ORDER
A.C.C. Unni, Member (J)
1. This appeal has been filed challenging the findings of the Commissioner of Central Excise, Chandigarh dated 6-11-1997 confirming a Central Excise duty demand of Rs. 49,81,884.17 from the appellants. A penalty of Rs. 10 lakhs was also imposed on them by the said order.
2. The said order was in fact passed by the Commissioner pursuant to a direction given by this Tribunal vide order dated 14-5-1993 directing the Commissioner to conduct a de novo adjudication on the charge of clandestine production and removal of iron and steel products by appellants from their factory. The said direction for de novo adjudication was made by the Tribunal while disposing of an appeal filed by the present appellants against the Order-in-Original passed by the Collector on 15-12-1992. While directing de novo adjudication of the matter, the Tribunal had observed, following its earlier decision in Premier Packaging (P) Ltd. v. C.C.E., New Delhi [1986 (26) E.L.T. 333 (Tribunal)], that Rule 9 of the Central Excise Rules, 1944 would apply where it is shown that excisable goods have been removed without payment of excise duty leviable thereon. However, to substantiate the charge under Rule 9, it was also necessary that evidence of clandestine manufacture and of surreptitious removal should be established. The Tribunal had observed that no finding had been given in the impugned order about surreptitious removals viz., the mode/manner in which the goods had been disposed of. The adjudicating authority had not made any enquiries from any independent source about the average consumption of electricity, correlation of the production data about electricity consumed in other units similarly placed, etc. The Tribunal therefore directed that where there is unexplained large variation in respect of consumption of electricity and corresponding production of the final product, a test run should have been got done in the assessee’s unit for the said period and norm adopted on that basis. The Tribunal had further observed that the Collector should have correlated the octroi records and records of the Electricity Department with the entries contained in the private records of the assessee which had been resumed by the Department. A direction was therefore given for correlating the private records with other independent evidence. On these grounds, the Order-in-Original dated 15-12-1992 was remanded to the Commissioner for de novo adjudication in the light of the observations made by the Tribunal in its order after complying with the principles of natural justice and after giving them an opportunity of being heard in the matter.
3. Ld. Counsel for the appellants Shri R. Santhanam has strongly urged that the Order-in-Original presently impugned in the appeal before us has failed to carry out the directions given by the Tribunal in the remand order. He submits that the Commissioner has only reiterated the findings and reasoning contained in the first Order-in-Original. He submits that this was a clear case of non-application of mind by the adjudicating authority and therefore patently illegal and contrary to the well established principles and therefore liable to be set aside.
4. Ld. Counsel further submitted that the duty demand has been worked out on the basis of purported units of electricity consumed, but at the same time disregarding actual electricity bills and actual electricity consumed shown by the appellants. If at all any norm of normal production was to be determined under Rule 173E, the provisions of the said rule had to be followed objectively, scientifically. Unless and until that was done, no demand of duty nor allegation of unaccounted production could have been made. No such procedure as envisaged in Rule 173E having been followed, and no proper compliance of the Tribunal’s remand order having been made, the impugned order cannot sustain, according to the appellants’ Counsel. He submitted that the Commissioner had completely ignored the fact that the actual electricity consumed in relation to the appellants’ factory and actual production of excisable goods by way of ingots as well as runners and risers, including defective ingots and waste in the process of production for which also electricity is consumed, was ignored while working out the demand and for including the consumption of electricity per unit of production. Further, onus of proving clandestine removal of excisable goods was on the Revenue. In the absence of any evidence to show the manner of removal, the onus has not been discharged by the Revenue. The Show Cause Notice (SCN) itself had also not made any allegation that any additional inputs had been received in the factory and excisable goods had been produced out of the same and therefore production had not been accounted for. In fact, there had not been any finding to the effect that actual production was not reflected in the RG 1 Register for any part of the period either in the case of ingots or runners and risers. This further went to show that the demand of duty raised in the SCN is based entirely on power consumption which was untenable. Ld. Counsel further submitted that invoking of the extended period of limitation was wholly unsustainable since the jurisdictional Excise Officers had been visiting the appellants’ factory from time to time and verified and certified as correct, the records of production, input, output as well as clearances. It cannot therefore be claimed that activities of the appellants were not within the knowledge of the appellants. Allegation of mis-statement, suppression or concealment of facts on the part of the appellants had no factual basis to stand on. Further, though the SCN had referred to certain octroi slips and weighment slips, the adjudicating Officer himself had held that the demand was not being confirmed on the basis of those slips. The appellants also contend that the Commissioner had in the impugned order ignored the fact that the various persons who were cross examined had not either directly or indirectly stated that there was any excess production of excisable goods which had not been accounted for and which had been clandestinely removed by the appellants. It was also pertinent to point out, according to the ld. Counsel, that the Department had not produced any proof in regard to the alleged clandestine removal of excisable goods with supporting evidence relating to the dates of clearances, the persons to whom they were sold, the mode and date of transport, the mode of sale/receipt, the mode of receipt of sale proceeds or their accountal in a Bank or other details of such transactions. In the absence of any such supporting material, the allegation of removal of excisable goods was a mere wild allegation. Moreover, it was very much within the knowledge of the Respondent Commissioner that the appellants were consuming captively ingots produced by them in some of their other units. Hot rolling products manufactured out of such ingots were exempt from duty when the input was duty paid. Even assuming, but without admitting, that the ingots had been removed clandestinely, the exemption for ingots admissible under law could not have been denied or ignored. Therefore, alternatively, the appellants were also entitled to claim that the inputs having been duty paid, the benefit of exemption Notification No. 202/88-C.E., dated 20-5-1988 and under Notification No. 208/83, dated 1-8-1983 was admissible and the benefits of those notifications could not be denied to the appellants. The impugned order disregarding the said notifications had as a result become unsustainable in law. Lastly it was argued for the appellants that the assessments for the entire period for which RT 12 Returns having been completed, the impugned order was without jurisdiction since the assessment had become final. As regards penalty, it was argued that the grounds of the SCN and the impugned order being themselves liable to be set aside as untenable, penalty imposed would not survive and therefore liable to be set aside and quashed.
