Custom, Excise & Service Tax Tribunal
(I)M/S. Vijay Packaging Systems Ltd vs Cce, Hyderabad on 29 December, 2009
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT BANGALORE
Date of Hearing: 29/12/2009
Date of decision:29/12/2009
Appeal No.E/1101, 1102/98
(Arising out of Order-in-original No.18/97-C.Ex. dt. 28/11/1997 passed by CC&CE, Hyderabad)
For approval and signature:
Honble Mr. M.V.Ravindran, Member(Judicial)
Honble Mr. P.Karthikeyan, Member(Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
No
2.
Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
Yes
3.
Whether their Lordship wish to see the fair copy of the Order?
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
Yes
(i)M/s. Vijay Packaging Systems Ltd.
(ii)Mr. M.Lakshmikar Reddy
..Appellant(s)
Vs.
CCE, Hyderabad
..Respondent(s)
Appearance Mr.V.J.Sankaram, Advocate for the appellants.
Mr. M.R.Rajendran, JDR for the Revenue.
Coram:
Honble Mr. M.V.Ravindran, Member(Judicial) Honble Mr. P.Karthikeyan, Member(Technical) FINAL ORDER No._______________________2010 Per P.Karthikeyan M/s. Vijay Packaging Systems Ltd. (VPSL) is registered with the department for the manufacture of fabrics of HDPE/LDPE and sacks. Appeal No.E/1101 filed by M/s. Vijay Packaging Systems Ltd. seeks to vacate demand of Rs.1,60,89,225.71 (BED) and Rs.9,54,557.47 (SED) raised on VPSL towards clandestine clearances of excisable goods manufactured and cleared by it, penalty of Rs.One crore imposed on it under various rules, and confiscation of the land, building, plant and machinery used in the manufacture of the excisable goods cleared clandestinely. (An option to redeem these goods on payment of fine of Rs.2 lakhs was offered.) He imposed penalty of Rs.25 lakhs on Shri M. Lakshmikar Reddy, Managing Director of VPSL. Shri M. Lakshmikar Reddy has filed appeal No.E/1102/98, which also we take up for disposal.
2. The findings of clandestine clearances and liability to duty of VPSL is found on the basis of the statements of raw material and finished goods in stock furnished by VPSL periodically to the State Bank of India, Yellareddyguda and statements recorded from its Manager. SBI, Yellareddyguda whch had advanced loan to VPSL. Facts are that on the basis of intelligence gathered, the officers of Central Excise, Anti Evasion, Hyderabad tentatively found that VPSL was engaged in clandestine manufacture and clearance of laminated HDPE/LDPE fabrics and sacks falling under CSH 3926.90 without maintaining statutory records in relation to such production and clearances. They furnished the actual quantities produced to its bank viz. State Bank of India(SBI), Yellareddyguda Branch as transpired from the statements recorded from the Branch Manager, SBI, Yellareddyguda Branch. Accordingly show cause notice was issued to VPSL.
3. Para 2 & 3 of the show cause notice read as follows:-
2. On comparison of the stock statements submitted to the bank, with the statutory Central Excise records viz. RG1 & Form IV seized under Panchnama dt. 1/7/1994, it was revealed that the stocks as declared to the bank were far in excess to the account of stocks maintained in the statutory central excise records. Shri K. Hanumantha Rao, Chief Manager, State Bank of India, Yellareddyguda Branch in his statement dt. 25/8/1994, given before the Assistant Collector of Central Excise, Anti-Evasion, under Section 14 of the Central Excise & Salt Act, 1944, has stated that the field officers will visit the factory for verification of stocks once in a month and the Branch Manager will visit the factory once in a quarter to verify the stocks; that their inspection department of the Bank, when they inspect the branches also visit the factory to verify the stocks and to see whether working capital loans is properly secured by looking at the availability of the stocks; that the statements of stocks available in the factory on a day are filed with the branch on a monthly basis. On being questioned as to what is the basis for preparing the statements of stocks, he stated that VPSL maintained a stock register showing the stock position of various raw materials, intermediate products and finished products on a day to day basis and in this stock register VPSL enter the quantum of raw material consumed, the finished products manufactured. On being asked to obtain the stock registers maintained by VPSL, he stated that he has already made an attempt on 22/8/1994 during his visit to the factory but he was told by the production manager that stock registers have been seized by the Central Excise department on 1/7/1994 under panchanama. On being shown the copy of panchanama at the factory as well as at the Registered Office of VPSL, he stated that the Officers have seized only one stock register maintained w.e.f. 1/6/1991. On being shown the Form IV maintained by VPSL for accountal of raw materials and the stock statements filed by VPSL with the bank and to explain for the huge discrepancies of stocks in both the Form IV & stock statements filed to the bank, he stated that he cannot say anything on the discrepancies; that the statements of stocks filed with the bank are true and correct and the stocks did exist during their visit; that he is not in a position to comment on the figures depicted in the Central Excise records.
