2004 (97) ECC 135 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

New Delhi -- Bench-NB(C)

Shri V.K. Agrawal, Member (T) and Shri P.S. Bajaj, Member (J)

National Aluminium Company Ltd.

Versus

CCE, Bhubaneswar

Appeal No. E-2565/02-NB(C)

[Arising out of Order-in-Original No. CCE/BBSR-1/9/2002 dated 28.6.2002, passed by the Commissioner of Central Excise & Customs, Bhubaneswar]

Final Order No. 365/2004-NB(C), dated 21.4.2004, Certified on 2.6.2004

Duty Demand (C. Excise)

Clandestine removal -- Unaccounted loss of CSL in the process of manufacture of final product department failed to prove its case as such clearance not been made in clandestine manner to some other manufacturer -- One to one correlation of raw material no other necessary nor exact mathematical equation between inputs utilized and finished goods manufactured possible -- Hence, demand set aside -- Section 11A of CEA.

PRESENT :

Shri Joseph Vellapalli, Sr. Adv. for the appellants.

Shri D.N. Choudhary, SDR for the respondent.

Cases Cited :

1. Dai Ichi Karkaria's, 1999 (65) ECC 354 (SC)................................................... [Para 10]

2. SAIL v. CCE, 1996 (56) ECC 123 (SC)........................................................... [Para 10]

3. Union of India v. Indian Aluminium Co. Ltd., 1995 (77) ELT 268....................... [Para 10]

Per : P.S. Bajaj

In this appeal, the challenge has been made by the appellants, to the Order-in-Original dated 28.6.2002 passed by the Commissioner of Central Excise, Bhubaneswar confirming the demand of Rs. 5,66,70,748 with equal amount of penalty for the period March 1996 to March 2000 by denying the Modvat credit to them on Caustic Soda Lye (in short CSL) used by them as one of the input in the manufacture of the final product namely, Calcined Alumina on the allegation that the unaccounted loss indicated in the Management Information System (MIS) was nothing but short receipt of CLS in the factory which had never been used/consumed in the process of manufacture of the final product. This impugned order has been passed by the Commissioner in pursuance to the show cause notice served on the appellants for denying them the Modvat credit of the amount in question wherein the imposition of penalty was also proposed and extended period was invoked for having suppressed the true facts and made mis-statements regarding the actual use of the CSL as one of the inputs in the manufacture of final product.

2. The basis for issuing the show cause notice had been the cost audit report dated 27.5.2002 given by Shri Ashis Kumar Sengupta who while observing that these has to be some unaccounted loss of Caustic Soda Lye (C.S.L.) in the process of manufacture of final product but the loss noticed by him by conducting the survey, was nothing but short receipt of CSL in the factory which had been camouflaged by labeling the same as `unaccounted soda loss.'

3. The learned Counsel has contested the correctness of the impugned order by contending that no tangible evidence has been brought on record by the Department to prove that the unaccounted Soda loss was nothing but a transit loss taking place before the start of the manufacturing process. This charge has been based merely on assumptions and conjectures. The Cost Audit Report relied upon by the adjudicating authority even did not rule out the loss of CSL during the process of manufacture of final product and did not indicate the short receipt of CSL in the factory of the appellants in clear terms. He has also contended that unaccounted loss of Soda during the manufacture of the final product, even otherwise stands covered under the provisions of Rule 57-A read with Rule 57-D(1) and as such, no reversal of the Modvat credit on such loss could be ordered. The Counsel has further argued that the Cost Accountant appointed under Section 14-AA of the Act had no power to fix the norm, of consumption of CSL and of allowable loss, to take place in the manufacture of final product. Therefore, the observations of the Cost Auditor that normal loss of the CSL would be 4.14 kg/T could not be attached any legal value as he had no power to so observe. The earlier decisions of the Competent Authorities dropping the proceedings against the appellants initiated on these very grounds of having availed the modvat credit on the quantity of CSL which was never received by them in the factory, had been wrongly over-looked by the adjudicating authority. The report of M/s Niranjan & Co. Cost Accountant who carried a special audit of the modvat account of the appellants for the periods 1992-93, 1994-95, under Section 14-AA of the Act, at the instance of the Commissioner of Central Excise, had been wrongly ignored. No extended period of limitation could be invoked in the face of the earlier dropping of the proceedings by the competent authorities, on these very grounds initiated for disallowing the modvat credit on this very input (CSL). The impugned order according to the Counsel deserves to be set aside.

