Custom, Excise & Service Tax Tribunal
M/S Hindustan Machines vs Cce, Delhi on 24 November, 2011
IN THE CUSTOMS, EXCISE AND SERVICE TAX
APPELLATE TRIBUNAL, NEW DELHI
PRINCIPAL BENCH, COURT NO. III
Excise Appeal No.1976-1984 of 2005 and
No.2549-2551 of 2005
[Arising out of Order-In-Original No.72/2005, dated 14.03.2005 issued by CCE, Delhi-I)
Date of Hearing : 24.11.2011
Pronounced On : 04.05.2012.
For approval and signature:
Honble Ms. Archana Wadhwa, Judicial Member
Honble Mr. Mathew John, Technical Member
1
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2
Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3
Whether Their Lordships wish to see the fair copy of the Order?
4
Whether Order is to be circulated to the Departmental authorities?
M/s Hindustan Machines Appellants
M/s Asiatic Engg. P.Ltd.
M/s Dynamic Engineers
M/s Konark Industries
Shri Harish Kumar
Shri R.K.Arora
M/s Technocrat Marketing P.Ltd.
M/s Kaveri Shilp Kala Ltd.
Shri Hari Om Bhatia
M/s Panchsheel Agencies
M/s N.D.Sales
M/s Ideal Home Appliances
Vs.
CCE, Delhi Respondent
Coram: Honble Ms. Archana Wadhwa, Judicial Member Honble Mr. Mathew John, Technical Member Appearance:
Shri K.K.Anand, Advocate for M/s Hindustan Machines and Shri Bipin Garg, Advocate for M/s Kaveri Shilp Kala Ltd., M/s Panchsheel Agencies, M/s N.D.Sales & M/s Ideal Home Appliances - for the Appellants Shri R.K.Varma, DR for the Respondent ORDER NO . ___________DATED________ Per Ms. Archana Wadhwa:
All the appeals are being disposed of by a common order as they arise out of the same impugned order vide which duties stands confirmed against various manufacturing units along with imposition of penalties. In addition, penalties stands imposed on the other appellants.
2. As per the facts on record, M/s Hindustan Machines, Konark Industries, Dynamic Engineers (I) & (II) and Konark Industries and Asiatic Engineers P.Ltd. are the units engaged in the manufacture of various household products under the brand names of Maharaja and Maharaja Whiteline. All the units were availing the benefit of SSI exemption Notification No.175/86-CE. M/s Hindustan Machines were manufacturing toasters, irons, mixer grinders w.e.f. 1975 onwards. M/s Dynamic Engineers were engaged in the manufacture of mixer grinder of different models and came into existence in the year 1986. M/s Dynamic Engineers-II was a manufacturing unit set up by Dynamic Engineers-I for the manufacture of triple jar mixers for supply to manufacturers of mixer grinders etc. and came into existence in 1990. M/s Konark Industries was manufacturing juicer mixer, grinders and jar attachments w.e.f. 1988. M/s Asiatic Engineers were set up in 1988 for manufacture of washing machine and centrifugal dryers. Demand of duties stands confirmed against the manufacturing units by denying them the benefit of Notification No.175/86-CE, dtd. 01.03.86 in respect of the excisable goods manufactured by them for the period upto 31.03.90 as also on the charges of clandestine removal of the goods by the said manufacturing units. The said findings stands arrived at by the Commissioner based upon the documents seized from various premises and the investigation made at various levels. We shall be dealing with the facts, statements, evidences and the submissions made by the both the sides duly represented by Shri K.K.Anand, and Shri Bipin Garg, ld. Advocates appearing for the appellants and Shri R.K.Varma, ld. DR appearing for the Revenue, while dealing separately with the various issues.
3. The issue required to be decided in the present set of appeals stands framed by the Commissioner in his impugned order. For ready reference, the same are being reproduced below:-
(i) The issue of availability of Small Scale exemption under Notification No.175/86 by the manufacturers of Maharaja brand household goods.
(ii) The issue of clandestine clearances as alleged in the Show Cause Notice, whether sustainable or not.
(iii) The issue of confiscation of seized goods at different premises in course of searches.
(iv) The expenses incurred on publicity and advertisement by marketing company whether should be included in computing assessable value. The issue of inclusion of warranty/service charges in Assessable value.
(v) The issue of relying on various statements relied in the Show Cause Notice in view of no cross-examination of the persons.
(vi) Extended period of limitation whether to be invoked or not.
4. It is seen that M/s Hindustan Machines is a partnership firm of Shri Harish Kumar and his mother Smt. Raksha Devi. The said brand name Maharaja was registered in the name of Shri Harish Kumar and Smt. Raksha Devi as also in the name of Smt. Radha Agrawal, mother-in-law of Shri Harish Kumar. The said registration was in respect of mixer cum grinder for kitchen use. In respect of washing machine, the said trade mark was registered in the name of Shri Harish Kumar and Smt. Raksha Devi. The said M/s Hindustan Machines which came into existence in the year 1975 was manufacturing mixer grinder under the brand name Maharaja. The said appellant was availing the central excise exemption granted under various SSI Notifications from time to time during the period 1984-85 onwards. The goods manufactured by the said appellants were being sold by a marketing company under the name and style of Maharaja Kitchen Aid P.Ltd. Shri Harish Kumar and one Shri R.K.Arora were the Directors of M/s Maharaja Kitchen Aid P.Ltd., which came into existence in 1983. However, the said firm subsequently closed its operations.
M/s Technocrat Marketing P.Ltd., another marketing firm came into existence on 09.05.88. One Smt. Sunita Bhatia, w/o Shri Hariom Bhatia, C.A. was the Director in the said company along with Shri R.K.Arora, which was formed to market the household appliances. It is seen that the allegations of excess clandestine clearances and the consequent denial of small scale Notification are primarily based upon the recovery of one document titled as sale statement and some other documents recovered from the business premises of M/s Technocrat Marketing P.Ltd. and the residential premises of Shri H.O.Bhatia read with the statements of various persons and the other evidences collected during the course of investigation.
