Customs, Excise and Gold Tribunal - Delhi
Alfa Ceramics Industries vs Commissioner Of Central Excise on 7 June, 2002
Equivalent citations: 2002(82)ECC813, 2002(145)ELT454(TRI-DEL)
ORDER C.N.B. Nair, Member (T)
1. M/s. Alfa Ceramics Industries, Ghatabillod, Distt. Dhar, M.P. ('Alfa Ceramics' for short) and M/s. Globe Ceramics Industries, Indore ('Globe Ceramics' for short) are two partnership firms engaged in the manufacture of ceramic glazed tiles. These firms have common partners and a common management.
2. Alfa Ceramics distribute the glazed tiles manufactured by them in the State of Madhya Pradesh through two distributors viz. M/s. Shah S.P. Chordia & Co. and Home Decor Marketing. Similarly, Globe Ceramics distribute the glazed tiles produced by them through Home Decor Marketing in Madhya Pradesh.
3. Investigations undertaken by the central excise authorities in 1997 revealed that part of the price of the glazed tiles was being realised by the two manufacturing units in cash and that no central excise duty was being paid in respect of the cash component of the price. Accordingly, show cause notices were issued by the Collector of Central Excise, Indore to both the units proposing to reassess the goods treating the cash collection also as part of the assessable value and to recover the consequential short-levy. These show cause notices resulted in the passing of the adjudication orders wherein the duty demands were confirmed and penalties were imposed on the manufacturing firms, their officers and distributors of the firms. The details of the duty demands and penalties are mentioned hereunder :-
Alfa Ceramics Pate of show cause notice
-
5-1-98/29-6-98 Date of impugned order
-22-11-99 Periods
-1-4-93 to 30-11-97 and 11-12-97 to 31-3-98 Demand of Duty
-
Rs. 69,29,676 + Rs. 8,24,691 = Rs. 77,54,364 (Duty already Rs. 5,00,000/-) Penalty
-
Rs. 74,29,676/-
Fine
-
Rs. 5,00,000/-
Personal penalty :
Shri V.K. Jain
-
Rs. 10,00,000/-
Shri Shah Nawaz Mallique
-
Rs. 5,00,000/-
Shri Sharik Malik
-
Rs. 5,00,000/-
Shri Sushil Kumar Jain
-
Rs. 5,00,000/-
Shri Mahendra Khandelwal
-
Rs. 50,000/-
Shri S. Chordia
-
Rs. 50,000/-
Shri P. Chordia
-
Rs. 50,000/-
Globe Ceramics Date of show cause notice
-
2-1-98/29-6-98 Date of impugned order
-
22-11-99 Period
-1-4-95 to 30-11-97 Demand of Duty
-
Rs. 42,73,544/- (Duty already deposited Rs. 5,00,000/-).
Penalty
-
Rs. 33,59,925/- + Rs. 5,00,000/-.
Personal penalty Shri V.K. Jain
-
Rs. 5,00,000/-
Shri Shah Nawaz Mallique
-
Rs. 2,00,000/-
Shri Sharik Malik
-
Rs. 2,00,000/-
Shri Sushil Kumar Jain
-
Rs. 2,00,000/-
Shri Mahendra Khandelwal
-
Rs. 50,000/-
The present appeals are from the two firms and the persons on whom the penalties have been imposed.
4. The case of the Revenue in brief is that the manufacturing firms billed the goods in the invoices only for part of the price and that price was realised through cheques/demand drafts through banking channels. While reselling the goods to the dealers, the two distributors for Madhya Pradesh realised part of the value in cash and passed on such cash realisation to the two manufacturing firms without showing such payments in their books of accounts. The investigation showed that the cash realisation was @ Rs. 80 to Rs. 110 per box of glazed tiles during the notice period. Revenue's case is supported by the evidence obtained during investigation that on the price lists, the dealers were entering + 80 + 100 etc. The records kept by the distributors, M/s. Shah S.P. Chordia & Co. also showed that the distributors were asking their dealers to pay part of the amount in cash over and above the cheque amount. In a few instances, the evidence was also available showing that the representatives of the manufacturing firms received and acknowledged the cash collection. Further, during investigations the distributors testified in detail about the mechanism under operation and stated that amounts were being passed on to the manufacturing firms on demand. The impugned orders have discussed the evidence in respect of the fact of cash collections by the appellant-manufacturers, the rate of such collections and the period involved. Based on the evidence available in respect of the sales through the two distributors for Madhya Pradesh and the evidence collected from the other places, the impugned orders have confirmed the duty demand in respect of all the sales of the two manufacturing firms during the notice period holding that the appellants firms had realised a portion of the price from all their buyers and not merely from their M.P. distributors.
