THE issue before the Bench is - Whether when the only reason for rejection of the books of account was the alleged suppression of production/sales and which was determined on the basis of the adjudication order passed by the CCE as well as the consumption of the electricity used in the manufacturing of the Ingots/Billets relying on the technical opinion of one from IIT, Kanpur and no other reasons are given by the AO, AO was not justified in making the additions towards alleged suppression of production/sales and rejecting. And the answer favours the assessee.
Facts of the case
Assessee is engaged in the manufacturing of MS Ingots/Billets. Commissioner of Central Excise and Customs informed the AO that the assessee had indulged in manufacture of finished goods and removal of the same without paying excise duty. AO observed that CCE quantified the value of alleged suppressed production by the assessee without payment of excise duty.
AO observed that intelligence was gathered by the DGCEI, Zonal Unit, Mumbai, in the case of ‘SIL’ and ‘MITC’, manufacturers of TMT Bars, that they were involved in clandestine clearance of finished products through a broker ‘U’. Searches were conducted and as per the incriminating documents indicated clandestine removal of goods by manufacturers of TMT bars by manufacturers located at Jalna. AO observed that ‘A’ acted as a broker for the nine manufacturers from Jalna. AO discussed the modus operandi adopted by ‘A’. But AO also stated that since the name of assessee was not there is nine parties, it was not considered necessary to go in details.
AO referred to the investigation made by DGCEI and observed that the manufacturers of the TMT bars were confronted and the manufacturers admitted that they had supplied TMT bars to the brokers without paying excise duty and they confirmed the modus operandi. AO noted that consequent to admission by the suppliers of unaccounted TMT bars, they also admitted that they had manufactured these TMT bars from raw material viz., Ingots and Billets from unaccounted receipt of raw material. As observed by AO the suppliers identified the Ingots/Billets from alleged unaccounted receipts of raw material. In the investigation carried out by CCE, the name of assessee appeared who allegedly supplied Ingots/Billets to its sister concern ‘SORM’. AO observed that assessee admitted to clandestine removal of finished products to extent of 288.50 MT without payment of excise duty. Assessee had made a petition before the Central Excise and Customs Settlement Commission for waiver of penalty, interest and immunity from the prosecution. The said petition was admitted and disposed off by the Settlement Commission. The raw material used in production of their finished products was obtained in cash for which no records were maintained.
Assessee supplied Ingots to ‘SORM’ and the said material was used by ‘SORM’ for manufacturing of the TMT bars which were allegedly removed without payment of the excise duty. AO also proceeded to examine the electricity consumption declared by the assessee in the manufacturing of Ingots and Billets. As per AO, as the assessee has not disclosed the true production as compared to consumption of the electricity in the production of the Ingots and Billets, the books of account of the assessee did not reflect the true and correct picture of manufacturing results of the assessee. AO rejected the books of account of assessee u/s 145(1) and proceeded to work out the alleged suppressed production and made the final addition for alleged suppression of the production/sales of the Ingots and Billets to the extent of Rs. 30.76 crores.
CIT (A) confirmed the order of AO observing that there is suppression of sale and profit in the years under appeal and hence the profit declared by the assessee cannot be accepted without making further addition on account of profit on suppressed sale. AO is justified in arriving at the suppressed production/sale of MS ingots/billets on the basis of electricity unit consumption.
Assessee contended that the assessments are based on the investigation made by the Central Excise Authorities as well as the adjudication order passed by the CCE. There was a search and seizer action against the assessee u/s 132(1) and on the basis of search and seizure action assessment u/s 153A was framed. On the mere basis of the consumption of the electricity no addition can be made. The order passed by the CCE was a subject matter of appeal before CESTAT and there was a difference of opinion between Hon’ble Members of the divisional Bench and the matter was referred to Third Member who concurred with the order of Vice President by holding that merely on the basis of the electricity consumption which is also not by any investigation but on the technical opinion of the IIT, Kanpur, no charge can be made that the assessee has evaded the Excise Duty by suppressing the production. The entire assessment order is based on the order passed by the CCE and that order has merged with the order of CESTAT and it is not in force now.