5. In as much as M/s Hindustan Machines, was availing the benefit of SSI exemption Notification, all other manufacturing units, manufacturing the goods under brand name of Maharaja, were also availing the benefit of Notification No.175/86-CE. It may be observed here that in terms of para 7 of the said Notification, use of brand name of another person debarred availment of SSI Notification in case the brand name owner was not entitled to the benefit of SSI Notification No.175/86-CE. However, if the brand name owner was availing the benefit of SSI exemption in terms of the said Notification, other manufacturers manufacturing the goods with the brand name of such owners would also become entitled to the benefit of SSI exemption. In as much as M/s Hindustan Machines was themselves availing the benefit of Notification in question, all other manufacturing units, manufacturing goods under the brand name of Maharaja, were entitled to the benefit of SSI exemption Notification.
6. The said M/s Hindustan Machines declared the total value of clearances for the year 1987-88 as Rs.9,49,096/-. The Notification No.175/86-CE was not available to small scale manufacturing units if the total clearances of its final product from its factory exceeded Rs.1.50 crores in the preceding financial year. However, as M/s Hindustan Machines declared the total clearances for the financial year 1987-88 as Rs.9,49,096/- they were availing the benefit of SSI exemption Notification during the next financial year, i.e., 1988-89 and onwards. In as much as M/s Hindustan Machines was availing the benefit, all other units using its brand name were also availing the benefit.
7. The Revenues allegation and findings are that during the year 1987-88, the total clearances made from the factory of M/s Hindustan Machines were to the tune of Rs.1.89 cores. As the total clearances exceeded the eligibility criteria of Rs.1.5 crores during the financial year, i.e., 1978-88, they were not entitled to the benefit of SSI exemption Notification in the succeeding period and consequently all other manufacturing units were not entitled for the benefit of said exemption.
8. It is seen that simultaneous searches were made in the factory premises of all the manufacturing units as also in the premises of M/s Technocrat Marketing P.Ltd. P.Ltd which is a marketing unit of household appliances along with the residential premises of various persons. A document titled as Sales Statement of 1987 was recovered from the premises of M/s Technocrat Marketing P.Ltd. with endorsement of Sasi/File/SD-Satish, dtd. 12.12.90. According to the Revenue, the said document gave details of number of household appliances sold during the 12 months period from January to December, 1987, in respect of some of the dealers. According to the said statement, total quantity of goods sold during the said period of 12 months worked out to be 23,709. In as much as the dealers whose names appeared in the said statement were dealers of Maharaja Household Appliances, Revenue entertained a view that the statement reflects upon the clandestine clearances of the said goods from the factory of M/s Hindustan Machines, without reflecting in any statutory documents. Another documents being a letter dtd. 30.08.89 addressed to Shri R.K.Arora was recovered wherein the sales figures for the first 6 months were reflected. In another communication addressed to Shri Satish Bhatia dtd. 29.01.86 recovered from the residence of Shri Hari Om Bhatia communication about the despatch of the goods was made.
9. Based upon the above seized documents, the Revenue calculated the clandestine removal made by the said Maharaja Group of Companies. In para 8.5 of the impugned order of the Commissioner, it stands recorded that in as much as the said sales statement recovered from the premises of marketing company reflected only the quantity of triple jar mixers sold in the Southern States, which region formed for about 50% of the total sales effected and allowing the margin of 4,721 mixers sold from January to March, 1987, the Revenue believed that the total number of mixer grinders that appeared to have been sold during the period April to December, 1987 works out to be 18,988. By taking the price of the said products as Rs.900/-, the total aggregate value was arrived at Rs.1.89 crores in respect of clearances from M/s Hindustan Machines. As such, it was alleged that in as much as the total clearances during the year 1987-88 was more than Rs.1.50 crores for the year 1987-88, the said M/s Hindustan Machines was not eligible for the benefit of exemption in the succeeding financial year, i.e., 1988-89 onwards. If they were not entitled to the said SSI exemption Notification, the other manufacturing units also become disentitled. Apart from above, duty also stands confirmed against them on the findings of excess clandestine removal of goods during the period 1987-88 as also the subsequent period.
DENIAL OF SSI EXEMPTION; NOTIFICATION NO.175/86-CE
10. Dealing first with the issue of availability of Notification No.175/86-CE in respect of M/s Hindustan Machines, we find that the total clearances declared by them during 1986-87 were to the tune of Rs.9 lakhs approximately. As a result of search made in the business premises of M/s Technocrat Marketing P.Ltd., a sale statement of 1987-88 was recorded. The said statement reflected upon the clearances of various goods to the dealers in Andhra Pradesh and other Southern States. The reliance on the said sales statement recovered from the premises of M/s Technocrat Marketing P.Ltd. stands strongly challenged by the appellants on the ground that the said M/s Technocrat Marketing P.Ltd. came into existence in the month of May, 1988 as itself accepted by the Revenue in the SCN as also in the impugned order and as such, it is unconceivable that the said M/s Technocrat Marketing P.Ltd. would be having alleged sale figures for the year 1987-88, when the same was not in existence. Reliance on the said statement recovered from the premises of a company which was not even in existence during the relevant period is wholly unjustified and unwarranted. The said document was neither seized from the premises of M/s Hindustan Machines nor from the custody of any of their authorised representative. As such it stands strongly argued that to connect the said statement with the goods manufactured by M/s Hindustan Machines is neither proper nor appropriate.
11. We find that there is no dispute about the fact that the said marketing firm was started in May, 1988. The sale statement recovered from its premises showing clearances from April, 1987 to July, 1987 in respect of 18,988 pieces. The appellants contention that when company itself was not in existence, any document recovered from its premises pertaining to past period would have no bearing, seems to carry weight. There is no denial of the fact that the said sale statement showing the clearance of goods was recovered from the premises of M/s Technocrat Marketing P.Ltd.. Apart from above, we have seen said statement appearing at page 1104-1105 and form Annexure-IV of paperbook filed by the appellants. In this document, there is no description of the goods and no name of the manufacture is appearing. The said statement only shows some figures of clearances made in 1987. We really fail to understand as to how the Revenue has connected the figures as available in the statement to the clearances effected by M/s Hindustan Machines. There is virtually no evidence on record to show that the said document relates to sale of finished goods manufactured by M/s Hindustan Machines. There is no indication in the said statement to show that the goods were toasters, irons or mixer grinders which are manufactured by M/s Hidustan Machines. There is also nothing on record to reveal the author of the said sale statement.
