?IN THE HIGH COURT OF JUDICATURE AT MADRAS %DATED: 07/10/2010 *CORAM THE HON'BLE MR.JUSTICE F.M.IBRAHIM KALIFULLA AND THE HON'BLE MR.JUSTICE N.KIRUBAKARAN +CMA.2998 of 2010 #Alagappa Cements P.Ltd $Customs Excise Gold Appellate Tribunal !FOR PETITIONER : Mr.K.Jayachandran ^FOR RESPONDENT : Mr.S.Udayakumar :ORDER IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 07.10.2010 CORAM THE HONOURABLE MR.JUSTICE F.M.IBRAHIM KALIFULLA AND THE HONOURABLE MR.JUSTICE N.KIRUBAKARAN Civil Miscellaneous Appeal (Central Excise) No.2998 of 2010 M/s Alagappa Cements P.Ltd., rep.by its Director Dr.Alagappan Keelpaluvur Trichy District .. Appellant -vs- 1. The Customs Excise and Gold (Control) Appellate Tribunal Shastri Bhavan Annexe Haddows Road Nungambakkam, Chennai 2. The Commissioner of Central Excise Trichy .. Respondents Memorandum of Grounds of Civil Miscellaneous Appeal under Section 35-G of the Central Excise Act against the Final Order No.1028 of 2002 dated 13.9.2002 passed in Appeal No.E/185/97/Md on the file of the Customs, Excise and Gold (Control) Appellate Tribunal, Chennai. For Appellant : Mr.K.Jayachandran For Respondents : Mr.S.Udayakumar Senior Panel Counsel for Customs and Central Excise JUDGMENT (Judgment of the Court was delivered by F.M.IBRAHIM KALIFULLA, J.) The appellant seeks to challenge the order of the first respondent dated 13.9.2002 in Final Order No.1028 of 2002, in and by which the first respondent confirmed the demand of excise duty of Rs.23,04,994/-. The appellant is a cement factory. It was engaged in the manufacture of Portland cement classified under Chapter sub-heading 2502.29 of the Central Excise Tariff Act. It also possessed a valid central excise registration certificate. Being a SSI unit, the appellant availed the exemption benefits in Notification No.175 of 1986 dated 1.3.86 as amended, by which the appellant was availing the concessional rate of excise duty for the units which used clinkers. There was an inspection of the appellant's unit by the Central Excise Headquarters Preventive Officers on 20.7.93. Based on the said verification, the officers concluded that the physical stock of clinkers available was only 123.500 metric tons, as against the book stock of 1214.579 metric tons. At the time of inspection, the officers also obtained statements from the staff who were present at the unit on 20.7.93. Subsequently on 23.7.93, the Vice-Chairman of the appellant informed the Superintendent of Central Excise Headquarters Preventive, Trichy that the stock was not properly taken and wanted the Superintendent to visit the factory for verification of the actual stock of clinkers. However, the said request of the appellant was not acceded to. 2. A show cause notice was issued to the appellant on 9.11.94 proposing the demand of duty of Rs.24,27,802/- as well as penalty and interest alleging that the appellant was not entitled for the benefit of Notification No.24 of 1991 for its wrong availment, that the shortage of clinkers must have resulted in the production of cement clandestinely removed without payment of duty, that suppression of receipt of limestone and used in the manufacture of cement resulted in clandestine removal apart from clandestine manufacture of hollow blocks and its removal without payment of duty. The appellant submitted its reply. Thereafter, the Order in Original No.15 of 1996 was passed on 31.10.96 demanding a sum of Rs.23,04,994/- as duty apart from imposition of penalty of equal amount. The appellant preferred an appeal before the first respondent and as a condition for grant of stay, a sum of Rs.10,00,000/- was deposited. The first respondent partly allowed the appeal holding that the appellant was entitled for the benefit of the Notification No.24 of 1991 and the hollow blocks manufactured were not dutiable and were exempted. The first respondent also deleted the penalty imposed under Section 11-AC of the Central Excise Tariff Act. The duty leviable was therefore restricted to Rs.13,04,994/-. Aggrieved against the said order of the first respondent dated 13.9.2002, the appellant has come forward with this civil miscellaneous appeal. 3. We have heard Mr.K.Jayachandran, learned counsel for the appellant and Mr.S.Udayakumar, learned senior panel counsel for the respondents. 4. We are only concerned with the abnormal shortage of clinkers which, according to the respondents, resulted in the excess quantity of cement manufactured, not brought into accounts, but were clandestinely removed without payment of duty. Mr.Jayachandran, learned counsel for the appellant, in his submissions, contended that the appellant in its letter dated 23.7.93 brought to the notice of the Superintendent of Central Excise that the actual stock available was not noted by the inspecting officials, that even assuming there were shortage of clinkers, in the absence of positive proof that the excess cement was manufactured and was clandestinely removed, the imposition of duty by the respondents was not justified. 