVICE Sheets and also not found entered in the RECEIVED Sheets of the excel file. 16.3 Submission by Appellant The department has arrived upon entirely wrong conclusion on the tick mark, strike off mar .....

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ed are not yet available for production and are not entered in the stock maintained in PPC excel sheet. Items not cleared are identified as Hold board which is on top of the material. Subsequently, when these items are segregated it is mentioned by hand on right hand side bottom, and on the basis of this noting PPC enters in the stock account since they are now segregated and available for production. As regards hand written inscriptions on left side bottom of DMR, these are items which have b .....

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ies entered in excel sheet on received were the quantities of scrap which were issued from RG23A Part 1 for production or transferred from cold refining department to production department. These quantities are included in the under process (u) column in the excel sheet. The quantity entered in RG23A Part-I register but not shown as received in excel sheet is because those quantities are not cleared by Quality Control Department. Therefore, the inference drawn by the Department that the differen .....

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₹ 7,40,68,846/- on the balance quantity of 22,47,869 kgs of Aluminum scrap, the same has been sold/diverted/unaccounted without issue of sale invoices and that therefore the credit is not admissible. 17.1 Case put forward by Revenue: Upon investigation it was found that appellants had clandestinely removed the non-usable materials from sorted out Aluminum scrap received in factory upon which credit was taken and they have not reversed the credit on such quantity. In two issues stated abov .....

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n column 4, besides the column Book in the raw sale) during the period April, 2006 to April, 2008. This quantity of 90,15,480 kgs unaccounted sale of raw materials included 45,88,173 kgs of the two issues stated above and the balance quantity is 44,27,307 kgs, which is the sorted material sold clandestinely. In these excel file u denotes unaccounted and figures in column u of the row in purchases contain the data of unaccounted purchases of raw material made by appellants. Therefore, it can be i .....

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4427 MT of raw material clandestinely on which credit was availed. The department for its convenience has arrived at the conclusion that 9015480 kgs of raw material was received unaccounted. After deducting 45,88,173 kgs of which duty has been already demanded on the first two issues, the balance quantity of 4427MT is taken for raising this demand. On the very face of it, this allegation is absolute absurd since according to the department itself, there is no evidence for removal of 4427 MT or .....

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pril, 2007 to March, 2008 6297.19 April, 2008 to May, 2008 723.82 Total Receipt 9664.41 Purchase 3044.12 Issue 5581.04 Sale 389.22 9014.38 17.3 This chart would make clear, that the expressions, purchase is for receipt and the expression sale is for issue. It does not denote purchase from outside or sale to any outside party. Receipt denotes, receipt of raw material by the production department for production and sale denotes issue of under process material or rejection etc for further process .....

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t them under column u in the excel sheet. Again, the segregated scrap from the Cold Refining Sheet D when transferred to production department Sheet C, it was transferred as under process material and entered in Column u in excel sheet. That therefore, the case put forward by the department that Column U in the data of pen drive denotes unaccounted raw materials is not supported by any evidence. 17.4 The absurdity of the departments allegation is evident from the consequent allegation that the .....

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produced in-house as reflected from RG1 and RG23A Part-1 registers. Therefore the allegation that appellant diverted 4427 MT of sorted aluminum scrap and sold them without bills is an allegation without any sense. 18. Issue No. 5 The appellants cleared aluminum dross in the guise of ash and residue and thus short paid duty of ₹ 4,17,58,397/-. 18.1 Case put forward by Revenue In the process of manufacture, aluminum dross is generated and these are categorized into three by the appellant ac .....

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only used these aluminum/dross ingots in the batch to manufacture Aluminum alloy ingots, but also that they used the same in their correction process. 18.2 On scrutiny of data contained in pen drive it was found that appellants sold Aluminum dross without being shown in ER-1 as excisable goods. The quantities of sale of aluminum dross found handwritten on the loose papers seized matched with the sale invoices issued for Ash and Residue . The quantities of sale of aluminum dross for the month of .....

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of details of sale of -Ash and Residue. 18.3 At the time of hearing, the learned DR was fair enough to concede that aluminum dross is not excisable as per the decision of the Supreme Court in 2006 (203) ELT (S.C) CCE Vs. Aluminum Co. 18.4 Submissions by Appellant The inference is drawn by department on the basis of generalization that the appellant had raised bill for sale of ash and residue. It is alleged that in fact appellant had sold aluminum dross at higher rate seen from hand written sheet .....

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t and that it did not refer to actual sale of dross. During the period April, 2006 to May, 2008 appellant sold ash and residue to various job workers. After recovery of metal from dross, the remaining quantity of ash and residue was returned to appellant. Further, the department alleges that the entire quantity of ash and residue sold by appellant is aluminum dross and demand is raised for the same. This can never be correct from the process of manufacture production ash and residue has to be ge .....