5. Ld. SDR Shri Satnam Singh defending the impugned order submitted that the Commissioner had dealt with each and every aspect of the matter in detail after giving opportunity to the appellants of being heard. He referred to the observations made in Paragraph 12 of the impugned order in which the evidence contained in the two slip pads relied on by the Department had been examined. The statements of S/Shri Nasib Singh and Rajendra Prasad had been examined and both of them, being employees of the appellants, had admitted to the veracity of the production in the appellants’ factory for the relevant period and there was no deviation at the time of their cross-examination. The entries in slip pads dated 3-10-1990 were found to be correlated with the entries in the seized Register. As regards compliance of the Tribunal’s direction for conducting a study to find out the correlation of production with consumption of electricity in other units similarly placed, a study was conducted in furnace units/arc units. Results of a study of 40 units about electricity consumed and the related production reflected in the statutory records had shown that the most probable range of consumption of electricity was from 850 units to 1050 units. It was found that the least average consumption of 794 units was in the appellants’ unit. Results of experimental studies conducted in other units revealed that consumption of units was within a range of 825 to 1185 units. Studies conducted at the appellants’ unit gave a test run production of 840 units. It was on this basis that the norm of 705 KWH was arrived at in accordance with the provisions of Rule 173E. The total production during the particular period was divided by the total number of units of electricity consumed. Therefore, the claim of the appellants that the norms have not been arrived at in accordance with the provisions of Rule 173E was incorrect. As regards the plea taken by the appellants for justifying excess production in private records on account of defective ingots produced by them, the said plea cannot be accepted in view of the Board’s instructions No. 261/26.AA/2/76/CX-A which stated that such production is required to be entered first in RG1 Register and then taken for re-melting. Further, the seized records having been recovered from the appellants’ factory premises, their authenticity cannot be disputed, especially when these had been admitted by the persons who were handling the said documents. Attention was also drawn in this connection to the provisions of Section 36A of the Central Excise Act relating to presumption of truth of contents of documents. Further, as regards . adoption of yardstick of 703 units of electricity for production of one M.T., it was contended by the ld. SDR that the Department had conducted test runs in various factories having induction furnace in Ludhiana. The test runs were conducted also in the factory of the appellants for three days which showed the average power consumption was 840 units. This figure, when compared with the figures of similarly placed units, appeared to be quite low. When compared to the average power consumption on the basis of electricity bills and production recorded in RG 1, 783 units appeared to be lowest when compared to units similarly placed. As regards correlation between octroi records and the appellants’ records relating to delivery of scrap in the appellants’ factory, only 108.130 M.Ts of scrap had been duly accounted by the appellants and for the remaining quantity of scrap, the statements made by the drivers of the trucks had been relied on.
6. Ld. SDR thereafter referred to Paragraph 19 onwards of the impugned order in the present appeal wherein the Commissioner had discussed the evidence before him and the reasons for coming to his conclusions. On the question of reliability of the contents of the private records and slip pads relied on by the Department, the Commissioner had noted that the said records had been maintained by Shri Nasib Singh, Store Keeper, and Shri Rajendra Prasad and Shri B.B. Eswar, employees of the appellants’ firm. They have admitted to the recovery of the said private records as well as to the fact of their having written the said private records. In the de novo proceedings, the appellants had not adduced any evidence to show that the said records were maintained without authority or that they could not be relied upon. On the other hand, the said private records reflected the actual production. This was borne out by the fact that at several places, the figures tallied exactly with the figures of production in terms of heats and weight of steel ingots recorded in the log sheets. Ld. SDR referred to Paragraphs 22 and 23 of the impugned order re-producing the figures shown in the slip pads and log sheets in relation to two furnaces of the appellants during the relevant period. He therefore, submitted that the Commissioner has, pursuant to the direction in de novo adjudication, considered the evidence afresh for arriving at his conclusion. As regards the submissions of the appellants that the presumption as to documents Under Section 36A would apply only to prosecution under the Act, ld. SDR contended that it was the settled legal position that the degree of proof required in adjudication proceedings was far less than for purposes of prosecution proceedings in a Court of law and therefore the legal presumption in favour of the contents of a document in prosecution would without doubt be applicable and available to adjudication proceedings as well. Having regard to the presumption as to the admissibility of the seized documents and their content and their corroborative nature with the figures recorded in log sheets and RG 1 Register as illustrated in Paragraphs 22 and 23 of the impugned order, there can be no scope for dispute as to the actual production and their suppression by the appellants. The figures shown in the private records and the figures shown in RG 1 Register, therefore correctly reflected the actual quantity of production. As regards the contentions of the appellants about clandestine removal of steel ingots from the appellants factory by way of sale proceeds etc., the Commissioner had observed that no mathematical precision was expected in the case of clandestine removal. In the facts of the case, where instances of short accountal/non-accountal had been established, and where clandestine production had also been established, it was logical to conclude that it had resulted in clandestine removal. Ld. SDR also referred to Paragraph 38 of the impugned order, in which, the Commissioner had recorded his findings on each of the 8 points which had been referred to him for de novo consideration by the Tribunal. Ld. SDR, therefore contends that the impugned order has fully complied with all the directions given by the Tribunal in its Remand order and therefore the impugned order suffers from no legal or factual infirmity as alleged by the appellants. The order may therefore be upheld and the appeal rejected, submitted by the ld. SDR.
