Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise vs Unknown on 15 September, 2011
IN THE ,CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, FKCCI COMPLEX, K.G. ROAD,
BANGALORE 56009.
DATE OF HEARING : 15/9/2011
DATE OF DECISION : .
Central Excise Appeal No. 69, 70, 559, 825 & 826 of 2008
(Arising out of the Orders-in-Original No. 14/2007 dated 28.09.2007 and No. 11/2008 (Denovo) dated 27.3.2008, both passed by the Commissioner of Central Excise, Bangalore-II Commissionerate
For approval and signature:
Honble Shri P. G. Chacko, Member (Judicial)
Honble Shri M. Veeraiyan, Member (Technical)
1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No
2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not ? Yes
3. Whether Their Lordships wish to see the fair copy of the Order? Seen
4. Whether Order is to be circulated to the Departmental authorities? Yes
M/s Trishul Arecanut Granules
Pvt. Ltd. & Others
Versus
Commissioner of Central Excise,
Bangalore.
Appellants
Respondent
Appearance
Mr. K. Parameswaran and Ms. Amudha, Advocates for the appellants
Mr. P. R. V. Ramanan, Special Counsel for the Respondent.
CORAM : Honble Shri P. G. Chacko, Member (Judicial)
Honble Shri M. Veeraiyan, Member (Technical)
ORDER No..Dated /2011
PER VEERAIYAN
1.1 Appeal No. E/559/2008 is by M/s. Trishul Arcanut Granules Pvt. Ltd. (TAG for short) challenging confiscation of goods ( allowed to be redeemed on payment of fine of Rs.50,000/-), demand of duty of Rs.2,85,634/- and penalty of Rs.50,000/- imposed on them.
1.2 Appeal No.E/825/2008 is by M/s. Wahab Stores against imposition of penalty of Rs.10,000/-.
1.3 Appeal No.E/826/2008 is by Shri Prabhu Deva of M/s. Embee Agencies against imposition of penalty of Rs. 20,000/-
( The above three appeals arise out of common Order-in-Original No. 11/2008 (Denovo) dated 28.4.2008 by the Commissioner passed in pursuance of show-cause notice dated 17/12/2005.)
1.4 Appeal No.E/69/2008 is by TAG against demand of duty of Rs.4,29,95,446/- along with interest and imposition of penalty of equal amount under Section 11AC and further penalty of Rs.42 lakhs under Rule 25 of the Central Excise Rules, 2002 by the Order-in-Original No.14/2007 dated 28/9/2007 passed by the Commissioner.
1.5 Appeal No.E/70/2008 is by Shri H.S. Nataraj, Managing Director of TAG challenging the penalty of Rs.5 lakhs imposed under Rule 26 of the Central Excise Rules 2002 by the order No. 14/2007 dated 28/9/2007 passed by the Commissioner.
1.6 All the above five appeals arise out of common investigation, involve common evidences and also a common appellant and therefore, are being disposed of by this common order.
2. Heard Shri K. Parameshwaran assisted by Ms. Amudha for the appellants and Shri P.R.V. Ramanan, Special Counsel for the Department. The matter was heard extensively on 8/9/2011, 14/9/2011 and 15/9/2011. Both sides have filed written submissions / additional submissions in the course of hearings.
3.1. TAG is a manufacturer of gutkha (with brand name Super Gem/Siddu) falling under chapter sub-heading 2404.49 of Central Excise Tariff Act, 1985.
3.2. The relevant facts, in brief, are that in pursuance of intelligence that TAG were manufacturing and clearing excisable goods clandestinely by suppressing the production, simultaneous searches of the premises of the two factories of TAG, M/s. Embee Agencies, (C&F Agent of TAG), dealers, suppliers of raw materials/packing materials/consumables like printed laminated plastic film, tobacco, katha, essence, cotton canvass bag, and diesel were undertaken on 20/6/2005. During search operation consignments of gutkha were seized from some of the premises and documents were recovered.
3.3 During the course of investigation, statements of Shri H.S. Nataraj, Managing Director, statements of Shri Nemichand Agarwal of Divya Enterprises who supplied cotton canvass bags, statements of traders, statement of Managing Partner of Embee Agencies were recorded.
3.4 A show-cause notice dated 17/12/2005 was issued answerable to the Asst. Commissioner proposing confiscation of 9,19,030 numbers of gutka pouches valued at Rs.4,59,515/- (after allowing 50% abatement on the MRP value of Rs. 9,19,030/-) manufactured and cleared by TAG and seized from different premises and proposing demand of duty of Rs.2,85,634/- and proposing imposition of penalties on TAG, Embee Agencies and four other traders. Subsequently an amendment dated 2.3.2007 was issued directing the noticees to reply to the Commissioner instead of to the Asst. Commissioner.
3.5 After further examination of records and further investigation including an experiment regarding production capacity (conducted on 30/12/2005), a show-cause notice dated 31/1/2007 proposing demand of duty of Rs.4,29,95,443/- from TAG and proposing imposition of penalties on TAG and the Managing Director of TAG was issued.
3.6 In pursuance of show-cause notice dated 17/12/2005, duty of Rs.2,85,634/- along with interest stands demanded; the goods valued Rs.4,59,515/- stands confiscated but allowed to be redeemed on payment of fine of Rs.50,000/-. Penalties of Rs.50,000/- on TAG, Rs.20,000/- on M/s Embee Agencies. Rs.10,000/- on M/s. Prakash Stores, Rs. 10,000/- on M/s. Wahab Stores, Rs.1000/- on M/s Amud Stores and Rs.3000/- on M/s Veerbadrappa & Sons stand imposed. Against this Order-in-Original, appeals stand filed by three parties viz. TAG, M/s Wahab Stores and M/s. Embee Agencies.