It was further contended that assessee decided to approach the Settlement Commission as a businessman to avoid harassment by Excise Authorities and admitted that to extent of 288.500 MTS the assessee has not paid excise duty and goods were removed. Nowhere it was the case of the Central Excise Authorities that the clandestine removal of the goods was having any nexus with the consumption of the electricity. Whatever was offered by the assessee before the Settlement Commission, the income on said admitted production has been offered in the Income Tax proceeding also. The Central Excise Authorities have not objected or opposed to the production admitted and offered for payment of excise duty before the Settlement Commission by the assessee and it shows that nothing was there in the possession of the Central Excise Authority to oppose the petition filed by the assessee before the Settlement Commission. When there is no incriminating material against the assessee even during the course of intensive search carried out by the DI (Inv.) of the Revenue then how subsequently merely on the basis of some technical opinion report, books of accounts can be rejected.
Revenue contended that assessee was also indulged into purchases of the raw material in cash. When the assessee company has given a confession in unequivocal manner in respect of the suppression of sales not only before the Central Excise Authorities but also before the AO and the said confession till this day has not been retracted, hence, the assessee cannot argue that the entire addition towards the suppression of production and sale is on basis of arithmetical calculation of the electricity consumption. An admission is a good piece of evidence and the same binds the maker of the admission unless it is successfully retracted.
Assessee company approached the Customs & Central Excise Settlement Commission, Mumbai for waiver of penalty and immunity from prosecution for evading the excise duty on clandestine removal and sale of goods. There is a categorical observation by the Settlement Commission that the assessee was indulged along with the other companies, individually and collectively for evasion of duties. Assessee has not challenged the order of the Settlement Commission before any superior forum when the adverse finding has been given against the assessee. There is no question of suo moto admitting clandestine removal of goods without payment of excise duty by the assessee company before the Excise Authorities but there was conclusive evidence against them as per the investigation made by the DGCEI. It is well settled law that if suppression for part of the period is found then suppression can be estimated for the rest of the year.
Assessee has submitted the statements showing monthly consumption of electricity units vis-a vis production for the period F.Y. 2004-05 to F.Y. 2008-09. The assessee has not explained why there was unusual variation in consumption of electricity. The electricity constitutes is a major cost of production i.e. 29.67 % and AO has rightly calculated the suppressed production on the basis of electricity consumption. On the doctrine of preponderance of probability the action of AO to estimate suppression of the sales on the basis of the electricity consumption has to be upheld. Since the books of account are not showing the correct state of affairs, AO was justified in rejecting the books of account by invoking the provisions of Section 145(3). It was further contended that the decision of CESTAT does not have any binding force on ITAT which is constituted under the Income Tax Act. Both the tribunals are constituted under different enactments and discharge their functions independently under respective enactment. There is conclusive evidence against the assessee by way of admission and the petition filed by the assessee before the Settlement Commission and hence, these evidences cannot be discarded. Assessee has not at all maintained electricity consumption record in Form No. G-7 as the assessee was not desiring to come clean to show the correct electricity consumption.
In rejoinder AR of the assessee contended that on the basis of some technical opinion no tax liability can be fastened on the assessee as the opinion cannot be substituted for the reality. When the CESTAT, Mumbai Bench, Mumbai has given the categorical finding that there is no evidence against the assessee to hold that the assessee was indulged into clandestine removal of the goods then how again the assessee is put into the accused box? It is the duty of MSEB to give the Form No. G-7 to the assessee and collect the same at the time of taking the meter reading but it is not done by the MSEB also.