5. The defence of the appellants before us is almost a repeat of the explanations offered before the Commissioner during adjudication. With regard to the charge of collection of part of the price in cash outside of the books of accounts and non-payment of duty on that component of the price/ the contention is that the evidence regarding cash realisation by the appellant manufacturers is too thin and not sufficient to reach a conclusion that a well planned system of collecting part of the price outside of the books of accounts existed during the entire period of show cause notices. It is pointed out that the acknowledgement of cash receipt by the manufacturing firms is only in three cases. It has been pointed out that the rest of the evidence related only to the practice of the distributors with regard to their sales to dealers and it is contended that that evidence cannot be relied upon against the appellant manufacturers. It is also submitted that the evidence does not establish payment of part of the price by all the distributors/dealers.
6. The appellants have also canvassed a legal proposition that, since the appellants had been selling glazed tiles to many dealers all over the country in addition to sales to the Madhya Pradesh distributors, in the absence of evidence that part of the price was being realised by the appellants from those dealers, the sale price to those dealers should be treated as the normal price of the goods and assessments made accordingly. It has been emphasised that that there would be no short-levy if that course of action is resorted to since the appellants' invoice price to the M.P. distributors were the same as their price to the dealers of other States.
7. The final submission of the appellants on the issue of short-levy is that, even in the event of a finding that part of the price was being realised from the M.P. distributors in cash, that would be a valid reason only to revise the assessment in respect of sales to that region and not in respect of sales to dealers located in other parts of the country. Ld. Counsel for the appellants have submitted that this legal position remains confirmed by the decision of the Apex Court in the case of State of Kerala v. C. Velukutty, which has been reported in Sales Tax Cases Vol. XVII page 465. The appellants have also submitted a chart showing the differential duty that would be payable by each of the units in regard to sales to parties in Madhya Pradesh. This computation of short-levy has been made treating the cash collection as cum-duty-price.
8. With regard to the penalties imposed on Alfa Ceramics and Globe Ceramics, ld. Counsel submitted that these are excessive. Further, imposition of separate penalties on a partnership firm and its partners is not permissible. It has also been submitted that the imposition of penalty on the appellants' dealers and officers was not warranted. The appellants have also submitted that the adjudicating authority was clearly in error in imposing penalty in terms of Section 11 AC of the Central Excise Act even as bulk of the period of short-levy fell prior to the enactment of that section.
9. Ld, SDR for the department has forcefully contested the submissions made on behalf of the appellants. He has pointed out that in the present case, offence remains fully established through documentary evidence as well as testimony of witnesses. Ld. SDR referred to the detailed discussions in the impugned order with regard to the various records forming part of the evidence. He pointed out that the amounts to be collected in cash such as + 80, +110 were being shown in the price lists recovered from the distributors' and that cash collection was taking place at those rates, is evident from the distributors' correspondence with their dealers. Papers, showing receipts of cash established that down the trade chain of three tiers (manufacturer, distributor and dealer), cash collection was taking place and cash was moving up to the manufacturers. Ld. SDR has also pointed out that this arrangement has been clearly explained by the parties concerned. In this context, he referred to the testimony of Shri Khandelwal dealt with at page 6 of the impugned order, the testimony of Shri Vinod Kumar Jain, Constituted Attorney of the appellants-company reproduced at page 7 of the impugned order, the testimony of Shri Ramesh Chandra Kabra of M/s. Shanker Sanitation considered at page 8 of the impugned order etc. Ld. SDR also pointed out that there could be no doubt that the system of cash collection was prevalent throughout the notice period. He pointed out that the price lists for the period prior to 1993 also indicated additional amounts while the period of demand is from 1993 onwards only. On the question of evidence about additional collection throughout the country, ld. SDR submitted that since the manufacturers' invoice price is found to be the same for all dealers throughout India and since recommended consumer prices were also the same, the Commissioner was justified in holding that the short-levy has taken place in respect of the entire production and clearance by the appellants' firms.