3.7 In pursuance of show-cause notice dated 31/1/2007, duty of Rs.4,29,95,446/- along with interest stands demanded and penalty of equal amount under Section 11AC and further penalty of Rs. 42 lakhs under Rule 25 of the Central Excise Rules, 2002 stand imposed. A penalty of Rs.5 lakhs stands imposed on Shri H.S. Nataraj, Managing Director of TAG under Rule 26 of the Central Excise Rules 2002.
4. The learned Advocate for the appellants assails the orders of the Commissioner on various grounds. The important grounds can be summarized as follows:-
a. Allegations that huge quantities of raw material were purchased form M/s. Sanjay Enterprises and the same were not accounted in the books of account of TAG are not correct. The bills recovered from Sanjay Enterprises, Pune were in the name of Shri Lingaraju, Ex. Director of the Company who relinquished as Director before the date on which bills were raised and in the name of Shri Amitbhai an employee of TAG. No statements of representative of M/s Sanjay Enterprises, Shri Lingaraju and Shri Amitbhai have been recorded. Under these circumstances, it is merely an assumption that the purchases made from said Sanjay Enterprises, Pune were meant for TAG.
b. The purchase of arcanut amounting to 3,256.50 kgs. relating to the period 31/12/2004 to 31/3/2005, though admitted, does not imply that the same have been used in the manufacture of unaccounted production of gutkha.
c. The finding that 28,112 bags were purchased from Divya Enterprises during the period August, 2004 to January, 2005 merely based on certain private records seized from Divya Enterprises, Delhi and based on the statement of Shri Nemichand Agarwal of the said party is not valid. The M.D. of TAG has only admitted to the purchase of small quantities of bags without bill. Relying on the evidence procured from Divya Enterprises and relying on the statement of Shri Nemichand and that too without offering cross-examination of the said Nemichand is clearly not permissible. It has been presumed that the bags purchased from said Divya Enterprises have been used for clandestinely removing gutka manufactured by TAG. No evidence for substantiating the said allegation has been relied upon. Further it has been presumed that every bag has been used to transport clandestinely 3,500 pouches whereas as per the statement of the M.D., each bag can be used only for transport of 3000 pouches.
d. In para 32 of the Order-in-Original, it has been stated that 3 out of 4 consignments of tobacco pathi procured from M/s. Sanjay Enterprises were not accounted. However, para 34 of the said order clearly indicates that 3 out of the 4 tobacco pathi consignments mentioned in invoices stand accounted. Only 1750 kgs. of tobacco pathi covered by invoice dt. 21/3/2004 was not found accounted.
e. Diesel was alleged to have been purchased for running D.G. sets without accounts on the basis of statement of a cashier of M/s. Arun Agencies. The purchases were in the name of M/s. GMS and no evidence has been adduced that the said purchases were actually meant for use of TAG.
f. The entire demand has been confirmed merely based on alleged procurement and usage of raw materials, packing materials without the same being accounted in the books of accounts. However, no direct evidence of any goods having been cleared has been adduced.
g. The admission statement of the Director regarding non-accountal of arecanut for a few months and purchase of small quantities of bags without bills and admission for clearing small quantities of samples without payment of duty cannot be treated as admission about the quantities arrived at by the Department as clandestinely removed based on assumptions and presumptions.
h. The finding of unaccounted production based merely on one raw material or one packing material without letting in any evidence of procurement of other major raw materials required for production of gutkha cannot be sustained.
i. The demand was proposed adopting 3 different methods as per the show-cause notice. However, the entire demand has been confirmed based on capacity of production and based on formula given by the Managing Director. Mere presence of pouching machines cannot lead to the conclusion that the same were actually put to use for manufacture of pouches of gutkha.
j. TAG was selling their products only through M/s. Embee Agencies. Dealers were buying only from Embee Agencies and not directly from TAG. Seizure of goods from the dealers which were presumed to have been received without bills or not corresponding to particulars with bills produced cannot lead to a presumption that the said goods have been removed from the factory premises of TAG. There was no excess raw material or finished products seized from the factory premises of TAG during the search operations. In the absence of any direct evidence indicating clearance of any unaccounted final products from TAG, the demand raised is not sustainable.
k. Further, the show-cause notice dated 17/12/2005 and subsequent show-cause notice dated 31/1/2007 rely upon substantially the same evidence. Therefore, issuance of show-cause notice dated 31/1/2007 invoking extended period of limitation demanding duty relating to the period April, 2002 to 19/6/2005 is clearly time barred. In this regard, he relies on the following decisions:-
(i) Nizam Sugar Factory Vs. CCE 2006(197 ELT 465
(ii) ECE Industries Ltd. Vs. CCE 2004(164) ELT 236.
(iii) Orissa Bridge & Construction Corporation Ltd. Vs. CCE -2011(264) ELT 14.
(iv) Neyveli Lignite Corporation Ltd. Vs. CCE 1992(58) ELT 76.
4.2 The learned advocate relied on several other decisions of the Tribunal/High Court/Supreme Court in support of his other submissions and the important of the decisions are as follows:
(i) Radheshyam Kanoria Vs. Commissioner of Central Excise, Thane-II reported in 2006 (197) E.L.T. 130 (Tri.-Mumbai)
(ii) Vidya Laminates Pvt Ltd. Vs. Commissioner C. Ex., Ahmedabad-II reported in 2006 (197) ELT 260 (Tri.-Mumbai)
(iii) Commissioner of C. Ex. Vs Vidya Laminates Pvt. Ltd. [2007 (211) ELT 382 (Guj.)]
(iv) Kedarnath Silk Mills Vs. CCE, Hyderabad [2006 (195) E.L.T. 58 (Tri.-Bang.)]
(v) Gian Mahtani Vs. State of Maharashtra reported in 1999 (110) ELT 400 (S.C.),
(vi) Abba Rubbers Vs. Commissioner of C.Ex., Cochin [2006 (193) ELT 471 (Tri.-Bang.)]