After hearing both the parties, the ITAT held that,
++ AO proceeded to decide the alleged suppression of production by the assessee admittedly which was based on the information received from Central Excise Authority as well as the adjudication Order of the CCE, Aurangabad. During the course of search and seizure operation no incriminating evidence was found suggesting that the assessee has suppressed the production as compared to the consumption of the electricity. No excess stock of finished goods was also found. The assessment framed by AO in consequence of search and seizure action against the assessee u/s 153A r.w.s. 143(3) has reached the Hon'ble jurisdictional High Court;
++ no independent investigation or any enquiry is made by AO or any other Income Tax Authorities. In the assessment order the AO has placed his reliance only on the information received from the Central Excise Authorities and the proceeding before the Settlement Commission of Central Excise & Custom, Mumbai. As per the modus operandi adopted by the brokers they used to recover the said fake trading bills and challans after the goods reached their destination. As noted by the Assessing Officer those brokers/sub-brokers also admitted that the entire evidence was destroyed by them and they used to get the commission of Rs.100/- per MT. So far as action against the brokers and sub-brokers are concerned the Central Excise Authority issued show cause to the assessee as well as the other manufacturers who were involved in clearing the excisable goods without payment of duty. AO referred to a statement of MD of the assessee, by the DGCEI who allegedly admitted that the goods supplied to ‘SORM’ i.e. Ingots/ Billets, were removed clandestinely without payment of excise duty and the said material was to extent of 275 MTs. The sale price was received in cash from Shri Om Rolling Mills Pvt. Ltd. and hence, there was no accounting. The declaration filed by the assessee was accepted without any further addition or objection filed by the Central Excise Authorities;
++ the information received from the Central Excise Authorities has no bearing. As vary basis of the assessment order i.e. the order of the Commissioner of Central Excise (CCE), Aurangabad has been set aside and cancelled by the CESTAT, in our opinion the assessment orders passed by the AO and confirmed by the CIT(A) approving the estimated alleged suppression of the production/sales have no legal legs to stand.
++ it is true that the assessee approached the Settlement Commission when on the basis of investigation made by the DGCEI against some of the brokers and sub-brokers dealing in the Ingots/Billets and TMT Bars show cause notice was issued to the assessee company and matter was settled;
++ in the case of the present assessee no independent investigation is made by the Revenue but the entire assessments are framed on the basis of the information received from the Central Excise Department as well as the adjudication order passed by the Commissioner of Central Excise. Moreover, as observed above the adjudication Order passed by the CCE, Aurangabad has been cancelled by the CESTAT, Mumbai by majority opinion and hence, foundation of assessments do not exist. Moreover, investigation by DGCEI and proceeding before the Settlement Commission has also been considered by the CCE in his adjudication order. The said order was subject matter before the CESTAT and said order has been set aside. So far as maintaining of Form G-7 in respect of the electricity consumption, the said issue was also before the CESTAT while deciding the fate of order of CCE. CESTAT is a higher appellate forum under the Custom Act 1962 and Central Excise Act 1944 and we cannot sit as revisionary authority or make any observation whether that order is right or wrong;
++ assessing Officer had simply taken the lowest electricity consumption for a month in a whole year and accordingly worked out the total production as per his formula and on the basis of the formula he worked out the alleged concealed income. The matter of fluctuating consumption of electricity can by no means be said to be a finding of search since all details regarding electricity vis-a-vis production were before the Department. If the Department had any doubts regarding the same, it could have been raised during the regular assessments and not in the assessment proceedings under s. 153A of the Act. When nothing incriminating was found in the course of search relating to any of these assessment years, the assessments for such years could not be disturbed on this ground;
++ AO devised a statistical formula on the basis of electricity consumption that was applied uniformly in order to work out certain production and resultant concealed income for each year under consideration. The AO could not substitute the same by cogent reasoning. The method of computing the so-called suppressed production is not justified in absence of sound basis for same;
++ it is clear from the order of the Tribunal in assessee’s own case in the search and seizure matter as it is held that the consumption of electricity for the manufacturing of mild steel ingots/billets depends on various factors and there was no justification to charge the assessee that the assessee has suppressed the production and indulged into unaccounted production. The order of the Tribunal was challenged by the Department before the Hon'ble High Court of Bombay Bench. The Revenue’s appeal was dismissed observing that nothing incriminating was found in the course of search relating to these assessment years. The additions, therefore, were not corresponding to the seized material during the course of search. The relevant income tax returns, in normal course, are disclosing the particulars. They were already on record. The returns have been accepted. Therefore, the order of ITAT was confirmed;
++ the only reason for rejection of the books of account was the alleged suppression of production/sales and which was determined on the basis of the adjudication order passed by the CCE as well as the consumption of the electricity used in the manufacturing of the Ingots/Billets relying on the technical opinion of one from IIT, Kanpur. No other reasons are given by AO. AO was not justified in making the additions towards alleged suppression of production/sales. The rejection of the books of account on above reason cannot be upheld.