5. Mr.S.Udayakumar, learned standing counsel for the respondents, however, contended that the shortage of clinkers at the time of inspection was noted based on the stock register, that such inspection was carried on in the presence of the senior officials, who did not raise any protest at the time of stock taking and that the subsequent letter after three days after the inspection by the appellant was rightly rejected by the respondents. The learned standing counsel would further contend that apart from the shortage of clinkers, the shortage of coke breeze as well as the difference in the quantity of limestone as per the records supported the conclusion of the respondents about the clandestine removal of excess quantity of cement manufactured by the appellant without payment of duty. 6. Having heard the learned counsel for the appellant as well as the learned standing counsel for the respondents, we find force in the submission of the learned standing counsel for the respondents. In paragraph 14(ii) of the Order in Original No.15 of 1996, the names of the officers who were present at the time of inspection have been specifically noted. The officers whose statements were recorded and who pleaded their ignorance for the shortage in clinkers have also been noted. The original authority made a specific reference to the assessee's letter dated 23.7.93, wherein the appellant disputed the manner in which the stock of clinkers was taken, but there was no explanation for its silence between 20th July, 1993 and 23rd July, 1993. The said observation of the original authority is quite convincing and acceptable. If really the inspecting officials did not make proper verification of the stock at the time of inspection, it is quite normal that the aggrieved assessee would have immediately objected to any such improper method of verification of stock then and there. When two of the officials gave their statements expressing their ignorance about the shortage of clinkers, it was for the appellant to satisfactorily explain the said defect in the maintenance of records or the actual availability of stock. Moreover, the stock verification disclosed a book stock of 1214.579 metric tons when the physical stock available was only 123.500 metric tons of clinkers. That apart, the unloading of coke breeze to the extent of 1445.325 metric tons during the period from 8.4.93 to 13.4.93, as against the quantity of 232.2 metric tons disclosed in Form IV register, only shows that such irregular maintenance of stock in the appellant's manufacturing premises was a usual phenomenon. That apart, when the difference in the quantity of limestone was noted, it also showed the excess quantity of removal of limestone by the appellant. The only explanation was that such excess removal of limestone was shown to satisfy the State Government authorities or otherwise, there was every likelihood of cancellation of their permission. Again, when the said defect was noted with reference to the entries found in the daily despatch sheet supported by the statement of the accountant of the factory, the appellant had no answer at all. Admittedly, the manufacture of Portland cement is made by using limestone, clay, coke breeze and gypsum. It is stated that the limestone and clay are mixed in appropriate proportion, which is the raw material, and the raw material is charged with coke breeze and fired in a vertical shaft kiln and the clinker is manufactured. Thereafter, the clinker is mixed with gypsum and the resultant product is called Portland cement. Therefore, when the limestone is the basic raw material which is used for the manufacture of clinker and thereafter for the manufacture of Portland cement, it was incumbent upon the appellant to have satisfactorily explained the missing quantity of clinkers to an extent of 1214.579 metric tons. It is quite apparent that large quantity of limestone quarried, as reflected by the records of the appellant, and the shortage of 1214.579 metric tons of clinkers both put together, the conclusion drawn by the inspecting officials to the effect that it resulted in clandestine manufacture of cement not brought into accounts was justified and consequently the escapement of duty in that process as assessed cannot be faulted. We fail to understand as to how the appellant is justified in contending that in the absence of positive proof as regards the actual manufacture of cement not brought into accounts, then alone the conclusion of the original authority as well as the first respondent can be justified cannot be accepted. The inference drawn by the second respondent based on shortage of clinkers and the excess quantity of limestone quarried during the relevant period was sufficient enough for the authorities to conclude as to the ultimate quantity of Portland cement which could have been produced from such excess quantity, which were not noted in the stock register, was well justified and we do not find any illegality or irregularity in such a conclusion drawn by the authorities for the levy of duty and the demand of duty imposed. Inasmuch as the first respondent has chosen to delete the penalty, that itself was a grace shown to the appellant while passing the order impugned in this appeal. 7. For all the above stated reasons, we do not find any good grounds to interfere with the order of the first respondent. The civil miscellaneous appeal, therefore, fails and the same is dismissed. No costs. Index : yes (F.M.I.K.,J.) (N.K.K.,J.) Internet : yes 07.10.2010 ss To 1. The Customs Excise and Gold (Control) Appellate Tribunal Shastri Bhavan Annexe Haddows Road Nungambakkam, Chennai 2. The Commissioner of Central Excise Trichy F.M.IBRAHIM KALFULLA, J. and N.KIRUBAKARAN, J. C.M.A.No.2998 of 2010 07.10.2010 