(vii) J.A. Naidu, etc. etc. Vs. State of Maharashtra reported in 1983 (13) ELT 1611 (S.C.)]
(viii) Commissioner of C. Ex., Tirunelveli Vs. Supreme Fire Works Factory, Sivakasi reported in 2004 (163) ELT 510 (Tri.-Chennai)
(ix) Commissioner of C. Ex. (Appeals), Hyderabad Vs. Reddys Laboratories Ltd. [2006 (200) ELT 445 (Tri.-Bang.)]
(x) Sharon Veneers Vs. Commissioner of C. Ex., Chennai reported in 2002 (146) ELT 655 (Tri.-Chennai)
(xi) Commissioner of Customs, Calcutta Vs. South India Television (P) Ltd. reported in 2007 (214) ELT 3 (S.C.)
(xii) Sapthagiri Cements Pvt. Ltd. Vs. Commissioner of C. Ex., Visakhapatnam [2005 (183) ELT 385 (Tri.-Bang.)]
(xiii) T.G.L. Poshak Corporation Vs. Commissioner of C. Ex., Hyderabad [2002 (140) ELT 187 (Tri.-Chennai)]
(xiv) Chawla Enterprises Ltd. & Ors. Vs. CCE, New Delhi and Vice Versa [2004 (61) RLT 982 (CESTAT-Del.)]
(xv) Commissioner of Customs, Kandla Vs. Dimple Overseas reported in 2005 (190) ELT 58 (Tri.- Mumbai)]
5.1 The learned Special Counsel supporting the orders of the Commissioner made the following submissions :
(a) TAG was regularly purchasing raw materials like arecanut, tobacco pathi, khatar, lime, packing materials such as multilayer laminated plastic films and canvas bag and diesel for generation of electricity and was not accounting substantial quantities in the statutory records; for such unaccountal purchases, payments were made in cash. Such purchases are evident from documents recovered from M/s Sanjay Enterprises, Pune (from whom kimam, tobacco pathi, blend, methnol and mix blend were purchased), M/s Montage Enterprises, Jammu (from whom multilayer laminated plastics films were purchased), M/s Arun Agencies (from whom petroleum products were purchased), M/s Divya Enterprises (from whom canvas bags were purchased). Such unaccounted purchases were also evident from entries made in an Exercise Note Book titled Adike Pustaka and also entries made in one small note book titled BNV recovered from the premises of the appellant, TAG.
(b) Unaccounted sale of materials have been admitted by the suppliers as in the case of M/s Arun Agencies, M/s Divya Enterprises, etc. The M.D. himself has admitted unaccounted purchase of raw materials/packing materials.
(c) The Managing Director of TAG had himself admitted that during a month as against production on 14 to 16 days, only two or three days production of gutkha was being accounted for in the statutory records and the rest was cleared without payment of Central Excise duty. The M.D. admitted to the above modus operandi as being followed due to stiff market conditions.
(d) From the premises of five dealers unaccounted gutkha valued about Rs. 8,99,281/- were seized and the said dealers have admitted receiving them without bills and on payment of cash.
(e) TAG has apparently destroyed private records to cover up the clandestine activity.
(f) The experiment conducted on 30.12.2005 in the presence of M.D. revealed that each packing machine was capable of packing 68 to 70 pouches per minute.
(g) The M.D. himself, in his statement, given the proportion of raw materials required for manufacture of gutuka as
Arecanut 78.4%, Tobacco 10%, Katha 6%,
Lime 2.8%, Essence 2.8%.
(h) Since TAG has not maintained the records properly and since private records were apparently destroyed, the department had to follow different methods for determining the quantum of duty evaded. However, the duty calculations have been based on relevant parameters provided by the M.D. of the company and based on experiments conducted in his presence.
(i) The statements of the M.D. and other persons concerned have not been retracted.
5.2 The learned counsel further submitted that the degree of proof required in any adjudication proceedings should be preponderance of probability and not beyond reasonable doubt. In this regards, he referred to the following decisions :
(i) Maharashtra State Board of Secondary and Higher Education Vs. K.S. Gandhi & Ors. [1991 2 SCC 716]
(ii) Rishi Kesh Singh Vs. The State (AIR 1979 All 51 at 90]
5.3 In respect of his other submissions, he relied up on the following decisions :
(i) Gulabchand Silk Mills Pvt. Ltd. [2005 (184) ELT 263]
(ii) CCE, Surat Vs. Neminath Fabrics Pvt. Ltd. [2010 (256)ELT 369 (Guj.)]
(iii) CCE, Chandigarh Vs. Sahara Steel Rolling Mill [2008 (224) ELT (307)]
(iv) Commissioner of C. Ex., Mumbai-V Vs. Champion Confectionery [2010 (262) ELT 865 (Tri.-Mumbai)]
6.1 We have carefully considered the submissions from both sides and perused the records. In this case, TAG has accounted during the period from 1.4.2002 to 19.6.2005 totally 32,25,500 pouches of gutkha. However, the department has treated the production as 13,41,48,000 pouches during this period and demanded duty over Rs. 4 crore on differential quantity of 13,09,22,500 pouches.
6.2 The production determined by the department is more than 40 times of the production accounted. Is it a case of evasion of unprecedented scale or is it a case of production arrived at by the department based on fanciful assumptions and presumptions?
6.3 To find answer to the above, we proceed to analyze whether the company had capacity to produce the quantity alleged to have been produced and cleared, whether there are evidences regarding procurement of unaccountal raw materials, suppression of production, and clandestine removal. If so, whether the duty demand has been correctly made with attendant consequences.
Capacity of Production
7.1 An experiment conducted in presence of the M.D. of the company on 30.12.2005 indicated that the production of a packing machine per minute was 68 to 70 per minute. This fact is not being disputed on behalf of the appellants.
