Custom, Excise & Service Tax Tribunal
Shri Bharat Shukla vs Bhopal on 2 January, 2019
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL,
WEST BLOCK NO.2, R.K. PURAM, NEW DELHI-110066
BENCH-SM
COURT - IV
Excise Appeals No. E/51309 & 50891/2018 [SM]
[Arising out of common Order-in-Appeal No. BHO-EXCUS-001-APP-
590-591-17-18 dated 22/01/2018 passed by the
Commissioner(Appeals), CGST & Central Excise, Bhopal]
Shri Bharat Shukla &
Shapers Industries Limited ...Appellants
Vs.
CGST, C.E. & C.C., Bhopal ...Respondent
Present for the Appellant : Mr. Anil Mishra, Advocate Present for the Respondent: Mr. S. Nunthuk, DR Coram: HON'BLE MRS. RACHNA GUPTA, MEMBER (JUDICIAL) Date of Hearing: 19.11.2018 Pronounced on : 02.01.2019 FINAL ORDER No. 50001-50002/2019 PER: RACHNA GUPTA Present Order disposes of two separate Appeals. With respect to the same SCN and same adjudication however pertaining to the Company and its Director, the facts relevant for the purpose are as follows:
The appellants are engaged in manufacture of TMT Bars and mis-
rolls which are generated during manufacture of TMT Bars. Upon an intelligence the officers of Directorate General of Central Excise Intelligence, Bhopal conducted the simultaneous search of the factory premises of M/s Shapers Industries Limited and that of the office premises of Shri Bharat Shukla, the Director of the said Company on 01.06.2016. The incriminating documents were ceased and the Panchnama dated 01.06.2016 was prepared. After taking the physical stock of finished goods and comparing them to the stock 2 E/51309 & 50891/2018 [SM] declared by the officers of the appellant, the Department observed the following stock viz-a-viz physical stock position:
Sl. Description Stock entered Actual stock Stock found Value of stock found No. of Goods in Daily as per in excess in excess (Approx.) Production physical register (RG-I) verification 1 TMT Bars 1702.235 MT 2456.000 MT 753.765 MT Rs. 1,95,22,513.50 2 Mis-rolls 87.005 MT 98.000 MT 10.995 MT Rs. 1,99,009.50 Resultantly, a SCN No. 3718 dated 28.11.2016 was served alleging the clandestine clearance of goods during the month of February to May 2016 and proposing the aforesaid seized stock to be confiscated under provisions of Rule 25 of Central excise Rules 2002 with the imposition of redemption fine in view of the said confiscation and the penalty under Rule 25 of Central Excise Rules, 2002 was also proposed. The said SCN was initially adjudicated by Assistant Commissioner vide Order No. 11 dated 29.09.2017. Being aggrieved an Appeal before Commissioner(Appeals) was filed who vide Order under challenge i.e. one bearing No. 427 dated 22.01.2018 has upheld the demand thereby rejecting the Appeal. Resultantly, the Appeals are before this Tribunal.
2. I have heard Mr. Anil Mishra, Ld. Advocate for the appeallant and Mr. S. Nunthuk, Ld. DR for the Department.
3. IT is submitted that the adjudicating authority below has passed the Order based on presumption and surmises as there is no other evidence on record proving the alleged clandestine removal of the finished goods of the appellant. It is submitted that Panchnama itself is vitiated for want of the witnesses proving the same. No opportunity of cross examination of panchas witnesses was given to the appellants. The appellant has relied upon C.C.E., Raipur vs. Devi Iron & Power Ltd. 2015 (12) TMI 68 (Tri.-Del.). It is further submitted that the statement of Shri Bharat Shukla has only 3 E/51309 & 50891/2018 [SM] been relied upon alleging the same as the admission. On the contrary, there is no admission qua the excess stock allegedly found on 01.06.2016. Otherwise also, Rule 25 and Rule 26 cannot be invoked merely on the basis of admission Abu cement and others Vs. C.C.E., Indore 2018 (3) TMI 339 is relied upon. In addition, it is submitted that the physical verification of these stock is based on estimation of apparent volume. It has specifically been stated by Shri Suresh Sharma that there may be a variation from 3-3.5 MT in such estimation. It is impressed upon that such variation may result into an erroneous determination to the extent of more than 16%. Finally impressing upon the violation of principles of natural justice the order under challenge is prayed to be set aside. Appeals are prayed to be allowed.