12. It is also seen that the said sale statement of 1987 recovered from the premises of M/s Technocrat Machines mentioned the names of the dealers. No effort stands made by the Revenue to approach the said dealers and to record their statement. In our views if the Revenue entertained a belief that the said sale statement dealt with the clearance of goods manufactured by M/s Hindustan Machines, the proper course of action was to approach the dealers whose names are appearing in the said sale statement and to record their statements to establish the fact that the goods mentioned in the said statement were manufactured by M/s Hindustan Machines and cleared by them without reflecting in their records.
13. Not only that we also note that in the statement of Shri Harish Kumar, Partner of M/s Hindustan Machines which was recorded on 16.02.91, he was not confronted with the said statement recovered from M/s Technocrat Marketing P.Ltd.. No questions as regards the total clearances for the year 1987-88 was put to him. No statement of any other authorised representative of M/s Hindustan Machines was recorded in respect of the said sale statement. We agree with the ld. Advocate that there is no indication in the said sale statement to show that the goods reflected therein as having been sold to various dealers are the goods manufactured by M/s Hindustan Machines. In the absence of any evidence to the contrary, we hold that the said sale statement documents cannot be related to M/s Hindustan Machines.
14. The appellants have also argued that while calculating the total said sales in the clearance figures of M/s Hindustan Machines, Revenue has taken a higher price of Rs.900 placing reliance upon the balance sheet of earlier marketing company Maharaja Kitchen Aid P.Ltd., the said value adopted by the Revenue is on the higher side, thus resulting in crossing the eligibility criteria of clearance limit of Rs.1.5 crores. It stands argued before us that such assumption as regards the value of Rs.900 per piece is without any basis, in the absence of any clarification as to what were the goods actually sold as reflected in the sale statement. Further, while calculating the duty demand, the Revenue in Annexure-D-IV(i) has itself adopted value of the said appellants goods as Rs.800 per piece. The appellants contention is that such adoption of enhanced value of Rs.900 per piece is admitted on the higher side and without any basis in the absence of any indication of the description of the goods. As we have already held that the sale statement recovered from M/s Technocrat Marketing P.Ltd. cannot be related to M/s Hindustan Machines for reasons recorded in the relevant paragraphs, we find that the said plea of the appellants as regards adoption of higher value of the goods become redundant.
15. Further, it is seen that M/s Hindustan Machines have taken a stand before the adjudicating authority that they do not have capacity to manufacture such huge quantity of finished goods. The said plea of the appellants does not stand either considered or rebutted by the lower authorities. There is also nothing on record to show that the said appellants were in a position to manufacture such excess quantity of finished goods than what stands reflected in their statutory records. Tribunal in the case of Chandan Tobacco Co. reported in 2011(270)ELT87(Tri.-Ahmd.) as also in the case of Jindal Nical & Alloys Ltd. vide final order No.904-908/2011 has held that when the appellants do not have installed capacity to manufacture the alleged excess goods, the demand of duty cannot be confirmed by observing that the said goods stands clandestinely removed by the assessee. The findings of the Commissioner that the total clearance for the M/s Hindustan Machines was to the tune of Rs.1.80 crores approx. as against declared value of Rs.9.19 lakhs approximately, which is around 18 times more, is required to be established by production of evidence. When the appellants have taken a stand that their installed capacity cannot result in production of huge quantity of alleged final product, it was obligatory on the part of the Commissioner to examine the said dispute by giving reasonable finding with reference to evidences. Failure on the part of the officers to examine the said aspect tilts the matter in favour of the appellants.
16. We also note that the Commissioner in his impugned order has held that all the units were created by Shri Harish Kumar under the brand name of Maharaja with a view to illegally avail the SSI exemption and to evade duty of tax. He observed in the order that in as much as all the units were manufacturing the household goods with brand name Maharaja, the same were floated within malafide intention. However, we also note it stands observed and a finding stand arrived at by the Commissioner that all the units were separately registered under the Factories Act, separate registration of sales tax etc. As also with excise. He has, however, observed that all the units are deemed to be interconnected in terms of 2(g) of the Monopolies and Restrictive Track Practices Act, 1969.
17. We fail to appreciate the above reasoning of the adjudicating authority in as much as it was not the case of the Revenue in the SCN to club the clearance of the units. In fact the demand stands confirmed against each unit separately by the adjudicating authority himself. Thus establishing their separate identity. Reference to the said provision is not appropriate in terms of section 4 of the Central Excise Act or in terms of Notification No.175/86-CE. In any case, we find that all the units being registered separately, manufacturing different goods though identical and located at different places, having complete machinery to manufacture goods cannot be held to be related parties, merely because the Directors or partners or proprietors are relative of each other.
18. We also note that the Commissioner has relied upon the Honble Supreme Courts judgement in the case of Modi Alkalies & Chemicals Ltd. reported in 2004(95)ELT617(SC) as also in the case of Rukmani Packwel Traders reported in 2004(165)ELT481(SC). However, we are of the view that the ratio of law declared in the said judgements are not applicable to the facts of the instant case. In the case of Modi Alkalies, the clearances of various units were to be clubbed by the Revenue when there was evidence showing creation of front companies by the Directors of Modi Group of Companies by appointing their employees as Directors of front companies. The fact that the profit earned by these front companies loans was going back to M/s Modi Alkalies was also taken into consideration. It was in these circumstances, clearance made by all the companies were clubbed and the benefit of SSI exemption was denied. In the present case, there is no clubbing of clearance sought to be done by Revenue. All the units are enjoying the benefit of SSI exemption Notification independently, and it is not even the Revenues case that they are facade companies. As such they have to be held as independent units. Even the SCN does not propose clubbing of clearances of all the units.
