Customs, Excise and Gold Tribunal - Delhi
Vallabh Alloys Ltd., Shri B.K. Jain, ... vs Cce on 27 November, 2000
Equivalent citations: 2003(90)ECC535
JUDGMENT C.N.B. Nair, Member (J)
1. These four appeals are directed against the same order of adjudication. Accordingly, they were heard together and are disposed of by this common order.
2. The main appellant M/s Vallabh Alloys Ltd. is a small scale industry established in 1991. The other appellants are its officers. M/s Vallabh Alloys took a Central Excise registration in June 1992 for manufacture of copper/brass sheets, which are liable to Central Excise duty. On 2.4.93, this registration was surrendered. On 21.8.97, Central Excise Officers inspected the appellant's factory and seized goods valued about Rs. 19 lakhs. After further investigation, Show-cause Notice was issued on 18.2.98 alleging that the appellant had been clandestinely manufacturing and clearing copper/brass sheets without payment of duty. The Notice, therefore, proposed to demand the alleged short levy and imposition of penalties. This Notice was adjudicated by the Commissioner of Central Excise, Delhi in May 1998, confirming a duty demand of over Rs. 98 lakhs, confiscating the seized goods and imposing penalties of Rs. 10 lakhs on M/s. Vallabh Alloys Ltd., Rs. 5 lakhs on Shri Padam Jain, Rs. 2 lakhs on Shri Sandeep Jain and Rs. 5 lakhs on Shri B.K. Jain. The appellants and Revenue both filed appeals against this order before this Tribunal. While the present appellants challenged the duty demand, penalties and confiscation; the Revenue challenged the finding that provisions of Section 11 AC and Section AB which came into force from 28.9.1996 cannot be invoked retrospectively. The Tribunal allowed both the appeals by way of remand vide Final Order No. A/1130/99-NB(DB) dated 6.12.1999. and Final Order No. A/330-33/2000-NB(DB) dated 7.4.2000. Order-in-Original dated 27.12.2000, which is the subject matter of the present appeals was passed by the Commissioner pursuant to these orders of remand.
2. In the present order, the Commissioner has confirmed a duty demand of about Rs. 1.28 crores and imposed an equal amount of penalty on M/s Vallabh Alloys. Penalty of Rs. 5 lakhs has been imposed on Shri Padam Jain and Rs. 2 lakhs each on Shri Sandeep Jain and Shri B.K. Jain.
3. M/s Vallabh Alloys challenge the impugned order on many grounds. The very first ground is that duty demand and penalties could not have been enhanced in a remand proceedings. It is further pointed out that the proceedings were conducted in violation of the principle of natural justice, two of the witnesses Shri Chunchun and Shri Subhash Yadav (employees of M/s Vallabh Alloys) whose statements have been relied upon in passing the impugned order were not offered for cross-examination; And they were witnesses of revenue. It is further pointed out that Commissioner has wrongly invoked the provisions of Section 9D of the Central Excise Act in support of introduction of their evidence.
4. On the merits of the case, the submission of the appellant is that the findings have been reached on hypothetical basis and without any reliable evidence. It is pointed out that appellant had surrendered their registration on 2.4.93 and electricity meter in the factory had caught fire on 5.8.94, they were manufacturing only brass/copper billets in the factory and copper/brass sheets (goods in dispute) were got manufactured on job work basis, by others, assumption that they had over 30 workers in their factory was wrong and that since they were a small scale unit they are not required to keep any statutory records and that private records were sufficient, quantification of production has been done by the Commissioner at a grossly exaggerated quantity based on the inadmissible statements of Shri Chunchun and Shri Subhash Yadav and duty amount has been computed erroneously treating price of the goods as assessable value and that the appellants have been wrongly denied the benefit of small scale exemption.
5. The contention of the Revenue is that charge of clandestine manufacture and removal remains fully established by the recovery of non-accounted goods valued at about Rs. 19 lakhs on 21.8.97 by visiting Central Excise officers, the appellants had all the required machinery for the production of brass/copper sheets, muster roll and wage register shows that they were employing the required labourer of different skills, on 21.8.97 their factory was found to be in full production, Shri Padam Jain, partner of the firm, Shri Sandeep Jain, Manager and Shri B.K. Jain had admitted these facts in their statements, purchase of large quantities of LDO for running the machinery in addition to electricity bills raised by DESU and other materials. It is further pointed out that the case of the revenue is sustainable even without the statements of Chunchun and Subhash Yadav and that revenue could not be expected to produce these persons for cross-examination as they were the employees of M/s Vallabh Alloys and thus under their control.