4. While rebutting these arguments, it is submitted on behalf of the Department that the Department had recovered incriminating documents during the simultaneous search of the factory as well as the office premises of the appellants. Resultantly, the alleged difference in stock quantity was noticed. The Director of appellant in his statement dated 01.06.2016 / 10.06.2016 has admitted the noticed shortcoming. Since, the same amounts to admission on the part of the appellant there was no further onus of the Department to prove the alleged clandestine removal. Finally justifying the Order the Appeals in hand are prayed to be dismissed.
5. After hearing both the parties and perusing the entire record, I observe that the adjudicating authority has confirmed the proposed confiscation of the stock and the penalties on the Director of the appellant Company on the ground of unaccounted production and clearances being evidenced by the categorical admission of the 4 E/51309 & 50891/2018 [SM] Director and Supervisor of the appellant Company. Also on the ground that there were parallel invoices of same number but different consignees as seized alongwith the goods. It was also held that mensrea is not at all required to invoke Rule 25 and Rule 26 of Central Excise Rules. To adjudicate as to whether these findings are reasonable, the impugned Rules have to be looked into:
Rule 25 of Central Excise Rules 2002 defines as under:
(1) Subject to the provisions of section 11AC of the Act, if any producer, manufacturer, registered person of a warehouse or a registered dealer, -
(a) Removes any excisable goods in contravention of any of the provisions of these rules or the notification issued under these rules; or
(b) Does not account for any excisable goods produced or manufactured or stored by him; or
(c) Engages in the manufacture, production or storage of any excisable goods without having applied for the registration certificate required under Section 6 of the Act; or
(d) Contravenes any of the provisions of these rules or the notifications issued under these rules with intent to evade payment of duty, Then, all such goods shall be liable to confiscation and the producer or manufacturer or registered person of the warehouse or a registered dealer, as the case ay be, shall be liable to a penalty not exceeding the duty on the excisable gods in respect of which any contravention of the nature referred to in clause (a) or clause (b) or clause (c) or clause
(d) has been committed, or [rupees tow thousand], whichever is greater. (2) An order under sub-rule (1) shall be issued by the Central Excise Officer, following the principles of natural justice.
Rule 26 of Central Excise Rules 2002 defines as under: (1) 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 these rules, shall be liable to a penalty not exceeding the duty on such goods or two thousand rupees, whichever is greater.
(2) Any person, who issues -
(i) An excise duty invoice without delivery of the goods specified therein or abets in making such invoice; or
(ii) Any other document or abets in making such document, on the basis of which the user of said invoice or document is likely to take or has taken any ineligible benefit under the Act or the rules made 5 E/51309 & 50891/2018 [SM] there under like claiming of CENVAT credit under the Cenvat Credit Rules, 2004 or refund, shall be liable to a penalty not exceeding the amount of such benefit or five thousand rupees, whichever is greater.
Bare reading of these provisions makes it clear that the confiscation and penalty can be imposed subject to the provisions to Section 11AC of Central Excise Act, 1944 i.e. first of all it need to be seen as to whether the act of the appellant are that of fraud, collusion, wilful misstatement suppression of fact or any contravention of the provisions of law and that too with an intention to evade duty. Hon'ble High Court of Delhi in the case Commissioner of Central Excise Vs. Ganpati Rolling Pvt. Ltd. 2016 (338) ELT 587 has held :
9. The opening words of Rule 25 is "Subject to the provisions of section 11ac of the ce act" and not an non-obstante clause which would have begun with the words "Notwithstanding the provisions of section 11ac of the ce act". It is plain that the CE Rules are subordinate legislation and have to abide the discipline of the statute under which they are made. Where Rule 25(1) expressly begins with "Subject to the provisions of section 11ac of the ce act", obviously the requirements of Section 11AC will have to constitute a condition subject to which the power under Rule 25 can be exercised. Rule 25 of the CE Rules itself came up for interpretation before the Gujarat High Court in Saurashtra Cement Ltd. (supra) wherein para 17 it was observed as under:
"17. It is also to be borne in mind that Rule 25 starts with the word "Subject to the provisions of Section 11AC.....". Section 11AC of the Central Excise Act deals with penalty for short levy or non-levy of duty in certain cases. It says that where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded by reasons of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the Rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under sub-section (2) of section 11ac, shall also be liable to pay a penalty equal to the duty so determined. For the purpose of invoking Section 11AC of the Act, the condition precedent is that the duty has not been levied, or paid or short-levied or short-paid or the refund is erroneously granted by reasons of fraud, collusion or any wilful misstatement or suppression of facts. If these ingredients are not present, penalty under Section 11AC cannot be levied. Since Rule 25 can be invoked subject to the provisions of Section 11 AC of the Act, as a natural corollary, the ingredients mentioned in Section 11AC are also required to 6 E/51309 & 50891/2018 [SM] be considered while determining the question of levying of penalty under Rule 25 of the Central Excise Rules."