19. Similarly, Honble Supreme Courts decision in the case of Rukmani Packwel relied upon by the Revenue is in respect of Notification No.1/93 and not Notification No.175/86. It may be observed here that clause-IV of the said Notification disentitled an assessee to the benefit of the said Notification, if he was using the brand name of another person. Such debarring was without any reference to the fact as to whether the brand name owner was availing the benefit of SSI exemption or not. We find that the wordings of the Notification No.1/93 which was the subject matter of the dispute before the Honble Supreme Court are entirely different from wordings of para 7 of earlier SSI exemption Notification No.175/86. As already observed, Notification No.175/86, denied the benefit of SSI exemption to a manufacturer using the brand name of another person only when the brand name owner was not entitled to the benefit of SSI Notification. If brand name owner was enjoying the benefit of SSI Notification, the same was available to the other manufacturers manufacturing the goods with his brand name. As such we find that the Commissioners reliance on the decision of Rukmani Packwel is not appropriate.
20. M/s Hindustan Machines had declared the value of clearances in the year 1987-88 as Rs.9.50 lakhs approximately. There being no evidence to show that the said figure of clearance was not correct, we hold that the same has to be hold as the correct clearance value. If that be so, he was entitled to SSI exemption Notification No.175/86-CE during the succeeding financial year, 1988-89 and thereafter.
21. In as much as the brand name owner M/s Hindustan Machines has been held to be entitled to the benefit of Notification, the other units using the said brand name would become entitled to the benefit of SSI exemption Notification as they are not hit by para 7 of the Notification. As such we hold that the conformation of demand against the M/s Hindustan Machines as also other manufacturing units by denying them the benefit of SSI Notification is unsustainable. The said part of the demand is accordingly set aside along with setting aside of the penalties on the said ground.
Clandestine Removal
22. As regards the finding of clandestine removal of the goods by the four manufacturing units, we find that the Commissioner in his impugned order has not dealt with the various issues raised by the appellants, as also the various evidences relied upon in the SCN stands. He has, in a very generic term observed that documents recovered from the marketing company M/s Technocrat Marketing P.Ltd. and the role of Shri Hariom Bhatia in the affairs of the company have specifically established the fact of clandestine removal and lead to the indication of clandestine clearances of the manufacturing units.
23. After hearing both the sides, we find that the charges of clandestine removal are based upon the sale statement of 1986-87 recovered from the premises of M/s Technocrat Marketing P.Ltd.. In addition a letter dtd. 30.08.88 stands recovered from the said premises. The letter was addressed to Shri R.K.Arora who was Partner/Director of the marketing company along with Smt. Sunita Bhatia, w/o Shri Hari Om Bhatia. In addition, some papers were recovered from the marketing company wherein sale of the goods was shown under the code name OGL or 091. In addition, some documents were recovered from the residential premises of Shri Hari Om Bhatia, h/o Smt. Sunita Bhatia, Partner of the marketing company.
24. It is seen that the appellants in their reply to the adjudicating authority strongly contested the allegation of clandestine removal of the goods on the basis of the documents allegedly recovered from the premises of third person. As we have already discussed effect of sale statement recovered from M/s Technocrat Marketing P.Ltd. while discussing the total clearance of M/s Hindustan Machines, we do not feel it necessary to deal with relevance of the said document again for the purposes of clandestine removal. The said document has again been made the basis for alleging clandestine removal on the part of all the units. As we have already held that the said document does not relate to the sale of goods manufacturing by M/s Hindustan Machines, confirmation of demand of duty on the basis of the same cannot be upheld.
25. We, further note that either the above sale statement or some correspondence addressed by some unknown person to Shri R.K.Arora, recovered from the premises of marketing company or some despatch plans recovered from Shri Hari Om Bhatia have been made the basis for demand against all the units. The appellants have strongly contested that said documents recovered from third person cannot be made the sole basis for arriving at a finding of clandestine activities in the absence of any corroborative evidence. Reliance have been made on the following Tribunals decisions:
(i) 2009(243)ELT154(Tri.-Ahd.) - Rutvi Steel & Alloys
(ii) 2009(245)ELT613(Tri.-Mum.) - Bhandari Industrial Metals P.Ltd.
(iii) 2008(230)ELT240(All) Kumar Trading Co.
(iv) 2005(186)ELT465(Tri.-Del.) Rawalvasia Ispat Udyog Ltd.
We find that the decisions relied upon by the appellants, as referred (supra) are to the effects that the documents recovered from the third partys possession or premises cannot be made the sole proof for alleging clandestine removal. The same may be starting point of an investigation but based upon the said documents recovered from the third party, no demand can be confirmed on the findings of clandestine removal. We have also taken into account the latest decision of the Tribunal in the case of Kuber Tobacco wherein by majority of decision, it was held that even when the documents are recovered from the guesthouse of the company, when the same are of doubtful nature, demand of duty on the findings of Clandestine removal cannot be upheld against the assessee.
Apart from the sale statement recovered from marketing company, a reference stands made to a letter dtd. 30.08.88 recovered from the marketing company. The said letter is addressed to Shri R.K.Arora, Director of the company and refers to sale figures from January to June, 1988.
26. M/s Technocrat Marketing P.Ltd. came into existence in May, 1988, the document referring to the sale figures prior to date of birth cannot be taken into account for upholding the finding of clandestine clearance of manufacturing units. The identity of the person who has authored the said letter is not available. There is no reference to the goods manufactured by the manufacturing unit in as much as the same only mentions the sale figures without any reference to any goods or manufacturer. There is nothing in the said letter to indicate that the same relate to clearance figures of Maharaja Appliances. No authorised representative of any of the manufacturing units stands confronted with the said letter during the course of investigation. Shri R.K.Arora to whom the said letter is addressed has also denied the knowledge of the same. As such we note that said letter cannot be considered to be piece of evidence so as to conclude against the appellants.
27. Further a despatch plan for December, 1990 was recovered from the premises of Shri Hari Om Bhatia and related to his marketing company, M/s Technocrat Marketing P.Ltd. The Revenue by taking into account the said despatch plan has arrived at a conclusion that in as much as the actual clearance figures as reflected in the statutory records of the appellants are less than the figures reflected in the despatch plan, it has to be concluded that the differential number stands manufactured by the appellants clandestinely and cleared without reflecting the same in the records. The Revenue has further presumed that since 1990, the despatch plan showed the marketing company planning to sell at least 50% of their goods in the Southern States. Even in 1987 they sold 50% of goods in Southern States, the assumptive calculation for total sales in the country stand arrived at by the Revenue. We are of the view that the mere despatch plan of the marketing company, without any other independent corroboration cannot be made the basis for arriving at the findings of the clandestine clearance.
