AI Structured Summary
Not yet generated for this judgment
Judgment
This Appeal u/s 35G of the Central Excise Act, 1944 arises out of an order passed by the CESTAT on 28 February, 2011 [ 2012 (281) ELT 270 ] on an application for waiver of pre-deposit. The Assessing Officer having found that the allegation made against the Appellants of suppression of actual production of ingots, clandestine removal of goods and fabrication of records stood established, confirmed a duty demand of Rs. 11.51 crores for the period between 16 December 2003 and 24 November 2008 and sustained an order for recovery of interest u/s 11AB. A penalty was imposed on the Appellants in the amount of Rs. 11.51 crores u/s 11AC and of Rs. 1.15 crores under Rule 25. On an application for waiver of pre-deposit, the Tribunal has directed the Appellants to deposit an amount representing fifty per cent of the duty and twenty five per cent of the penalty. The Appellants engage in the manufacture of MS Ingots. The main raw-material is Sponge Iron, Iron and Steel scrap. Pig Iron and Ferro Alloys. The Appellants purchased an Induction furnace in 2001. Electricity is supplied by Maharashtra State Electricity Board. The factory is a power intensive unit. Intelligence information was received by the Department that the Appellants were evading the payment of excise duty by suppressing production in the statutory records and clearing finished excisable goods without payment of Central Excise Duty. Central Excise Officers visited the factory premises on 25 October 2005 and took custody of documents. Statements were recorded, inter alia, of persons involved in the manufacture, transportation and sale of the products. Amongst the documents seized were letters addressed by the Appellants to the manufacturers of the induction furnace on 7 October, 2005 and 24 October, 2005. The documents of the Appellants indicated that the furnace was consuming between 900 to 925 units of power per M.T. until 20 October, 2005 and thereafter at the rate of 850 to 860 units per M.T. The total quantity of electricity consumed, as reflected in the records of the Maharashtra State Electricity Board, between 16 December, 2003 and 24 November 2008 was 7,91,87,789 units. On the basis that 925 units per M.T. were consumed upto 20 October, 2005 and 860 units per M.T. after 20 October, 2005, the production of the Appellants was estimated at 89,887.239 M.Ts of Ingots. What was reflected in the daily stock register was 53568.721 M.Ts. The unaccounted production amounted to 36318.518 M.Ts. That according to the Revenue, was cleared clandestinely without the payment of Central Excise Duty.
A notice to show cause was issued to the Appellants on 9 January, 2009 to explain why Central Excise Duty of Rs. 11.51 crores on 36318.518 M.Ts. of Ingots allegedly manufactured and clandestinely cleared during the period from 16 December, 2003 to 24 November, 2008 should not be demanded and recovered under the proviso to Section 11-A(1) together with interest u/s 11AB. The Appellants were also called upon to show cause against the imposition of a penalty u/s 11AC and Rule 25 of the Central Excise Rules, 2002.
The Commissioner of Central Excise, Nagpur, by his order dated 1 June, 2009 confirmed the demand of duty of Rs. 11.51 crores together with interest u/s 11AB and imposed a penalty of Rs. 11.51 crores u/s 11AC and of Rs. 1.15 crores under Rule 25. The Commissioner recorded a finding that the documentary material seized included the letters written by the Appellants themselves to the manufacturer of Induction Furnace recording that the furnace was consuming 900 to 925 units of power per M.T. of ingots produced, till 20 October, 2005 against a commitment of 725 to 750 units by the furnace manufacturer and between 850 to 860 per M.T. after 20 October 2005. Based on the record of the Appellants, the Commissioner arrived at the total production which was suppressed from the statutory record. The Commissioner also found that the books of accounts had been fabricated. It has also been found that in order to cover up clandestine removals, the Appellants had procured bogus purchase invoices of trading goods and cleared their finished excisable goods under the garb of traded goods. The bogus purchase invoices were used to cover up clandestine clearances of finished goods from the factory and to balance the quantity of sale and purchase in the books of accounts.
Aggrieved by the order of the Adjudicating Authority the Appellants had filed an appeal before the CESTAT. An application for waiter of pre-deposit was made. The Tribunal delivered its impugned order dated 28 February 2011 in a batch of 38 cases and directed a deposit of fifty per cent of the amount of duty and twenty five per cent of the amount of penalty. In one of those cases, which related to a company by the name SRJ Peety Steels Pvt. Ltd., a Division Bench of this Court at Aurangabad consisting of Smt. Justice Nishita Mhatre and Shri Justice M.T. Joshi heard the appeal which was disposed of finally with the consent of the parties. The Division Bench remanded the proceedings back to the Tribunal, observing that the Advocate for the Appellant there had urged that the Tribunal had not considered its own decisions in two cases viz. in 2011 (263) ELT 606 and in 2011 (270) ELT 231 . The total amount of duty involved in all the 38 cases was, according to the Revenue, approximately to the extent of Rs. 400 crores while the pre-deposit directed by the Tribunal by its order dated 28 February 2011 would work out approximately to Rs. 150 crores.