10. In other words, if the ingredients of Section 11AC are not shown to be fulfilled, the penalty under Section 11AC cannot be levied. Therefore, given the wording of Rule 25 of the CE Rules, the ingredients mentioned in Section 11AC have to be considered before determining the question of penalty. In the instant case it is not in dispute that the show cause notice („SCN‟) made no reference to Section 11AC and, therefore, there was no occasion to adjudicate the issue of imposition of the penalty under Section 11AC of the Act.
Thus, it becomes clear that the Commissioner(Appeals) has committed an error while holding that mensrea is not required to Order confiscation under Rule 25.
6. Now coming to the aspect as to whether the documents recovered vide Panchnama dated 01.06.2016 and the statements of the Company's Director allegedly being an admission are sufficient for proving the alleged clandestine removal. It is observed that:
A Panchnama is a record of the things visually perceived or actually experience by the panchas in the course of investigation. If it is a search Panchnama, obviously, it should record everything that takes place in the course of search. Mere recording that the search officers offered for search of their person is not sufficient. In relation to the seizure of documents, it was necessary not only to record that the document were recovered from the premises but was also necessary to record a brief description of the exact place from where the documents were located in the premises and from where they were seized by the seizing officer. It was necessary to record as to what steps the seizing officer had taken so as to refrain himself and persons accompanying him from causing any damage to the documents as also to avoid any interpolation or inference in any manner with such documents and contents thereof. It was also necessary to record as to what steps were taken to safeguard the documents and to avoid possibility of any stranger interference with the seized materials. In other words, when any document is seized, it necessary to enclose the same in a cover and to seal such cover so that no other person gets opportunity to interfere with such document. All these things can of course be recorded briefly, but precisely. This aspect gains more importance once there is objection regarding veracity of the panchanama and the contents of the documents stated to have been seized in the course of such panchanama. A Panchnama should disclose proper description of the premises and the things found in the premises. The information in this regard assumes more importance when there is serious dispute about the articles 7 E/51309 & 50891/2018 [SM] alleged to have been recovered and seized from such premises and such articles are sought to be linked with the activities of the concerned party. The Panchnama and the proceedings in relation thereto should not leave any room to entertain any doubt as such and for the possibility of planting any article and/or document by third person or of the scope for interference by strangers with the documents or contents thereof. Obviously, therefore, any article or document seized from any premises is required to be properly sealed after being packed with necessary wrapper or envelope or covering, as the case may be, so as to avoid any possibility of third party interference with such article or document. In the absence of such steps being taken in the course of seizure of the articles or documents, certainly the credibility of not only of the seizure and recovery but of the material seized and recovered can also be doubted. I is also necessary to record not only the description of the premises but also the movement of the officers and the panchas searching the premises and every relevant action of every such person has to be precisely recorded in the Panchnama to avoid any doubt about the seizure proceedings. None of such precautions were taken in the cases in hand.
Though mere irregularity and even illegality in case of search and seizure cannot by itself render the documents seized in the case of such search or seizure to be inadmissible in evidence but the fact of the present case is that the Panchnama merely records that the officers on search found certain records which does not give the description of so called record except saying that the same are described in the annexure to SCN. All this information was absolutely necessary to give credibility to the Panchnama particularly when the entire proceedings in that record are sought to be challenged and disputed and also particularly when the permission to cross examine the witnesses of Panchnama was sought however was not granted for. The Hon'ble Apex Court in the case of Andaman Timber Industries Vs C.C.E. Kolkata 2015 (324) ELT 641 (S.C.) has held that when the appellant has contested the truthfulness of the statements of the witnesses with a view discredit their testimony by way of cross examination the denial thereof by the adjudicating authority and mere reliance upon certain documents is not justified.