3. Hence, it is revealed that the stocks of HDPE & LDPE granules, HDPE fabrics and HDPE sacks as per the banks statements submitted to the bank, being the actual stocks or the above goods were far in excess to that of the stocks show in the statutory central excise records viz. Form IV and RG1 registers. This is more clear from the fact that the assessee was maintaining stocks registers and this is confirmed by the statement of the bank manager and further the assessee was bluffing that the stock registers were all seized by the Department which is not correct. The fact that the assess was maintaining a stock register is established form the fact that a stock register w.e.f. 1/6/1991 was seized by the Department. The fact of excess stocks over and above the book balances as depicted in Central Excise records is established from the fact that excess stocks was found to the tune of Rs.6.2 lakhs as regards raw material over the Form IV balances and also finished goods i.e. branded laminated HDPE sacks to the tune of Rs.7.4 lakhs in their dummy sister concern M/s. Vijetha Sacks Factory on the day of the officers visit i.e. 1/7/1994. The differences in the stocks are as detailed in Annexure-I, II & III enclosed to this show cause notice. Shri.Hanumantha Rao, Chief Manager, SBI, Yellareddyguda Branch was cross-examined during adjudication. On conclusion of hearing, the Commissioner passed the impugned order.
4. VPSL has assailed the impugned order on the ground that the same was solely based on the statements furnished by the assessee to its banker. Clandestine clearance could not be found based solely on the bank statements; the Commissioner had wrongly presumed that the said statements were sworn statements. The statements were returns filed by the appellants knowing fully well that it had not contained correct particulars. These statements had been made only for the purpose of obtaining more finances.
4.1. The appellants did not have machinery to manufacture sacks. They never manufactured sacks but procured sacks on purchase/ job work. They obtained a cash credit of Rs.56 lakhs on the basis of value of stocks mentioned in the statements. To meet the working capital requirements, they often showed higher stock than what was actually received by them in respect of HDPE / LDPE granules. The figures of fabric also were inflated to satisfy the bank officials. The bank officials never verified the stock physically. By denying the appellant an opportunity to cross-examine his Accounts Officer Shri Ramachandra Reddy it had lost an opportunity to prove the stocks declared had no nexus with actual stocks as detailed in Form IV and in RG-1 registers and that the stocks detailed in Form IV and RG1 account were the stocks which were actually available in the godown on the days when the entries had been made. In this factual background, the bank statements could not be relied on for appraising the relevant stock. Shri K. Hanumantha Rao, Chief Manager, SBI whose statements had been relied on had stated in regard to method of checks followed that the field officers visited for verification of stocks once in a month and the bank manager had to visit once in a quarter to verify the stocks, that the visits were intended to verify the stock and to see whether the working capital loans were properly secured. During cross-examination, he had stated that the officers generally carried copy of the stock statements and verified the stocks, and that by the time they visited the factory there would be some time gap. Therefore, there would be discrepancy. They generally saw whether the stocks that were available on the date of visit were adequate to cover the advances. He further submitted in response to a query that he saw the stocks in the factory except sacks and he had arranged through his field officers to find out where the sacks had been kept as shown in the stock statements. The bank manager had not categorically stated that he had verified the stock position of granules and fabrics as declared in the statements. To a further query regarding excess granules of 88.76 MTs as detailed in annexure to the SCN, he had asked for monthly particulars. On perusing the statements furnished to bank by the appellant, he said that during the material time, he was not in the branch of the bank. In this background, his statements did not carry any weight.