Assessee is engaged in the manufacturing of MS Ingots/Billets. Commissioner of Central Excise and Customs informed the AO that the assessee had indulged in manufacture of finished goods and removal of the same without paying excise duty. AO observed that CCE quantified the value of alleged suppressed production by the assessee without payment of excise duty.
AO observed that intelligence was gathered by the DGCEI, Zonal Unit, Mumbai, in the case of ‘SIL’ and ‘MITC’, manufacturers of TMT Bars, that they were involved in clandestine clearance of finished products through a broker ‘U’. Searches were conducted and as per the incriminating documents indicated clandestine removal of goods by manufacturers of TMT bars by manufacturers located at Jalna. AO observed that ‘A’ acted as a broker for the nine manufacturers from Jalna. AO discussed the modus operandi adopted by ‘A’. But AO also stated that since the name of assessee was not there is nine parties, it was not considered necessary to go in details.
AO referred to the investigation made by DGCEI and observed that the manufacturers of the TMT bars were confronted and the manufacturers admitted that they had supplied TMT bars to the brokers without paying excise duty and they confirmed the modus operandi. AO noted that consequent to admission by the suppliers of unaccounted TMT bars, they also admitted that they had manufactured these TMT bars from raw material viz., Ingots and Billets from unaccounted receipt of raw material. As observed by AO the suppliers identified the Ingots/Billets from alleged unaccounted receipts of raw material. In the investigation carried out by CCE, the name of assessee appeared who allegedly supplied Ingots/Billets to its sister concern ‘SORM’. AO observed that assessee admitted to clandestine removal of finished products to extent of 288.50 MT without payment of excise duty. Assessee had made a petition before the Central Excise and Customs Settlement Commission for waiver of penalty, interest and immunity from the prosecution. The said petition was admitted and disposed off by the Settlement Commission. The raw material used in production of their finished products was obtained in cash for which no records were maintained.
Assessee supplied Ingots to ‘SORM’ and the said material was used by ‘SORM’ for manufacturing of the TMT bars which were allegedly removed without payment of the excise duty. AO also proceeded to examine the electricity consumption declared by the assessee in the manufacturing of Ingots and Billets. As per AO, as the assessee has not disclosed the true production as compared to consumption of the electricity in the production of the Ingots and Billets, the books of account of the assessee did not reflect the true and correct picture of manufacturing results of the assessee. AO rejected the books of account of assessee u/s 145(1) and proceeded to work out the alleged suppressed production and made the final addition for alleged suppression of the production/sales of the Ingots and Billets to the extent of Rs. 30.76 crores.
CIT (A) confirmed the order of AO observing that there is suppression of sale and profit in the years under appeal and hence the profit declared by the assessee cannot be accepted without making further addition on account of profit on suppressed sale. AO is justified in arriving at the suppressed production/sale of MS ingots/billets on the basis of electricity unit consumption.
Assessee contended that the assessments are based on the investigation made by the Central Excise Authorities as well as the adjudication order passed by the CCE. There was a search and seizer action against the assessee u/s 132(1) and on the basis of search and seizure action assessment u/s 153A was framed. On the mere basis of the consumption of the electricity no addition can be made. The order passed by the CCE was a subject matter of appeal before CESTAT and there was a difference of opinion between Hon’ble Members of the divisional Bench and the matter was referred to Third Member who concurred with the order of Vice President by holding that merely on the basis of the electricity consumption which is also not by any investigation but on the technical opinion of the IIT, Kanpur, no charge can be made that the assessee has evaded the Excise Duty by suppressing the production. The entire assessment order is based on the order passed by the CCE and that order has merged with the order of CESTAT and it is not in force now.
