New User   Login      
Tax Management India .com TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (6) TMI 1012 - CESTAT NEW DELHI

2015 (6) TMI 1012 - CESTAT NEW DELHI - 2015 (330) E.L.T. 311 (Tri. - Del.) - Inflated consumption of pig iron, CPC and iron and steel scrap - CENVAT credit demand - Held that:- The allegation of inflated consumption of pig iron, iron and steel scrap and CPC is based only on calculations by the investigating officers which, in turn, are based on a series of assumptions regarding yield of mild steel from total raw materials charged, iron oxide content of sponge iron and out of which only 50% of ir .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lculations based on these assumptions, the allegations of inflated consumption of pig iron, CPC and iron and steel scrap cannot be made against the appellant and the Cenvat credit demand based on such allegations would not be sustainable. - Decided in favour of assessee. - E/56825-56826/2013-EX - Final Order Nos. A/51799-51800/2015-EX(DB) - Dated:- 9-6-2015 - Shri Rakesh Kumar, Member (T) and Ms. Sulekha Beevi C.S., Member (J) Shri Alok Bhartwal, Advocate, for the Appellant. Shri R.K. Gupta, AR, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

irect reduction iron which is the principal raw material. While in the mild steel scrap, the percentage of carbon should not be more than 0.25% and there should not be any iron in the form of iron oxide (FeO), the sponge iron has some iron in form of iron oxide and also has the impurities in the form of gangue (up to 6%) and small impurities of Phosphorus and Sulphur. For manufacture of MS Ingots from the sponge iron, alongwith the sponge iron, steel scrap, pig iron, small quantity of CPC, and S .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sides reducing the iron oxide present in sponge iron into iron also contributes to the carbon content of mild steel and the proportion of pig iron, steel scrap, CPC and silico manganese to be melted with sponge iron in the furnace has to be such that the carbon content of the resultant steel is of the desired level - 0.25% in case of mild steel. 1.2 Since in the appellant s unit, the payment of duty through Cenvat credit was on higher side, the jurisdictional central excise officers started .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

% to 0.25% of carbon, (c) steel scrap contains 0.15% of carbon, (d) silico manganese contains 1.5% of carbon, (e) carbon content of pig iron is 3.6%, (f) calcined petroleum coke (CPC) is 99% of carbon out of 60% carbon is recoverable, and (g) actual mild steel recovery from the raw material in an induction furnace unit should be 87% as against 77% to 81% mild steel recovery shown in the appellant s records. On the basis of these assumptions, the investigating officers calculated, the quantum of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

5 MT, 2125 MT, 2839 MT, 4010 NT and 1558 MT respectively, as, if the quantity of pig iron as claimed by tine appellant is used the percentage of carbon in the mild steel manufactured would be much higher than the desired level of 0.25% and steel produced would not be mild steel but would be high carbon steel which cannot be used for manufacture of MS bars. On the basis of the similar calculations, it has been alleged that while the appellant during the period 2007-2008, have claimed the consumpt .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

disputed, it has been alleged that excess consumption of pig iron, CPC and steel scrap shown by the appellant during 2006-2007 to 2010-2011 (up to December, 2011) has been illicitly diverted without reversing Cenvat credit. It is on this basis that the proceedings were initiated by way of issue of show cause notice dated 6-5-2011 for recovery of Cenvat credit of ₹ 5,69,46,336/- during the period 2006-2007 to 2010-2011 under Rule 14 of Cenvat credit Rules, 2004 read with proviso to section .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e Act, 1944 alongwith interest on it under Section 11AB and also for imposition of penalty on the appellant company under Rule 15(2) read with Section 11AC and also under Rule 25 of Central Excise Rules, 2002. 1.4 Both show cause notices were adjudicated by the Commissioner of Central Excise by two separate Orders-in-Original dated 31-12-12 by which the abovementioned Cenvat credit demands were confirmed against the appellant company along with interest on it under section 11AB and penalty .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

silico manganese, that the allegation of illicit diversion of Cenvat credit availed on pig iron, steel scrap and CPC is based only on certain assumptions that - (a) the iron oxide content of the sponge iron cannot be more than 8%, (b) the percentage of carbon in sponge iron is 0.10%, percentage of carbon in steel scrap is 0.15%, the percentage of carbon in Silico Manganese is 1.5% and the percentage of carbon in pig iron 3.5%, (c) maximum carbon content of MS ingots is 0.25%, (d) the percentage .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

