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2016 (10) TMI 872 - JHARKHAND HIGH COURT

2016 (10) TMI 872 - JHARKHAND HIGH COURT - TMI - Validity of order-in-original confirming the demand based on SCN - show cause notice issued on presumption and surmises - M.S. Ingot - unrealistic electricity consumption, high cost of production vis-a-vis income from sale, unrealistically low amount of expenditure towards salary of employees and though manufacturing activity incurs losses - principles of natural justice - Held that: - the variation is from 555 units to 1800 kWH/Per Ton. This is m .....

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it is even less than that. Thus, there are varieties of report available in the markets, one could not have been chosen by the respondents, arbitrarily, without carrying out the experiment of consumption of electricity for one ton of manufacturing at the noticee's manufacturing unit. This type of experiment is a must by the department, whenever respondents are canvassing the ground of electricity consumption pattern vis-a-vis clandestine removal of finished products. Otherwise, without such exp .....

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at the premises of the noticees, use of any of the committee's report for electricity consumption pattern always leads to arbitrariness on the part of the respondent-department. Whenever arbitrariness is present, equality is absent. Equalities and arbitrariness are strong enemies of each other. When equality is present, arbitrariness is absent. - This Court is not much going into detail of further arbitrariness in the Order-in-Original about the lower remuneration to the employees of the pe .....

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tion than what is shown in the books of account by the noticee, then these statements ought to have been reduced in writing and they must be referred in the show cause notice. Copies of the gist of the statements should be given to the noticee and those employees must be kept ready for cross examination. This type of procedure ought to have been followed by the respondents- department. Instead of doing this exercise, allegation has been levelled that there is low remuneration paid by the noticee .....

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cate ORDER Per D. N. Patel, J. 1. This writ petition has been preferred challenging the show-cause notice dated 26.09.2014 (Annexure-1), issued by the Commissioner, Central Excise and Service Tax, Ranchi as well as the Order-in-Original passed by the Commissioner, Central Excise and Service Tax, Ranchi dated 03.03.2016 ( Annexure-14), mainly on the ground that the show cause notice has been issued on presumption and surmises. The highest case of the department is that there is some possibilities .....

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itioner remain present but no hearing made. A letter dated 04.04.2015 already issued by the respondents fixing next date on 28.04.2015. ● On 28.04.2015, petitioner appeared but respondent no. 2 was not present, so no hearing took place. ● On 22.12.2015, the petitioner appeared and filed a letter requesting that documents upon which the reliance is placed in the show cause notice may be supplied to the petitioner. Few of the documents though are relied upon by the respondents in the s .....

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they were not supplied. ● Again on 02.03.2016, petitioner appeared and again requested for the documents, but, they were not supplied by the respondents. ● Thereafter, the Order-in-Original was passed by the Commissioner, Central Excise and Service Tax, Ranchi on 03.03.2016( Annexure-14). ● Being aggrieved and dissatisfied by the show cause notice as well as by the Order-in-Original, the present writ petition has been preferred. 3. Arguments canvassed by the counsel for the pet .....

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duct and nothing has been proved by the respondents. Only on the basis of presumptions, the show cause notice has been decided. The consumption of electricity pattern which is referred in the show cause notice as well as in the Order-in- Original, is absolutely baseless. It is submitted by the counsel for the petitioner that looking to Annexure -RUD-7 as referred in para 4 of the show cause notice, reveals the electricity consumption per M.T. , which is absolutely in consonance with the report g .....

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he counsel for the petitioner that Dr. N.K. Batra's report has been referred every now and then, since 2003 onwards, by the respondents and there are no less than one dozen judgments in which it has been observed right from the learned Tribunal to the Hon'ble Supreme Court of India that electricity consumption per se cannot be relied upon by the respondents for proving clandestine removal of final product, because there is no set pattern for consumption of electricity. There are several .....

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espondents. The whole show cause notice is based upon presumptions and surmises. The burden of proof lies upon the respondents that there is clandestine removal of finished product, which has not been discharged, at all, by the respondents. ● It is also submitted by the counsel for the petitioners that the respondents are surprised about the loss sustained by the petitioner. Merely because there is a loss to this petitioner that does not mean that there is a clandestine removal. ● Co .....