It was further contended that assessee decided to approach the Settlement Commission as a businessman to avoid harassment by Excise Authorities and admitted that to extent of 288.500 MTS the assessee has not paid excise duty and goods were removed. Nowhere it was the case of the Central Excise Authorities that the clandestine removal of the goods was having any nexus with the consumption of the electricity. Whatever was offered by the assessee before the Settlement Commission, the income on said admitted production has been offered in the Income Tax proceeding also. The Central Excise Authorities have not objected or opposed to the production admitted and offered for payment of excise duty before the Settlement Commission by the assessee and it shows that nothing was there in the possession of the Central Excise Authority to oppose the petition filed by the assessee before the Settlement Commission. When there is no incriminating material against the assessee even during the course of intensive search carried out by the DI (Inv.) of the Revenue then how subsequently merely on the basis of some technical opinion report, books of accounts can be rejected.
Revenue contended that assessee was also indulged into purchases of the raw material in cash. When the assessee company has given a confession in unequivocal manner in respect of the suppression of sales not only before the Central Excise Authorities but also before the AO and the said confession till this day has not been retracted, hence, the assessee cannot argue that the entire addition towards the suppression of production and sale is on basis of arithmetical calculation of the electricity consumption. An admission is a good piece of evidence and the same binds the maker of the admission unless it is successfully retracted.
Assessee company approached the Customs & Central Excise Settlement Commission, Mumbai for waiver of penalty and immunity from prosecution for evading the excise duty on clandestine removal and sale of goods. There is a categorical observation by the Settlement Commission that the assessee was indulged along with the other companies, individually and collectively for evasion of duties. Assessee has not challenged the order of the Settlement Commission before any superior forum when the adverse finding has been given against the assessee. There is no question of suo moto admitting clandestine removal of goods without payment of excise duty by the assessee company before the Excise Authorities but there was conclusive evidence against them as per the investigation made by the DGCEI. It is well settled law that if suppression for part of the period is found then suppression can be estimated for the rest of the year.
Assessee has submitted the statements showing monthly consumption of electricity units vis-a vis production for the period F.Y. 2004-05 to F.Y. 2008-09. The assessee has not explained why there was unusual variation in consumption of electricity. The electricity constitutes is a major cost of production i.e. 29.67 % and AO has rightly calculated the suppressed production on the basis of electricity consumption. On the doctrine of preponderance of probability the action of AO to estimate suppression of the sales on the basis of the electricity consumption has to be upheld. Since the books of account are not showing the correct state of affairs, AO was justified in rejecting the books of account by invoking the provisions of Section 145(3). It was further contended that the decision of CESTAT does not have any binding force on ITAT which is constituted under the Income Tax Act. Both the tribunals are constituted under different enactments and discharge their functions independently under respective enactment. There is conclusive evidence against the assessee by way of admission and the petition filed by the assessee before the Settlement Commission and hence, these evidences cannot be discarded. Assessee has not at all maintained electricity consumption record in Form No. G-7 as the assessee was not desiring to come clean to show the correct electricity consumption.
In rejoinder AR of the assessee contended that on the basis of some technical opinion no tax liability can be fastened on the assessee as the opinion cannot be substituted for the reality. When the CESTAT, Mumbai Bench, Mumbai has given the categorical finding that there is no evidence against the assessee to hold that the assessee was indulged into clandestine removal of the goods then how again the assessee is put into the accused box? It is the duty of MSEB to give the Form No. G-7 to the assessee and collect the same at the time of taking the meter reading but it is not done by the MSEB also.