7.2 The Managing Director, in his statement dated 24/6/2005, admitted that as against production of 14 to 16 days per month only production of two or three days was being accounted in the statutory records. As per this version, only about 1/7 of the production was being accounted that too on the assumption that they were working only on 14 to 16 days in a month.
7.2 Having noted the capacity of each machine, it is relevant to note the number of machines which were in the possession of TAG during the relevant period. It is claimed that during the period 1.4.2002 to 19.10.2004 number of machines in their possession was 10. They have added two machines in October 2004, and five machines during the short period of 1.11. 2004 to 14.11.2004 taking the number of machines to 17. From 15.11.2004 to 19.6.2005, with the addition of one more machine the number of machines went upto 18. In other words, during the entire period, the number of machines went up from 10 to 18.
7.3 That is not the end of the story! TAG has put up an additional unit known as unit II and they were having four machines during the period 15.11.2004 to 31.3.2005 and added five more machines and the number of machines in the possession of Unit-II was nine during the period 1.4.2005 to 19.6.2005.
7.4 It is possible that they might have started the factory with 10machines in anticipation of demand and could not utilize the machine and produce to their capacity. If that was the situation, one fails to understand the addition of large number of machines and starting of an additional unit.
7.5 In other words, what they have accounted during three years and three months could have manufactured by a single machine, they have starting from 10 machines in one unit have increased the number of machines to 27 machines in two units as duly recorded in Para 53 of the order of the Commissioner. Persistent queries from the Bench did not produce any satisfactory explanation for the number of machines which was in their possession and for the substantial and periodical increase in the number of such machines. We are not able to believe that these additions made for ornamental purpose!
7.6 Therefore, we have no hesitation to conclude that their capacity of production is manifold when compared to their accounted production.
Procurement of raw materials/packing materials/consumables
8.1 Documents recovered form M/s Sanjay enterprises indicated supply of kimam, tobacco pathi, methnol and mix blend. It is claimed that the bills were in the names of Shri Lingaraju, Dirctor of TAG and Shri Amitbhai, a sales representative of TAG at Delhi. It is not disputed that TAG was purchasing these materials from M/s Sanjay Enterprises, Pune. In fact, it has been claimed on behalf of TAG that out of four consignments covered by four bills issued by M/s Sanjay Enterprises, three of them were found accounted and only 1750 Kgs of Tobacco pathi covered by an invoice dated 21.3.2004 was not accounted. This admission clearly shows that they were purchasing from M/s Sanjay Enterprises and not accounting the purchases fully and correctly. Shri Lingaraju, Director of the company might have resigned but, it is not disputed that the bills in the name of Shri Lingaraju contained the address of TAG below the name Shri Lingaraju. Further it is seen that some of the bills were in the name of Shri Amitbhai, sales representative of TAG. It is not the case that Amitbhai, sales representative has left the company during the relevant period. When the M.D. in his statement dated 5.9.2005 admitted to procuring raw materials from M/s Sanjay Enterprises and payment being made in cash through Shri Amitbhai, the claim that these goods were not received by TAG cannot be accepted. Incidentally, there is no accounting of any materials purchased from M/s Sanjay Enterprises for the year 2002-03.
8.2 Purchase of 3256.50 kg of arcanut made during a period of three months (31.12.2004 to 31.3.2004) as found entered in Adike Pustaka stands admitted by the M.D. This quantity was admittedly not entered in the statutory records. Similarly, the details of katha and lime purchased and consumed in the manufacture of gutkha during the three months (1.4.2005 to 3.6.2005) were found to be not tallying with the figures in the books related to raw materials. This was also admitted by the MD of TAG. He has also stated that the book was maintained by one of his staff members and that the books relating to earlier period was either lost or destroyed during shifting.
8.3 The documents recovered from M/s Divya Enterprises, Delhi indicated sale of 28,112 cotton canvas bags to TAG during the period of five months from 19.8.2004 to 16.1.2005. The M.D. of TAG has admitted procurement of bags from M/s Divya Enterprises. He has admitted purchase of such bags without bills but claimed that only small quantity has been purchased without bills. Having admitted purchase of such bags without bills, in the absence of any other evidence on the quantum of purchase, the records recovered from M/s Divya Enterprises can be relied upon as correct. Incidentally, the MD has claimed that each canvas bag could carry only 3000 pouches of gutkha and not 3500 pouches. This submission on the capacity of bags has to be disregarded in view of evidence where consignments of 3500 pouches were found in different premises. However, this issue may not be significantly relevant in view of the decision proposed to be taken.
8.4 Documents recovered from the premises of M/s Arun Agencies indicated supply of 1,08,692 Ltrs and 60972 Ltrs of diesel during the years 2004-2005 and 2005-2006 respectively. The bills though were raised in the name of GMS, it was stated by cashier of M/s Arum Agencies that the said quantities of diesel were supplied to the factory of TAG. It has also been claimed that GMS stands for an abbreviation of G.M. Siddeshwar, Director of TAG. The TAG has not disputed they did not have power connection and that they had DG Set and that one of the Directors is by name Shri G.M. Siddeshwar. Further, M/s Arun Agencies is undisputedly, a firm run in the name of Aunt of one of the Directors of TAG by name Shri G. Arun Kumar. Further, no evidence has been produced to show that they have procured diesel from other resources and that the same was reflected in their accounts.
8.5 From the above, it is seen that TAG has involved in procuring different materials without bringing into accounts and such procurements are obviously for use in the production of unaccounted gutkha with a view to clear the same without payment of duty.
Unaccounted clearances
9.1 The M.D. of TAG has clearly admitted that only production of two or three days was being accounted in a month as against production on 14 to 16 days. He also admitted that during certain period, they cleared samples without bringing to account and without preparing invoices and without payment of duty. He has also admitted that they resorted to this modus operandi due to stiff competition in the market. The MD of TAG has not retracted his statements.
