Custom, Excise & Service Tax Tribunal
Meena Sparklers vs Madurai on 19 March, 2025
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT NO. I
Excise Tax Appeal No. 42077 of 2015
(Arising out of Order-in-Original No.MAD-CEX-000-COM-000-08-2015 dated 30.06.2015
passed by the Commissioner of Central Excise, Madurai)
M/s. Meena Fire Works Industries, ...Appellant
sanankulam (V),
Elayirampannai-626 201.
Versus
Commissioner of GST and Central Excise ..Respondent
Central Revenue Building, No.4, Lal Bahadur Shastri Road, Bibikulam, Madurai-625 002.
with Excise Tax Appeal No. 42078 of 2015 (Arising out of Order-in-Original No.MAD-CEX-000-COM-000-08-2015 dated 30.06.2015 passed by the Commissioner of Central Excise, Madurai) M/s. Meena Fire Works, ...Appellant Panayadipatti(via), Gangarakottai, Elayirampannai-626 201.
Versus Commissioner of GST and Central Excise ..Respondent Central Revenue Building, No.4, Lal Bahadur Shastri Road, Bibikulam, Madurai-625 002.
with Excise Tax Appeal No. 42079 of 2015 (Arising out of Order-in-Original No.MAD-CEX-000-COM-000-08-2015 dated 30.06.2015 passed by the Commissioner of Central Excise, Madurai) M/s. Meena Sparklers, ...Appellant Gangarakottai, Elayirampannai-626 201.
Versus Commissioner of GST and Central Excise ..Respondent Central Revenue Building, No.4, Lal Bahadur Shastri Road, Bibikulam, Madurai-625 002.
with Excise Tax Appeal No. 42080 of 2015 (Arising out of Order-in-Original No.MAD-CEX-000-COM-000-08-2015 dated 30.06.2015 passed by the Commissioner of Central Excise, Madurai) 2 Mr. S. Meenarajan, ...Appellant No 7/365-1, Sattur Main Raod Elayirampannai-626 201.
Versus Commissioner of GST and Central Excise ..Respondent Central Revenue Building, No.4, Lal Bahadur Shastri Road, Bibikulam, Madurai-625 002.
with Excise Tax Appeal No. 42081 of 2015 (Arising out of Order-in-Original No.MAD-CEX-000-COM-000-08-2015 dated 30.06.2015 passed by the Commissioner of Central Excise, Madurai) Mr. S. Baskaran, ...Appellant No.7/283.4, Rajivgandhi Nagar, Elayirampannai-626 201.
Versus Commissioner of GST and Central Excise ..Respondent Central Revenue Building, No.4, Lal Bahadur Shastri Road, Bibikulam, Madurai-625 002.
and Excise Tax Appeal No. 42082 of 2015 (Arising out of Order-in-Original No.MAD-CEX-000-COM-000-08-2015 dated 30.06.2015 passed by the Commissioner of Central Excise, Madurai) Mr. S. Kannan, ...Appellant No. 4/407, North Street, Elayirampannai-626 201.
Versus Commissioner of GST and Central Excise ..Respondent Central Revenue Building, No.4, Lal Bahadur Shastri Road, Bibikulam, Madurai-625 002.
APPEARANCE:
Shri N. Viswanathan, Advocate for the Appellant Shri Anoop Singh, Authorised Representative for the Respondent CORAM:
HON'BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL) HON'BLE MR. AJAYAN T.V, MEMBER (JUDICIAL) FINAL ORDER Nos.40359-40364/2025 3 DATE OF HEARING: 13.12.2024 DATE OF DECISION: 19.03.2025 Per Mr. Ajayan T.V.
The above appeals arise out of the same impugned order and were heard analogously and are disposed of by this common order.
1. The brief facts are that officers of the Directorate General of Central Excise Intelligence (DGCEI) received information that M/s Meena Fire Works Industries were indulging in the manufacture of fireworks out of raw materials procured without bills and clearing them clandestinely to keep their turnover limit much lower than the threshold exemption limit; that they also have two more partnership firms, namely, M/s Meena Fire Works and M/s Meena Sparklers with their relatives as partners; that these firms were used as conduit to split up their total turnover and they have been raising bills for all the items of fireworks in each firm irrespective of factory of manufacture of said items and thus resorting to evasion of duty payable on the fireworks cleared. Therefore, on 20.10.2010, the DGCEI officers searched the premises of these firms, their office premises, residences of the partners and the premises connected with them in their business activities and recovered incriminating documents which were seized under mahazars dated 20.10.2010 drawn in the presence of independent witnesses. Statements were also recorded from various individuals on different dates. 4
2. Based on the investigation undertaken by DGCEI with the active and inactive partners of three firms' suppliers of raw materials, supplier of packaging materials and their customers (Dealers & Traders), statements recorded, and on scrutiny of the documents recovered from various premises, officers of DGCEI were of the view that:
a) Shri S. Meenrajan and his brothers Shri S Bhaskaran and Shri S Kannan admitted in their respective statements that they are the real partners running the entire activities of three manufacturing firms. Their wives were just added to maintain the existence of three different firms in books of accounts. S/Shri S. Meenrajan. S. Baskaran and S. Kannan have manufactured fireworks of all varieties in their factory, M/s Meena Fireworks Industries, M/s Meena Fire Works and M/s Meena Sparklers.
b) M/s Meena Fire Works Industries, Sanankulam have been engaged in the manufacture of all kinds of fancy items of fireworks, M/s Meena fire Works have been exclusively manufacturing Walas / Lars for conversion into 56 Walas, 1000 Walas, 3000 Walas etc., and M/s. Meena Sparklers have been exclusively manufacturing Sparklers But scrutiny of records revealed that all the three firms have raised invoices for all the varieties of fireworks, irrespective of factory of production. The incriminating private documents recovered under mahazar dated 20.10.2010 showed maintenance of consolidated account for all the three firms evidencing:5
(i) payments towards the purchase of raw materials
(ii) payments towards packing materials.
