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TMI Blog2025 (5) TMI 1012X X X X Extracts X X X X X X X X Extracts X X X X ..... remises. During the course of search, the Officers, inter alia found a handwritten statement allegedly showing clearances made to one M/s. Sharada Re-rollers, in their factory, from Shri Purushottam Das Sharma, Authorized Signatory of the appellant and a pen drive, in their office premises. The statements of Shri Purushottam Das Sharma, Authorized Signatory, Shri Haresh Beriha, Office Assistant, Shri Sudhakar Reddy, Process Manager, Shri Ram Ratan Mahato, Weigh Bridge Supervisor and Shri Suresh Joshi, Managing Director were recorded on 04.11.2009 and 05.11.2009. 3. Based on the loose sheets and computer printouts recovered and statements recorded, as above, the Officers came to the conclusion that the appellant-company had engaged in clandestine removal of Sponge Iron without payment of duty. On the basis of these allegations, a Show Cause Notice under C.No.IV(6)15/CE/CPU/B-II/2009/Pt-III/22526A dated 26.12.2011 was issued to the appellants, proposing to demand central excise duty of Rs.1,62,21,368/- (inclusive of cess) in respect of 10,720.35 MT of Sponge Iron alleged to have been manufactured and removed clandestinely during the period from April 2007 to October 2009, along with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nical Consultant, Raipur & M/s. Tata Sponge Iron Ltd., Joda, having expertise in the field of production of "Sponge Iron". He submits that the Show Cause Notice seeks to corroborate the aforesaid inference by a further presumption of actual higher production drawn from comparatively higher consumption of power vis-à-vis the standard consumption pattern suggested in metallurgy; however, for the above presumption and irrelevant reference to factor of production purportedly experienced by some other organizations under wholly different circumstances, there is not even an iota of evidence to substantiate the alleged higher production vis-à-vis the actual production recorded in the statutory records of the appellant company. 6.1. It is submitted that Sri Suresh Joshi, Managing Director had explained the allegedly higher input: output ratio to be attributable to low 'Fe' content in the Iron Ore received and explained the difference between the 'Fe' content mentioned in the Invoices of the suppliers vis-à-vis own Lab report, to be attributable to the monopoly of the mine owners, which is accepted as fait accompli; further, he had explained the alleged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y factor or basis for determination of the duty liability that too on imaginary basis and therefore, there can be no generalization or uniform norm of 1046 unit a sought to be adopted by the Revenue. Several case laws in support of the above submission were cited in the reply to SCN. Therefore, it is his contention that in the absence of evidences, the allegation of clandestine removal cannot sustain on the basis of technical opinion reports. 6.1.3. In support of their contention that the demand cannot be raised on the basis of assumptions and presumptions, the appellants have relied upon the following decisions passed by various judicial fora: - a. Galaxy Indo Fab Ltd. v. Commissioner of C.Ex., Lucknow [2010 (258) E.L.T. 254 (Tri. - Del.)] b. Suzlon Fibres Ltd. v. Commissioner of C.Ex., Surat [2008 (230) E.L.T. 166 (Tri. - Ahmd.)] c. Continental Cement Company v. Union of India [2014 (309) E.L.T. 411 (Alld.)] 6.2. Further, the Ld. Counsel for the appellants submits that although as per the Annexure-B to the SCN, entire 149.55 MT of sponge iron has been removed to one M/s. Sharada Re-rollers, no investigation has been conducted at their end to find if they have actually rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said pen-drive were shown to the persons who were not even remotely connected with the preparation/entry/maintenance of the data contained in the said print-outs, the explanation to the entries contained in the said computer print-outs said to have been given by such unconnected persons namely Shri Purushottam Das Sharma and Shri Suresh Joshi were manifestly preposterous and unreliable to from a basis for the alleged clandestine removal. Reliance in this regard is placed on the following decisions: - a. Maa Bhagabati Re-rolling Mill Pvt. Ltd. v. Commissioner of C.G.S.T. & ors. [2025 (4) TMI 365 - CESTAT, Kolkata] b. Pr. Commissioner of C.G.S.T. & C.Ex. v. Shah Foils Ltd. [2011 (271) E.L.T. 184 (Guj.)] 6.3. It is the submission of the Ld. Counsel for the appellants that Shri Purushottam Das Sharma was shown the figures contained in the said print-out purportedly taken from the pen-drive and those contained in Annexure-B to the SCN, which Shri Sharma had just read-out as those appeared to him and upon a holistic reading of the statement of Shri Sharma and taking into account his place of work vis-à-vis the place from where the pen-drive was seized