Commissioner, Central Excise And CGST Commissionerate, Udaipur vs M/s Nuvoco Vistas Corporation Ltd.(formerly known As M/s Lafarge India Pvt. Ltd.)

This appeal has been filed by the Revenue assailing order-in-original dated 09.04.2019, Impugned order whereby the Commissioner of Central Excise, Udaipur adjudicated upon the show cause notice dated 02.05.2018 issued to the respondent and dropped the entire proceedings against the respondent. The factual matrix which led to the issue of the show cause notice which culminated in the impugned order is as follows. The respondent is a manufacturer of cement and clinker and holds Central Excise registration for the purpose and they had been paying central excise duty. Their records were audited by the Accountant General Audit for the period 2011-2012 to 2015-2016 and it was noticed that the respondent had conducted an internal physical verification of the stock on 29.12.2015 which revealed a shortage of 240761 M.T. of limestone which is a raw material for the respondent and 32051 M.T. of Clinker which is a final product. The respondent paid the central excise duty on the clinker found short. They could not explain to the satisfaction of the Accountant General Audit the shortage of raw material. A letter dated 03.03.2017 was issued by the Superintendent, CGST Range III, Nimbahera seeking clarification and respondent through their letter dated 11.06.2017 explained the shortage of raw material in their factory as follows :-

"(a) The raw-meal factor was changed in March, 2015 from 1.50 to 1.53. As a result of the change in raw-meal factor the consumption of limestone was shown less by 36.7 M.T. from April, 2014 to February, 2015 in the books than actual.

(b) Actual quantity errors resulting from normal weighbridge tolerance error and approximation of quantity of limestone during start of operation when weighbridge was not installed and breakdown of weighbridge. In order to avoid short payment of royalty, excess quantity was considered on conservative basis. Maximum difference is attributable to this.

(c) Limestone has been captively used for levelling the raw material storage yard, access roads to mines, etc.

(d) Loss of limestone as dead stock in stacking yard and blended into the ground and not retrievable.

(e) The quantity of shortage of limestone in the book stock and physical stock attributable for various reasons, was as given below :-

Sl. No.

Areas of usage

Year

Tonnage

Consideration

1.

Dead stock in stock pile

2013

7300

1 mtr. Height for dead stock material (filed inside pile to make proper bed)

2.

Material handling from stacker to yard and return

2014- 15

2200

Material stacked outside pile for mitigation of emergency situations like monsoon etc. 0.5 mtr. Dead stock (not extractable) as material stacked on barren land (soil)

3.

Material used for filling road, approach inside plant and 99C to security post

2013

24400

Material used for making approaches for dumpers movement from AJ mines road to plant (3.00 km & upto 0.5 mtr. level filling)

4.

Mines road backfilling

2014

21800

Backfilling of 1 km long x 15 mtr. x 1 mtr level filling wide road for movement of dumpers carrying limestone inside mines.

5.

Crusher ramp filling

2013

40000

During project stage, old ramp was constructed using uncrushed limestone from mines

6.

Raw material yard levelling during monsoon

2014

8000

400 trips of dumpers with average tonnage of 20MT each

7.

Store yard area leveling

2015

5000

Material filled in store yard to make access to it as in monsoon it becomes very difficult to take out re-factory, kin motor etc. spares during annual July-Sep shutdown

8.

Pant to crusher road backfilling

2015

900

For making road from raw mill to crusher

9.

Approach road correction for movement in monsoon by filling limestone

2015

4000

Approach road at zero point, colony, outside gate no. 2, truck parking yard, raw mill area etc. for movement of trucks, cherry picker, crane during monsoon

10.

Crushed LS measuring error between belt weigher and weigh feeder

2013- 15

42516

Average 1% error considered in the weighment of belt weigher & limestone weigh feeder

11.

Limestone from mines without weighment due to weighbridge not operational

2013- 15

47300

Assumption : average 5% differential tonnage considered in manual assessment of truck wise weighment in absence of weighment through weighbridge

12.

Dead stock of limestone stored outside in yard

2015

2900

Crushed limestone has been stored outside stockpile as emergency mitigation plan, where the land is not concreted.

Grand Total

203414

Not satisfied with the explanation, the show cause notice dated 02.05.2018 was issued to the respondent. The learned Commissioner had, in the impugned order, accepted the explanation by the respondent and held that he did not find any reason to presume that the shortage in raw material had resulted in clandestine production and clearance of clinker and therefore dropped the proceedings under the show cause notice. Since the demand was dropped, there was no ground to impose any penalty upon the respondent. This order was reviewed by the Committee of Chief Commissioners. They were of the opinion that the order was not legal and proper on the following grounds :-

"(i) physical verification of the stock of limestone and clinker was carried out by independent agency and the shortage was admitted too by the respondent. Respondent paid duty on the clinker which was found short and as explained the shortage of limestone as having been used for various other purposes or weighment was not being done properly ;

(ii) respondent claimed that their management of aware of the use of limestone for different purposes inside the factory but had neither recorded such use in the books of accounts nor to explain the same during audit. Therefore, this explanation is only an afterthought ;

(iii) the quantity of limestone received recorded in the books of accounts and duly recorded in their annual returns to the Regional Controller Mines, Indian Bureau of Mines, Udaipur. These did not reflect the use of limestone as now claimed by the respondent ;

(iv) the respondent claim some limestone as having been used for material yard levelling during monsoon or store yard levelling;

(v) the claim of error in weighment cannot accepted because difference is huge equal to 5% of total tonnage".