(iii) clearance/sale of fireworks without bills and
(iv) collection of sale proceeds of fireworks cleared clandestinely and sold without bills.
c) Thus, the three brothers only have managerial and financial control over the entire activities of all the three firms such as procurement of raw materials, production of fireworks, sale of fireworks of all varieties in all the three firms without restricting to the actual place/factory of manufacture, collection of sale proceeds in cash and remittance of illicit sale proceeds in their personal accounts as well as in that of their close relatives.
d) They have also admitted that M/s Meena Fireworks Industries has 30 working sheds manufacturing all varieties of fireworks including fancy items. M/s Meena Fire Works has 6 working sheds manufacturing chorsa/walas/lar variety fireworks only and Mis Meena Sparklers has only 3 working sheds manufacturing exclusively sparklers, they effected sale of fireworks of all varieties under the invoices of all the three factories irrespective of place of manufacture.
e) Further they have also admitted that they have distributed the value of clearances of fireworks, effected from their three factories, among themselves maintaining an equilibrium with one another. This could be seen from the turnover submitted to the 6 Commercial tax authorities and for the year 2009-10 the sale turnover of M/s Sparklers was even more than that of other two factories.
f) They have procured raw materials such as Aluminium powder, Titanium powder, Barium Nitrate, and packaging materials such as gift boxes and corrugated cartons without bills as reflected in the two long size note books received from M/s Meena Trading Company vide their letter 4-10-2011(marked as Sl. No 19 of Annexure-B to the SCN) and in the file bearing SI No.23 recovered from Office premises (marked as Sl. no 9 of Annexure- B to the SCN).
g) The documents contained in the file bearing Sl. No 16 (marked as Si no 18 of Annexure B to the SCN) revealed the manufacture of fireworks in M/s Meena Fire Works Industries and M/s Meena Fire Works and brought to the magazine at M/s Meena Fire Works Industries, which were cleared either under invoice or without invoices as discussed in the notice.
h) The statements of Smt. Jeyanthi, Smt. B Sermaselvi, & Smt. K. Nithya reveal that they are dummy partners of M/s Meena Fire Works Industries for name sake.
i) From the statement of Shri K.V.Selvaraj, incharge of M/s Meena Trading Company, Sivakasi, it could be seen that fireworks manufactured from the three units were received at M/s Meena Trading Company without any bills and sales were effected by adopting only one fourth of the actual value.
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j) Investigation conducted with Raw Material suppliers like M/s Lakshmi Metal Works, M/s Krishna Chemicals, M/s. Jai Krishna Packaging Industries, M/s Shri Krishna Packaging Industries and M/s MSL Packaging Industries revealed that Raw Materials and Packing Material were also received without bills and cash payments were made for such unaccounted purchases. This fact was also accepted by Shri Meenrajan.
k) Enquiries conducted with the Agent cum Traders like Sri Balaji Traders, Anupankulam, Arun Agencies, Paraipatti and dealers like M/s Shifa Stores Chennai, M/s Happy Fire Works, Sivakasi, Asian Crackers, Sivakasi, & Nitin Enterprises, Bangalore also revealed the fact of illicit sale of fireworks to them by Meena group units and the acceptance of such purchases and payments by cash for the same. Further Shri Meenrajan has accepted the said unaccounted sale and receipt of proceeds in cash.
l) They have raised invoices to the customers and sent the consignments covered under the said invoices. As soon as the consignments reached the destination, the said invoices were received back and were destroyed Invoices with the same numbers would be raised again with different consignments to different customers following the same modus operandi. Such torn invoices are available in the file bearing Sl.No.26-1/2 & 26- 2/2(marked as Sl.no 14 of Annexure-B to the SCN) recovered from the office premises which vouches raising of same number to different invoices to another consignments.
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m) The details contained in the Registers bearing Sl.No. 25-1/4, 25-2/4, 25-3/4 and 25-4/4 (marked as Sl. no 1 of Annexure-B to the SCN) recovered from the office premises of M/s Meena Fireworks Industries revealed the clandestine removal of fireworks during the period 1-4-2007 to 27-09-2009. These facts were admitted by Shri S. Meenrajan and Shri S Kannan.
n) They have also sent two consignments in a single invoice, the details of which are available in the Order forms & Estimate-Memo in the file bearing Sl. No. 30-2/2 (marked as Sl. no 11 of Annexure-B to the SCN) recovered from the office premises. These documents showed not only double consignments but also their realization.
o) The small note books bearing: Sl. No 15 2/10, 15 3/10, 15 4/10, 15 5/10 and 15 8/10 & 7 (marked as Sl. no.3&2 of Annexure-B to the SCN) recovered from the office premises reflect the unaccounted transactions such as payments made towards the purchase of raw materials without bills, payment of coolie charges to the labourers, receipt of amounts against the illicit supply of fireworks from the customers establishing the clandestine removal of fireworks from all the three factories, as could be seen that there was no indication in the said documents showing reference to the sale of fireworks from the factory of manufacture.
p) Thus from the documentary evidences available and evidences collected from all concerned and statements recorded from all concerned reveal the fact of unaccounted manufacture, 9 unaccounted clearances, unaccounted purchase of Raw materials and Packing materials and realization of sale proceeds in cash and the deposit of such sale proceeds in various Bank Accounts maintained at different branches of the Banks in the name of the firms including fictitious firm viz. M/s. Meena Grinding Works and the partners and their relations.
q) The statement of accounts furnished by different banks as reflected in Annexure C to the SCN, where credits were made in the name of the said three firms, the fictitious firm M/s. Meena Grinding Works, the partners in their individual capacity, their close relatives such as wives and parents and a dealer(marked as Sl. no. 29 of Annexure-B to the SCN), which were not brought into firm's books of account except three accounts in the name of the three firms, as admitted by the Auditor, Shri S.Sadasivam and Shri S. Meenarajan. The amount thus credited under these accounts was much higher than the value for determination of transaction value. These financial transactions are taken into account only to corroborate the determination of aggregate value of fireworks cleared during relevant period 2007-08 to 2011-12 and not for determination of duty liability.