28. Apart from this, we also note that the marketing company was dealing in the goods manufactured by the other manufacturers also. It stands specifically brought to the notice of adjudicating authority that M/s Technocrat Marketing P.Ltd. was engaged in trading of the goods manufactured by other persons like : Candy Home Appliances, Western Engineers and Konark Industries (India). Above fact become clear from the balance sheet of the marketing company. Further they were also purchasing packing material from various suppliers. The said material was being purchased by the marketing company for the trading in the triple jars sold directly to its customers who already possess Maharaja brand of mixers. Shri P.Satish in his statement dtd. 11.04.91 has deposed that the sales referred in his letter dtd. 01.12.89 are the sales of triple jars sold to consumers of mixers, Revenue has interpreted that the said statement as if the same are sales of triple jar mixers of the said companys, whereas according to the deponent, same is sale of triple jars to the consumers of Maharaja brand mixers who already have the brand mixers with them. Candy Home Appliance and Western Engineers with whom the marketing company was dealing were the manufacturer of the said jars.
29. The appellants have also contended that they never had the facility to manufacture such huge quantity of goods. Their factory was located in a residential area operating in two shifts and was working from first floor of the building measuring around 990 sq.ft. Total number of workers were 20 and electricity bill was only Rs.1,013/- He also produced a certificate of Shri S.K.Bansal, Engineer who studied the installed capacity of the noticee with the available finance. After studying the process of manufacture, he certified that during the relevant time, the appellants were not having the production capacity to produce the alleged manufactured clearance of goods.
30. Apart from above, we note that M/s Hindustan Machines have made a police complaint as regards some scrupulous manufacturers making goods with their brand name. As a result, 32 units manufacturing household appliances were put to search and it was found that they were manufacturing goods under the brand name of Maharaja. The appellants have produced copies of FIR lodged and facts covering it. An order was also obtained from the Honble Delhi High Court directing Police to arrest the people dealing with the duplicate goods of manufacturers using appellants brand name. It is seen that while dealing with said plea of the appellants, Commissioner has simplicitor observed that such details are not before him and the noticee could not prove that the goods alleged in the SCN were in fact duplicate goods. We really fail to understand that when specific plea was taken before the adjudicating authority along with the copy of the FIRs, the fact of raids by the appellants and a copy of the Honble Delhi High Courts order, how an observation was made to the effect that the appellants had not proved that the goods alleged to be removed were duplicate goods. It has to be kept in mind that it is Revenue who is making the allegations of clandestine removal, based upon some documents recovered from third persons premises which documents even do not clearly relate to the sale figures mentioned therein to the goods manufactured by the noticees under the brand name Maharaja. The fact that some of the manufacturers were misutilising the appellants brand name is indicative of popularity of the said brand name and the fact that some of them were raided and found to be using the said brand name only indicates that the sales to various dealers in the market may belong to such dubious manufacturers.
31. Further, we note that a very novel method stands adopted by the Revenue for appropriating the total clearance figures to three manufacturers. Admittedly, sales shown in the statement recovered from the marketing company does not reveal either the name of the goods or the name of the manufacturer. Whereas the sale statement for the year 1986-87 stands attributed to M/s Hindustan Machines, the apportionment of duty in respect of other documents is made on the basis of RG-I figures recorded in the statutory records of said three units. The alleged clandestine clearances have been apportioned to the three manufacturing units in proportion to the RG-I clearances. We really fail to understand the basis of such apportionment.
32. At this stage, we also note that a part of the demand stands confirmed against the appellants on the basis of some documents seized from the premises of M/s Dynamic Engineers. Such documents are in the shape of production targets, Production Managers report etc. When the entries made in the said documents were compared with the entries made in RG-I register, there were differences which have been held to be on account of clandestine clearances.
We find that the said documents were signed by one Shri N.S.Sohal whose statement was recorded on 05.02.91 and 07.02.91. On being queried about these documents, he deposed that no records for maintaining day-to-day production are being maintained by them. The various documents seized from the premises were the only records which were being made by him in his personal capacity so as to exercise some sort of control over the workers. Shri Sohal clearly deposed that such figures in the documents do not reflect the actual production of the goods but the same refers to the number of pieces handled by the workers at various stages of manufacture. The documents are for internal use and do not reflect upon a days production. As regards production target, he clarified that the same are only targets and has no relevance or relation to the actual production. In fact, he felt sorry that these targets could never been achieved by the appellants.
33. It is seen that the said statement of Shri Sohal does not stands controverted or rebutted by the adjudicating authority. Apart from the statement of Shri Sohal, who was the author of the said document, neither the Partner of the said M/s Dynamic Engineers nor any other responsible person was examined and his statement recorded. In fact, no inquires were conducted even from the buyers of the allegedly clandestinely removed goods.
34. Reference stands made to goods received register of one transporter by the name of M/s Bajaj Road Carriers. Some of the GRs issued by the said carrier revealed movement of goods to Baroda from Ahmedabad. Revenues contention is that goods were originally cleared by the appellants under the fictitious names such as Janta Enterprises, Ramlal & Co. etc. to various consignees at Ahmedabad from where they moved to the original dealers at various places in Gujarat. Wherever the consignments were being transported by the said company, the clear description of the goods were mentioned and relevant corresponding excise document were also mentioned. In the said documents, where no description was given and the buyers names were either Janta Enterprises and Ramlal & Co. or N.D.Sales, Revenue entertained a view that in as much as these companies were found to be fictitious, goods were cleared clandestinely.
