Custom, Excise & Service Tax Tribunal
M/S. Anglo French Textiles vs Cce, Tiruchirapalli on 3 July, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
E/639/2002
(Arising out of Order-in-Original No. 9/2002 dated 7.10.2002 passed by the Commissioner of Central Excise, Trichy)
M/s. Anglo French Textiles Appellant
Vs.
CCE, Tiruchirapalli Respondent
Appearance Shri S. Sivathanu Mohan, Advocate for the Appellant Shri K.P. Muralidharan, AC (AR) for the Respondent CORAM Honble Shri R. Periasami, Technical Member Honble Shri P. K. Choudhary, Judicial Member Date of Hearing / Decision: 03.07.2015 Final Order No. 40777 / 2015 Per R. Periasami The appellant filed this appeal against the impugned order dated 7.10.2002 passed by the Commissioner of Central Excise.
2. The brief facts of the case in brief are that the appellants are manufacturers of cotton fabrics, manmade fabrics, woven fabrics, apparels and made-ups falling under Chapters 52, 55, 58, 62 and 63 of CETA, 1985. Based on the intelligence, the Department found that there was a huge shortage of finished goods when compared to the stock mentioned in the statutory records. Department conducted physical stock verification based on the internal audit of the appellant-company. There was a difference in the stock to the tune of 8,79,372 MTs compared to RG-I Register. After completing the investigations, statements were recorded and the department issued show-cause notice dated 27.3.2002 for demanding excise duty of Rs.1,84,19,199/- for shortage of finished goods and invoked the extended period under proviso to section 11A. The Commissioner of Central Excise confirmed the demand and imposed equal amount of penalty under section 11AC along with interest under section 11AB of the Act. Hence the present appeal.
3. Heard both sides and perused the records.
4. Learned counsel appearing on behalf of the appellant submitted a written synopsis and reiterated his submissions. He submits that the department conducted verification of physical stock on 12.12.2000 on all four units of the appellant. The department issued show-cause notice dated 14.8.2001 for confiscation of the excess goods seized valued at Rs.62,91,811/-. The Commissioner adjudicated the said show-cause notice by Order-in-Original dated 7.1.2002 and dropped the confiscation of the seized goods as the goods were still lying in the factory premises and there was no evidence that these goods were likely to be cleared clandestinely and he imposed a penalty of Rs.10,000/- for non-maintenance of RG-I Register. He further submits that the appellants on their own constituted a low level committee to study the reasons for shortage. When that committee failed to know the reason for shortage, a high level committee was constituted to find out the variation of physical stock vis-`-vis statutory records. He submits that the shortage was to due to elongation of fabrics which was recorded from June 1995 to August 1997 as 4.68%. Subsequently, from September 1997, they introduced lot card system and elongation was recorded as 3.34%. Therefore, the excess elongation at the rate of 1.34% was recorded from 1986 to August 1997 which would have caused the difference between the RGI Register and the physical stock. He also submits that the expert opinion given by Textile Research Associations like ATIRA, BTRA and SITARA opined that it is technically impossible to achieve elongation beyond 3%.
5. He further submits that the entire demand is hit by limitation as the Department had already issued a show-cause notice dated 14.8.2001 and same was adjudicated by the Commissioner on the excess quantity seized and the Department again issued the present show-cause notice dated 27.3.2002 based on the same set of records for the same quantity, for the same period and by invoking extended period of limitation and also demanded duty. He further submits that they have submitted all their records, gate passes on 9.8.2000. Therefore, the second show-cause notice should not have been issued and there is no suppression of facts and that the Department has already carried out physical stock for which another proceeding was already initiated and order was passed. He submitted copies of the first show-cause notice and the order-in-original dated 7.1.2002. He relied submissions recorded by the adjudicating authority in paras 4 to 6 at page 64 and para IX at page 69. He further submits that the shortage is due to elongation of processed fabrics whereas the adjudicating authority has discussed in his finding as shrinkage of fabrics and worked out the percentage of shrinkage which was not part of the show-cause notice. He relies on the following case laws:-
(a) ECE Industries Ltd. Vs. CCE, New Delhi 2004 (164) ELT 236 (SC)
(b) Swiss Parenterals Pvt. Ltd. Vs. CCE 2014 (308) ELT 81
(c) Hyderabad Polymers (P) Ltd. Vs. CCE 2004 (166) ELT 51 (SC)
(d) P&B Pharmaceuticals P. Ltd. Vs. Collector of Central Excise AIR 2003 SC 4019
6. On the other hand, learned AR for Revenue reiterated the allegations made in the show-cause notice in para 12 page 55, para 20, page 57, para 21 page 58 and para 23 at page 61 and page 25 at page 62 where the allegations of shortage of excisable goods and also clearance of sample fabrics without payment of duty. He submits that duty is demanded under Rule 223A of Central Excise Rules, 1994. He relied on the findings at para 30 and 31. He also submits that the extended period has been rightly invoked and it is not hit by limitation. The learned AR submits that the first show-cause notice was issued for confiscation of the seized goods which was not accounted in the RG-I Register whereas the present show-cause notice was issued for demanding duty on the shortage of quantity and also demanded duty on clearance of sample fabrics. Therefore, he submits that the present show-cause notice demanding duty on the shortage of goods is not hit by limitation. After completing the investigation, the authority has rightly invoked extended period. He relied on the following case laws:-
(a) Ennore Foundries Ltd. Vs. CCE 2007 (211) ELT 434
(b) Rourkela Steel Plant Vs. CCE 2008 (227) ELT 522 (Tri. LB)
(c) Alagappa Cements Pvt. Ltd. Vs. CEGAT, Chennai 2010 (260) ELT 511 (Mad.)
