JUDGMENT :

(T.S. Sivagnanam, J.)

1. This appeal filed by the assessee under Section 35G of the Central Excise Act, 1944 (the Act) is directed against the order dated 25th January, 2018 passed by the Customs, Excise and Service Tax Appellate Tribunal, East Zonal Bench, Kolkata, (tribunal). The appeal was admitted on the following substantial questions of law:

1) Whether on the facts and in the circumstances of the case, the central excise duty can be demanded with reference to the installed capacity when the finished goods are not notified under Section 3A of the Central Excise Act, 1944 and there is no material to show any unrecorded manufacture or clearance of the finished goods?

2) Whether on the facts and in the circumstances of the case the impugned order of the tribunal upholding the demand made on the above basis was perverse?

2. We have heard Mr. J.P. Khaitan, learned Senior Advocate assisted by Mr. Ananda Sen, Ms. Anupa Banerjee and Mr. Dipak Dey appearing for the appellant and Mr. Vipul Kundalia, learned Senior Standing Counsel assisted by Ms. Manasi Mukherjee for the respondent department.

3. The appellant is engaged in the manufacture of excisable goods namely, sponge iron falling under Tariff Item No. 7203-1000 of the Central Excise Tariff Act, 1985 and holding Central Excise Registration since 2002. The basic raw material used in the manufacture of sponge iron, iron ore, coal, and iron ore palettes. The issue involved in this appeal is whether the appellant assessee manufactured and clandestinely cleared goods without payment of Central Excise duty. An audit was conducted during 2014 which ultimately led to the issuance of show-cause notices dated 20th August, 2014, 17th April, 2014 and 3rd February, 2016. It was stated that in the course of verification of ER-7 (Annual Installed Capacity Statement) filed in terms of Sub-Rule 2(A) of Rule 12 of the Central Excise Rules, 2002, it was found that the assessee’s annual production capacity is 60,000 metric tonnes but the assessee as per the ER-1 returns during the period October 2009 to March 2014 has not reflected the production and clearance quantity as per their production capacity. It was alleged that the assessee has shown a substantial lesser quantity of production and clearance of the said goods than that of their installed capacity. After noting the relevant details, the assessee was called upon to clarify as to the deviation of the annual capacity of production and production reflected in their ER-1 returns. The assessee submitted their response stating that the production capacity of the plant is 60,000 metric tonnes annually (two kilns of 100 tonnes per day capacity). That during the period of dispute they operated only one kiln on an average and achieved production as reflected in the ER-1 returns and they were constrained to curtail the production due to non-availability of raw material, shut down of kiln for maintenance purposes, high cost of raw materials and increase of overall expenses and adverse market conditions and low demand of finished goods. The Commissioner, Central Excise and Service Tax, Bolpur (the adjudicating authority) did not accept the explanation given by the assessee and alleged that the assessee has suppressed the production and cleared goods clandestinely with an intent to evade payment of excise duty. Accordingly, the assessee was called upon to show cause as to why Central Excise Duty should not by demanded and recovered in terms of Section 11(A) of the Act; why interest at proper rate should not be charged under Section 11AA of the Act and why penalty should not be imposed under Section 11AC of the Act. The show-cause notice also proposed as to why the extended period of limitation of 5 years under the proviso to Section 11 A(1) cannot be invoked. The assessee submitted their reply dated 28th December, 2014 along with copies of the statement of intimation addressed to the respondent department informing shut down of Kiln1 and Kiln