After hearing both the parties, the ITAT held that,
++ AO proceeded to decide the alleged suppression of production by the assessee admittedly which was based on the information received from Central Excise Authority as well as the adjudication Order of the CCE, Aurangabad. During the course of search and seizure operation no incriminating evidence was found suggesting that the assessee has suppressed the production as compared to the consumption of the electricity. No excess stock of finished goods was also found. The assessment framed by AO in consequence of search and seizure action against the assessee u/s 153A r.w.s. 143(3) has reached the Hon'ble jurisdictional High Court;
++ no independent investigation or any enquiry is made by AO or any other Income Tax Authorities. In the assessment order the AO has placed his reliance only on the information received from the Central Excise Authorities and the proceeding before the Settlement Commission of Central Excise & Custom, Mumbai. As per the modus operandi adopted by the brokers they used to recover the said fake trading bills and challans after the goods reached their destination. As noted by the Assessing Officer those brokers/sub-brokers also admitted that the entire evidence was destroyed by them and they used to get the commission of Rs.100/- per MT. So far as action against the brokers and sub-brokers are concerned the Central Excise Authority issued show cause to the assessee as well as the other manufacturers who were involved in clearing the excisable goods without payment of duty. AO referred to a statement of MD of the assessee, by the DGCEI who allegedly admitted that the goods supplied to ‘SORM’ i.e. Ingots/ Billets, were removed clandestinely without payment of excise duty and the said material was to extent of 275 MTs. The sale price was received in cash from Shri Om Rolling Mills Pvt. Ltd. and hence, there was no accounting. The declaration filed by the assessee was accepted without any further addition or objection filed by the Central Excise Authorities;
++ the information received from the Central Excise Authorities has no bearing. As vary basis of the assessment order i.e. the order of the Commissioner of Central Excise (CCE), Aurangabad has been set aside and cancelled by the CESTAT, in our opinion the assessment orders passed by the AO and confirmed by the CIT(A) approving the estimated alleged suppression of the production/sales have no legal legs to stand.
++ it is true that the assessee approached the Settlement Commission when on the basis of investigation made by the DGCEI against some of the brokers and sub-brokers dealing in the Ingots/Billets and TMT Bars show cause notice was issued to the assessee company and matter was settled;
++ in the case of the present assessee no independent investigation is made by the Revenue but the entire assessments are framed on the basis of the information received from the Central Excise Department as well as the adjudication order passed by the Commissioner of Central Excise. Moreover, as observed above the adjudication Order passed by the CCE, Aurangabad has been cancelled by the CESTAT, Mumbai by majority opinion and hence, foundation of assessments do not exist. Moreover, investigation by DGCEI and proceeding before the Settlement Commission has also been considered by the CCE in his adjudication order. The said order was subject matter before the CESTAT and said order has been set aside. So far as maintaining of Form G-7 in respect of the electricity consumption, the said issue was also before the CESTAT while deciding the fate of order of CCE. CESTAT is a higher appellate forum under the Custom Act 1962 and Central Excise Act 1944 and we cannot sit as revisionary authority or make any observation whether that order is right or wrong;
++ assessing Officer had simply taken the lowest electricity consumption for a month in a whole year and accordingly worked out the total production as per his formula and on the basis of the formula he worked out the alleged concealed income. The matter of fluctuating consumption of electricity can by no means be said to be a finding of search since all details regarding electricity vis-a-vis production were before the Department. If the Department had any doubts regarding the same, it could have been raised during the regular assessments and not in the assessment proceedings under s. 153A of the Act. When nothing incriminating was found in the course of search relating to any of these assessment years, the assessments for such years could not be disturbed on this ground;
++ AO devised a statistical formula on the basis of electricity consumption that was applied uniformly in order to work out certain production and resultant concealed income for each year under consideration. The AO could not substitute the same by cogent reasoning. The method of computing the so-called suppressed production is not justified in absence of sound basis for same;
++ it is clear from the order of the Tribunal in assessee’s own case in the search and seizure matter as it is held that the consumption of electricity for the manufacturing of mild steel ingots/billets depends on various factors and there was no justification to charge the assessee that the assessee has suppressed the production and indulged into unaccounted production. The order of the Tribunal was challenged by the Department before the Hon'ble High Court of Bombay Bench. The Revenue’s appeal was dismissed observing that nothing incriminating was found in the course of search relating to these assessment years. The additions, therefore, were not corresponding to the seized material during the course of search. The relevant income tax returns, in normal course, are disclosing the particulars. They were already on record. The returns have been accepted. Therefore, the order of ITAT was confirmed;
++ the only reason for rejection of the books of account was the alleged suppression of production/sales and which was determined on the basis of the adjudication order passed by the CCE as well as the consumption of the electricity used in the manufacturing of the Ingots/Billets relying on the technical opinion of one from IIT, Kanpur. No other reasons are given by AO. AO was not justified in making the additions towards alleged suppression of production/sales. The rejection of the books of account on above reason cannot be upheld.
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