r) The transaction value for the fireworks illicitly cleared during 01.04.2007 to 27.09.2009 as reflected in the registers bearing Sl. No. 25-1/4 to 25-4/4 was arrived at adopting the price contained in the price list of the years 2008 & 2009 and accounted invoices submitted for 2007-08 giving reasonable abatement followed by them in their normal trade. The value of fireworks cleared 10 accounted during the period of 1-10-2008 to 31-03-2009 was adopted to determine the transaction value of clandestinely removed fireworks for the corresponding period of the year 2009- 10, i.e. 1-10-2009 to 31-3-2010, as the accumulation of credit in the bank accounts of theirs and their close relatives as discussed above was huge during the corresponding period. From the value thus arrived at for the period 2007-08 to 2009-10, 30% discount was uniformly given as reflected in Annexure-C(i) to the SCN and the net value was clubbed with the turn over (accounted) furnished by the Commercial tax officer, Sattur as reflected in Annexure-C(ii) to the SCN and the aggregate value of clearance of fireworks effected during the period 2007-08 to 2009-10 was arrived at as reflected in Annexure-D to the SCN.
s) Similarly based on the coolie charges and the bonus amount paid upto 25-10-2010, for the year 2010-11, available among the miscellaneous document with page Nos 44,70,71 & 72 in a file bearing Sl. No.4 recovered from the factory premises of M/s Meena Sparklers, the transaction value for the year 2010-11 was determined as detailed in the notice, considering coolie charges including the bonus attributed to 20% of the actual turn over as being determined as shown in para 5.6 of the notice.
t) Thus, Shri S Meenrajan, Shri S Baskaran and Shri S. Kannan are effectively managing the entire affairs of three firms namely M/s Meena Fireworks Industries, M/s Meena Fire Works and M/s Meena Sparklers manufacturing different variety of fireworks. 11 Investigation revealed that all the three units procure raw material, sell excisable goods and receive sale proceeds without any distinction between each other. They are managed as a single financial entity by the three brothers Shri S. Meenrajan, Shri S Baskaran and Shri S. Kannan. As such, it appears they are the one manufacturer manufacturing fireworks falling under heading No. 3604 of CETA 85 in three factories and cleared all varieties under the invoices of all the three firms irrespective of place of manufacture without distinction and are liable to pay excise duty as reflected in Annexure-D of the SCN by treating them as one manufacturer manufacturing and clearing excisable goods from one or more factories in terms of Para 2(v) of Notification No.8/03-CE dated 01.03.2003, as amended.
3. The officers of DGCEI found that M/s Meena Fire Works Industries has 30 sheds and have manufactured fireworks including fancy items which are costlier than Sparklers and Lars. It was a proprietary firm since its inception with Shri Kannan as the proprietor. It became partnership firm with the three brothers and their respective wives as partners effective from 15.02.2010 (marked as Sl. No 34 of Annexure B to the SCN) with the same name and style "Meena Fire Works Industries Further". M/s. Meena Fire Works manufacturing Chorsa/Lars came into existence in 1981 with Shri S.Meenrajan and S. Baskaran and their father Shri T. Selvaraj as partners with six manufacturing sheds (marked as Sl.no. 35 of Annexure B to the SCN). M/s Meena Sparklers has 12 been the partnership firm which came into existence in 2003 with Shri S. Meenrajan, Shri S Baskaran and Shri S. Kannan as partners (marked as Sl. No. 36 of Annexure B to the SCN) who have masterminded the entire business activities of all these three firms such as procurement of accounted and unaccounted raw materials, licit and illicit manufacture and sale of fireworks and collection of sale proceeds accounted and unaccounted.
4. The officers of DGCEI were of the view that since these three brothers are the real manufacturers who have indulged in all such nefarious activities discussed above, they are jointly and severally liable to pay the duty payable on fireworks manufactured and cleared licitly and illicitly from all the three firms, for the period 2007-08 to 2011-12, treating them as the manufacturer manufacturing and clearing excisable goods from one or more factories in terms of Para 2(v) of Notification no 8/03-CE dated 1.3.2003, as amended. Hence, it appeared that the central excise duty payable on the fireworks manufactured and cleared in the said three units is demandable from them under the provisions of Section 11A(4) of Central Excise Act, 1944 (CEA) and they are liable for penal action under Section 11AC of CEA and Rule 25 of Central Excise Rules, 2002 (CER). Further it appeared to the officers that Shri. S. Meenrajan, Shri.S. Baskaran and Shri. S. Kannan, are also individually liable for penal action under Rule 26 of CER and also liable to pay interest on the duty not paid under Section 11AA of CEA.
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5. Therefore the three units represented by the three brothers were issued SCN No.81/2012/CE dated 13.08.2012 requiring them to show cause why the three firms should not be treated as one single manufacturer manufacturing and clearing fireworks from their factories in terms of section 2(f) of CEA read with para 2(v) of the Notification 8/2003-CE dated 01-03-2003, why the value of clearance of fireworks including sparklers from the three firms should not be clubbed together in terms of para (v) of the notification 8/2003-CE ibid to determine the aggregate value of clearance for demanding duty from the said three firms represented by the three brothers as they have jointly and severally indulged in the licit and illicit activities of the said three firms, why an amount of Rs.1,97,59,664/- towards duties and cesses payable should not be demanded from them under section 11(4) of CEA and the amount of Rs.15,00,000/- paid under various challans as detailed therein should not be appropriated against the said duties payable, a penalty should not be imposed on them under Section 11AC of the CEA and interest at applicable rate on the duty evaded should not be demanded from them under Sec 11AA of CEA. Proposals to impose penalty under Rule 26 individually on the three brothers were also made in the said notice.
6. Consequent to the notice, after following due process of law, the adjudicating authority held that:
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i) M/s. Meena Fire Works Industries, M/s. Meena Fire Works and M/s. Meena Sparklers represented by the three brothers, viz., Shri. S. Meenrajan, Shri. S. Baskaran and Shri. S. Kannan, who have associated with one another with the common understanding to evade excise duty by indulging in illicit business activities of the three firms are to be treated as one single manufacturer manufacturing and clearing fireworks from their factories in terms of Section 2(f) of CEA read with para 2(v) of the Notification No. 8/2003-CE dated 01.03.2003 as amended.
ii) The value of clearances of fireworks including sparklers manufactured and cleared from M/s. Meena Fire Works Industries, M/s. Meena Fire Works and M/s. Meena Sparklers during the period 2007-08 to 2011-12 are to be clubbed together in terms of para 2(v) of notification no.