6. The learned SDK has pointed out that the appellant had raised these contentions before the adjudicating authority and that authority had duly considered and rejected them. It has been emphasized that the recovery of several tons of non-accounted goods on the date of visit by the officers, engagement of 40 employees on that day on production, and the statements of Shri Padam Jain, Sandep Jain, Manager and Shri B.K. Jain gave lie to the appellants's contentions and defence that there was no clandestine manufacture and production. Learned SDK also emphasized that while all the records kept by the appellant have been falsified so as to understate the number of workers, use of fuel and electricity, it is seen that even according to the falsified employees registers and wage registers the appellant is found to be employing 18 persons regularly. Learned SDK has further pointed out that the installed machinery in the appellant's unit had a capacity of production of about 1-1/2 to per M.T. per day. Further, contrary to the appellants's contention about buring of electricity meter, evidence on record shows that DESU had, on Joint inspection, found that the appellant was stealing electricity and they had also raised bills running over Rs. 62 lakhs.
7. We have perused the records and have considered the submissions made by both sides. At the outset we may state that the appellants's submission that duty demand and penalties should not have been enhanced in the remand proceedings is required to be accepted. There is merit also in the appellant's submission that they should have been allowed the benefit of SSI exemption and that while computing duty demand, price should have been treated as cum duty. Further, the statements of Shri Chunchun and Shri Subhash Yadav are required to be discarded as these witnesses were not made available for cross-examination and on account of other defects in the statements. With these preliminary observations, we proceed to consider the merits of the case.
8. We may begin by stating that a careful evaluation of the materials on record leaves us in no doubt that the finding of clandestine manufacture and clearance of the brass/copper sheets is well founded. When the appellant's factory was visited by Excise officers on 21.8.97, they recovered and seized goods worth about Rs. 19 lakhs. Of these unaccounted goods, over 7.5 MT was brass/copper sheets. This is the normal production of several days. The officers also found copper/brass billets (gullies) weighing over 5 MT and scrap weighing over 6 MT. The appellant's explanation is that, being a SSI unit, they were not required to keep any statutory accounts. But the appellant did not show that the goods were entered in the factory records either. By this explanation, the appellant is seeking to evade the question. The real question is whether the appellant is accounting his entire production and clearing them after discharging appropriate duty, and not whether they were statutorily required to keep any account in a particular manner. Similarly, on the day of excise visit the appellant was found employing 34 workers according to the Panchnama. Shri Sandeep Jain, Manager of M/s Vallabh Alloys confirmed this Shri Padam Jain, partner of M/s Vallabh Alloys also admitted to employing 34 workers in his statement dated 9.9.97. The appellant's explanation is that all these persons were not workes but included the relatives of the workers who came to visit workers. The muster roll and wage register kept by the appellant shows the employment of 18 workers; but these records apparently don't list all. A glaring example is the omission of Chunchun whose statement is a matter of controversy. He was found working on the day of inspection and the appellant has no case that Shri Chunchun was not an employee. The appellant's complaint is only about reliability of his statement with regard to quantity of production etc. Thus, the fact remains established that the appellant's muster roll is not reliable and excludes a part of the employees.
9. The appellant's own explanation on the various aspects of the case lack credibility. One contention is that during 1993-94 they did not undertake any production of sheets and during the subsequent years, production was within the exempted value limit. The return of central excise registration on 2.4.93 is being cited in support and it is being contended that they were getting their billets converted to sheets by other producers on job work basis. The Commissioner has rightly rejected this explanation for want of supporting particulars about the job workers, engaged and the quantities got converted by each job worker. The Commissioner has further pointed out that this explanation does not carry conviction for other reasons also. The appellant has stated that the billets were got converted at Jagadhari; but as observed by the Commissioner this is not at all viable in view of the additional cost of freight. Thus, appellant's explanation on this ground is, on the look of it, most unlikely in the facts and circumstances of the case. The appellant had all the machinery required to carry out hot and cold rolling of gullies for converting them into sheets. The appellant had the labour required for it. It is most unlikely in business that after idling these resources, the appellant would get conversion work done at much additional cost. The appellant's explanation looks unlikely for another reason also. According to him, all these goods on conversion were brought back to his factory for carrying out finishing jobs like trimming etc. Again involving wasteful carting of heavy material merely for finishing jobs!