from, the implicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s any mention about opening of the seal in the presence of Independent witnesses or their Authorized Signatories before taking print-outs there from. Also there is no indication in the SCN as to (i) when and where the print-outs were taken from the Pen-drive, (ii) whether the Pen-drive was used regularly to store or process Information pertaining to the removals alleged in the SCN. (iii) Whether during the relevant period, Information of the kind said to have been contained in the said pen-drive, was regularly fed into it in the ordinary course of the alleged activities OR, if not, the period over which the data purportedly contained therein was fed into it, (iv) Whether the pen-drive was operating properly throughout the relevant period (v) the computer or the hard-disk of the computer from which the data were copied/downloaded to the Pen-drive has not been identified/seized, OR (vi) whether the data contained in the Printouts reproduced or is derived from information supplied to the Pen-drive in the ordinary course of alleged activities during the relevant period. On the contrary, the print-out annexed as ANNEXURE-J to the SCN was shown to Purushottam Das Sharma, Rashmi Ranjan Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rat [2000 (124) E.L.T. 821 (Tri.)] c. A. Arti Leathers (P) Ltd. v. CCE & C, Ahmedabad [2001 (136) E.L.T. 1255 (Tri.-Mum.)] d. Parshuram Cement Ltd. v. CCE, Lucknow [2003 (160) E.L.T. 213 (Tri.-Del.)] e. Mukesh Dye Works v. CCE, Mumbai-VI [2006 (196) E.L.T.237 (Tri.-Mum.)] f. Hans Castings Pvt. Ltd. v. CCE, Kanpur [1998 (102) Ε.L.Τ.139 (T)] (vi) That the Ld. Commissioner, while giving his findings based on the report of experts, as relied upon in the SCN, has totally ignored the above settled laws and only relied upon the statements taken from various persons under duress and unacceptable facts of the said report. The favourable facts of the said report that production is dependent on "tumbler index" of iron ore and FC content of coal, has been totally ignored. Also there is no evidence to the effect of labour employed and payment made to them, discrepancy in the stock of raw materials and final products, clandestine removal of goods with reference to entry of vehicle/truck in the factory premises, loading of goods therein, security gate records, transporters' documents, such as L.Rs, statements of lorry drivers, entries at different check posts, forms of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over, not allowing the Appellant for cross examination of the persons, the Ld. Commissioner has also violated the principle of natural justice. His observation that the Appellant did not stress for cross examination at the time of hearing is also not supported and in the Interest of justice the Ld. Adjudicating Authority should have allowed cross examination by producing the persons at the time of hearing. (viii) The observation of clandestine production and clearance, is based on expert opinion given by M/s Popuri Engineering & Consultancy Services, Hyderabad and M/s Industrial Technical Consultant, Raipur. Based on their opinion Ld. Commissioner has observed that to manufacture sponge Iron, ore with Fe (T) of 63% are used and the ratio is 1.67:1 and unit power consumption to manufacture 100 MT sponge iron is in the range of 70 to 100 KWH. Thus the entire demand is based on third party's opinion and the same is not in the context of the Appellants' factory. The Ld. Commissioner, has grossly failed to appreciate that the basic philosophy in taxation matter is that no tax can be levied on the basis of estimation and when the tax is on manufacture, it cannot be established ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the appellants prayed for setting aside the penalty imposed on Shri Suresh Joshi / appellant no. 2, vide the impugned order. 7. On the other hand, the Ld. Authorized Representative of the Revenue reiterated the findings in the impugned order and submitted that the appellants themselves had submitted the input: output ratio of 1.6 MT for the production of 1 MT of Sponge Iron. However, the appellant has increased the input / output ratio to 2.11 : 1 for the period 2008-09 and 2.10 : 1 for the period 2009-10, which is unreasonably very high. 7.1. Further, the Ld. Authorized Representative of the Revenue contends that the evidences recovered during the course of search indicated that the appellant had been clearing the goods clandestinely to their customers; these documentary evidences corroborate the allegation that clandestine clearances had been made by the appellant-company. He also submits that the higher consumption of electricity observed also supports the allegation of clandestine removal made in the Notice and in the impugned order. 