The Hon'ble Apex Court held that it was not for the adjudicating 8 E/51309 & 50891/2018 [SM] authority to presuppose as what could be the subject of cross examination. In absence of such opportunity the statement of witnesses is not worth reliance.
7. Further basis of confirming the confiscation has been the evidence as that of eye estimation for determination of stock but it has been a settled principle that the allegations of clandestine removal of eye estimation is not correct. I draw my support from the decision of Tribunal Mumbai in the case of Nilesh Steel and Alloys Pvt. Ltd. Vs. CCE, Aurangabad 2008 (229) ELT 399. This Tribunal also in the case of Shri Ganesh Alloys Vs. Chandigarh 2016 (337) ELT 595 wherein it was held that since the excess of stock was found merely on eye estimation and no physical stock taking or done the allegation of excess stock found and that the same has not been recorded in the statutory record were held not sustainable.
8. Finally, qua the alleged admission of the Director of appellant, I am of the opinion that allegations of clandestine removal are serious in nature and the clandestine activities are quasi criminal hence the revenue alleging the same is required to prove it by sufficient corroborative evidences. The Principle Bench, CESTAT in the case of Raj Ratan Industries Vs. CCE Kanpur 2013 (298) ELT 111 has held that the shortage detected at the time of visit of officers cannot admittedly lead to the findings of clandestine removal in absence of the evidences. It was also clarified that even if at the time of visit of officers, the appellant accepts the shortages but the said acceptance cannot be considered as acceptance of clandestine removal of finished goods by the appellant. In the present case also, the only contention of the Revenue is that the excess stock was 9 E/51309 & 50891/2018 [SM] admitted by Shri Bharat Shukla Director of the appellant however I observe that there is nothing on record to show that the officers of revenue had done anything for the weightment of the stock as arrived by them. They have not even produced any inventory to show that the stock was physically verified by them. Nor it is the case of the Revenue that the alleged excess stock was not entered in the RG Register deliberately and with malafide intent to remove goods clandestinely.
9. Per contra, the perusal of the statement of Shri Bharat Shukla makes it apparently clear that there seems some lacuna in the invoice however no finished goods has been cleared from his factory without making payment of the duty. He has also stated that whatever lacuna in the invoice was brought to his notice, the deficiency thereof has already been made good. He has also reflected his cooperation to the fact that he is still ready to make further payment if any is required. Such acknowledgement to my opinion cannot be fastened with the grave allegations of intentional malafide removal of the finished goods to cause loss to the Revenue Exchequer. As already said above that it was for the Department to prove by the cogent corroborative evidence, mere acceptance of excess at the time of visit of the officers by itself cannot be held to be a conclusive proof. Also the mere fact that excess finished goods found in the factory by itself cannot be held to be a ground to attribute any evidence to the asessesse so as to lead to the conclusion of malafide. The law stands settled as of now that the goods cannot be confiscated on the mere conclusion of non entry of the goods in the statutory documents unless there is evidence that such stock was not entered in RG-I Register either deliberately or on the malafide intention to remove the same clandestinely. I draw my 10 E/51309 & 50891/2018 [SM] support from the decision of this Tribunal in the case of Salesar Steel and Power Ltd. Vs. C.C.E. Bilaspur 2016 (9) TMI 890. Finally relying upon the decision of Hon'ble Punjab & Haryana in the case of C.C.E., Jalandhar Vs. Indo-German Fabs 2007 (209) ELT 184 relying upon the decision of Hon'ble Supreme Court in the case of Hindustan Steel Ltd. Vs. State of Orissa 1978 (2) ELT 1159 wherein it was held that the element of mensrea is normally required to be shown for imposition of penalty and where the Department has failed to prove the said element of mensrea no case is made out to impose penalty.
10. In view of entire above discussion, I hereby hold that the findings of adjudicating authority for the confiscation of the impugned stock and the imposition of the penalty upon Mr. Bharat Shukla are the findings without any basis and without any cogent and corroborative evidence. The said findings are therefore set aside. Both the Appeals resultantly, stand allowed.
[Pronounced in the open Court on 02.01.2019 ] (RACHNA GUPTA) MEMBER (JUDICIAL) D.J.