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is clandestine removal. This is also a baseless conclusion arrived at, in the Order-in-Original. ● Counsel appearing for the petitioners has relied upon the decisions which are as under:- a. R.A. Castings decisions reported in 237 ELT 674, which is confirmed by the Division Bench of Allahabad High Court reported in 2010(1) taxman.com. 342 (Allahabad), against which SLP preferred by the department, has also been dismissed, and b. W.P. No. 173 of 2014 decided on 22.04.2014 by the Calcutta H .....

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5 dated 31.03.2015, copy whereof has been given by the counsel to the counsel for the respondents. b. M/s. Madhura Ingots & Steel Co. Pvt. Ltd. Order-in-Original:07/ Central Excise/commr/2015 dated 19.05.2015. c. M/s. Jagannath Cement Works Pvt. Ltd being Order-in-Original:31/Denovo/Commr/2015 dated 15.12.2015. d. M/s. Kamsa Steel Pvt. Ltd. being Order-in- Original:33/ commr/2015 dated 21.12.2015, and several other orders, copies of which have been given to this Court and given to the respon .....

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Ltd Vs. CCE, which is approved by the Allahabad High Court and SLP has been dismissed by the Hon'ble Supreme Court. It is further submitted that whenever Order-in-Original are passed as stated herein above, dropping the show cause notice, the same are placed before the committee, consisting of two chief commissioners and they are taking decisions, whether to prefer any further appeal or not and all aforesaid cases where the show cause notice has been dropped and the ground of the electricit .....

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ted that even a circular has been issued, which is at Annexure-3 dated 26.06.2014 that whenever any decision has been finally accepted by the respondents-department, the same has to be followed in other cases. This circular has also not been followed in this case. In fact, the respondents could not prove the clandestine removal of the finished products viz. M.S. Ingots and hence show-cause notice dated 26.09.2014 as well as Order- in-Original dated 03.03.2016 which are at Annexure-1 and Annxure- .....

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39;s report is not an only ground as mentioned in the show-cause notice, there are several grounds, like high cost of production vis-a-vis income from sale, unrealistic low amount of expenditure incurred on salary of employees and manufacturing activity incurs losses and still petitioner no.1 continues, whereas in the profit & loss account from the non-core activities, profit has been shown by manipulating books of account. In detail, consumption of electricity pattern has been mentioned in .....

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isfactory explanation has been given by these petitioners. This aspect of the matter has been mentioned in detail in the Order-in-Original and hence, this Court may not entertain this writ petition. ● It is further submitted by counsel for the respondents that time and again opportunity of being heard was given to the petitioners, approximately for more than half dozen times, but, the petitioners had not filed any reply. Hence this Court may not interfere with the orders passed by the Comm .....

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electricity consumption, high cost of production vis-a-vis income from sale, unrealistically low amount of expenditure towards salary of employees and though manufacturing activity incurs losses, still the petitioner no.1 unit continues and profit is shown in the books of account from non-core activities by manipulating books of account. On this ground, the show-cause notice has been given by the Commissioner, Central Excise and Service Tax, Ranchi. ii. In the show-cause notice, Dr. N.K. Batra&# .....

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to supply Nucleus Group Report as well as All India Induction Furnace Association report, but, those two documents have not been supplied to the petitioner. Nonetheless, in paragraph no. 18 of the Order-in-Original, it has been mentioned by the Commissioner, Central Excise and Service Tax, Ranchi that the noticee has not given any reply, thus, it appears that no adequate opportunity of being heard has been given to these petitioners. iv. Counsel appearing for the petitioners has relied upon sev .....

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less, for exact proof of unaccounted manufacturing of finished products and for clandestine removal thereof, more labour was required to be done by the respondents. It has become fashion with the respondents-department to rely upon a document, since 2003 onwards, which is known as report given by Dr. N.K. Batra, so-called Professor of IIT, Kanpur. When IIT, Kanpur is inquired by these petitioners whether such report has ever been given by IIT, Kanpur, the answer given by IIT, Kanpur in negative .....

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nce Act, 1972. vi. Several decisions have been given by the Tribunals which have been confirmed by the High Courts that electricity consumption alone if adopted as a basis of the demand, the same is not tenable. The respondents can take the electricity consumption pattern as a corroborative piece of evidence, but, in absence of substantive proofs like- (a) Details about the purchase of the raw material within the manufacturing units and no entries are made in the books of account or in the statu .....

