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2016 (11) TMI 1347 - JHARKHAND HIGH COURT

2016 (11) TMI 1347 - JHARKHAND HIGH COURT - TMI - Presumptive SCN - Clandestine removal - Principle of natural justice - Held that: - In view of the aforesaid electricity consumption report, per tonnage, it appears that the variation is from 555 units to 1800 kWH/Per Ton. This is mainly because of the nature of the machinery utilized by the noticee - 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. 6 .....

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carried out 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 - Petition is allowed by way of remand. - W. P. (T) No. 939 of 2016 - Dated:- 31-8-2016 - D. N. Patel And Ratnaker Bhengra, JJ. For the Petitioners : Mr. Sumeet Gododia, Advocate For the Respondents : Mr. Deepak Roshan, Advocate ORDER Per D. N. Patel, J. 1. This writ petition has been preferred challenging .....

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er. 2. Factual matrix: ● This writ petitioner is manufacturing M.S. Ingot from sponge iron and they are manufacturing M.S. Ingot since long. ● Show cause notice dated 01.08.2014 was given by the Commissioner, Central Excise and Service Tax, Ranchi for the period running from June,2009 to March-2014. ● First date of hearing was on 25.03.2015 i.e. after approximately 7 months and 25 days. Petitioner could not remain present because of illness of mother of petitioner no. 2, who is .....

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ike Nucleus Group report and All India Induction Furnace Association report which were referred in the show cause notice and though they were demanded by this petitioner, the same were not supplied. ● On 13.01.2016, petitioner again requested to supply the documents referred and relied upon in the show cause notice, but, 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. ● On 16 .....

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vassed by the counsel for the petitioners: ● Counsel appearing for the petitioners submitted that there is gross violation of principle of natural justice. The documents which are referred to and relied upon, in the show cause notice like: a. Nucleus Group report; b. The All India Induction Furnace Association report, though were demanded, but, never supplied. ● The whole show cause notice is issued upon presumptions and surmises about unaccounted manufacturing of M.S. Ingots and cla .....

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y in consonance with the report given by the Joint Plant Commissioner constituted by the Ministry of Steel, Government of India and as per this report, the consumption can be 1800 KWH/T ( as referred in paragraph no 20 of a decision reported in 237 ELT 674 in the case of R.A. Casting (Private) Ltd. Vs. CCE, case. Thus, there is no scientific survey carried out by the respondents which can lead to conclusive evidence of unaccounted manufacturing of M.S. Ingots and clandestine removal thereof. .....

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lectricity. There are several reports given by more reliable institutions and persons than Dr. N.K. Batra, which have been referred in the aforesaid decisions of R.A. Castings. Cross examination of Dr. N.K. Batra is also not made available, despite the request was made. The respondents ought to have carried out experiment of consumption pattern of electricity at the factory premises of the noticee, which has been referred to paragraph no. 22 of the decisions of R.A. Castings Private Ltd, which h .....

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landestine removal. ● Counsel for the petitioners has further submitted that the respondents have also shown their surprise about the wages paid by this petitioner to its 40 employees. The respondents have never recorded the statement of any of the employee and the respondents have presumed that higher wages must have been paid by the petitioner in absence of any statement of any of the employee. Thus, on the basis of this presumption that the petitioner must be paying higher wages to its .....

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n 22.04.2014 by the Calcutta High Court. ● Counsel for the petitioners has pointed out that in several similarly situated cases, in which Dr. N.K. Batra report has been referred and relied upon, for proving clandestine removal of the finished products, in the show cause, ultimately in the Orders-in-Original, the show cause notices have been dropped by the adjudicating authority itself. The similarly situated cases are as under:- a. Globe Steel & Alloys Pvt. Ltd, the Order-in- Original .....

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Court and given to the respondents. ● On the basis of aforesaid decisions, it is submitted by the counsel for the petitioners that electricity consumption pattern, is useless argument, on behalf of the respondents. Every now and then, such argument has been canvassed, in the Order-in-Original and the first adjudicating authority has dropped the baseless notice and whenever the first authority has confirmed such ground, the tribunals have passed the Orders and quashed such ground, like in t .....

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the ground of the electricity consumption pattern has also not been approved, in the Order-in-Original, no appeal has been preferred by the department. Thus, it has become fashion with the respondent that arbitrarily in few cases, ground of Dr. N.K. Batra will be raised for few industries and for rest of the industries, no such ground is ever raised. Because of this N.K. Batra's report, several petitions have been filed and several decisions have to be given by the Courts. ● Counsel f .....

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re at Annexure-1 and Annxure-14, respectively, may kindly be quashed and set aside. 4. Arguments canvassed by the counsel for the respondents: ● Counsel for the respondents submitted that these petitioners are having efficacious and alternative remedy against the Order-in-Original and the appeal could have been preferred before the Central Excise and Service Tax Appellant Tribunal (CESTAT) under Section 35(B) of the Central Excise Act, 1944. ● Counsel appearing for the respondents su .....

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attern has been mentioned in Annexure- RUD-7, which is referred in paragraph-4 of the show- cause notice. Similarly, other grounds have also been dealt with in detail, in the Order-in-Original. Very meager amount of salary has been paid by these petitioners to their employees, there is a loss caused to the petitioner No.1 since long, still they are continuing in the manufacturing activities and the petitioners are showing profit in their profit & loss account by showing the profit from the n .....

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at Annexure-16, which is a preliminary defence, was never given during the course of hearing before the Commissioner, Central Excise and Service Tax, Ranchi, but, it was given in the common centre of the Central Excise and Service Tax Office of the Commissioner. Whenever any matter is being conducted by the adjudicating authority, the reply should have been tendered before the adjudicating authority and hence, it has been observed in paragraph no. 20 of the Order- in-Original that noticee has no .....

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ning from June, 2009 to March, 2014 mainly on the ground that there is 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, 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, Cen .....

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n. iii. It further appears from the facts of the case that on 16.03.2016, which is a last date of hearing, on that day, preliminary defence was given by the petitioners, in absence of those two documents. Nonetheless, in paragraph no. 20 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 ap .....

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of the finished product by the noticee. Nonetheless, 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, Kanpu .....

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onclusive piece of evidence as per Indian Evidence 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 ar .....

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epartment which ought to refer that over and 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 weig .....

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noticee upon whom or upon which allegation of 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 .....

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ent of consignees, receipts of sale proceeds by 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 pow .....

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ng regard to the facts of the case, has a discretion 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 .....

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rinciple of natural justice, writ is always tenable at law. viii. Thus, the department has not done any home work and the show cause notice dated 01.08.2014 ( 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 .....

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sed upon Dr. N.K. Batra's report is absolutely 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 car .....

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use the report of Dr. N.K. Batra's as the 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 .....

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unless the aforesaid experiment is carried out 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 on .....

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s the basic philosophy in the taxation matters 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 .....

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e reasons for high consumption of electricity 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 liabili .....

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any uniform norm of 1046 units as sought to be 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 i .....

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E.L.T. 1255 (Tri.- Mum.) (iv) Parshuram Cement 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 sust .....

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mmissioner of Central Excise, Coimbatore v. Sangamitra 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 b .....

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ents in the factory of the appellants and others 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 absen .....

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andestine removal and the respondent-department has 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 con .....

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city may not have the same consumption of electricity, 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 sa .....

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uty. The excess production has been worked out on 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 KW .....

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it appears that the variation is from 555 units to 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 .....

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rn vis-a-vis clandestine removal of finished products. 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 fa .....

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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. 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 manufacturi .....

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ount 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, is not sufficient at all. 7. The Order-in .....

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