8/2003-CE dated 01.03.2003 as amended, for the reasons set out therein to determine the aggregate value of clearances for demanding duty from the said three firms represented by three brothers as they have jointly and severally indulged in the licit and illicit activities of the said three firms.
iii) The demand of Rs.1,97,59,664/- payable on the total value of fireworks cleared unaccounted and accounted during the period from April 2007 to 31-03-2012 is confirmed from them under Section 11A(10) of CEA.
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iv) The amount of Rs.15,00,000/- paid by M/s. Meena Fireworks Industries towards the amount payable is appropriated towards the duty demand.
v) Penalty of Rs.1,97,59,664/- is imposed on them under Section 11AC of the CEA for the contravention of Section 11A(4) of the CEA.
vi) Interest is demanded under Section 11Aa of CEA for the relevant period.
vii) Penalty of Rs.19,00,000/- in terms of Rule 26 of CER is imposed on Shri. S. Meenrajan, one of the three brothers and partner of M/s. Meena Fire Works for having masterminded the entire activities of three factories jointly in association with his brother S/ Shri. S/. Kannan and S. Baskaran.
viii) Penalty of Rs.19,00,000/- in terms of Rule 26 of CER is imposed on Shri. S. Baskaran, one of the three brothers and partner of M/s. Meena Fire Works for having masterminded the entire activities of three factories jointly in association with his brother S/ Shri. S. Meenrajan and S. Kannan.
ix) Penalty of Rs.19,00,000/- in terms of Rule 26 of CER is imposed on Shri. S. Kannan, one of the three brothers and partner of M/s. Meena Fire Works for having masterminded 16 the entire activities of three factories jointly in association with his brother S/ Shri. S. Meenrajan and S. Kannan (sic).
7) Shri N. Viswanathan, Ld. Advocate appeared on behalf of the appellants and argued the matter. He filed written submissions of the details of the appeal, details of the units and contentions as under:
a) Appeal No: E/42077/2015 DB. Filed by M/s Meena Fire Works Industries [MFWI] for short] Demand for duty of Rs. 1,97,59,664/-
covering the period from April 2007 to March 2012 but proposed and confirmed on group of three persons not partners of Meena Fire Works but partners in the other two units mentioned infra deeming them as a single manufacturing unit and a financial entity/Partnership firm.
b) Appeal no: E/42078/2015 DB - Filed by M/S. Meena Fire Works [ MFW for short] for the common duty demand on the group of three persons.
c) Appeal E/ 42079/2015 DB: Filed by M/S Meena Sparklers, [ MS for short]] for the common duty demand on the group of three persons.
d) Appeal No: E/ 42080/2015 DB. Filed by Shri S. Meenarajan, against imposition of personal penalty of Rs. 19,00,000/- on him under Rule 26 of CER 2002.
e) Appeal No: E/42081 /2015 DB. Filed by Shri S. Baskaran against imposition of personal penalty of Rs. 19,00,000/- on him under Rule 26 of CER 2002.
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f) Appeal No: E/42082/2015 DB. Filed by Shri. S. Kannan, against imposition of personal penalty of Rs. 19,00,000/- on him under Rule 26 of CER 2002.
7.1) MFWI, MFW and MS are independent units engaged in the manufacture of fireworks and fire crackers falling under Chapter Heading 3604.10 to the CET 1985 having their respective factories located separately at Sanankulam and Gangarakkottai in Elayirampannai duly registering themselves as independent small-scale units with the Department of Industries, Government of Tamil Nadu. Each of the above units were also holding independent explosives licence in their name and were also registered with State VAT department/ for payment of state taxes on the sales effected by them and were also holding separate PAN no and filing Income tax returns. These facts are not disputed by the revenue.
7.2) Meena Fireworks Industries [MFWI] was started as a sole proprietary concern with S. Kannan as its sole proprietor during 2007 and located at Sanankulam, admittedly holding separate sheds for the production of fire crackers and was functioning independently and was assessed to VAT. During February 2010, it was converted into a partnership firm with six partners namely S/Shri S. Kannan, S. Meenarajan, S. Baskaran, Smt. M. Jeyanthi, Smt. Sermaselvi and Smt. K. Nitya [spouses of the male partners] and continued its business under the name and style of MFWI.
187.3) Meena Fireworks [MFW] was started in the year 1981 with S/Shri S. Meenarajan, S. Baskaran and Shri T. Selvaraj at Gangarakkottai owning six sheds for the manufacture fire crackers duly assessed to VAT.
7.4) Meena Sparklers, [MS] the third manufacturing unit which was started during 2003 with S/Shri S. Meenarajan, S. Kannan & S. Baskaran as its partners was producing fireworks. Only in this unit all the three brothers were partners and not in the other two units mentioned supra. The composition of the various units is furnished below:
Sl. Name Constitution Management Remarks
No of the composition
Unit S/Shri/Ms.
1 Meena Sole S. Kannan Started in March
Fireworks Proprietor 2007 and continued
Industries as a proprietary firm
till Feb 2010. Availed
SSI exemption.
Partnership S. Meenarajan, Converted as
firm S. Kannan, partnership firm in
S. Baskaran, Feb 2010 and
Smt. M. Jayanthi, continued to avail SSI
Smt. Sermaselvi & exemption.
Smt. K. Nitya.
2 Meena Partnership S. Meenarajan, Started in 1981. Had Fireworks firm S. Baskaran & six sheds and enjoyed T. Selvaraj. SSI benefit.
3 Meena Partnership S. Meenarajan, Started in 2003 and
Sparklers firm S. Kannan, had separate shed to
S. Baskaran produce fireworks
and enjoying SSI
exemption.
7.5) Value of clearances effected by the three units during the material period: [pp 14] and 101 Annexure C-[ii] to SCN 19 Year Meena Meena Fireworks Meena Sparklers Remarks Fireworks In lakhs In lakhs Industries.
