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2015 (6) TMI 1012

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..... de 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, for the Respondent. ORDER [Order per : Rakesh Kumar, Member (T)]. - The facts leading to the filing these appeals are, in brief, as under: 1.1 The appellant (Formerly known as M/s. Gaurav Krishna Ispat (I) Ltd), Plot No. 317-321 358-360, Urla Industrial Area, Raipur manufacture MS Ingots and TMT bars. The raw materials for manufacture of MS Ingots are sponge iron, steel scrap, pig iron, small quantity of calcined petroleum coke (CPC) and silico manganese. Sponge iron is also called direct 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 .....

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..... ed that while during 2006-2007,2007-2008, 2008-2009, 2009-2010 and 2010-2011 (up to December, 2011), the appellant have shown the consumption of pig iron as 6552 MT, 7662 MT, 8370 MT, 8775 MT and 4539 MT respectively, their actual consumption of pig iron during these periods was 2115 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 consumption of 7619 MT of MS Sorap actual consumption should be 6896 MT and similarly, it has been alleged that while during the period 2006-2007 and 2007-2008, the appellant have shown CPC consumption of 194 MT and 333 MT respectively in their record, the actual consumption of this item during the period was 149 MT and 155 MT respectively. Since the quantum of receipt of pig iron, Steel scrap and CPC has not been dispute .....

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..... 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 of carbon in CPC is 99% out of which only 60% carbon is recoverable and (e) actual recovery of MS steel out of sponge iron, pig iron, iron and steel scrap, CPC and silico manganese mixture charged into the furnance is 87% as against 77% to 81% shown by the appellant and the calculations regarding consumption of sponge iron, pig iron, steel scrap and CPC used for manufacture of the quantity of MS ingots as recorded by the appellant in their records on the basis of the above assumptions, that besides 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 higher is the content .....

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..... aries from one unit to another and from one date to another and even from one heat 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, same specific raw material and other similarities, that no test of sponge iron received has been conducted, to ascertain its iron oxide and carbon content and similarly no experiment has been conducted by the investigating officers to ascertain the ratio of sponge iron, pig iron, steel scrap, CPC and silico manganese charged into the furnace for manufacture of MS ingots, that in the absence of such experiment, proportion of sponge iron, pig iron and steel scrap and CPC required for manufacture of MS ingots cannot be determined merely by calculations based on a series of assumptions regarding iron oxide content of .....

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..... he cost of production of mild steel ingots would be much higher than the price at which the same were available in the open market and that it is most unlikely that an organised industry like the appellant company was producing of thousands of tons of MS ingots at per unit cost which was much higher than the market price of MS ingots and use of such high cost MS ingots would make the manufacture of TMT bars by them uneconomic. He pleaded that the appellant company has not 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 and hence there is no infirmity in the impugned orders. 5. We have considered the submissions from both sides and perused the records. 6. The appellant manufacture MS ingots and from MS Ingots they manufacture TMT bars. Fo .....

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..... ngue 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 source of carbon required for reducing iron oxide present in the sponge iron into iron. The carbon present in pig iron and CPC, besides reducing the iron oxide into iron also contributes to the required carbon content 0.25% of mild steel. Carbon required for mild steel also comes from the carbon present in sponge iron (0.10%), Silico Manganese (1.5%) and Iron/Steel scrap (0.15%). The required percentage of carbon content - 0.25% for mild steel is achieved by using the right mixture of sponge iron, 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 t .....

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..... f FeO present in sponge iron, only 50% is available for reaction; and (ii) carbon content of sponge iron, pig iron, iron/steel scrap, silico manganese which goes into MS steel to ensure its carbon content as 0.25%, is 0.10%, 3.6%, 0.15% and 1.5% respectively and while 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). The fraction 16/72 represents the proportion of oxygen in FeO and the fraction 12/32 represents the fact that 12 kgs of carbon is required to react with 32kgs of oxygen to form Carbon dioxide (CO2). Another assumption in this calculation is that only 50% of FeO present in sponge iron is available for reaction with carbon. 7.2.3 From the above carbon input required for manufacture of a given quantity of mild steel from sponge .....

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..... is 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 contributed from pig iron and CPC. If 100% of the FeO reacts with carbon, the consumption of pig iron containing carbon would increase two times. Similarly, actual percentage of iron oxide in sponge iron has not been ascertained by actual testing of the samples. 8.1.1 The most important assumption in the department s calculations is the iron oxide content of sponge iron. While according to the department, it is 8%, but according to the opinion of the chartered engineer placed on record by the appellant 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 National Institute of Secondary Steel Technology of the .....

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