9.2 It is seen that on the date of simultaneous search of various premises on 20.6.2005, unaccounted goods found from the premises of five different dealers were seized and same stand confiscated. The claim on behalf of TAG is that the said dealers have purchased from Embee Agencies, their C&F agents and not directly from TAG and that even if Embee Agencies have sold without bills, that could not lead to a conclusion that TAG had cleared them without payment of duty. It is not disputed that TAG was selling only through C&F agents namely Embee Agencies. It cannot be their case that TAG was selling only on bills to Embee Agencies and what was purchased on bills by Embee Agencies was partly sold without bills to the dealers.
9.3 Therefore, there can no dispute about the fact of unaccounted clearances and the dispute, if any, can be only on the quantum of such unaccounted clearances.
Admission by Managing Director and others
10.1 Shri HS Nataraj, Managing Director of TAG has given statements on 24.6.2005 , 5.9.2005 and 2.12.2005. It would be appropriate to note the important submissions/claims/admissions made by him in his statements.
Statement dated 24.6.2005
Manufacture and clearance from Unit-II even prior to obtaining the registration from the Central Excise department.
Engaging 15 workers (10 female workers and 5 male workers)
Manufacturing activity takes place four days in a week and factory works for only one shift from 1000 hrs to 1600 hrs with one hour lunch break between 1300 hrs 1400 hrs.
Out of 16 days of actual working days in a month two days were required for maintenance; however, entries of production were made only for 2 or 3 days per month; such a practice was due to their facing stiff competition in the market from the established brands and huge duty structure.
Procure diesel from M/s Arun Agencies owned by aunt of Shri G. Arun Kumar, one of the Directors and the payments were made by cash.
Statement dated 5.9.2005
Procurements from Montage Enterprises; Sai-lami Pack Pvt. Ltd., Silvasa; Jenith Laminators Pvt. Ltd., Delhi; Divya Enterprises, Delhi, etc.
Shri Amit, representative of New Delhi makes payment to suppliers in cash as per direction.
They may have made purchase of 1500 2000 bags from M/s Divya Enterprises without invoices.
Arcanut purchased mentioned in the book maintained by staff may not have been totally accounted.
Statement dated 2.12.2005
The small bag, means one cotton canvas bag containing 3000 pouches.
They have not maintained account of free samples cleared by them. The department may take the number of bags cleared as free samples as 200 numbers comprising both the brands.
That the statement dated 5.9.2005 regarding purchase of 1500 to 2000 bags without invoices may be modified as only 150 to 200 bags cleared without invoices.
They do not account total purchase of katha.
The production is carried out with the power generated by DG set in other premises. Diesel purchased from the local petrol bunk on cash basis.
10.2 The dealers have admitted that accounted purchases were made from Embee Agencies. In particular, Shri Prakash Thakkur, partner of Prakash Stores has submitted that an average about 50 bags (containing 3500 pouches of Re. 1 each) received and sold every week. The purchase and sale of gutkha were not accounted anywhere including in Sales Tax accounts. Other dealers have also made similar admissions.
Summary of the facts of the case :
11. From the above, the following emerges :-
(a) TAG started with 10 packing machines in April 2002 and were regularly adding the number of packing machines and the number of machines went up to 27 at the time of visit by the officers. Even if they were working only 5 hours per day and about 14 days in a month as claimed by M.D. of TAG, they were capable of producing many many times more than what they have accounted.
(b) TAG has not accounted substantial quantities of various raw materials/packing materials procured by them as seen from available private records and admission statements of concerned persons.
(c) They were having a Diesel Generator for operating the machines and the required diesel have been procured by paying cash from M/s Arun Agencies run in the name of aunt of one of the Directors of TAG (Shri G. Arun Kumar).
(d) Huge quantity of cotton canvas bags used for packing and transporting has been procured without bills. M.D. of TAG admitted procuring 1500 to 2000 bags without bills though later on he revised the quantity procured without invoices to about 150 to 200 bags.
(e) There is clear admission about private records relating to procurement of raw materials having been lost or destroyed.
(f) There is clear admission that only production of 2 to 3 days in a month was being accounted when there was production on 14 to 16 days in a month.
(g) Having accounted only 2 to 3 days of production in a month, naturally the unaccounted quantity has to be cleared without bills and stands admitted accordingly.
(h) The dealers have admitted to buying without bills and paying in cash.
Degree of proof in Adjudication Proceedings :
12. In a case of clandestine activity involving suppression of production and clandestine removal, it is not expected that such evasion has to be established by the Department in a mathematical precision. After all, a person indulging in clandestine activity takes sufficient precaution to hide/destroy the evidence. The evidence available shall be those left in spite of the best care taken by the persons involved in such clandestine activity. In such a situation, it is settled law that the entire facts and circumstances of the case have to be looked into and a decision has to be arrived at on the yardstick of preponderance of probability and not on the yardstick of beyond reasonable doubt.
Analysis of Case Laws Relied upon :
13. Several decisions have been relied upon on behalf of the appellants to contend that no allegation of clandestine removal can be sustained as held by the Commissioner. It would be appropriate to analyze the decisions as follows :
(a) The Tribunal in the case of Radheshyam Kanoria Vs. Commissioner of Central Excise, Thane-II reported in 2006 (197) E.L.T. 130 (Tri.-Mumbai) has held that statements by some dealers about unaccountable purchase could be due ulterior motive. In the absence of admission by the assessee such statements not reliable.
(b) The Tribunal in the case of Vidya Laminates Pvt Ltd. Vs. Commissioner C. Ex., Ahmedabad-II reported in 2006 (197) ELT 260 (Tri.-Mumbai) has held that in a case of clandestine manufacture and removal, Revenue has to prove the same by proper and cogent evidence and presumption cannot be raised against assessee.