10. The appellant's explanation about electricity consumption also looks quite unsustainable. According to him, his meter was burnt on 5.8.94. However, it is seen from the records produced that the appellant himself was trying to take advantage of faked burning of meter. The proceedings of Adalat dated 25.10.2000 and 31.1.2001 state as follows:
"In this case, joint inspection was carried out on 25.1.1993 and as per the case of the Deptt. half seals were found fictitious and rivets clamps were found tampered. The connected load was found to the extent of 230.456 kW for IP connection and 9.9 kW against the light connection. The Deptt. Raised Demand for a sum of Rs. 62,40,598.33. As per the Deptt., there was sub-letting and LPF penalty was also levied."
"In this case a joint inspection was carried out on 25.1.1993. As per the case of the Deptt. half seals were found fictitious and rivets clamps were found tampered. The connected load was found to the extent of 230.456 kW(IP) and 9.9 kW (IL) against the sanctioned load of 7.5 kW. It is further stated that in the report that a PVC cable size of 4.50 mm2 DESU marking was found connected from LV mains from the meter terminals block. On the basis of this report misuse charges LIP and LPF penalty were also levied and a bill for a sum of Rs. 6,24,08,598.33 was raised. Against this bill, the petitioner has already deposited a sum of Rs. 2 lacs as per the directions given by the LD. Add. Distt. Judge, Delhi." (Annexures 4 & 5) The submission regarding meter burn is to be seen in this context. Apart from electricity consumption, the appellant had also purchased large quantity of LOD to run machinery. In these circumstances, the Commissioner was right in holding that the appellant was running his machinery and producing sheets.
11. The Central Excise authorities had recorded statements of Shri Padam Jain, Patner and Shri Sandeep Jain, Manager. Both of them admitted that their factory had been working and producing sheets. Their daily installed capacity was to produce 1.5 to 2 MT in 24 hours and that they were employing 34-40 workers. Of course, these statements were subsequently retracted. Still, the question remain whether the facts stated by them were correct or they were false data provided under pressure by the Central Excise authorities. The former would appear to be more likely. The facts stated by them remain confirmed by the machinery installed and the number of workers engaged on the date of inspection according to the panchanama. Therefore, despite the detractions, we are of the opinion that the Commissioner was right in taking these statements into accounts while deciding the case.
12. From the foregoing, it is clear that the evidence on record cumulatively support the finding of clandestine production and clearance of sheets. That bring us to the question as to what quantity was involved. The Commissioner has taken average production of 900 kgs. per day at 24 working days per month. The appellants have pointed out that this calculation has been relied heavily upon the statements of both Shri Chunchun and Shri Subhash Yadav the two employees who have not been offered for cross-examination. It has also been submitted that such a high level of production does not take into account market fluctuations in demand, repair and other problems with machinery etc. Further, it has come up during the hearing of the case, that even according to the appellant's records (where they are available) there was an average production of 415.678 kgs. per day and the appellant could have no legitimate grievance if production is computed and the duty determined accordingly. Also duty demand should be computed after allowing exemption as available to small scale unit and treating the price of the goods as cum-duty value. Further, price for each year is required to be determined after due adjustment from the sale prices noted. Revised duty so worked out amounts to Rs. 26,23,179 for the entire Show-Cause Notice period. In view of our findings on the charge of clandestine production and clearance, we are of the opinion that the appellant is liable to pay this revised duty demand of Rs. 26,23,179.
13. The case involves serious and deliberate violation of law and falsification of accounts which led to evasion of central excise duty. Clearly, fraud has been committed on the revenue and justified invoking of the extended period permitted under provisions to Section 11A of the Central Excise Act for demanding the duty. Since the duty evasion is the result of fraud, there could be no doubt that penalty is attracted. Under the impugned order, penalty of about Rs. 1.28 crores has been imposed on M/s Vallabh Alloys. The penalty imposed in the first adjudication was only Rs. 10 lakhs; we accept the appellant's submission that in the remand proceedings duty and penalty should not have been enhanced despite this Tribunal's order of remand in revenue's appeal and reduce the penalty to Rs. 10 lakhs. However, we make it clear that the appellant shall be liable to pay interest on the duty amount arising with effect from 28.9.96, the day on which Section 11AB came into effect.
14. Appeals No. E/473 to 475/2001 of S/Shri B.K. Jain, Padam Jain and Sandeep Jain are directed against the imposition of separate penalties on them. Penalties have been imposed on these appellants under Rule 209A of the Centeral Excise Rules. That rule relates to possession, transport, buying, selling etc. of offending goods. In the present case the persons concerned are involved as manufacturer of the goods. We feel that separate penalties on these individuals are not warranted. Accordingly, these penalties are vacated and appeals allowed.
13. The four appeals in question are ordered as above.