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Real Ispat And Power Ltd. Versus Commissioner of C. Ex., Raipur

2015 (6) TMI 1012 - CESTAT NEW DELHI

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 iron oxide reacting with carbon, for which we do not find any concrete basis. N .....

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n 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, for the Respondent. ORDER [Order per : Rakesh Kumar, Member (T)]. - The fact .....

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teel 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 Silico Manganese are charged into the furnace in certain proportion. Pig iron .....

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es 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 investigation for ascertaining the reasons for the same. The appellant durin .....

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nganese 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 consumption of pig iron, steel scrap and CPC which would be required for prod .....

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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 .....

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teel 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 11A(1) of the Central Excise Act, 1944 alongwith interest on it under sectio .....

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on 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 of equal amount was imposed on the appellant company under Rule 15(2) read wi .....

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vailed 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 of carbon in CPC is 99% out of which only 60% carbon is recoverable and (e) a .....

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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 of iron oxide, more pig iron and carbon in the form of .....

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y 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 credit demand Is on alleged inflated consumption of pig iron which is alleged .....

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d 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 the Revenue has no evidentiary value, (d) the analysis relied upon by the Reve .....

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mly 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 iro .....

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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. Union of India - 1978 (2) E.L.T. J-172 (S.C.) and Tribunal s judgment in the c .....

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er. 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 resultant product would have such a high carbon content, that the same would no .....

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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 scrap and CPC is accepted, the cost of production of mild steel ingots would be .....

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g 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 conside .....

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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 items received is not disputed. The department s allegation against the appell .....

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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 alleged inflated consumption of iron and steel scrap and CPC. 7. Mild stee .....

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on 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 source of carbon required for reducing iron oxide present in the sponge iron i .....

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ment 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, out of which only 50% is available for reaction (para 3.7 of the O.I.O date .....

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artment, 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 material and 87% yield and alleging clandestine clearance of bars or MS ingots, ha .....

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)/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 assumptions for the calculation of the quantity of pig iron consumed as gleaned fr .....

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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 .....

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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 basis of carbon contribution (X-Y) from pig iron, the quantity of pig iron has b .....

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tively, 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 pig iron, iron/steel scrap and CPC, it is based on a series of assumptions - th .....

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lutely, 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 contributed from pig iron and CPC. If 100% of the FeO reacts with carbon, the consump .....

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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 Ministry of Steel, Govt. of .....

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