7. We have given due consideration to the arguments advanced by both sides and have perused the record. The impugned order is an order passed by the Commissioner in a de novo adjudication pursuant to the directions given by the Tribunal. Appellants have contended that the Commissioner has failed to comply with the directions contained in the remand order. The main allegation against the appellants is about clandestine production and removal of steel ingots on the basis of average consumption of electricity. The Tribunal had directed that a test run should be conducted in the appellants’ unit for a set period and a norm adopted for arriving at the actual production. In paragraphs 28 & 34 of the impugned order, the Commissioner has discussed the methodology adopted by him for arriving at the norm. Consumption of power of three units in Ludhiana using arc furnaces was assessed on test run basis and the average consumption of electricity per tonne was found to be varying from 1074 to 1371 in the case of Mukesh Steels to 800 to 862 in the case of Antarctic Industries. The test run in the case of appellants showed average consumption of 840 units. The average consumption of the appellant on the basis of record based study was 794 units. Commissioner has observed that if no notice is taken of 34 weighment slips and 235 octroi receipts of iron and steel scrap, the raw material for manufacture of final product of the appellants is taken, and only production recorded in RG 1 of the relevant period is taken, the average consumption of electricity per M.T. of steel ingots would be 921.50 units. On the basis of this data Commissioner has observed : “In other words, in the absence of slip pads, the average consumption of units during this period would have been 921.5 units if production of ingots recorded in RG 1 Register alone is taken as actual production as against 840 units in trial runs. One conclusion is thus obvious, i.e., there was substantial under-recording by about 9% of production during 23-6-1990 to 22-7-1990 even going by the norms of power consumption as suggested by the Hon’ble Tribunal and as revealed during the trial runs …”. We are therefore satisfied that there is no substance in the appellants’ contention that the direction in the remand order relating to conducting of test runs for arriving at a correct norm has not been complied with. Further, inasmuch as the Commissioner has conducted a test run in the case of the appellants’ own factory, the basic requirements of Rule 174E has also been satisfied. Appellants have not been able to demonstrate before us the reasons why the test run has fallen short of the requirements of the said rule. The Commissioner had further observed that as per octroi receipts there was unaccounted receipt of 226 consignments of raw materials during the relevant period. Appellants have not rebutted the authenticity of these octroi receipts and the weighment slips. According to the Departmental Representative these documents further corroborate the fact of unaccounted production and go to further prove that the average consumption of electricity was much lower in the case of the appellants when compared to the production recorded in the RG 1 register. He had also pleaded that it was not necessary for the Department to prove its case with mathematical precision on questions relating to clandestine production/removal. The test was preponderance of probability. Reliance had been placed in this connection on Maganlal Gulabchand v. U.O.I [1992 (59) E.L.T. 235 (Guj.)]. We find that though the Commissioner has shown that he has complied with the direction for conducting of test run, there is still a very wide gap between the norm of 703 units per M.T. adopted by the Commissioner and 840 units based on statutory records and corresponding electricity bill for the period 23-6-1990 to 22-7-1990. Even assuming that the private records by way of weighment slips and octroi receipts for receipt of raw materials have not been controverted by the appel lants, we find that the other directions of the Tribunal order such as evidence of clandestine removal/disposal, cogent reasons for adopting the figures of production and correlation between private records and octroi receipts have not been clearly brought out in the impugned order. In the absence of clear findings on these aspects, even going by the yardstick of reasonable degree of probability, we find that the material relied on by the Commissioner falls short of the required degree of proof. As has been so often held by the Courts, suspicion, however strong, cannot be a substitute for proof. [Babu Singh v. State of Punjab -(1963) 3 SCR 749].
8. In the light of our discussion above, we have to hold that the Department’s case remains unsubstantiated. Consequently the Appeal succeeds and is allowed. Impugned order is set aside.