In lakhs]
2007-08 37,54, 793 40, 37, 927 3041000 Within SSI
limit
2008-09 43, 48, 793 49, 14, 486 39, 98, 671 -do-
2009-10 36, 87, 544 37, 37, 673 38, 82, 077 -do-
2010-11 74, 38, 296 38, 55, 386 30, 28, 133 -do-
2011-12 76, 14, 955 48, 24, 117 38, 86, 629 -do-
7.6) Ld. Counsel submits that none of the above three units had any common partners though the various units were having family members of Shri T. Selvaraj as partners, their existence were truly independent. There was no interdependence of any of the units and there were also no inter-unit transactions like exchange of raw materials or finished goods or funds. No job work was done with or without consideration by one unit to the other. Each unit had a factory premises of their own, foreman, labour force, infrastructure and capital to run the units and there was neither any sharing of profits among them nor any flow back of funds between them. There was no exchange of funds with or without interest between them and the fact is that they existed as independent units and have undertaken manufacture in their own right to enjoy the SSI exemption available to each one of them. The notice also does not propose the clubbing of the value of their clearances on any of the above reasons except to club it on the only ground of treating that the three brothers managed the entire business of the three units and therefore are to be treated as the manufacturers of the goods at the three units, to consequently deny them the benefit of the SSI exemption.
8. As regards the investigation conducted, the learned counsel submits that pursuant to certain intelligence said to have been gathered by 20 the officers of the erstwhile Directorate General of Central Excise Intelligence, Madurai Regional Unit that MFWI had been procuring raw materials without bills and clearing their finished goods clandestinely by keeping their turnover within the SSI exemption and that there are two other partnership firms with their relatives as partners and are splitting up their turn over, the officers conducted simultaneous search operation at 11 premises on 20/10/2010 which included the factory premises of MFWI, MF, MS, their office and the residential premises of the partners, [para 3 of the notice at page no 2] to recover certain private documents under a panchanama claiming the said documents to be of incriminating nature.
8.1) The above documents seized were diaries and a hand written long size note books marked as Sl.no: 25 - 1/4 to 25 - 4/4 and a small size account note book Sl. No: 15 - 2/10, 15 - 3/10, 15 - 4/10, 15
- 5/10 and 15 - 8/10 detailing the stock of raw material held marked as A-1. The entries found in the various above note books was assumed by the investigation as containing the details of unaccounted removal of fireworks from all the three units for the period between 01/04/2007 to 31/09/2009, based on which only the demand for the duty for the said period was quantified. [vide Ann C [i] & [ii] -pp100-101]. It is pointed out that for the subsequent periods namely 2009-10 to 2011-12, the quantification was done based on averaging and on the amounts paid as coolie and bonus by the firms [Annexure C[i] and C[iv] and para 15.3 and 15.4 of the show cause notice].
218.2) The officers during investigation recorded the statements from the so-called group of three persons, namely S/Shri S. Kannan, S. Meenarajan and S. Baskaran and. their spouses, and their father and from few of the raw material suppliers, and up-country dealers. The investigating agency also obtained and relied upon the amounts credited into 29 bank accounts of the above three firms, as well as it partners and other individuals including one of a dealer claiming it as corroborating the allegation of clandestine removal. 8.3) Based on the documents seized and marked as relied upon documents and the various statements obtained from the abovenamed persons, a case was registered only against the group of three persons assuming them to be the true manufacturers, of the entire goods at the three units, alleging that they had evaded the payment of excise duty in the guise of availing SSI exemption, while overlooking the status of the various partnership firms independently existing. That the gist containing the result of the investigation conducted for two long years are detailed in the summary of investigation recorded at para 14 of the common show cause notice dated 13/08/2012
9. On the aspect of issue of common notice, the learned counsel submits that the common show cause notice dated 13/08/2012 issued by the DGCEI proposed the demand for duty with interest on the group of three persons treating them as the manufacture of the fireworks in terms of Sec. 2 [f] of the Central Excise Act at the various units of MFWI, MFW and MS by resorting to clandestine removal of the goods 22 and by keeping the value of clearances below the SSI exemption limit besides proposing the imposition of the penalties on the group of three persons. It is further submitted that the allegations in support of the proposals in the notice are at para 28 wherein it is averred that Shri S. Kannan being one of the three brothers and partner of MF was the master mind of the entire activities whereas in fact he was not the partner of MF.
9.1 The learned counsel submits that the appellants cross examined the dealers and raw materials suppliers whose statements were relied in support and brought on record that the said statements obtained from the said persons were not based on the true facts. The respondent however on refusing them to cross examine the investigating officer, they filed their reply dated 30/03/2015 stoutly contesting each of the allegations made against them both on facts and law supported by evidences. However, the respondent passed the impugned order verbatim confirming the proposals made in the notice and the quantum of duty confirmed and the penalties imposed are detailed as below:
Sl. Name Amount of Amount of Period of Issue
No Duty Rs penalty Rs demand
1 Group of three 1, 1,97,59,664/- 2007-08 Clubbing of
brothers has 97,59,664/- to the alleged
been regarded 2011- clandestine
as a single 2011. removal of
financial entity the
under Section 2 firework
[f] from the
2 Shri S. 19,00,000/- three units
Meenarajan
3 Shri S. 19,00,000/-
Baskaran.
5 Shri S. Kannan 19,00,000/-
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10. The learned counsel submits that there is a preliminary objection as to the maintainability of the proceedings as creation of a single financial entity as canvassed in the SCN is contrary to law. The learned counsel submits that admittedly excisable goods were produced and cleared during the material period from the said three units which were partnership firms in their own right. Each of the said unit is a financial entity and as such they were the manufacturer of the subject excisable goods and were accordingly enjoying the SSI exemption in terms of Notification no 8/2003 CE as amended.
10.1 That the Partnership Act of 2015 has clothed the partnership firms with a separate legal status. On the basis of such separate legal status, the various statutory and governmental authorities have issued each of the abovenamed units with Registration and permission to operate and continue their business in the name of the respective firms. It is the prerogative of individuals to form a partnership for doing business and agree upon their share of capital and the sharing of risk including profits and losses. The partnership can also name a certain person to manage its affairs with or without any additional remuneration. In a partnership there can also be sleeping partner, non-active partner and even minors. The individual status of the partners for sharing the profit and loss is not impacted on their non-participation either actively or otherwise in their day-to-day affairs.