4.2. None of the bank statements carried endorsement of verification of stock by the bank officers. The aggregate quantity of fabrics recorded in the RG1 was more than the fabric shown in the bank statements. As regards the sacks, it was proved beyond doubt that no sacks had been manufactured.
4.3. As reflected in the statutory records maintained by the appellant, the factory had often been visited by the departmental officers. No discrepancy was ever noticed by the department during the material period. No enquiries or investigation had been conducted by the authorities to verify the authenticity of the particulars reflected in the bank statements.
4.4. They relied on the following case laws.
a. Premium Packaging Pvt. Ltd. Vs. CCE, Kanpur [2005(184) ELT 165 (Tri.Del.) b. Ruby Chlorates (P) Ltd. Vs. CCE, Trichy [2006(204) ELT 607 (Tri. Chennai)] c. Beekaylon Synthetics Vs. CCE, Surat [2003(158) ELT 307 (Tri. Del.)] d. K.J. Diesels (P) Ltd. Vs. CCE, Kanpur [2000(120) ELT 505(T)] e. Kuntal Granites (P) Ltd. Vs. CCE, Belgaum [2001(132) ELT 214 (Tri. Bang.)] f. T.M. Industries Vs. CCE [1993(68) ELT 807(Tri.)] g. Suvarna Polymers Pvt. Ltd. Vs. CCE, Hyderabad [2000(120) ELT 148(Tri.)] h. Resha Wires Pvt. Ltd. Vs. CCE, Bangalore [2006(202) ELT 332 (Tri. Bang.)] i. Raam Tyres Ltd. Vs. CCE, Vizag [2005(188) ELT 408 (Tri. Bang.)] j. Shree Renuka Sugars Ltd. Vs. CCE, Bangalore [2007(210) ELT 385 (Tri. Bang.)] k. Ram Gelkem Inds. Pvt. Ltd. Vs. CCE, Madurai [1997(89) ELT 178 (Tri. )] l. DS Screen Pvt. Ltd. Vs. CCE [1990(50) ELT 475 (T)] m. Dalmiya Vinyls (P) Ltd. Vs. CCE, Hyderabad [2005(192) ELT 606(Tri. Bang.)]
5. Heard both sides.
6. We have perused the records and considered the submissions made by both sides. The Commissioner found that the assessee had clandestinely cleared excisable goods manufactured by it on the basis of statements furnished by it to a local branch of SBI. The appellants had availed loan of Rs.56 lakhs from the said bank and was required to maintain stock of raw materials, intermediate goods and finished goods to secure the loan. They furnished periodical statements of such stocks. The officers of the bank visited the factory to verify the particulars furnished in the stock statements. As regards the correctness of the figures furnished, the adjudicating authority relied on the statements given by the Chief Manager of SBI Shri K.Hanumantha Rao. The Commissioner rejected the assessees claim that it had inflated the particulars of stock of goods available with it to satisfy the bank officials that the capital advanced by it was secured. In confirming the demand of duty against VPSL based on the bank statements, the Commissioner relied on the following judgments of different High Courts.
a. 95 ITR (375) Madras b. 146 ITR (368) Bombay c. 180 ITR (651) Ahmedabad d. 201 ITR (192) Gujarat The Commissioner recorded the following findings based on the above judgments:-
In these cases the courts have refused to recognize the practice said to be adopted any many companies who might have boosted the stocks for the purposes of availing hire loans. The courts have also held that the companies could not go back on their own sworn statements given to the bank as to the stocks held or hypothecated by them. Even though these cases are in respect of IT matters, I am of the view that the ratio of these judgments are squarely applicable to the present case and will have to be followed.