7. We have carefully considered the submissions of both sides and perused the records. The adjudicating authority has demanded duty on the shortage of fabrics valued at Rs.11,55,06,712/- and confirmed demand duty of Rs.1,84,19,199/-. The entire demand has been confirmed based on shortage of unprocessed and processed fabrics as well as made ups as worked out in the Annexures to the impugned order. The appellants main contention is that the entire demand is hit by time bar and there is no suppression of facts on the ground that the Department has already initiated proceedings and issued a show-cause notice dated 14.8.2000 after verification of the physical stock on 14.8.2001 for confiscation of the seized goods found excess and the said show-cause notice was already adjudicated by the Commissioner vide order dated 7.1.2002. Therefore, they contended that the present show-cause notice is on the same set of facts and hit by limitation.
8. On perusal of the show-cause notice dated 14.8.2000 and the Order-in-Original dated 7.1.2001, we find that the said show-cause notice was issued for confiscation of the excess goods seized at their units. The adjudicating authority had decided the said show-cause notice and imposed penalty under Rule 173Q for improper maintenance of statutory records. From the above, we find that the proceedings initiated in the show-cause notice dated 14.8.2000 was entirely different and it is only related for the excess stock found in the premises which was not accounted in the RG-I Register and there was no demand since the physical goods were available, the adjudicating authority has not ordered for confiscation as there is no likelihood of removing clandestinely whereas in the present case the show-cause notice relates to the demand of excise duty on the shortage of goods for the past period and the facts in the first show-cause notice are different from the facts in the present show-cause notice. Therefore, the appellants contention that the demand is hit by limitation as department having issued the first show-cause notice ought not to have issued the present show-cause notice is not sustainable and liable to be rejected and the demand is not hit by limitation.
9. On the merits of the case, the appellants contention that the huge shortage of fabrics is due to the notional elongation of fabrics recorded during the relevant period. In this regard we find that the adjudicating authority has dealt the issue in detail at paras 16, 30, 31, 32 and 33 and has clearly come to the conclusion that the appellants contention of notional elongation of 4.68% is not acceptable. The adjudicating authority has also discussed that elongation of fabrics relates to only the processed fabrics whereas the shortage of finished goods is not only the processed fabrics but also in the unprocessed fabrics as well as other made-ups. The adjudicating authority has also allowed the percentage of shrinkage of fabrics to the extent of 1 to 1.5% from the total shortage. The appellants reliance on the elongation of fabrics is not supported with any evidence except stating their own internal high level committee report. In this regard, we find that the Honble High Court of Madras in the case of Alagappa Cements Ltd. (supra) upheld the demand on shortage of stock. Para 6 of the order is reproduced below:-
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 assessees 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 appellants 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.
10. The ratio laid down by the Honble High Court of Madras is squarely applicable to the facts of the present case. Accordingly, we find that the demand of duty on the shortage of goods confirmed by the adjudicating authority is sustained and we order accordingly.
11. As regards limitation, as already discussed in the preceding paragraphs, the present show-cause notice is issued for demand of duty on the shortage of goods noticed for the period in dispute and has no relevance with the first show-cause notice dated 14.8.2001. Therefore, appellants reliance on the Honble Supreme Courts decision is not applicable to present case. Statements recorded from various persons clearly prove the continued shortage of goods over the period. The very fact that the appellant themselves have constituted two committees, as directed by CAG Audit Report, proves that there was huge shortage where the appellants were unable to explain the reasons with clear evidence. Therefore, we hold that the adjudicating authority has rightly confirmed the demand and invoked the extended period as there was clear suppression of facts.
12. By respectfully following the decision of the Honble High Court of Madras referred above, we hold that the demand of excise duty on the huge shortage of finished goods and imposition of equal penalty with interest is liable to be upheld.
13. In view of the foregoing, the impugned order is upheld and the appeal filed by the appellant is dismissed.
(Dictated and pronounced in open court)
(P.K. CHOUDHARY) (R. PERIASAMI)
Judicial Member Tehnical Member
Rex
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