4. On the other hand, the learned SDR has reiterated the correctness of the impugned order and contended that the unaccounted CSL losses reflected by the appellants in their records were nothing but short receipt of the same in the factory before the start of the manufacturing process and as such, the modvat credit of the disputed amount for the period in question, has been rightly disallowed to them by the adjudicating authority.

5. We have heard both the sides and gone through the record. We find that the appellant is a Public Sector Undertaking under the Ministry of Mines, Government of India and is engaged in the manufacture of Alumina in its factory located at Damanjoti. During the period in question, they availed Modvat/Cenvat credit on various inputs used in or in relation to the manufacture of the final product. The Caustic Soda Lie (CSL) is one of their inputs on which they had been availing the modvat credit. The norm of consumption of this input had been declared by them to the department at 73 kg/half Hydrate in terms of rule 173-D of the Rules. The expression "Soda loss" had been used by them keeping in mind its world wide acknowledgment, and it only meant for Soda consumption in the manufacturing process. The norm of consumption of CSL, as indicated in the design documents supplied to them by M/s Almonia Pechineye, the technology suppliers and the standard fixed by them were detailed and made known by them to the department.

6. The plea of the department is that the unaccounted soda loss is not a process loss but is attributable to short receipt of the CSL by the appellants occurring at various stages prior to the start of the manufacturing process and as such, the same being not covered by the provisions of Rule 57D of the Rules, they are liable to reverse/pay back the amount in question to the Department, for having wrongly availed as modvat credit. But we do not find any tangible evidence to substantiate this plea. No reliable documentary evidence has been brought on record to prove the short receipt of the CSL by the appellants in their factory. From the record, it is evident that CSL is procured by the appellants, by way of direct import from various overseas suppliers as well as from the indigenous sources. Substantial quantity of CSL is imported by them from the foreign countries against quantity based Advance licences free of basic customs duty. From both the sources i.e. from import as well as indigenous purchase, the CSL is received by them through ships at the Vizag Port and thereafter the same is unloaded at their port facilities at Vizag itself where they had installed storage tanks for storing the same. As per requirement of the manufacturing unit at Damanjodi, the CSL from those tanks is transferred/transported by the appellants at their factory premises by rail through specially designed BTCS tanks/Wagons, which are owned by them. The loading of the C.S.L. into the tank wagons is conducted under the supervision of the surveyor engaged by the appellants. Based on the survey report, the port facility of the appellants, at Vizag, issues material transfer advice (in short MTA) containing all relevant particular such as date of despatch, quantity on 100% concentration basis, percentage of concentration, temperature and references of the duty paying documents received from the suppliers. From the tank wagons when received in sealed conditions alongwith MTA supported and accompanied by duty paying documents, the CSL is unloaded to the storage tanks installed by the appellants in their factory and from which the same is continuously fed to the manufacturing process. The entire quantity unloaded to the process tanks is shown by the appellants in their record issued for manufacture. The Modvat credit is taken by them on the quantity received by them in their plant as indicated in the MTA which is supported by valid duty paying documents issued by the supplier. All these facts were made known by the appellants vide letter dated 29.7.1991, to the department sent in response to the letter dated 10.7.91 of the officer of the department. The norms of the consumption were also made known by them through that letter, in terms of Rule 173-D. From the copy of the said letter dated 29.7.91 placed on file, it is evident that the appellants furnished the norms of consumption of CSL as 73 kgs. per tonne of hydrate.