Commissioner had, in the impugned order, held that mere shortage in stock of raw material cannot sustain the charge of clandestine manufacture and clearance of finished goods. In this case, the shortage was detected by independent agency and no satisfactory explanation was given for the shortage by the respondent.

In view of the above, it has been prayed in the appeal that the Tribunal may determine the following :-

"(a) Whether the Commissioner has erred in dropping the demand without considering the fact that the reasons for shortage of Limestone, as advanced by the assessee at a later stage, were not explained to the Internal Physical Verification Agency or to the A.G. Audit and, therefore, the same are nothing but an afterthought.

(b) Whether the Commissioner has erred in dropping the demand without considering the fact that the Internal Physical Verification Report indicating, shortage of 32,051 M.T.s clinker and 2,40,761 M.T.s Limestone has been accepted by the assessee and duty has been paid by them in respect of quantity of Clinker found short which proves that the assessee have indulged in clandestine clearance of Clinker.

(c) Whether the Commissioner has erred in dropping, the demand without considering the fact that no quantity of shortage of Limestone resulting from various reasons, as claimed by the assessee at a later stage, has been accounted for by the assessee at the relevant point of time and, therefore, the only conclusion that can be drawn is that such quantity of Limestone has been used in the manufacture of Clinker, and which has been cleared clandestinely without payment of duty payable thereon; and

(d) For passing any other order, as deemed fit, by the Hon'ble Tribunal, in the facts and circumstances of this case".

Learned Departmental Representative vehemently reiterated the above grounds. He submitted that since limestone was found short which is the main ingredient of cement/clinker and the explanation by the respondent for the shortage is not satisfactory and is no borne out by the books of accounts or reflected in their returns to the control of mines, the inevitable conclusion is that this limestone has not been converted into clinker and clandestinely removed its goods by the respondent. Accordingly central excise duty is leviable on such clinker and the penalties are imposable upon the respondent.

Learned Counsel for the respondent reiterated the submissions made by them before the lower authorities and the findings of the learned Commissioner.

We have considered the submissions from both the sides and perused the records.

Duty of excise is leviable if and only if the taxable event has taken place. In terms of Section 3 of Central Excise Act "there shall be levied and collected in such manner as may be prescribed, a duty of excise to be called Central Value Added Tax (CENVAT) on all excisable goods (excluding goods produced or manufactured in SEZ) which are produced and manufactured in India as, and at the rates set-forth in the first Schedule to the Central Excise Tariff Act, 1985". Therefore, for central excise duty to be levied;

(a) there must be an excisable good ;

(b) such excisable good must be manufactured or produced ;

(c) the manufactured good must be leviable to duty as per the Central Excise Tariff.

There is no provision in the Central Excise Act to charge central excise duty on the basis of presumption of manufacture or production. If there is no production or manufacture no duty can be charged even if one procures raw material which is not accounted for. Of course, if it is a cenvatable input, Cenvat credit can be taken only if the raw material or input is used in or in relation to manufacture and not otherwise. Limestone is not even a cenvatable product. In this case, the show cause notice is issued by the Department alleging production/ manufacture of clinker from the limestone found short. There is no evidence that the clinker has been manufactured. Although limestone is the main ingredient for manufacture of clinker other ingredients, power, etc. are also required. There is nothing on record to show that there was corresponding proportionate shortage in the stock of other raw materials or that excess electricity has been consumed to correspond to the shortage of raw material. If all these ingredients were available, there could have been suspicion as to what happened to the clinker which was manufactured. In the present case all that was found was a shortage of clinker and a shortage of limestone. These shortages were not discovered by the Department but by the respondent/assessee themselves. Having found to shortage, the respondent itself paid central excise duty on the clinker found short. On the question of shortage of limestone they conducted an enquiry and thereafter provided the explanation to the Revenue. The argument of the Revenue is that this explanation is not satisfactory and this shortage has not been reflected in their records or in the returns which they filed with the mines. We observe that if these were indeed recorded in their books of accounts and reflected in their returns then there will be no shortage. The shortage was discovered when they conducted physical verification of the stock which did not match the accounts. Had the shortages been reflected in the accounts and in their returns then there would not be any shortage at all.

Regarding shortage of limestone, the respondent gave an explanation. We find no reason to disbelieve the respondent. If they had used the limestone for construction somewhere and not properly accounted for such usage in their books of accounts stock taking will show a shortage. It is not for the respondent to show that they have not actually manufactured any final product out of this limestone found short. It is for the Revenue to, if a show cause notice is to be issued, to prove that the clinker was actually manufactured. In the present case, we find no such evidence coming forth. Therefore, even if it is held that the appellant has not satisfactorily explained its shortage of limestone, no duty can be demanded on presumption of manufacture of clinker. We, therefore, find that the learned Commissioner has in the impugned order, after considering all facts, correctly dropped the show cause notice and the impugned order needs to be sustained.

In view of the above, the impugned order is upheld and Revenue's appeal in the matter is dismissed with consequential relief, if any, to the respondent.

(Order pronounced in open court on 01/10/2021.)