When the present appeal together with the tagged batch of appeals came up before this Division Bench on 12 October, 2011 2012 277 E.L.T. 47 (Bom.) the Court found itself unable to accept the order of remand passed by the Division Bench since that decision contained no reasons, and a reference was made to the Full Bench. The Full Bench delivered its judgment on 9 November, 2011 [2012 280 E.L.T. 343 (Bom.)] holding, inter alia, that no reasons were furnished in the order of the Division Bench at Aurangabad for setting aside the impugned decision of CESTAT dated 28 February, 2011. Moreover, the CESTAT had in its decision held that the full waiver of pre-deposit granted in the case of Nasik Strips Pvt. Ltd. (supra) by the Tribunal was contrary to the decision of the Supreme Court in Bhagwati Ispat Pvt Ltd. v. C.E.E., Bhopal - 2007 211 E.L.T. 21 (S.C.) which was not brought to its notice in the earlier case. By its judgment dated 9 November, 2011, the Full Bench answered the question referred by holding that the Aurangabad Bench was not justified in remanding the proceedings back to the Tribunal for reconsideration without expressing its views on the validity of the impugned order dated 28 February 2011 or of the orders of the Tribunal in Nasik Strips Pvt. Ltd. and Mithunlal Gupta Bhavshakti Steelmines Pvt. Ltd. Accordingly, this batch of appeals has been directed to be disposed of on its own merits without being bound by the order of the Aurangabad Bench. All contentions have been kept open.
Before we proceed to deal with the rival contentions, we admit the appeals on the following substantial questions of law :
(a) Whether in the facts and circumstances of the case, the Tribunal was justified in directing the Appellants to deposit 50% of the duty amount and 25% of the penalty amount;
(b) Whether in the facts and circumstances of the case, the Tribunal was right in holding that the Appellants did not make out a prima facie case for total waiver of pre-deposit;
We have heard the appeal finally at this stage with the consent of the learned Counsel appearing on behalf of the Appellants and the Revenue.
Learned Senior Counsel appearing on behalf of the Appellants submitted that though this appeal arises out of an order passed by the Tribunal on an application for waiver of the pre-deposit a substantial question of law would arise inasmuch as (i) The Tribunal has not considered relevant material; and (ii) The Tribunal has considered irrelevant material so as to warrant the interference of this Court. In this regard, learned Counsel placed specific reliance on the following :
(i) In the present case as the notice to show cause would reveal experiments were conducted on a surprise basis at the establishment of the Appellants by the Revenue but the assessment has not been made by the Adjudicating Officer on this basis. This, it was urged, was a circumstance which was ignored by the Tribunal;
(ii) Though letters were addressed by the Appellants to the manufacturer of the Induction furnace complaining that the furnace was defective, that was only one of the machines that was used by the Appellants and hence, the entire estimate of production should not have been based on the statements made by the Appellants therein in regard to the quantum of electricity utilized for generating production per metric tonne
(iii) The decision of the Tribunal in R.A. Castings v. C.C.E., Meerut-I, 2009 237 E.L.T. 674 (Tri.-Del.) has been distinguished in the impugned order on the ground that in that case here was no other material with the Department save and except for theoretical consumption of electricity based on a norm of production that was applied. This, according to learned counsel, is incorrect since in R.A. Castings there was other material which was available on record. A SLP against the decision in R.A. Castings is stated to have been dismissed by the Supreme Court.
On the other hand, it has been urged on behalf of the Revenue that:
(i) There is a finding of fact in the order of the Adjudicating Officer that there was a suppression of production, a clandestine removal of goods and a fabrication of accounts;
(ii) Electric power, as a matter of fact, constitutes a raw-material in the production of MS Ingots and though the assessee has fabricated other records, the records of electrical consumption could not be fabricated since they were contained in the official record of the M.S.E.B.;
(iii) In the present case, the Adjudicating Officer has not applied a theoretical norm of consumption but has acted on the basis of documentary material emanating from the assessee itself inter alia consisting of letters addressed by the assessee to the manufacturer of the induction furnace. These admissions of the assessee are of significance;
(iv) The findings of fact which have been recorded by the Assessing Officer are based on the material collected during the course of the investigation;
(v) The books of accounts have been proved to be fabricated. Moreover, it has been found that bogus purchase invoices were used to cover up clandestine clearances of finished goods from the factory.