At this stage, we find that the statements of three dealers, i.e., M/s Panchsheel Agency, Rajkot; M/s Ideal Home Appliances, Surat; and M/s N.D.Sales, Baroda were recorded. The Partners / representative of these dealers in their statements recorded during investigation have denied having received any goods from the above manufacturers under fictitious names or without payment of duty. Apart from these dealers, there is no investigation at the end of other regular dealers of the manufacturing units. As such we are of the view that confirmation of demands against said units are wholly in the areana of surmises & conjectures in as much as there is no evidence reflecting upon such clandestine activities except the unwarranted inference by the Revenue based upon some documents recovered either from third partys premises or documents recovered from M/s Dynamic Engineering which are in the nature of production target etc.
35. We find that the duty demand also stands confirmed against M/s Asiatic Engineering P.Ltd. (AEPL) on the basis of some documents seized from their premises, the said documents are in the nature of internal GRs, daily performance report, security register etc. On comparison of the figures appearing in the said documents with the entries made in the RGI-I register revealed that the excess figure in the documents related to centrifugal dryers and washing machine manufactured by M/s AEPL. The security register also seized showed clearances of these products. The appellants have contended that the duty of Rs.14,97,576/- stands confirmed against the said unit on the ground that they have clandestinely removed 1674 number of washing machines and 67 number of centrifugal dryers during the period 1989-90 and 1990-91. Our attention stands drawn to a chart appended as annexure-A to the SCN. According to the ld. Advocate, perusal of the said chart show, a difference of 42 number of products whereas the duty stands confirmed on much higher number of washing machines and centrifugal dryers. Even this 42 number of goods, there is no clarity as to whether the same relates to the clearances of washing machines or centrifugal dryers. On going through the said chart, we find that the same relates to details of clearances effected by M/s AEPL as reflected in Challans, internal gate passes, daily performance report and security register for which central excisable passes and GP-I were issued. There is no detail as to how the figure of 1674 number of washing machines and 67 number centrifugal dryers stands arrived at by the Revenue. It is also seen that in case of clandestine removal, same number of goods would find mention in the challan as also in gate passes or daily performance report or security register. The goods which stands cleared clandestinely would find its place in all the internal private records. Duty cannot be confirmed on each and every private record with the RG-I register. The same would definitely lead to higher number then the actual clandestine clearances effected by the manufacturer, if any.
36. The Works Manager and Director of the Company, Shri J.C.Gupta and Shri Bhaskar were made to give statements but the above documents reflecting upon clandestine activities were never put before them so as to seek their clarification on the same. In the statement of Shri Bhaskar, Director recorded on 28.07.91, it stands clarified that every washing machine is numbered which can neither be erased nor washed. The Revenue has not advanced any evidence to show that duplicate number was being given on the washing machines cleared by them clandestinely. The clearances as reflected in the security guard register have been pleaded to be in respect of the clearances of washing machines, which may be defective and are being cleared after removing defects. There were also machines which were being repaired or reassembled or reworked, the same would admittedly not find any place in RG-I register and such movement of goods was done under the cover of internal gate passes only. Similarly, the appellants plea that in some cases invoices were made earlier and the entries in security register was made at a later date is required to be accepted as the justifiable ground in the difference in the number of goods. They have also taken a categorical stand that a new technology of twin tub washing machine was developed by them which resulted in high defects and the same were dismantled or assembled or repaired in which case of all the documents showing internal movement of the goods would be available in the factory. We find that presence of said documents does not positively reflect upon the fact of clandestine clearance of the final product. They may relate to internal movement of goods, invoices may belong to repairing of the goods. Such documents cannot be held as the basis for concluding the allegation of clandestine removal against the appellants.
37. While dealing with the various contentions raised by the appellants, we find that Commissioner has dismissed the same by making very general observations that there is no rebuttal or proof submitted by the assessee by which they can negate the departments allegation of clandestine clearances by the manufacturing units. He has simplicitor observed that the recovery of incriminating documents showing clearances of Maharaja brand goods from the persons/premises concerned with the manufacturing units is sufficient to hold that the appellants have been engaged in actually manufacturing the goods in excess of recorded and clearing the same clandestinely.
38. It is a well settled law that charges of clandestine removal are required to be arrived at by production of positive and sufficient tangible evidences. It does not need the authority of judicial pronouncement to support the above legal issue. It is the Revenue who is making the allegation. Such allegations are being made only on the basis of some documents recovered from third persons premises. Even the author of such documents does not stands identified by the Revenue. The marketing company from whose premises the said documents stands recovered was itself not in existence during the relevant period. The Director of the company when confronted with the said documents has denied any knowledge of the same. The documents recovered from the premises of Shri Bhatia is only a despatch plan which indicate a target to be achieved and does not relate to actual manufacture and clearance. It has also come on record that marketing company was dealing with the goods of other manufacturers also. In the absence of any indication about the nature of the goods in the said document to hold that the same belongs to appellants goods, reliance on the same would be crossing all the limits of law of evidence. Having already held that the insufficient, incomplete documents, mentioning no details, having no reference to the appellants name or the goods manufactured by them and recovered from third persons premises cannot be made the basis for arriving at a finding of clandestine removal, we are of the view that the conformation of demand of duty against the manufacturing units cannot be upheld. In as much as we have already held in favour of the appellants on the above ground their other incidental submissions as regards duplication of the demand and adoption of higher value for the purpose of calculation of duty are not being advert. At this stage, we may deal with some of the precedent decisions relevant for the purposes. It stands held in many decisions that charges of clandestine removal cannot be upheld on the basis of collateral evidences like transporters documents or other file records, without bringing on record, the evidence of procurement of raw materials, the actual manufacture of goods and the actual clearance of same and the identify of buyers.
39. In the present case, we find that there is no recovery of any incriminating document from the appellants premises. The said documents which have been made basis for confirmation of demand stands recovered from the third party and cannot be made the basis part for clandestine removal. The authenticity of said document is in doubt as nobody has confirmed the same. Further, even though the names of the buyers were mentioned in the said documents, no efforts have been made by the Revenue to carry on the investigation at their end and to record their statements. In the absence of investigation said conducted from the buyers end, even though their names are available in the documents relied upon by the department, the charges of clandestine removal cannot be upheld. There has to be some corroboration to the allegations of clandestine removal. Admittedly, onus of proof is on the Revenue and can be shifted to assessee only when the assessee is confronted with such documentary evidences which indicate the clandestine activities on his part. We note that even the theory of preponderance of probability is not applicable in the present case in as much as we have virtually not found any document reflecting upon any clandestine activity on the part of the manufacturing unit. This has been the ratio of the various decisions relied upon by the appellants. In as much as it is established legal issue, we are not referring to such precedent decisions. In as much as in the present case, entire evidences relied upon by the Revenue is in the nature of unreliable documents not corroborative by any evidence material, we hold that the findings of clandestine removal cannot be upheld against the appellants.