7. We find that the entire case of the Revenue is built on the statements furnished by the assessee to the bank which had advanced credit to it. The consistent claim of the appellants has been that the statements furnished to the bank were with the intention of satisfying the requirement of the bank as regards the security for the amount advanced by it to the assessee. As regards the statements of Shri Hanumantha Rao relied on in adjudication, the assessee has submitted as per these when the officers visited the factory of the assessee, there would always be a time gap after a statement was prepared and furnished to the bank. Therefore, the physical stock would not agree with the stock reported. The demand was raised by converting the stock of HDPE and LDPE granules as per the statements furnished to the bank into the number of sacks that could be manufactured from the said quantity of HDPE/LDPE granules. The appellants had argued before the Commissioner that they did not have machinery to manufacture sacks and that they had not manufactured the quantity of sacks as found in the impugned order. The Commissioner has rejected this plea on the basis that the assessee had been registered for manufacture of sacks. We find that this is a flawed finding rendered by the Commissioner. As regards the HDPE/LDPE fabrics found to have been manufactured in excess of RG1 stock, we find that the assessee has been able to show that there was no short accountal of fabrics in their RG1 compared to the total quantity of fabrics in terms of the statements furnished to the bank. At the time of cross-examination, Shri Hanumantha Rao deposed that he had not seen any sacks in the factory premises. He did not state that he had arranged physical verification of the stock of granules and fabrics declared in the statement. During the cross-examination of Shri Hanumantha Rao, when questions were asked about excess granules of 88.76 MTs as indicated in the annexure to the show cause notice, he had wanted to see the monthly particulars. On perusing the statements furnished to bank, he submitted that during the material time he was not in the branch of the bank. In the circumstances, the assessees plea that the statements of Shri Hanumantha Rao could not have been relied on to find clandestine clearances by the assessee carries considerable force.
7.1. We find that in a larger number of decisions passed by this Tribunal, it was held that clandestine clearance cannot be found without cogent and tangible evidence. In the instant case, Commissioner relied on bank statements, the correctness of particulars contained in which was disputed and not corroborated by any other evidence. The Commissioner has not been able to effectively rebut the claim of the assessee that it had not manufactured sacks in the absence of machinery, yet proceeded to confirm the demand finding that the assessee had been registered for manufacture of sacks. We find that the authorities have not investigated the allegations against VPSL and gathered any evidence. It was incumbent on the authorities to verify the stock of goods physically by visiting its manufacturing premises and check if the bank statements reflected the true state of affairs. We find considerable force also in the submission of the assessee that the departmental officers had visited its factory on several days during the material period as seen from the endorsements on the statutory registers and that on no occasion any irregularity on the part of the assessee had been noticed. The Commissioner relied on case laws in income tax matters wherein the High Courts had held that particulars of stocks reflected in the sworn statements furnished to the bank could be included in the income for determining the liability to income tax of the assessee concerned. In the instant case, VPSL denied it had ever furnished sworn statements to the bank; what it had furnished were returns inflating the stock position to obtain more working capital.
7.2. In Manubhai U Patel Vs. CCE, Rajkot [2002(142) ELT 53 (Tri. Mumbai)], the Tribunal observed that the following evidences were normally necessary before charge of clandestine removal could be found against an assessee.
22.?Whenever the charge of clandestine removal is made, the department has to prove that assessee has procured all the raw materials required for the manufacture of final product; the assessee have utilised human resource in the form of labour and paid that much wages for the production of the quantity of units which have been confirmed in the Order-in-Original as produced; what is the optimum electricity consumed for producing the quantity that is sought to be added to the production on the ground that the same was not accounted, through evidence of tampering of the meter; the evidence of not reflecting the correct expenditure in the account books, in procuring the raw materials; the expenditure of actual amount on transportation of goods to the customers place, as per the requisition of the customer. Normally these are all the evidence required for confirmation of the charge of clandestine removal by the Department. We find that the instant case does not satisfy the above requirements in respect of even a single aspect.
7.3 As regards reliance on records maintained for arranging bank finances, in the case of T.M. Industries (supra), this Tribunal observed as follows in para 29 of the said decision:-
29. The records maintained for arranging finances from the Bank may or may not tally with the records maintained for excise purposes. There are specific provisions in the Central Excise Rules as at what stage and in what manner the excisable goods should be entered in the excise records. Banks are concerned with the security of the funds loaned by them to the manufacturer, and for that purpose they insist that the goods excisable or non-excisable, raw-materials, intermediate or finished products - are pledged with them. They are concerned with the value of the goods pledged and their classification/nature/quality etc. are not much material. 7.4. We find that these observations squarely apply to the instant case and that the Commissioner wrongly placed reliance on disputed bank statements following the ratio of judgments of the High Courts dealing with assets or income declared to the bank in income tax cases. In central excise cases duty is demanded for the manufacture of excisable goods. It is essential that manufacture and clearance without payment of duty of excisable goods is established in order to find evasion of duty. In the instant case, no investigation whatsoever was made or any evidence gathered to support a finding of clandestine manufacture and clearance.