des this, the department also relied on the letter dated 6-8-2009 of National Institute of Technology, Raipur (NIT, Raipur) stating that the calculations of the investigating officers are correct, that the assumptions regarding iron oxide content of sponge iron being not more than 8% is totally wrong, as in terms of the opinion of chartered engineer placed on record by the appellant, the iron oxide content in the sponge iron may vary from 11% to 23.15% depending on the quality of sponge iron and .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

l scrap used as charge and it is used to compensate carbon loss and is usually 20% to 25% of the total sponge iron added to the furnace that the use of pig iron by the appellant is well within the limit specified in the opinion of National Institute of Secondary Steel Technology, that the allegation of taking wrong Cenvat credit on alleged inflated consumption of pig iron, steel scrap, and CPC which, in turn, is based on theoretical calculations, is totally wrong, that bulk of the total Cenvat c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

pancy has ever been found in the stock of pig iron and other raw materials and no test of raw materials, specially sponge iron was carried out for ascertaining as to whether specifications of raw materials actually found were similar to those assumed in the carbon input and output analysis, (c) report of NIT, which does not specifically pertain to the performance of the furnace installed in the unit of the appellant, and is based on the assumptions of characteristics and specifications made by t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eat to another heat within the same date and there is no universal and uniformly acceptable standard of consumption of raw materials for, production of one Metric ton of MS ingots which can be adopted for determining the consumption rate of raw materials, that comparison made by the Revenue with M/s. Chhattisgarh Ferro Trade, Unit-II, Raipur is erroneous, and comparison can be made only if the appellant s unit and other units are having same plant with same life span and same operational level, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f MS ingots cannot be determined merely by calculations based on a series of assumptions regarding iron oxide content of sponge iron, etc., that the Revenue s allegation that manufacturing cost of MS ingots is more than the price at which MS ingots were available in the market is totally wrong, as during the period of dispute, the appellant company was earning profit and never incurred any loss, that the appellant also rely upon the Apex Court s judgment in the case of Oudh Sugar Mills Ltd. v. U .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ned order by reiterating the findings of the Commissioner in the impugned order. He, pointing out to the Commissioner s findings in Paras 10.1 and 11 of the impugned Order-in-Original, pleaded that for manufacture of mild steel from sponge iron the maximum proportion of pig iron/ skull/ C.I. Scrap, etc. cannot be more than 8%, that C.I. scrap and skull are substitutes of pig iron, that if the appellant s claim regarding quantum of pig iron used in the manufacture of MS ingots is accepted, the re .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e investigating officers calculations regarding the actual consumption of pig iron, steel scrap and CPC used in the manufacture of mild steel have been examined by the NIT, Raipur and have been found by the NIT to be correct, and therefore, there is no reason to doubt the correctness of the same. Shri Gupta also pointed out to the Commissioner s observations in Paras 8.1 and 8.2 of the impugned order and pleaded that if the appellant s claim regarding quantum of consumption of pig iron, steel sc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ot given any explanation, whatsoever to justify such a high consumption of pig iron, scrap and CPC, in their records for the manufacture of MS ingots which looking to required carbon content of mild steel - 0.25% is not possible. He, therefore, pleaded that difference between the consumption of pig iron, iron and steel scrap and CPC as estimated by the investigating officers and as recorded by the appellant in their statutory records has been illicitly diverted without reversing Cenvat credit an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

there is no allegation that the same has been under reported. The appellant have availed Cenvat credit in respect of sponge iron, iron and steel scrap, pig iron, CPC and Silico Manganese, and there is no dispute about the quantum of receipt of these items during the period of dispute in respect of which Cenvat credit has been availed. In fact, in this case, no enquiry has been conducted with the suppliers of sponge iron and steel scrap, pig iron, CPC, etc. and the quantity of receipt of these i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f its calculations which is the actual consumption has been illicitly removed without reversing the Cenvat credit. It is on this basis that the Cenvat credit demand ₹ 5,69,46,336/- for the period 2006-2007 to 2010-2011 and the Cenvat credit demand of ₹ 73,49,835/- for the period from January, 2011 to December, 2011 have been confirmed. About 99% of Cenvat credit demand is on the basis of alleged inflated consumption of pig iron and remaining Cenvat credit demand is on the basis of al .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n and steel scrap, CPC and pig iron. Sponge iron has certain percentage of iron oxide in the form of Ferrous Oxide (FeO) and also gangue which is an impurity. For reduction of iron oxide present in the sponge iron into iron, while melting the sponge iron and iron scrap mixture by heating the same in the induction furnace, certain quantity of pig iron and also, if necessary, small quantity of CPC is added. Pig iron, which contains 3.6% to 4% of carbon, and CPC which is 99% - carbon are the main s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, iron/steel scrap, pig iron, Silico Manganese and CPC. However, main requirement of carbon is for reducing iron oxide present in the sponge iron into iron. The pig iron used for reducing iron oxide present in the sponge iron into iron would depend upon the content of iron oxide in the sponge iron. The department on the basis of the book called Hand Book of Sponge Iron for Rotary Kiln authored by Shri P.C. Pardhan, has assumed that sponge iron contains maximum 8% of iron oxide in the form of FeO .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