(c) The Tribunal in the case of Commissioner of C. Ex. Vs Vidya Laminates Pvt. Ltd. [2007 (211) ELT 382 (Guj.)] has held that the purchase bills are insufficient for proving the receipt of raw materials by the assessee and its subsequent use in manufacturing and illicit clearance.
(d) The Tribunal in the case of Kedarnath Silk Mills Vs. CCE, Hyderabad [2006 (195) E.L.T. 58 (Tri.-Bang.)] has held that katcha slips without signatures could not be relied upon without any corroboration.
(e) The Honble Supreme Court in the case of Gian Mahtani Vs. State of Maharashtra reported in 1999 (110) ELT 400 (S.C.), in dealing with prosecution has held that suspicion however great cannot take the place of proof.
(f) The Tribunal in the case of Abba Rubbers Vs. Commissioner of C.Ex., Cochin [2006 (193) ELT 471 (Tri.-Bang.)] has held that consumption of one raw material is insufficient, in the absence of evidence of procurement of main raw material along with clandestine sale of finished products, to conclude that there was clandestine removal.
(g) The Honble Supreme Court in the case of J.A. Naidu, etc. etc. Vs. State of Maharashtra reported in 1983 (13) ELT 1611 (S.C.)] in dealing with prosecution, has held that conviction is illegal, if based on presumption, assumption and suspicion.
(h) The Tribunal in the case of Commissioner of C. Ex., Tirunelveli Vs. Supreme Fire Works Factory, Sivakasi reported in 2004 (163) ELT 510 (Tri.-Chennai) has held that mere suspicion cannot take the place of proof. Evidence of purchase of raw material, sale of final goods clandestinely is necessary.
(i) Tribunal in the case of Commissioner of C. Ex. (Appeals), Hyderabad Vs. Reddys Laboratories Ltd. [2006 (200) ELT 445 (Tri.-Bang.)] has held that documentary evidence may not be direct, but revenue has to produce collaborative evidence and every link therein has to be proved.
(j) The Tribunal in the case of Sharon Veneers Vs. Commissioner of C. Ex., Chennai reported in 2002 (146) ELT 655 (Tri.-Chennai) has held that statements of several persons taken Reliance placed selectively. Revenue has to establish extra payment as well its receipt with credible evidence, though not with mathematical precision.
(k) The Honble Supreme Court in the case of Commissioner of Customs, Calcutta Vs. South India Television (P) Ltd. reported in 2007 (214) ELT 3 (S.C.) has held that strict rules of evidence do not apply to adjudication proceedings though adjudicating officer has to examine probative value of documents.
(l) The Tribunal in the case of Sapthagiri Cements Pvt. Ltd. Vs. Commissioner of C. Ex., Visakhapatnam [2005 (183) ELT 385 (Tri.-Bang.)] has held that suppression of production and clandestine removal could not be sustained on the basis of discrepancy between the quantities of raw material in Form-IV Register, and private documents when such discrepancy has been satisfactorily explained.
(m) The Tribunal in the case of T.G.L. Poshak Corporation Vs. Commissioner of C. Ex., Hyderabad [2002 (140) ELT 187 (Tri.-Chennai)] has held that charge of clandestine removal based merely on note books maintained by workers and other private accounts, not sustainable unless supported by corroborative evidence with regard to purchase of raw materials, manufacture of final goods, flow back of money, or any seizure or statements from purchasers.
(n) The Tribunal in the case of Chawla Enterprises Ltd. & Ors. Vs. CCE, New Delhi and Vice Versa [2004 (61) RLT 982 (CESTAT-Del.)] has held that wastage cannot be uniform.
(o) The Tribunal in the case of Commissioner of Customs, Kandla Vs. Dimple Overseas reported in 2005 (190) ELT 58 (Tri.- Mumbai)] has held that piecemeal adjudication investigators cannot be allowed to proceed on to build up case piece by piece.
14. The above decisions were rendered in the facts and circumstances of each of the said cases. As already noted the allegation of suppression of production/clandestine removal has to be examined not in isolation, but taking the entire facts and circumstances of the case. The facts of the present case have been elaborately dealt with in the preceding paragraphs. The applicant company (TAG) had enormous production capacity duly augmented periodically. If only one machine was operated for 5 hours a day and 14 days in a month, the resulting production in one year would be more than what has been accounted by TAG for the entire period of 3 years and 3 months. Unaccounted purchase of raw materials and packing materials are evident from the private records found from the premises of the appellant company (TAG) and those recovered from the suppliers. These are corroborated by the statements of M.D. and other concerned persons. The evidence relating to unaccounted purchase of raw materials is not only for one raw material but a few of the raw materials and packing materials. It is true that the evidence is not available for all the materials for the entire period. This situation has to be appreciated in the context of TAG admittedly not maintaining statutory records correctly and in the content of admitted loss or destruction of private records by the M.D. of TAG. There is a clear admission by no less a person than the M.D. of TAG that they accounted only production of two or three days in a month as against the production of 14 to 16 days in a month. This admission is obviously an half hearted admission. His claim that the company was working only for 5 hours with a lunch break of one hour is a clear understatement of working hours. Similarly, his claim that they were working only for 14 to 16 days in a month also appears to be an understatement of working days. If these submissions were to be true, there was no need for procurement of more and more packing machines. The M.D. of TAG has also admitted clearance without accounting and without preparing invoices. Some of the dealers have also accepted buying the goods without bills and on payment of cash. The statements are also not retracted. If the totality of all these facts and circumstances are taken into account, the ratio of none of the decisions relied upon on behalf of the assessee are applicable to this case.
Quantum of duty involved
15.1 In view of the foregoing, we have no hesitation to conclude that TAG was involved in systematic manipulation of records relating to raw materials procured, suppressing the production of excisable goods in their statutory records and clearance of the same without payment of duty and, therefore, there is evasion of excise duty. Now, we proceed to consider whether the Commissioner has adopted correct methods in arriving at the duty demand.