10.2. That the above being the legal position, the notice vide para 21 and para 25.1 proposed to treat the group of three persons [brothers] as a single financial entity and a single manufacturer producing and clearing goods from the three units in terms of Section 2 [f] read with para 2 [v] 24 of Notification no 08/2003 Ce dated 1.3.2003. The impugned order passed following the said allegation vide para 40 had held that the three brothers as a single manufacturer so as to club the value of clearances of all the three units for the purpose of determining the benefit of the SSI exemption.
10.3 That the scope of Section 2 [f] and para 2 [v] of Notification No 08/2003 CE are distinct and different. Section 2 [f] deals with the person to be deemed as a manufacturer whereas notification no 08/2003 CE dealt with the determination of the aggregate value of clearance effected by a manufacturer from one or more factories. A person who is deemed as a manufacturer is liable to discharge duty under rule 8 of CE Rules and such person is also eligible to avail SSI exemption. In this case each of the above three units were the manufacturers of the excisable goods at their respective factories in their own right and are eligible to avail the SSI benefit as such manufacturer which they had availed for each of the financial years 2007-08 to 2010-11 in as much as their value of clearances for each of the above financial years was much below the thresh hold limit. Neither the Partnership Act of 2015 nor the Central Excise Act of 1944 empowered the central excise officers to create a separate financial entity consisting of three individuals to hold them liable for the payment of duty for the clearances effected from the three independent factories owned and managed by different persons/partnership firms. Creation of a partnership is based on the free will of persons who wishes to do business and the same cannot be created by force by passing a statutory order by a Central Excise Authority. Such creation of a legal entity by fiction is neither legal nor 25 valid in law and no tax liability can be fastened on the said creation. Discarding the existing legal entities who had produced and cleared goods and creating a new single financial entity in its place that too by including the three persons who are already partners in the existing firms is an act of illegality and a case of abuse of power. The legal status of the existing three partnership firms having not been extinguished as per law and when they continued to exist even now legally producing and clearing excisable goods, the impugned order passed is not legally sustainable on this sole ground alone
11. The learned counsel submits that notices have not been issued to the Firms or those of its partners who have been regarded either as dummy or a legal façade proposing to treat them as such. Admittedly MFWI, MF & MS are partnership firms created at different points of time, consisting of different partners and functioning independently at the material time. In none of the said three firms the partners were common. It is not the case of the department that the partners in all the three units are common or identical. The notice and order also admitted to the physical existence of each of the unit and they having different sheds to produce firework and had separate foreman and workers. The notice also admits in para 5.2 [page no. 6 of the show cause notice] that raw materials required for production of the fireworks were ordered separately by each of the units. The further allegation that the raw material so purchased were stored in magazine of MFWT and supplied to the other units as and when required by such units which is neither illegal nor impermissible under law. Manufacture of fireworks had also taken place in each of the 26 said three firms separately. It is not the case of the revenue that the units are either fake or letter pad companies whereas on the other hand the allegation made in the notice is that each of the said units produced all the varieties of fireworks. There was nothing inherently wrong or sinister in the said observation and in fact it supports the case of the appellants.
11.1. The ld. Counsel submits that once the above facts are undisputed, the law requires that each of the said firm should be given a separate notice as to why they cannot be regarded as truly independent or to treat them as either dummy or a legal façade with no separate existence or legal status. The issue of the notice with such a proposal would be legal mandated in as much as each of the unit was admittedly in possession of legal documents such as PAN card, VAT registration, SSI certificate and Explosive licence etc., clearly affirming their independent and individual existence holding proper legal status more particularly when the notice had admitted to their undertaking the production of the fireworks at their respective factory/ies. The position of law in this regard is also fairly well settled in the following cases.
• Commr. v. Unitech Containers Pvt. Ltd. - 2017 (358) E.L.T. 99 (Del.) • Premier Heavy Engineering Corpn. v. CCE - 2016 (337) E.L.T. 332 (Guj.) • CCE v. Urbane Industries - 2015 (325) E.L.T. 726 (Mad.) • CCE v. Diamond Scaffolding Co. - 2011 (274) E.L.T. 10 (Cal.) 27 • Sree Nirmal Spinners v. CCE - 2014 (300) E.L.T. 469 (Tri. - Chennai) • CCE v. Copier Force India Ltd. - 2009 (245) E.L.T. 478 (Tri. - Chennai) • Poly Resins v. CCE - 2003 (161) E.L.T. 1136 (Tri. - Chennai). • Alpha Toyo Ltd. v. Collector -- 1994 (71) E.L.T. 689 (Tribunal) -- [Paras 8, 13] • K.R. Balachandran v. Commissioner -- 2003 (151) E.L.T. 68 (Tribunal) -- [Paras 8, 11, 13] • Ogesh Industries v. Collector -- 1997 (94) E.L.T. 88 (Tribunal) --
[Paras 8, 9, 10, 12, 13] • Ramsay Pharma Pvt. Ltd. v. Commissioner -- 2001 (127) E.L.T. 789 (Tribunal) -- [Paras 8, 10, 12, 13]
12. It is the submission of the ld. Counsel that the issue as to whether clubbing of the value of the clearances for considering the SSI exemption on the ground of maintenance of accounts in a common office is no more res-integra and has been settled in favour of the assessee in a catena of judicial decisions. The fact that accounts are maintained in a common office for cost conservation, which is not prohibited by law, especially when it involved SSI units, cannot at all lead to any inference of mutuality of business interest among the units so as to hold that the units are not independent or that they belong to the same management. In this case though the accounts were maintained in a common office, accounts/records/ledgers etc for purchase, production, wages, clearance and receipt of consideration for each unit having been shown maintained 28 and show separately unit-wise based on which only each of the units have filed their respective VAT returns and paid appropriate VAT, all the more the said reasoning for clubbing cannot be acceptable. Even the respondent had accepted this factual position but had held that it was done for IT purposes, which is totally unreasonable and unjustified. [para 33 of the order (inner pg. 55)]. This aspect of the law is also fairly settled in a plethora of judgments namely [i] 1993 [66] E L T 375 [Raj]; [ii] 2009 (239) E L T 366 [Tri. - Chennai]; [iii] 2013 (294) E L T 561 E L T [Tri. - Del]; [iv] 2004 [167] E L T 299 [Tri. -Mum]; [v] 2003 [152] ELT 194 T.- Del; [vi] 1997 [92] E L T 451 [SC]; [vii] 2006 (196) E L T 95 [Tri. -Bang}; [viii] 2015 [317] E L T 277 [Tri. -Chennai]; and [ix] 2009 (243) E L T 79 [Tri. - Chennai] and (vi) Board's circular no. 6/1992 dated 29.05.1992.