10. The impugned order has been passed after collecting voluminous documentary evidence and after getting those documents fully explained by the persons keeping them. M/s. Shah S.P.C. and M/s. Home Decor Marketing are the only two distributors of the appellant-manufacturing firms for the State of Madhya Pradesh. The price list kept by them in the course of business indicates additional amounts in the shape of (+80, +100). Those distributors have explained clearly and have stated unambiguously that they were collecting additional amounts in cash from their dealers at fixed rates and that those amounts were being sent to the manufacturers. Nothing could be more clear or illuminating than the statement of Shri Khandelwal of M/s. Home Decor Marketing which has been reproduced at page 6 of the impugned order. We extract the following portion of that statement :-
"Q. Please explain : The money in cash shown due to you from the Tile merchants above the bill shown due to you in case of Alfa and Globe, and which is neither written in accounts by them nor by you, then how did you utilize that of what account was not maintained ?
Ans. The money coming from Tile merchants in cash without bill for Alfa and Globe is neither written by us in our books and that money in cash meant for Alfa and Globe is sent, without writing in our account, to Alfa-office in Indrasan. Such payment is not entered in accounts.
Q. Have you given this money to the owners of Alfa and Globe on demand?
Ans. Yes."
To the same effect is the evidence of M/s. Shah S.P. Chordia & Co. That the cash collection at different tiers of the trade found its way up to the manufacturer is clear from the following statement of Ramesh Chandra Kabra of M/s. Shanker Sanitation :-
"Q. You are shown the Bill No. 6280, dated 20-5-96 issued by Shah S.P. Chordia & Co. which is for 8 x 4 Pink Plain Commercial Alfa brand tiles @ 155/- per box amounting to Rs. 620/-, Please explain that the bill shows the rate 155/- whereas you have taken the payment @ 270/-- Why did you do so?
Ans. I have seen the Bill No. 6280, dated 20-5-96 and having seen I have signed. As per the instruction of the dealer i.e. Shah S.P. Chordia. We have made the payment of Rs. 620/- by cheque and (1080-620-460) payment in cash has been given to them more than the amount of the bill. We have done so because we sell Alfa tiles only on this condition."
(Page No. 8 of the impugned order) The testimony of Shri V.K. Jain, Constituted Attorney of the manufacturing firms has, in effect, only confirmed the state of affairs. The few receipts recovered from the distributors and containing the acknowledgement/receipt of cash payments by the appellant-manufacturer render the final confirmation to the allegation that part of the price was being collected in cash over and above the invoiced price.
11. The appellants' contention is that the evidence directly connecting them is too thin and is not sufficient to uphold the charge. This argument cannot find acceptance. To look for comprehensive evidence in a case of calculated fraud is to ask for the impossible. It is in the very nature of such misdeeds that the concerned parties would keep very little, if at all, of records or would destroy the records to the extent within their means. In such a situation what is important is the quality of the evidence and not the quantity of it. In the present case, the records seized and the evidence tendered by the persons responsible for those records have thrown sufficient light on the malpractice followed by the appellants. The evidence covers the various tiers of trade from the appellant-manufacturers to the dealers. The evidence is also reliable about the period involved and the extent of cash collection.
12. We also find no merit in the appellants' submission that since cash collection in respect of sales outside Madhya Pradesh has not been established, the prices to those dealers should be treated as the normal value of the goods for the purposes of assessment of goods sold to the Madhya Pradesh distributors also. Such an approach is to overlook the positive evidence as to what was the real sale price to the distributors in Madhya Pradesh. Instead, it only means that the investigation has not established that in respect of sale to dealers in others areas part of the sale price was being collected outside the books of accounts in cash. That is no reason to accept the invoice price for other areas in respect of sales to Madhya Pradesh distributors.