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above of the salary paid by the noticee, some other type of remunerations, in cash or kind have been paid by the noticee, such statements are must. (f) Ostensible discrepancy in the stock of raw materials and the finished product. (g) Clandestine removal of goods with reference to entry/ exit of vehicles like Trucks etc in the factory premises. (h) If there is any proof about the loading of the goods in the Truck, like weight of truck etc. at the weighbridge, security gate records, transporter d .....

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f clandestine removal of the finished product is levelled. The electricity consumption report like Dr. N.K. Batra report can hardly be treated as a substantive evidence. Time and again, the decisions have been given by the tribunals but the respondents-departments are turning deaf-ear to. In this case, they are also turning deaf-ear to their own circular dated 26.06.2014 (Annexure-3 to the memo of this writ). In this case, the respondents are relying upon Dr. N.K. Batra's report, also upon t .....

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y the consignor and its disposal. vii. As no adequate opportunity of being heard has been given to the petitioner, there is violation of principles of natural justice, hence, this writ petition is entertained at this stage. It has been held by Hon'ble Supreme Court in the case of 'Whirlpool Corporation Vs. Registrar of Trade Marks, Mumbai & Ors', reported in (1998) 8 SCC 1, in paragraph no. 14 and 15, which reads as under:- 14. The power to issue prerogative writs under Article 2 .....

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cretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held by this Court not to operate as a bar in at least three contingencies, namely, where the writ petition has been filed for the enforcement of any of the Fundamental Rights or where there has .....

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enable at law. viii. Thus, the department has not done any home work and the show cause notice dated 26.09.2014 ( Annexure-1) has been issued. This type of short cut should not have been followed by the department. There is no shortcut for success. The aforesaid documents and evidences could have been collected very easily by the department, if at all, department is of the opinion that there is a clandestine removal of finished product viz M.S. Ingots by the petitioners. ix. The respondents have .....

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utely useless, with reference to the units for which allegation is levelled for clandestine removal without carrying out any experiment of consumption of electricity in the very same unit. Hence, we, hereby direct the respondents, henceforth not to use Dr. N.K. Batra report against any noticee especially when the department is levelling allegations of clandestine removal of finished products, unless, the experiment of consumption of electricity is carried out at the factory premises of the very .....

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guidelines and nothing beyond that. Department has to bring its own experts at the factory premises of the noticee. Department must carry out an experiment of the consumption of the electricity at the manufacturing place of the noticee either for 1 MT or for 1000 unit etc. so that, the electricity consumption pattern can be measured for the very same machinery and thereafter it can be compared with the quantity of the finished products mentioned, in the books of accounts, with the electricity b .....

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t at the factory premises of the noticee. This is not a first case in which such guidelines has been given. Observations made in paragraph Nos. 20.1, 20.2, 21, 22.1, 23 & 24 of the decisions rendered by the Tribunal in the case of R.A. Castings Pvt. Ltd. Vs. CCE, reported in 237 ELT 674 read as under:- 20.1 From the perusal of these reports, we find that wide variations in the consumption of electricity have been reported for the manufacture of one MT of steel ingots. This renders the norm o .....

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s that no tax can be levied on the basis of estimation. In this case, there is added problem. Estimation of production fluctuates widly depending upon the fact as to which report is adopted. Tax is on manufacture and it is to be proved beyond doubt that the goods have been actually manufactured, which are leviable to excise duty. Unfortunately, no positive evidence is coming on record to that effect. Article 265 of the Constitution of India says that no tax shall be levied or collected except by .....

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in the case of the appellants' factories have not at all been studied and analysed by the Revenue independently. Instead, the norm of 1046 units fixed as per Dr. Batra's report has been blindly applied to the appellants' cases to work out the excess production. This approach is flawed and does not have sanctity. 21. The law is well settled that the electricity consumption cannot be the only factor or basis for determining the duty liability that too on imaginary basis especially whe .....

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e adopted by the Revenue especially when there is no norm fixed under Rule 173E till date by the Revenue and notified by it. The electricity consumption varies from one unit to another and from one date to another and even from one heat to another within the same date. There is, therefore, no universal and uniformly acceptable standard of electricity consumption, which can be adopted for determining the excise duty liability that too on the basis of imaginary production assumed by the Revenue wi .....