7.2. In view of these submissions, the Ld. Authorized Representative of the Revenue supports the confirmation of the demands in the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Research, Govt. of India, who opined that iron ores with Fe(T) of 63% to 63.5% were being used for manufacture of sponge iron and that taking into account the loss of oxygen during manufacture and generation of fines during processing of iron ore from the mine source to the plant, upto 1.8 MT of iron ore is required for production of 1 MT of sponge iron * M/s Popuri Engineering & Consultancy Services, Hyderabad, who opined that 60% to 65% Fe(T) content iron ore would be required for production of sponge iron and in no case, production of sponge iron would be possible if Fe(T) content in the iron ore was below 60%. Further, 60 to 63 MT of sponge iron is manufactured on consumption of 100 MT of iron ore having Fe(T) grade of 63%. The unit power consumption for manufacture of sponge iron is in the range of 70 to 100 Kwh. * M/s. Industrial Technical Consultant, Raipurwho opined that for production of 1 MT of sponge iron, 1.541 MT of iron ore with Fe(T) of 65% or 1.670 MT of iron ore with Fe(T) of 63% or 1.724 MT of iron ore with Fe(T) of 60% is required. The unit power consumption for manufacture of sponge iron is 90 Kwh. * M/s TATA Sponge Iron Ltd., Joda, Keonjhar, who opined t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect of labour employed and payment made to them, discrepancy in the stock of raw materials and final products, clandestine removal of goods with reference to entry of vehicle/truck in the factory premises, loading of goods therein, security gate records, transporters' documents, such as LRs, statements of lorry drivers, entries at different check posts, forms of the Commercial Tax Department and the receipt by the consignees available on record to substantiate the allegation of clandestine removal. In view of want of evidences relating to the above points, we hold that clandestine removal cannot be sustained merely on the basis of the technical opinion. 9.1.8. In this connection, we rely on the following case laws: a. Emmtex Synthetics Ltd. v. Commissioner of Central Excise, New Delhi [2003 (151) E.L.T. 170 (Tri.-Del.)]; b. Commr. of Central Excise, Chennai v. Dhanavilas (Madras) Snuff Co. [2003 (153) E.L.T. 437 (Tri.-Chennai)]; c. Commissioner of Central Excise, Madurai v. Madras Suspensions Ltd. [2003 (156) E.L.T. 807 (Tri.-Chennai)]; d. Commissioner of Central Excise, Coimbatore v. Sangamitra Cotton Mills (P) Ltd. [2004 (163) E.L.T. 472 (Tri.-Chennai)]; e. Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Adjudicating authority before coming to his conclusions. His conclusions seem to be flowing directly from the input/output ratio adopted by the Dept at the time of issuing the Show Cause Notice. 18. The output is dependent on several factors other than the input / output of the main raw material, iron ore. Even within Iron ore, the Fe content would play an important role. Other than this, we have to consider the usage of the quality of coal, dolomite, the capacity of kiln etc. Thus a simple formula of input / output purely based on the iron ore usage, would not fit all the manufacturers of Sponge Iron. We find that such attempts have been made by the Revenue in the past which have come up for consideration before this Bench. In the case of CCE Vs Agrasen Sponge Pvt Ltd - Final Order No.77819/2024 dated 12.12.2024, an identical issue was before the Bench. The relevant extracts are as under : "2.2 Scrutiny of the Daily Stock Account, Raw Material Registers and the returns submitted by the Noticee revealed that during the period from April, 2007 to January, 2010 (excluding the period form July, 2008 to October, 2008), the Noticee has recorded production of 42045.00 MT Sponge ir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving Central Excise duty of Rs. 1,83,27,914/- (including Cess) and removed the same clandestinely without payment of duty. ...... 17. We find that in this case demand sought to be raised against the Respondent on the basis of estimated production as per input/output ratio of 1:1.67MT and electric consumption is 162 KW for manufacture of 1 MT Sponge Iron. All these basis for confirmation of demand are on estimate basis and there is no tangible evidence has been brought by the Revenue on record from where the Respondent procure other raw materials to manufacture such a huge quantity of Sponge Iron like coal and iron ore." 10.2. A similar issue had come up before this Bench in the case of Aryan Ispat and Power Pvt. Ltd. Vs. Commissioner of C.Ex. vide Final Order No. 77490 - 77492/2023 dated 17.11.2023, wherein it was observed that: - "10. From the Show Cause Notice and the OIO passed, it gets clarified that the demand has been made towards excess production of 11089.730 MT of Sponge Iron during the period July 2006 to November 2009 solely based on the formula adopted by the Department to arrive at the estimated production of iron ore to this extent. While the purchase quantity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and averaging production as 77.6% and one statement of Shri Agarwal, Director of the appellant company cannot be called a prudent conclusion of the production estimate. 