13. The Ld. Counsel submits that the notice issued to the appellants being full of assumptions and presumptions without any corroborative evidences being brought on record, defying even the application of the principles of pre-ponderance of probability, the notice itself is not maintainable in law. Reliance in this regard is placed on the following judicial pronouncements.
(a) Tinkoot Iron and Steel Casting Limited Vs. CCE [2015 (315) ELT 65 [Tri. -Del]
(b) Golden Steel Corporation Vs. CCE [2017 (347) ELT 570]
(c) Capital Ispat Ltd., versus CCE, Jaipur [2016 (340) E L T 697 [Tri. -
Del]
(d) Sourav Ganguly Vs. CCE [2016 (43) STR 482] 29
14. The Ld. Counsel submits that, without prejudice to the objections to the clubbing of the value of clearances as proposed in the notice and as confirmed verbatim by the respondent, the very unreasonableness and presumption and assumption of the investigation is clearly revealed from how the quantification of the demand has been done. 14.1. The quantification of the duty liability is indicted in Annexure D [pg. 105] which clearly records that it is the work sheet showing the duty liability of the three brothers payable on the fireworks manufactured and cleared from the three units. Thus, in the first place the said annexure makes it clear that the demand made is not on the units but on the three individuals named in the interest. It may not be out of place to submit that from April 2007 the SSI limit of exemption was enhanced from Rs.1 Crore to 1.5 cr. per annum per unit/per manufacturer as per the SSI notification. Accounted turnover of the three units is available in page 101 - Annex C-[ii] showing that the said value is below the thresh hold limit for each of the units and for each of the financial years. It was the stand of the appellants that the figures found in the long note books only pertained to the orders placed on each of the three units part of which pertained to the licit removals with respect of the cases either not supplied or procured and supplied from other units involving only a trading activity a fact for which proof was also submitted [para 18.2 inner page 35 of their reply]which was also admitted by the respondent in para 31 inner page 54 of the order. Thus, the private records having included the licit supplies the show cause notice quantifying the entire demand based on the private records treating them only as illicit supplies and again adding the licit supplies as declared by the units to the VAT 30 authorities to boost the value of clearances beyond the threshold limit by adding the licit supplies twice is not proper or correct. The appellants submits that if the value of the accounted removal reflected in the VAT returns added twice is removed from the total aggregated annual turnover determined it would show that if the entire clearances of all the three units are clubbed even then they remain below the exemption limit for all the five financial years rendering the very demand confirmed bad in law.
14.2. Further, without prejudice, the Ld. Counsel submits that the department has evidence in the form long note books to allege un- accounted removal only for the period from April 2007 to September 2009. For the period from October 2009 to March 2010 there was no evidence available for the unaccounted clearances of the goods but still the unaccounted clearances were quantified adopting the average value of the preceding year clearances namely clearances for Oct 2007 to March 2008 and October 2008 to March 2009 to arrive at average value clearances per day to presumptively work out the value of clearances for October 2009 to March 2010. Reference is invited to the remarks col in work sheet Ann C [i]. and para 15.3 of the notice pg. 84-85. This proposition is not only erroneous but also illegal as it is not based on any credible evidence but on hypothesis which has no place while charging alleged evasion on the part of the appellants. Without prejudice, if the accounted turnover of Rs. 1,13,06,797 is excluded from the total turnover of Rs.1,74,81,626/- which according to the appellant is inclusive of accounted turn over, even then they are eligible to avail SSI 31 exemption for 2009-2010 also. Reference is invited to Ann C [i] at page 100 and Ann C [ii] for work sheet.
14.3. The Ld. Counsel further states that similarly the quantification for the period 2010-11 and 2011-12 is also equally wrong. For the said period also, the notice has not adduced any evidence. Hence the notice has gone on to quantify the value based on the coolie or wages and bonus paid to works as found in the private register recovered during search operations. The said note book also contained coolie charges paid only up to September 2010. The notice further assumed that the appellants had used both factory workers and contract labourers in the ratio of 3:1 and based on the said assumption had worked out the total coolie charges paid up to September 2010 and interpolated the same to arrive at the assumed figures for the period from October 2010 to March 2011 without any evidence being available on record by assuming that the wages would accounts for 20% of total sale value and by extrapolation of the coolie figures for the financial year 2010-11 on a totally assumed basis. This annual turnover is based on hypothesis which is highly unreasonable and biased. [Work sheet in Ann C [iv] pp 104]. In any case and without prejudice since the accounted clearance is only Rs.1.43 cr. for 2010-11, they are eligible for SSI benefit. 14.4. The Ld. Counsel submits that for the period 2011-12, there is no evidence of any unaccounted production and clearances. But still a demand has been made vide worksheet Ann C [iv] / pp 104 to deny the SSI benefit on the premise the total aggregate of the clubbed production had exceeded Rs 4 Crores during 2010-11 which is completely wrong 32 being unsupported. Without any evidence supporting the alleged surreptitious removal for 2011-12, the notice must take only the accounted clearances [ Rs.1,43,21,815/- as per Annexure D pg. 105] which is far below the threshold limit of exemption, making the appellants fully eligible to avail the exemption. 14.5 The above illustration clearly show the hollowness of the proposals made in the impugned show cause notice without any rationale except based on hypothesis and presumptions so as to project as if the appellants have involved in duty evasion without there being any evidence collected during investigation which ran for 22 months which unfortunately was affirmed by the respondent without adverting to the manner of quantification or even a whisper regarding the said manner in the impugned order passed by the respondent resulting in gross injustice being done to the appellant.