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t Ltd. v. CCE, Lucknow- 2003 (160) E.L.T. 213 (Tri-Del.) (v) Mukesh Dye Works v. CCE, Mumbai-VI- 2006 (196) E.L.T. 237 (tri.-Mum.) (vi) Hans Castings Pvt. Ltd.v. CCE, Kanpur- 1998(102) E.L.T. 139 (T) (vii) M/s. Padmanabh Dyeing and Finishing Works v. CCE, Vadodara- 1997 (90) E.L.T. 343 (T) (viii) M/s. Madhu Products v. CCE, Hyderabad- 1999 (111)E.L.T. 197 (T). 22.1 For want of evidence relating to the above points, clandestine removal cannot be sustained merely on the basis of the technical opin .....

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mitra Cotton Mills (P) Ltd. reported in 2004 (163) E.L.T. 472 (Tri- Chennai); (v) Commissioner of Central Excise Coimbatore v. Velavan Spinning Mills reported in 2004 (167) E.L.T. 91 (Tri.- Chennai); (vi) M. Veerabadhran and others v. Commissioner of Central Excise, Chennai-II reported in 2005 (182) E.L.T. 389(T)= 2005 (98) ECC 790 (T). 23. The Tribunal has consistently taken the view that wherever electricity consumption alone is adopted as the basis to raise demands, the order of the lower aut .....

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and that too on different dates to adopt the test results as the basis to arrive at a norm, which can be adopted for future. The impugned demand based merely on assumptions and presumptions cannot, therefore, be sustained nor could be justified both on facts and in law. 24. The law is well settled that in every case of alleged clandestine removal, the onus is on the Revenue to prove what is alleges with positive and concrete evidence. In the absence of any positive evidence brought by the Revenu .....

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as also issued a circular dated 26.06.2014 and several times such notice has also been dropped while passing the Order- in- Original, as stated herein above, as pointed out by the counsel for the petitioner. Despite these facts, in violation of such directions and the circular of the department, the respondents are still issuing show cause notices, levelling allegations of clandestine removal of the finished product, based upon the electricity consumption pattern shown by Dr. N.K. Batra. We, the .....

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city, because one may be new and another may be old. xi. Likewise such type of other reports are also available in this country, which are as under:- (a) Dr. N.K. Batra's report (b) Report by Joint Plant Committee constituted by the ministry of steel, Government of India. (c) Report of NISST, Mandi Gobindgarh given in June-July, 2006. (d) Report of Executive Director, All India Induction Furnace Association, New Delhi, and all these reports say different electricity consumption, per ton. The .....

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the basis of electricity consumption for which the standard norms are imported from report of late Mr. N.K. Batra, Professor of Material and Metallurgical Engineers, IIT Kanpur. 20. We find that the following reports have been referred to either by the appellants or the Revenue laying down the norms for the consumption of electricity for the manufacture of one MT of steel ingots: (i) 555 to 1046 (KWH/T) as per Dr. Batra's report; (ii) 1800 KWH/T as per the report by Joint Plant Committee co .....

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o 1800 kWH/Per Ton. This is mainly because of the nature of the machinery utilized by the noticee. Looking to the facts of the present case, the electricity consumption pattern as has been given in Annexure- RUD-7, as stated in paragraph 4 of the show cause notice, which is at page no. 63 of this memo of writ petition which reveals that this petitioner has consumed electricity absolutely in consonance with the report given by Joint Plant Committee, constituted by the Ministry of Steel, Governmen .....

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ucts. Otherwise, without such experiment, if any one of the aforesaid report relied upon, then it is arbitrariness on the part of the respondents and whenever there is any arbitrariness, there is always violation of Article 14 of the Constitution of India because for few of the noticees such type of reports are not relied upon whereas for rest of the assessee, as per the choice of the respondents, such type of reports will be relied upon and in fact, this has happened in this case. Several Order .....

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trariness is present, equality is absent. Equalities and arbitrariness are strong enemies of each other. When equality is present, arbitrariness is absent. 6. Hence, this Court is remanding the matter to the Commissioner, Central Excise & Service Tax, Ranchi. This Court is not much going into detail of further arbitrariness in the Order-in-Original about the lower remuneration to the employees of the petitioner no. 1 as well as the manufacturing unit is running in loss and the profit is made .....

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to have been reduced in writing and they must be referred in the show cause notice. Copies of the gist of the statements should be given to the noticee and those employees must be kept ready for cross examination. This type of procedure ought to have been followed by the respondents- department. Instead of doing this exercise, allegation has been levelled that there is low remuneration paid by the noticee, is not sufficient at all. 7. The Order-in-Original is based upon mere presumptions and pos .....

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