7. There is no material on record to suggest if the above referred detailed method/procedure adopted by the appellants for receiving, storing and then issuing the CSL for processing, suffered any flaw or provided any scope for the pilferage of the same, at any stage, by them. The correctness of the procedure and preparation of relevant documents including MTAs, carried out by the appellants right from the stage of initial receipt of CSL till transportation to the factory had never been doubted by the department. Therefore, it is difficult to accept the version of the department that there had been short receipt of the CSL by the appellants and that the credit had been wrongly availed by them of the disputed amount. It would also be not out of place to mention here that on these very allegations of having received the short supply of CSL in the factory and availed excess modvat credit on the quantity shown in the MTA for the earlier period, the proceedings were taken out against the appellants. But all those proceedings, after accepting the detailed facts supported by figures regarding the receipt and consumption of the CSL and its losses in the process of manufacture of the final product supported by the report by the Cost Accountant M/s. Niranjan & Co appointed by the Commissioner under Section 14-AA of the Act for verifying the relevant record such as RG 23-A, RGI, Gate passes, shipping bills, etc, were dropped as is evident from the copies of the orders dated 25.11.94, 29.9.94 and 7.9.98, dropping the proceedings against the appellants passed by the adjudicating authority/Commissioner.

8. In the face of above referred orders and the report of the Cost Accountant M/s Niranjan & Co. much weightage could not be attached to the audit report dated 14.8.98 of the Cost Accountant Shri Ashis Kumar Sengupta. His observations in that report that the loss of the CSL shown in the manufacture of the final product by the appellants was more than the standard/allowable loss cannot be said to have been based on any authenticated material. He could not on his own fix any standard/allowable loss norms. After admitting in his report that loss of some CSL was involved in the process of manufacture of the final product, he could not jump to the conclusion that loss reflected by the appellants was excessive, especially when he did not question the correctness of the audit report of cost accountant M/s Niranjan & Co. who was earlier appointed by the Commissioner for verifying the correctness of loss of CSL shown by the appellants in the record, occurring during the process of manufacture of final product. The said cost accountant accepted the correctness of unaccounted loss of CSL as detailed by the appellants in their record. The Commissioner relied upon that report and dropped the earlier similar proceedings against the appellants which were taken out on these very allegations.

9. The Adjudicating Authority has also failed to appreciate the clarifications given by the appellants with regard to unaccounted CSL loss, through letter dated 13.10.2000 copy of which has been placed on record. This clarification was submitted by them earlier before the Commissioner who accepted the same and dropped by earlier similar proceedings against the appellants on these very grounds for denying the modvat credit on unaccounted CSL loss in the process of manufacture of final product.

10. The initial burden was on the department to substantiate their allegations as made out in the show cause notice that the unaccounted CSL loss detailed by the appellants in their statutory record during the period in question was nothing but transit loss taking place before the start of the process of manufacture of the final product but has failed to discharge this burden. From the facts and materials brought on record by the appellants and discussion made about, these allegations of the department stand unproved. It is not the case of the department that the appellants had cleared the CSL as such in a clandestine manner to some other manufacturer. It would be also beneficial to mention here that it is not essential for the assessee to establish the one to one correlation of the raw material and the final product, as ruled by the Apex Court in Dai Ichi Karkaria's case 1999 (65) ECC 354 (SC) : 1999 (112) ELT 353 (SC). It has been observed in the case that it is not essential for the assessee to establish exact mathematical equation between inputs utilized and the finished goods manufactured. Similarly, the Apex Court has ruled in SAIL v. CCE, 1996 (56) ECC 123 (SC) : 1996 (88) ELT 314 (SC) that all inputs "indicated for use" are eligible for credit even if there has been excess use or loss due to abnormal operating conditions. This very view has been taken by the Apex Court in Union of India v. Indian Aluminium Co. Ltd., 1995 (77) ELT 268 wherein it has been further observed that exact mathematical equation between quantity of raw material purchased and the raw material found in finished product in not permissible and should not be looked for. Therefore, the adjudicating authority should have accepted the technical clarification offered by the appellants in their letter dated 13.10.2000 and reply dated 30.5.2001 to the show cause notice, regarding the unaccounted loss of CSL in the process of manufacture of final product and not confirmed the duty demand of the amount availed as modvat credit by them, keeping in view the provisions of Rule 57-A read with Rule 57-D of the Rules. He could not pass the order on the basis of presumptions and assumption as drawn by him as there is a wide gap between what may have happened and what must have happened. This gap was required to be filled in by the department by producing convincing evidence but has failed to do so.

11. In view of the above discussion, the impugned order of the adjudicating authority cannot be sustained against the appellants and the same is set aside. The appeal of the appellant is allowed with consequential relief, if any permissible under the law.