(vi) Bogus invoices were created show purchase of goods so as to clear finished excisable goods under the garb of traded goods.
In the circumstances, it was urged that there is no warrant for interference with the order passed by the Tribunal.
In the present case, prima facie, at this stage, it emerges from the order passed by the Adjudicating Officer that the allegation against the Appellants was of suppression of actual production; a clandestine removal of goods and of the fabrication of record. Prima facie at this stage that finding has been established by the Adjudicating Officer. The Adjudicating Officer has recorded that the actual electricity consumed between the period 16 December, 2003 and 24 March, 2008 was 7,91,87,789 units. On this, there is no dispute since that forms part of the record of the M.S.E.B. The actual production has been worked out at 89,887.239 M.T. on the basis of the Appellants letter dated 20 October, 2005 to the manufacturer of the Induction Furnace to the effect that 925 units per metric tonnes were consumed upto 20 October 2005 and a letter dated 24 October, 2005 stating that about 860 units per metric tonnes have been consumed after that date. The present case is based on the documentary material of the appellants themselves. Moreover, electricity consumed in excess is not the sole evidence on which the finding of a suppression of production and of clandestine removals has been made. The Adjudicating Officer has adverted to the statements of the transporters. A finding has also been arrived at that the Appellants had procured bogus purchase invoices which were utilised to clear finished excisable goods under the pretext of these being traded goods.
On this state of the material and reading the order of the Tribunal, it cannot be held that the Tribunal has either considered irrelevant material or has failed to consider relevant material. During the course of its judgment, the Tribunal has furnished reasons for not following its order in an earlier decision in R.A. Castings in paragraph 17 of its order. Similarly, the Tribunal observed that the order of the Supreme Court in the case of Bhagwati Ispat Pvt. Ltd. v. C.E.E., Bhopal (supra) was not brought to its notice when it passed an earlier order on 9 July, 2010 in the case of Nasik Strips. In the case of Bhagwati Ispat the Tribunal had directed the appellant to pre-deposit fifty per cent of the duty demanded in appeal. The Supreme Court in its decision in Bhagwati Ispat Pvt. Ltd. v. C.E.E., Bhopal (supra) directed a deposit of l/5th of the total duty demanded. In another case relating to clandestine removal in Everest Rolling Mills (P) Ltd. v. C.C.E., Jaipur-I, 2009 244 E.L.T. 91 the Tribunal had directed a deposit of l/3rd of the duty demanded together with interest as well as l/3rd of the penalty on the application for waiver. By an order dated 6 November 2009 passed in Petition for Special Leave to Appeal (Civil) No. 27293 of 2009 the Supreme Court found that an order for pre-deposit not only of the duty but also of interest and penalty was unjustified. The assessee was directed to pre-deposit duty in the amount of Rs. 1 crore as against a total duty due of approximately Rs. 4.5 crores.
The Tribunal has held that the order passed by the Supreme Court in Bhagwati Ispat would have to be followed. The Tribunal similarly noted the order of the Supreme Court in Everest Rolling Mills. In Bhagwati Ispat which also involved an issue of clandestine removal, the Supreme Court directed a deposit to be made of one-fifth of the duty. In Everest Rolling Mills, the Supreme Court required a pre-deposit of twenty two per cent of the duty demanded. Having regard to this position the order of the Tribunal directing the deposit of fifty per cent of the duty at this stage would appear excessive particularly having regard to the directions issued by the Supreme Court in Bhagwati Ispat and Everest Rolling Mills. The order of the Tribunal should be modified to that extent. For the reasons indicated above, we direct that the Appellants shall make a pre-deposit of twenty five per cents of the demand for duty. We dispense with the deposit of penalty. The pre-deposit shall be effected within a period of six weeks from today. The order of the Tribunal shall stand modified to that extent. The questions of law shall stand answered accordingly. On the request of learned Counsel for the Appellants, we clarify that the observations in this order are confined to the disposal of the appeal which is against an order passed by the Tribunal on an application for waiver of pre-deposit. The appeal shall be heard and disposed by the Tribunal without treating these observations as a conclusive opinion of the Court on the merits of the rival contentions at the hearing of the appeal. The Appeal is disposed of in these terms. There shall be no order as to costs.