+steel scrap/pig iron + silico manganese + CPC. However, according to the Department, the 77% to 81% yield is on much lower side, as similar induction furnace units which make MS ingots from sponge iron have 87% yield. Accordingly, the department s stand is that the yield of MS ingots in the factory of the appellant company is 87%. But the department, instead of estimating the production of MS ingots and on this basis, the production of bars, on the basis of the recorded consumption of raw mater .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

S ingots i.e. raw material consumed = (recorded production of MS ingots X 100)/87. But the department does not challenge the consumption of sponge iron. The figures of sponge iron consumed has been adopted from the appellant s records. On the basis of the quantity of sponge iron consumed, the actual consumption of pig iron required for manufacture of MS steel with carbon content not exceeding 0.25% has been calculated by a complicated calculation and a series of assumptions. 7.2.1 The assum .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hile CPC is 99% carbon, only 60% of its carbon content goes into MS steel. 7.2.2 Total carbon input required for manufacture of a given quantity of mild steel with 0.25% carbon content from sponge iron has been calculated as - 0.25% of quantity of mild steel manufactured + carbon required for reducing the FeO present in sponge iron. The carbon required for reducing the FeO present in sponge iron has been calculated by the formula - Quantity of sponge iron used x 0.8 x (16/72) x (12 /32). Th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

iron & steel scrap (0.15%); (c) Silico Manganese (1.5%) and (d) CPC (60% of 99% of CPC) used has been deducted. 7.2.4 From the carbon input required for manufacture of a given quantity of mild steel, as calculated in para 7.2.2 , (say X), the carbon contribution from sponge iron, iron/steel scrap, CPC and silico manganese, as calculated in para 7.2.3 (say Y) has been deducted. The carbon contribution (X-Y) has been treated as the carbon contribution from pig iron. 7.2.5 On the bas .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

007, 2007-2008, 2008-2009, 2009-2010 and 2010-2011 (up to December,11) respectively, the actual pig iron consumption was 2115 MT, 2125 MT, 2837 MT, 4010 MT and 1558 MT respectively. Actual consumption of iron/steel scrap during 2007-2008, actual consumption of CPC during 2006-2007 and 2007-2008 appears to have been calculated on the basis of their proportion is total raw material charged in other units. 8. As is clear from the abovementioned method of estimating the actual consumption of pi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

yield of 77-79% in the appellant s unit. 8.1  In our view, there is absolutely, no basis for the above assumption when the percentage of mild steel yield from total raw material - sponge iron, pig iron, iron & steel scrap, silico manganese, and CPC charged into furnace has not been ascertained by actual observation. There is also no basis given by the Department for the assumption that only 50% of the iron oxide in form of FeO, present in the sponge iron would react with carbon contribu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

llant it can vary from 11% to 23%. Moreover, as per the technical literature on sponge iron [www.wikipedia.org.wiki.direct_reduced_iron] the sponge iron is highly susceptible to oxidation exposure to atmosphere resulting in formation of iron oxide. Therefore, the department s assumption of iron oxide content of sponge iron being about 8% and not more cannot be treated as absolute truth. The pig iron content would depend upon the iron oxide content. According to the opinion dated 1-1-13 of Nation .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on and there is no basis for other assumptions like only 50% of FeO present in sponge iron reacting with carbon contributed from pig iron & CPC, the department s allegation regarding inflating the consumption of pig iron, iron/steel scrap and CPC would not be sustainable, more so, when the cross-examination of the officer s who made these calculations and of the NIT professors who concurred with the Departmental officers calculations has not be allowed. 9. The Apex Court in the case of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version