40. The appellants in support of their submissions have relied upon following decisions to advance their pleas on each issue.
41. Though we find that the appellants have referred to various decisions of the judicial as also quasi judicial, we instead of referring to all of them, would like to refer the latest majority decision of the Tribunal in the case of M/s Kuber Tobacco Product P.Ltd., Final Order No.A-83/110/2010-EX(Br.), dtd. 03.02.12. While dealing with difference of opinion between two Members, the ld. third Member has taken into consideration the various decisions of the courts, including the effects of evidences collected from the third persons premises, the other documentary evidences collected during the course of investigations. It stands observed by the ld. third Member as under :-
26. It would be necessary to analyze whether the evidences, other than the retracted oral evidences, are credible for being used as corroborative evidence. The Honble Supreme Court in case of Sitaram Sao v. State of Jharkhand - (2007) 12 SCC 630, pithily encapsulated the idea of corroborative evidence, in the following words :
34.?The Word corroboration means not mere evidence tending to confirm other evidence. In DPP v. Hester - (1972) 3 All ER 10.16, Lord Morris said:
The purpose of corroboration is not to give validity or credence to evidence which is deficient or suspect or incredible but only to confirm and support that which as evidence is sufficient and satisfactory and credible; and corroborative evidence will only fill its role if it itself is completely credible....... There can be, therefore, no corroboration of evidence, which is itself unworthy of credence.
27. That, apart from these retracted oral evidence, the main evidence on which reliance is placed by the Revenue are the loose sheets, Hisaba books and Kaccha Challans. It is undisputed facts that any author of these records was not traced and made available for cross-examination. Moreover, these documentary evidence were not recovered from the office or factory premises of the appellant manufacturer company, and there is no tangible evidence on record to conclusively relate the same with the appellant manufacturer company, except the retracted oral evidence. There isnt any untainted, undisputed admission by the concerned Director of the company that these records relied by the department were of companys unaccounted production and removal thereof. The entire accounted production of the appellant manufacturer for the relevant period is not recorded in these Kachha records besides the alleged unaccounted production. The Honble Member (Technical) was persuaded to assume that Shri Bothra would have keys to premises at 4130, Gali Barna, Sadar Bazar, Delhi, and although Panchnama drawn at this premises nowhere records the name of the appellant company, he was persuaded to further assume that it was a guest house of the appellant company. Although the names of the consignors on GR/RR were found fictitious, the Honble Member (Technical) was persuaded to assume that the same related to the Appellant company. As rightly observed by the Honble President, even the panchnama did not describe or identifies in its annexure which enlists the documents stated to have been recovered from the premises, recovery of any hisaba book or Kachha Challans or loose sheets with written pages. I agree with the findings of the Honble President that entire proceedings have lost credibility and serious doubt arises about the credibility of the materials stated to have been collected by Revenue in the course of proceedings.
29. In the entire records of proceedings, there is no evidence to indicate that there was clandestine manufacturing. There is no independent tangible evidence on record of any clandestine purchases or receipt of the raw materials required for the manufacturing of the alleged quantity of finished goods for its clandestine removal from the factory. In the entire notice and the order there is no satisfactory and reliable independent evidence as regards the unaccounted manufacture and or receipt of the huge quantities of raw materials. The quantities of the alleged bags dispatched from the factory would require some transportation arrangement for delivery from the factory. However, any reliable evidence about any vehicle coming to or going out of the factory without proper entries is not forthcoming. There is also no cogent evidence about any freight payment for any such movement.
30. I do not find cogent evidence of disproportionate and unaccounted receipt and consumption of the basic raw materials and packing material, required for manufacturing alleged quantity of unaccounted finished goods. I do not find tangible proof of unauthorized payment for procuring such unaccounted raw material and packing material. I do not find cogent evidence of disproportionate power consumption, capacity utilization and labour employed, or any cogent evidence of clandestine manufacture of unaccounted quantity alleged as clandestinely removed. I find that unaccounted production in the factory of the appellant company has not been established. In Ruby Chlorates (P) Ltd. Versus Commissioner Of C. Ex., Trichy, 2006 (204) E.L.T. 607 (Tri. - Chennai), it was held that:-
21..The settled legal position is that when several raw materials are involved, when a case of clandestine production and clearance is built on clandestine use of raw materials, the same should be proven with reference to unaccounted use of all such major raw materials.
22. In a case of clandestine removal the department should produce positive evidence to establish the same. In the absence of corroborative evidence, a finding cannot be based on the contents of loose chits of uncertain authorship. Department has not produced evidence of use of inputs to prove that there was manufacture of unaccounted finished product. ... Moreover, in the case of Atlas Conductors (supra), this Tribunal has taken a clear view that the demand cannot be on presumption of manufacture but on the basis of actual manufacture which is the basis to come to conclusion as recorded by Honble President in para 47 onwards that the findings of the adjudicating authority are without any evidence and is not correct view and is liable to be set aside.
31. My above views are fortified by a recent case in the case of Viswa Traders Pvt.Ltd. & others Vs. CCE Vadodara being Final Order No.A/1846-1851/WZB/AHD/2011, dt.01.11.2011, a similar issue of clandestine removal was decided by co-ordinate Bench of Tribunal in Ahmedabad, wherein it is held that unless clandestine manufacturing is brought on record, there cannot be any allegation of clandestine clearances, un-corroborated with evidences. I was one of the Members in that Bench and while coming to the conclusion, the Bench had relied upon the judgment of Hon'ble High Court of Gujarat in the case of Nissan Thermoware Pvt. 2011 (266) ELT 45 (Guj.) I am reproducing the relevant portion of the said order, which is fortifying my view in this case also.