15.2 TAG has manipulated the statutory records relating to procurement and use of raw materials. The private records were available only in bits and pieces. For example, evidences of unaccounted purchase of arcanut for three months for the period 31.12.2004 to 31.3.2005 and unaccounted purchase of cotton canvas bag for the period August 2004 to January 2005 were available. Evidence for unaccounted purchase of materials like kimam unbranded, tobacco pathi, methanol, mix blend from Sanjay Enterprises were available for 2002-03 and also in respect of one consignment relating to 2003-04. The M.D. himself had admitted that the private records have been destroyed/lost during shifting of the factory. In other words, TAG having planned the evasion, has taken precautions to systematically destroy the records. The M.D. has admitted large scale suppression of production (only 2 or 3 days production was accounted as against production of 14 to 16 days in a month). However, he has failed to furnish details of actual quantum of production suppressed and removed clandestinely. The exact quantum of clandestine removal is obviously can be only in the knowledge of the concerned representatives of appellant company or its Directors. Under these circumstances, the department has adopted different identifiable parameters for different periods which cannot be held unreasonable or arbitrary.
15.3 The Commissioner had given findings as under -
In this regard I would like to point out that the amount of Rs. 2,82,06,656/- represents the duty determined based on the documentary and other evidences gathered during the course of searches made at various premises as also in the follow up action. As the assessee have not maintained the complete account of the quantities of the raw materials purchased, final products manufactured, cleared, sale consideration realized etc. and no documentary evidence showing the details of actual production and clearances of the excisable goods for the impugned period were available, it has been decided to demand the duty of R. 4,29,95,443/- basing on the production capacity of the machines installed in the assessee unit. Accordingly, the duty has been demanded correctly in show-cause notice.
15.4 The above finding of the Commissioner appears to suggest that the demand for the entire period from 1.4.2002 to 19.6.2005 stands demanded on the basis of production capacity of the machines. This is incorrect as the Commissioners order also refers to duty having been correctly demanded as per the show-cause notice. Obviously, as submitted by the learned Sr. Counsel, the demand has been made based on four different methods i.e. (a) based on tobacco pathi for the period 2002-03, (b) based on capacity of machines for the period from April 2003 to July 2004, (c) based on cotton canvas bag for the period August 2004 to March 2005; and (d) based on note book Titled BNV for the period April & May 2005. As per the work sheet appended to the notice, the break of the duty demanded is as follows :
S. No. Year No of pouches Ass. Value Total duty
Rs. Rs.
1. 2002-03 32,20,745 16,10,373 9,66,224
2. 2003-04 3,48,56,000 1,74,28,000 1,04,56,800
3. 4/04 to 93,89,600 46,94,800 28,16,880
9/7/04
4. 9/7 - 31/7/04 8,33,150 4,16,575 2,54,944
5. 8/04 2/05 6,63,70,500 3,31,85,620 2,03,09,373
6. 3/2005 94,81,500 47,40,750 31,85,784
7. 4/05 5/05 1,48,97,140 74,48,570 50,05,439
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Total 13,90,48,635 6,95,43,318 4,29,95,443
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16.1 The demand of duty of Rs. 9,66,224/- for the year 2002-03 based on unaccounted tobacco pathi applying the formula provided by the director of TAG is reasonable and does not warrant interference. Incidentally, it is to be noted that the demand is for a quantity which is below the production figures estimated based on production capacity.
16.2 The demand of Rs. 1,35,28,624/- relating to the period of 16 months from 1.4.2003 to 31.7.2004 has been arrived at by adopting the capacity of each machine as 70 pouches per minute based on experiment conducted on 30.12.2005. The number of hours the machine is supposed to work on a day has been taken only as 5 hours (a very conservative estimate!). It has been further assumed that the factory has worked only for 14 days in a month (a very conservative estimate!). This method, in the facts and circumstances of the case cannot be held arbitrary or unreasonable as it relies on the outcome of experiment and the submissions of the M.D. of TAG with respect to working hours and days.
16.3 The demand relating to the period of eight months from August 2004 to March 2005 has been demanded based on cotton canvas bag purchased from Divya Enterprises which was held not to be reflected in the statutory records. The appellants have claimed in the reply that they purchased various kinds of bags namely, bags with zips, bags for conveyance of goods like vegetables, provisions, cash bags and also bags for packing gutkha. It was also contended that the bags other than gutkha bags were distributed for advertisements. This submission has not been examined by the original authority. Further, the number of pouches which was determined as manufactured during the period of 8 months of August 2004 to March 2005 is 7,58,52,000. However, the estimated production based on the production capacity for the entire year 2004-05, as noted in Para 54 of the Order-in-Original, is only 3,97,74,000 pouches. Obviously, the demand cannot be raised on a quantity in excess of what could have been manufactured. Therefore, the production determined based on cotton canvas bag being at wide variance from production based on packing machines, the demand deserves to be restricted to production based on production capacity, as has been done for the immediately preceding 16 months from April 2003 to July 2004.
16.4 The demand of Rs. 50,05,439/- for the period April 2005 and May 2005 (up to 19.5.2005) has been based on consumption of lime as per the entries in the note book titled BNV. This production figures adopted are below the production figures estimated based on production capacity of packing machines as recorded in para 54 of the Order-in-Original. Therefore, the demand for this period appears reasonable and calls for no interference.
16.5 The demand of duty of Rs. 2,85,634/- on the goods seized on the date of search should be held to be part of the above demand as obviously they related to goods cleared on or before 19.6.2005 and there is no justification for separate confirmation of the same.