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the impugned order is not sequential, comprehensive and clear. Even during the arguments, explanations sought for on specific issues were not forthcoming with any clarity. We find that the data retrieved from the pen drive was the main source of various allegations and later confirmation against the appellant. Large number of statements have been recorded which were selectively quoted to support the conclusions drawn by interpreting the data in the pen drive. 21. In this case, we find both the .....

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ls, their distribution for various use, in process materials and inter-departmental movements of various materials. The appellant strongly contended that their statutory records correctly reflect the receipt, consumption and closing balance of various items. The statutory records denote summary details whereas the private records contain various data for day to day management of supply and production and monitoring inside their unit. They have contended that there is no contradiction between the .....

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AT Credit ordered to be recovered for the period April, 2006 to May, 2008 was on a quantity of 1614 MTs of inputs. The findings by the Learned Commissioner is based on the analysis of data recovered from the pen drive. We find that while relying on and interpreting the data recovered from pen drive, the original authority has made many sweeping presumptions. For example, to arrive at the quantity of diverted/clandestinely removed inputs, the Revenue followed the standard of 100 MTS of balance pe .....

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find that the appellants have strongly contested the summary finding made by the original authority. They have submitted that out of the total quantity of 7,851/- MTs after deducting the closing stock and certain sale of inputs, the net balance of 7,713 MTs. have been fully consumed in the manufacture of aluminum alloy ingots. The reconciliation statement provided by the appellant from the data contained in the pen drive is as follows: Quantity of CG ingots purchased 7851.640 MT Less closing sto .....

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e 35.338MT (vi)CG/EC ingots shown as N.Ing in pen drive 128.959MT (vii) Consumption of CG/EC ingots in production of zinc master alloy shown in pen drive 255.032MT Total 7731.658MT 25. On examining the rival contentions, we find that the original authority has not commented on the availability of CG/EC ingots as part of in process material in various stages of manufacture inside the appellant s unit. The details of consumption of CG/EC ingots indicate that the said ingots are used for diluting, .....

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gally sustainable. This view is supported by the total absence of any corroboration regarding sale and clearances of these inputs. We find the allegation of substitution of these inputs has also not been supported by any evidence. 27. The second issue is that after sorting the scrap, the appellant clandestinely removed 2366MT of scrap. The CENVAT Credit taken on this is denied. We find that the appellants have filed detailed flow chart of manufacturing process. The appellants have categorically .....

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ufacture of accounted finished alloys would not be possible without use of these scrap. The department s contention is that to cover up diversion of scrap, local purchase of similar material has been made. Here again no evidence is put forth to support such contention. We find that summary allegation and findings in this regard cannot be sustained. 28. Next issue is on CENVAT Credit of ₹ 1,03,10,874/- which was denied on the ground of diversion of 698 MTs of aluminum scrap. This was based .....

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ertain items and under process stock as entered in the statutory RG23A Part-I. The difference between private excel sheet and this statutory record has been explained by clearance or hold or certain sale, duly accounted for in the final statutory account. We find, either non-receipt or clandestine removal after receipt of any cenvatable raw material, has to be established by consistent corroborative evidence. We find no such evidence for this and the denial of credit is largely based on presumpt .....

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enotes unaccounted purchase or sale of raw materials. We find, first of all, there is overlapping of allegations regarding unaccounted clearance of sorted out materials and scrap by the appellant. The appellant submitted that U denotes under process materials like dross and rejections which were reused in the manufacture of final product. We find that the basis for denial of such substantial amount of CENVAT Credit on interpretation entry U in the private record is totally unsustainable and beyo .....

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of duty. Here also, the allegation by the Revenue is based on data contained in the pen drive. The quantity of sale of aluminum dross was found handwritten in the loose papers which the Revenue alleges to match with the sale invoice issued for ash and residue. Based on such inference for the period August, 2006 to May, 2008, the short levy was projected for entire period including period prior to August, 2006. We find that the confirmation of demand on this ground also is not supported by any c .....

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t in the case of Indian Aluminum Company Limited reported in 1995 (77) ELT 268 SC and 2006 (203) ELT 3 SC. In a recent decision, the Hon ble High Court of Bombay in the case of Hindalco Industries Limited - 2015 (315) ELT 10 (Bombay) examined the issue of duty liability of aluminum dross and after relying on the various decisions including the above mentioned decisions of the Hon ble Supreme Court held the product as not liable to excise duty. 31. Considering the above legal position, we find ev .....

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ute evolve on the interpretation of the data contained therein. In such a situation, it is necessary for the Revenue to support their interpretation by clear corroborative evidences and not by inferences and assumptions. (b) Even in interpreting the data in the pen drive and taking some support from the select statements of persons, we find that the data applicable to a particular period was extrapolated for the whole period of demand by presuming a standard projection. This apparently is not le .....

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h 100 per cent accuracy. However, this does not mean that even in the total absence of corroborative evidence without at least establishing a preponderance of probability the case for confirmation of demands can be made. (d) Large number of statements were recorded and also relied upon; but these statements were not put to test by way of cross-examination and analysis or supported by documentary evidence. The statements could be of help if they support evidences which exist and which requires re .....

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