8. Shri Ramachandra Reddy, Accounts Officer, who had prepared bank statements had furnished affidavit before the adjudicating authority explaining the contents of the statements. This was not accepted by the adjudicating authority. We find that in the circumstances of the case, it was important that the Commissioner examined Shri Ramachandra Reddy before rejecting the affidavit without assigning a valid reason for such rejection.
9. In Premium Packaging Pvt. Ltd. Vs. CCE, Kanpur case (supra) cited by the appellant, the Tribunal held that statements filed with bank for purpose of financial accommodation, loan, etc. were not tangible proof of clandestine receipt of raw material and clandestine clearances of finished products. In the said decision, it was also held that charge of clandestine removal of dutiable goods had to be proved by the department by adducing cogent, convincing and tangible evidence and not by assumptions and presumptions.
9.1. In Beekaylon Synthetics case (supra), the Tribunal did not approve reliance on bank statements given by the assessee for purpose of getting credit facilities to find undervaluation in the absence of other evidence. In K.J. Diesels (P) Ltd. case (supra), the Tribunal held that the difference in figures between RG1 register and the monthly bank statements alone was not sufficient to demand duty on alleged clandestine removal in the absence of any other corroborative evidence.
9.2. In Suvarna Polymers Pvt. Ltd. case (supra), it was held that demands raised solely on the basis of the statements furnished by the assessee to the banks showing inflated figures for raising higher credit limit from the bank was not sustainable. The Tribunal went on to hold that it was for the Revenue to show that the appellants had capacity to manufacture the final goods and after establishing this, the investigating authority should have brought out the manner of purchase of inputs and manufacture and clandestine removal of the goods surreptitiously without payment of duty. The link was required to be established by proper investigation and seizure of records from the appellants including the source from where the inputs could have been purchased and final goods manufactured and supplied as had been held in a number of cases. The best evidence that could be relied upon by the Revenue was the consumption of power which was required for the manufacture of goods and which exercise had not been done. We find that the impugned demand fails this test.
10. We find that the allegations raised in the show cause notice were not backed by any reliable or positive evidence. The notice was issued without finding a proper prima facie case against VPSL. Notice mentioned excess stock of raw material to the tune of Rs.6.2 lakhs over the Form IV balance with VPSL and finished goods i.e. branded laminated HDPE sacks of value Rs.7.4 lakhs with the assessees dummy sister concern M/s. Vijetha Sacks Factory . These do not find place in the adjudication order.
11. In view of the plethora of judicial authorities we have discussed, we find that the Commissioner confirmed the demand against the assessee without any evidence. He relied on the ratio of judgments of High Courts which had held the sworn statements furnished by the income tax assessees to banks as acceptable evidence for computing taxable income. We find that these judicial authorities were not reliable or adequate to find clandestine removal of excisable goods. In the circumstances, we set aside the demand raised on the assessee and the penalty imposed on it.
Appeal No.E/1102/98
12. This appeal has been filed by Shri M. Lakshmikar Reddy, Managing Director of VPSL seeking to vacate the penalty of Rs.25 lakhs imposed on him on a finding that he was responsible for mis-declaration of the actual quantity of sacks recorded in the central excise documents. In the view we have taken on the charges of clandestine production and clearance by VPSL, we find that Shri Lakshmikar Reddy was not guilty of the charge found against him and he was not liable to the penalty imposed on him. In the circumstances, the penalty imposed on him is vacated.
13. The appeals are allowed.
(Operative portion of this order pronounced on conclusion of the hearing) (P.KARTHIKEYAN) Member (Technical) (M.V. RAVINDRAN) Member (Judicial) Nr ??
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