7. Considering above discussions and the case laws cited above, we conclude that the Revenue has failed to reasonably prove suppressed production and clandestine clearance on the part of the appellants. Consequently, the impugned order in respect of confirmation of duty for alleged suppressed production, and imposition of fine and penalty on the appellant No. 1 and imposition of personal penalty of Rs. 40 lakhs on Shri Agarwal who is appellant No. 2 are hereby set aside. The appellants will get the relief accordingly. 11. We observe that in this case, the demand in the Show Cause Notice has been raised on a theoretical basis by assuming that the appellant had produced Sponge iron as per the input: output ratio of 1.6 : 1 MT. It is well settled that the demand cannot be raised only on a theoretical or presumptive basis. This view has been expressed by the Tribunal at Delhi in the case of Galaxy Indo Fab Ltd. v. Commissioner of C.Ex., Lucknow [2010 (258) E.L.T. 254 (Tri. - Del.)] wherein it has been held as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial on record. 13. The allegation of use of coercion and duress in recording the statements stood established in view of the fact that the employees of the appellants in the course of cross-examination clearly confirmed the fact of use of duress and coercion having been utilized while recording the statements. Clear statements in that regard by the employees were neither controverted nor even there was an attempt to examine the officer who had recorded their statements to establish that no coercion or duress was ever used while recording their statements. The concerned officers and witnesses were not produced for cross-examination, though the same was asked for. Undoubtedly, the statements recorded by the excise officers in the course of the investigation are admissible in evidence and can be relied upon. But, in the facts and circumstances of the case in hand wherein the calculations are based solely on uncorroborated documents and apparently the qualification of the production appear to be exaggerated in view of the Department's own finding about annual production capacity at much lesser quantity, there is every reason to doubt the genuineness of the statements recorded in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t they have cleared clandestinely around 14,000 kgs. of their final product. However, while clearing the quantity of clandestinely removed final product was brought down to 5000 kgs. 2. The appellant's contention is that the said statements, having not been relied upon by the lower authorities in favour of the quantum disclosed loses its evidentiary value, inasmuch as, the same has been proved to be wrong. Further the cases of clandestine removal cannot be built on the input-output ratio, as has been held by the Tribunal in a number of decisions. Reliance is placed upon the Tribunal's judgment in the case of M/s. Hindustan Coca Cola Beverages Pvt. Ltd. [2006 (205) E.L.T. 700 (Tri. Mumbai)]. 3. We agree with the above contention of the ld. Advocate, apart from the input-output ratio, there is no evidence on record to show clandestine manufacture and clearance of the goods. Such cases are required to be established beyond doubt on the basis of concrete and positive evidences. We accordingly set aside the impugned order and appeals are allowed with consequential relief." (Emphasis supplied) 11.2. We observe that clandestine removal of goods is a serious offence, which requires t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out. 15. In view of the above, we are of the opinion that when there is no extra consumption of electricity, purchase of raw materials and transportation payment, then manufacturing of extra goods is not possible. No purchase of raw material out side the books have been proved. 16. In the light of the above discussions and considering the totality of the case, we are satisfied that no case is made out for extra so called clandestine sale of the Portland Cement to the said parties. We are satisfied that the first appellate authority has rightly deleted the addition and cancel the penalties. Hence we hereby set aside the impugned order passed by the Tribunal and restore the order passed by the first appellate authority, along with the reasons mentioned herein. 17. In the result, all the appeals filed by the appellants are hereby allowed." 12. We find that the facts of the present case are similar, with the Revenue mainly relying on the input : output ratio relied on source which are not tested independently by them, and hence these case laws are squarely applicable in the present case. In view of the above discussion and by relying on the decisions cited supra, we are of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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