17. A submission has been made on behalf of TAG that show-cause notice dated 31.1.2007 relies upon substantially the same evidence as the show-cause notice dated 17.12.2005 and therefore, invoking extended period of limitation for demand of duty in the show-cause notice dated 31.1.2007 was not justified. In this regard decision of the Supreme Court in the case of Nizam Sugar Factory as well as other decisions have been relied upon. It is to be noted that there were seizure of goods on 20.6.2005 at various places and the show cause notice dated 17.12.2005 has been issued basically for proposing confiscation of the seized goods and obviously to meet the statutory dead line of six months from the date of seizure for issuance of the show cause notice. The duty demand in the said show cause notice was limited to Rs. 2,85,634/- which was the duty involved in the seized goods. The claim that no further investigation was undertaken is without any basis. The seized records require to be gone through and the evidence require to be evaluated and the basis of the demand to be proposed should be firmed up. Further, it is noticed that an experiment was conducted in the presence of M.D. of the company on 30.12.2005 and the results of the said experiment has been relied upon to demand duty for certain period. Further, the demand of duty by show-cause notice dated 31.1.2007 is also based on evaluation of evidence relating to procurement of unaccounted raw materials/packing materials etc., suppression of production and admitted case of clandestine removal. Therefore, to say that the show cause notice dated 31.1.2007 relied upon the same evidence as the show-cause notice dated 20.6.2005 is incorrect. Therefore, extended period of limitation has been rightly invoked. Further, the period of 5 years in terms of proviso to Section 11A is invokable from the relevant date and the relevant date is not dependent upon the knowledge acquired by the department but with reference to the obligation of the assessee. This view is supported by the decision of the Honble high Court of Gujarat in the case of Commissioner of C. Ex., Surat-I Vs. Neminath Fabrics Pvt. Ltd. [2010 (256) E.L.T. 369 (Guj.)]. In this regard, relevant portions of the said decision are reproduced below :-
17. The proviso cannot be read to mean that because there is knowledge the suppression which stands established disappears. Similarly the concept of reasonable period of limitation which is sought to be read into the provision by some of the orders of the Tribunal also cannot be permitted in law when the statute itself has provided for a fixed period of limitation. It is equally well settled that it is not open to the Court while reading a provision to either rewrite the period of limitation or curtail the prescribed period of limitation.
18. The Proviso comes into play only when suppression etc. is established or stands admitted. It would differ from a case where fraud, etc. are merely alleged and are disputed by an assessee. Hence, by no stretch of imagination the concept of knowledge can be read into the provisions because that would tantamount to rendering the defined term relevant date nugatory and such an interpretation is not permissible.
19. The language employed in the proviso to sub-section (1) of Section 11A, is, clear and unambiguous and makes it abundantly clear that moment there is non-levy or short levy etc. of central excise duty with intention to evade payment of duty for any of the reasons specified thereunder, the proviso would come into operation and the period of limitation would stand extended from one year to five years. This is the only requirement of the provision. Once it is found that the ingredients of the proviso are satisfied, all that has to be seen as to what is the relevant date and as to whether the show cause notice has been served within a period of five years therefrom Penalties
18.1 TAG has indulged in manipulation of records relating to procurement of raw materials; they procured unaccounted raw materials; they admittedly entered abysmally low quantity of the production and cleared the same without preparing invoices and payment of duty. Under these circumstances imposition of penalty under Section 11AC is fully justified. However, having imposed penalty under section 11AC, separate penalty under Rule 25 is neither justified nor warranted and the same is liable to be set aside.
18.2 The role of the appellants Director in clandestine removal of the goods is evident. He merely stated that they resorted to the clearances without preparing invoices in view of the stiff competition and in view of high duty structure. His statements reveal his knowledge of manipulation with intention to evade payment of duty. Therefore penalty on him is justified. The penalty imposed on him is also not excessive.
18.3 Confiscation of goods admittedly received either without bills or not corresponding with particulars in the bills are liable for confiscation. The redemption fine imposed is also not excessive.
18.4 M/s Embee Agencies and M/s Wahab Stores have knowingly involved themselves in dealing with excisable goods liable for confiscation and therefore penalty on them are also justified. Further, the penalties imposed on them are only nominal and calls for no interference.
19. In view of the above the appeals are disposed of as follows :
(a) Appeal No. E/669/08 by TAG is disposed of as follows
(i) Demand of Rs. 9,66,224/- relating to the period 2002-03, demand of Rs. 1,35,28,624/- relating to April 2003 to July 2004 and demand of duty relating to April & May 2005 amounting to Rs. 50,05,439/- are upheld. Corresponding penalties of equal amounts under Section 11AC are also upheld.
(ii) Demand of duty for the period April 2004 to March 2005 shall be restricted to duty payable on a differential quantity of pouches determined based on production capacity and accordingly, the duty liability shall be reworked and the corresponding penalty of equal amount reworked under Section 11AC upheld.
(iii) Interest demands on the amounts at (i) & (ii) are upheld.
(iv) Penalty of Rs. 42 lakhs imposed under Rule 25 of the Central Excise Rules 2002, on TAG is set aside.
(b) Appeal No. E/559/08 is disposed of by upholding the confiscation of the goods. The redemption fine of 50,000 is upheld. Penalty of Rs. 50,000/- imposed is also upheld. However, the demand of Rs. 2,85,634/- is set aside for the reasons recorded earlier.
(c) Appeal No. E/70/2008 filed by Shri H.S. Nataraj, M.D. of TAG is rejected and the penalty of Rs. 5 lakhs imposed on him is upheld.
(d) E/826/08 by M/s Embee Agencies is rejected and the penalty of Rs. 20,000/- imposed on them is upheld.
(e) E/825/08 by M/s Whab Stores is rejected and the penalty of Rs. 10,000/- imposed on them is upheld.
(Pronounced in open court on .) (M. VEERAIYAN) (P. G. CHACKO) Member (Technical) Member (Judicial) /vc/