15. We find that Hon'ble High Court of Gujarat, in the case of Nissan Thermoware Pvt.Ltd 2011 (266) ELT 45 (Guj), has specifically held as under:
7.?Thus, on the basis of findings of fact recorded by the Tribunal upon appreciation of the evidence on record, it is apparent that except for the shortage in raw material viz., HD which was disputed by the assessee and the statement of the Director, there was no other evidence on record to indicate clandestine manufacture and removal of final products. On behalf of the revenue, except for placing reliance upon the statement of the Director recorded during the course of the search proceedings, no evidence has been pointed out which corroborates the fact of clandestine manufacture and removal of final products. In the circumstances, on the basis of the material available on record, it is not possible to state that the Tribunal has committed any legal error in giving benefit of doubt to the assessee. (Emphasis supplied) The above ratio, as laid down by Hon'ble High Court of Gujarat, would squarely cover the issue before us.
16. In the absence of any tangible evidence which would indicate that there was clandestine manufacture and clearance of the goods from the factory premises of M/s VTPL, in the peculiar facts and circumstances of this case, we hold that the impugned order which confirms the demand on the appellant M/s VTPL and imposes penalty on them is not sustainable and is liable to be set aside and we do so.
32. I also do not find tangible evidence of removal from factory, of unaccounted goods so manufactured, by loading from factory and transportation therefrom, of alleged clandestinely removed goods. I do not find any reliable evidence of the actual customer/recipient of the clandestinely removed goods with their confirmation of unauthorized payment towards unaccounted purchase of goods allegedly manufactured and removed in a clandestine manner from the factory of the appellant. There was no recovery of any unaccounted sales proceeds in substantial cash in the factory or office premises or anywhere else in the control of the appellant company, backed by any confirmation oral or written from the person giving such cash against goods removed in clandestine manner without payment of duty from the factory of appellant company.
42. The entire law on the issue of clandestine removal stands discussed in the above paragraphs and it stands concluded that charges of clandestine removal cannot be made on the basis of assumptions and presumptions and on the basis of documents recovered from third persons premises, without their being any evidence of actual manufacture of the excess quantity, which required corroboration of procurement of raw material, the labour as also electricity consumption etc. No efforts stands made by the Revenue to establish the excess manufacture of the goods in the present case. Having already discussed the various evidences relied upon by the Revenue as not being relevant and sufficient for the purpose of upholding the findings of clandestine removal and by following the above majority decision of the Tribunal in the case of M/s Kuber Tobacco Products P.Ltd., we hold that the confirmation of demand against the appellants on the allegation of clandestine removal is unsustainable.
UNDER VALUATION
43. Another issue required to be decided is as to whether the advertisement and publicity expenses incurred by M/s Technocrat Marketing are required to be added in the assessable value of the appellants final product or not? We find that though the issue stands decided by the Honble Supreme Courts decision in the case of M/s Phillips India reported in 1997(91)ELT540(SC), Commissioner has distinguished the same on the ground that it is only the legitimate business consideration, which should be excluded whereas expenses incurred by the marketing company on advertisement and publicity cannot be termed as legitimate. We do not find any justification in the above reasoning of the adjudicating authority. The marketing company was undertaking advertisement expenses on their own behalf and as such the issue is duly covered by the order of the Honble Supreme Court in the case of M/s Phillips India. The adjudicating authority had not at all dealt with the appellants plea that the expenses incurred by the marketing company was on its own account in as much as all the manufacturers were selling the goods to the marketing company at the factory gate sale price. Apart from the clearances to the marketing company, 20% of their sales were to the other independent buyers where the price was the same at which the goods were being sold to marketing company. In this scenario, we find that the advertisement expenses or publicity charges incurred by the marketing company cannot be included in the assessable value of the goods manufactured by the respective manufacturing units.
CONFISCATION OF SEIZED GOODS
44. Apart from above, we find that during the course of visit of officers in the factories of manufacturing units, various goods were also seized on the ground of their non-entry in the RG-I register. The details of the same are as under:-
Name of Co.
Description of goods No. of goods Value (Rs.) AEPL Washing machine De-hydration tank 115 386 3,85,078 34,740 DE-I Electric motors Mixer grinder 456 401 1,30,480 3,64,760 DE-II Motors 500 watts Motors 450 watts 226 75 84,290 KI Juice Extractor 450 watts Blender/ Grinder 369 33 2,72,840 8,899 KI Mixers 261 14,440
45. The appellants have taken a specific stand before the adjudicating authority that the said goods were in semi-finished condition and were yet to be recorded in the RG-I register, that is why some of the goods were only detained and not seized. We find while dealing with the said issue, the adjudicating authority has not dealt with the above plea of the appellants. He has accordingly confiscated the said goods seized from the premises of various manufacturers with an option to them redeem the same on payment of redemption fine. We find that the order of the Commissioner is very cryptic and does not taken into consideration the various pleas raised by the appellants. It seems that the order has been passed with pre-determined mind to confiscate the goods. The statements of various authorised representatives of the manufacturing units are only to the effect that the said goods were in excess than the recorded balance in the RG-I register. There is no statement appearing that the same were meant for clandestine removal. As such, we are of the view that the confiscation of the said goods is not warranted.
PENALTY
46. As we have held in favour of the manufacturing units on the ground of availability of benefit of Notification No.175/86-CE as also on the allegation and findings of clandestine removal and the inclusion of advertisement expenses in the assessable value, we set aside the demands confirmed against them on the said grounds. In as much as the demands have been set aside, the penalties imposed upon them under various provisions of Central Excise Act, 1944 and the Central Excise Rules are also set aside. Further in as much as the appeals of manufacturing units stands allowed, the imposition of penalties upon individuals, who are either Directors/Partners of the said units or Shri Hari Om Bhatia, C.A. and the dealers of the appellants company located at various places, is not called for, the same are also set aside.
47. In a nutshell, all the appeals are allowed with consequential relief to the appellants.
(Pronounced in the open Court on 04.05.2012)
(Archana Wadhwa) Member(Judicial)
(Mathew John)
Member(Technical)
RK-I
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