13. This brings us to the last submission of the appellants, that the differential duty demand should be limited to the sales made to the distributors in Madhya Pradesh. This submission has drawn support from the decision of the Apex Court in the case of State of Kerala v. C. Velukuttty. In that case, dealing with the reopening of sales tax assessments, the Apex Court held that the discovery of secret accounts maintained at one place is no ground to hold that the transactions as revealed by those accounts took place in other places also. We find that the situation in the present case is closely comparable to the case before the Apex Court. Evidence gathered during the investigation has convincingly established that part of the sale price from the Madhya Pradesh distributors was being collected by cash. Such evidence is lacking in respect of sales to dealers in other areas. In such a situation, evidence obtained in respect of sales to Madhya Pradesh distributors cannot lead to the reasonable inference that similar was the case in respect of all sales in other areas also. We, therefore, accept the appellant's submission that the demand cannot be extended beyond the sales to Madhya Pradesh. The differential duty in respect of sales to Madhya Pradesh has been computed by the appellants (and duty verified by the Revenue authorities) at Rs. 27,35,960/- for Alfa Ceramics and at Rs. 11,05,036/- for Globe Ceramics.
14. With regard to penalties, we find that the case of duty evasion due to fraud and suppression of facts remains fully established against the appellant-manufacturers. Offence of that nature calls for imposition of severe penalty. Until the enactment of Section 11AC of the Central Excise Act in 1996, penalty was imposable under Rule 173Q of the Central Excise Rules. The maximum penalty imposable under Rule 173Q is much higher than the mandatory penalty under Section 11AC. In these circumstances, it is of no relevance that the penalty has been imposed by the Commissioner under Section 11 AC which was in force only for a part of the period covered by show cause notice. Law stipulated imposition of penalty during the entire period of demand and the law has to prevail. Therefore, we find no merit in the appellants' submission that the penalty is not sustainable as the same has been imposed under Section 11AC. The correct legal position on this issue remains settled by the decision of the Apex Court in the case of N.B. Sanjana, Asstt. Collector of Central Excise, Bombay & Ors. v. The Elphinstone Spinning & Weaving Mills Co. Ltd. [1978 (2) E.L.T. J 399]. If the exercise of power can be traced to a legitimate source, the fact that the same was purported to have been exercised under different power does not vitiate the exercise of power in question. Accordingly, we uphold the imposition of penalty. However, a reduction in penalty on the appellant-manufacturers is called for in view of the reduced duty demand. Further, separate penalties on partnerships and their partners is not permissible. Therefore, penalties imposed on the partners and officers of Alfa Ceramics and Globe Ceramics are required to be set aside. We do so.
15. Rule 209A of the Central Excise Rules mandates that any person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act, or the rules, shall be liable to a penalty not exceeding three times the value of such goods or five thousand rupees, whichever is greater. It is clear from the evidence that the appellant-manufacturers, Madhya Pradesh distributors viz. M/s. Shah S.P. Chor-dia & Co. and M/s. Home Decor Marketing were full participants in the scheme of collecting part of the price in cash. They took part in administrating such an arrangement by collecting part of the amount from the dealers who bought the goods from them and in passing on the cash collections to the appellant manufacturers. Therefore, the penalty imposed on them has to be held as fully justified. Accordingly, we confirm the penalties imposed on them. Thus, we hold that penalties are to be sustained only on the two manufacturing firms and their two Madhya Pradesh distributors. Penalties on the other a'ppellants are required to be set aside.
16. In view of the above findings, the appeals are ordered as under :-
1. Duty demand of Rs. 27,35,960/- is confirmed on appellant, Alfa Ceramics.
2. "Duty demand of Rs. 11, 05,036/- is confirmed on appellant, Globe Ceramics.
3. Penalty of Rs, 27,00,000/- is imposed on Alfa Ceramics.
4. Penalty of Rs. 11,00,000/- is imposed on Globe Ceramics.
5. Penalty imposed on Shri P. Chordia is confirmed.
6. Penalties imposed on Shri Mahendra Khandelwal are confirmed.
7. All other penalties imposed under the impugned orders on the present appellants are set aside.
8. Confiscation of plant and machinery ordered under the impugned orders is set aside.
9. The appellant-manufacturers shall, in addition, pay interest at appropriate rates in respect of short-levy with effect from 28-9-1996.
10. It is made clear that payments and deposits already made by the appellants during the investigation and in accordance with stay orders of this Tribunal shall be adjusted towards payment of duty demands confirmed hereinabove.