14.6. The Ld. Counsel emphasises that as stated earlier, the total turnover pertaining to the three independent units was always below the SSI exemption limit of Rs.1.5 cr. per year. If each of the said unit is treated as a separate legal entity, then the gross turnover of each of the unit will fall below the limit of exemption in each of the financial year. With a view to deny the exemption the department has attempted to club the clearances of all the three units and projected the case as involving large-scale evasion of duty for which they treated the three brothers as a single manufacturer inspite of the existence of three independent partnership firms, which is highly improper and totally erroneous.
33
15. It is further submitted by the Ld. Counsel that the various case laws referred to and relied upon in para 37 of the impugned order to sustain the proposals are distinguishable since those decisions were rendered in a totally different context and on a totally different set of facts and circumstances which are not so in the present case. Very recently the Hon'ble CESTAT, Chennai Bench in a case involving similar facts investigated by the DGCEI, pertaining to one Vadivel Pyrotech private Limited distinguished the law laid down in the above cases to hold that the demand for duty based on the proposal to club the clearances effected by the various firms as not sustainable and the ratio laid down in the said case squarely applied to the facts of the present case of the appellants. Copy of final order enclosed
16. The Ld. Counsel further submits that inspite of repeated requests seeking the permission to cross examine the investigating officer/s who conducted the investigation and who have recorded the statement/s from the various persons to test the authenticity of the claim made by the investigation, the learned respondent had rejected their request without assigning any cogent reasons vide his finding in para 35 of the impugned order. The case laws cited by the respondent to support his decision not to allow the request for cross examination are not only irrelevant but also extraneous. The appellant was pressing for the cross examination of the investigating officers since the deposition of Shri S. Kannan and the cross examination of the alleged buyers which was permitted earlier by the predecessor adjudicating authority was telling a different story clearly evidencing to the fact that their initial deposition recorded by the officers 34 were not voluntary or factually correct. The appellants submit that their case was adjudicated purely by borrowing the averments contained in the impugned notice without even bothering to consider any of the subtle contentions made by the appellants or the documents and circulars on which they placed reliance or any of the judicial pronouncements cited by them in their support, resulting in gross violation to the principles of natural justice for the sole reason of which alone the impugned order merits to be set aside.
17. The Ld. Counsel also submits that even though the demands made on the various units were based on the above ground of clubbing of their value of clearances, however, the quantification of the demand was done by including certain alleged illicit removals on a total assumption and presumption in respect of which no proposal was also made in the notice issued to them, which on the fact of the said fact of non-issue of notice should render the order untenable.
18. The Ld. Counsel submits without prejudice to the above submissions, that the reasons given for clubbing of the value of clearances and the consequent quantification done, are unjustified. 18.1. The Ld. Counsel submits that clubbing of the value of clearances and denying the benefit of the exemption availed by the three units, was made out based on the summary of findings available in para 14 of the show cause notice relying upon the following facts and documents namely 35 i. All the units were managed by the group of three persons and other partners did not have any role to play.
ii. Accounts of all the units were maintained in common. iii. Documents in the form of long sized and short sized note books. iv. Statement of S/Shri S. Meenarajan, S. Kannan and S. Bhaskaran; v. Statements recorded from the raw material suppliers; vi. Statements recorded from the traders and buyers of fireworks from the appellants;
vii. Bank statements evidencing receipt of consideration, viii. Register/evidence for payment of coolie and bonus to workmen. 18.2. The learned counsel submits that assuming without admitting that the three units were managed by the three brothers and the other partners did not have any role to play, yet it would not be anything wrong or impermissible in law more particularly in terms of the Partnership Act or the Central Excise Act 1944 for the family members to form a partnership for business in their own right. So long as the composition of the family members constituting the partnership are different in each firm, each such firm is to be regarded as a separate legal entity for all purposes including for the availment of the SSI exemption provided under notification no 8/2003 CE. The CBEC vide its circular No: 06/1992 dated 19.05.1992 and 37B order dated 19.05.1992 had concurred with the above legal position which has been followed in a number of judgments delivered by this Hon'ble Tribunal also. It is also by now well settled law that clubbing of clearance under the value-based SSI exemption notification is not permissible unless the revenue alleges and prove that the units involved were dummy or a camouflage or there 36 was flow back of funds between such units, whereas in this case without existence of any of such facts or even when there are no such allegations to that effect, the impugned order in para 37 had concluded all the said facts are available and has cited some judicial pronouncements to sustain the proposal for clubbing. In this case, the fact admitted itself showed that each of the units were truly independent and cannot be called a dummy unit and there is also no allegation in the notice that there was any financial flow back or profit sharing among the units nor was it established in the order. In its absence the clearances effected from the said units are not clubbable and that too only for the purpose of determining the aggregate value of clearances to sustain the demand for the differential duty from the individuals named in the show cause notice.
18.3. The ld. Counsel reiterates that the issue of maintenance of accounts of all the units in a common office, for clubbing of the value of clearances for considering the SSI exemption, is no more res-integra in the face of a catena of judicial decisions as was submitted earlier. 18.4. The Ld. Counsel submits that the evidence in support of the allegation of illicit manufacture and unaccounted clandestine removals is based on the long-sized note books bearing no Sl. No: 25-1/4, 25-2/4, 25-3/4 & 25 - 4/4 seized from the premises of MFWI vide mahazar dated 20.10.2010 [Annex - B to notice Sl. No:1 /pp 98]. On the basis of the entries found in the above said four long registers it is alleged that the appellants have made unaccounted removals of the finished fireworks. Though the availability of the said long registers and the entries made 37 therein are not denied, it was the contention of the appellants that the said long note books was nothing but an order recording book containing entries of the orders placed on the units for the supply of fireworks. The reconciliation of the details contained in the said books in terms of the accounted sales with reference to the invoices were not considered by the respondent at all. It is submitted that the mere placement of orders for the supply of fireworks from the various buyers and its recording does not translate into actual removal of goods without bills. Equally the mere making of entries in the order book cannot form the basis for raising a demand of duty assuming that the order book represented the actual sale of unaccounted removal of fireworks. It is common in commercial practice that many a times the order so placed may not translate into an actual supply. Price negotiations take place after receipt of order and the price differs based on the brand sought for and its quality. Actual supply of goods depends on various factors and the one agreed at the time of delivery takes place on the basis of availability of the stock on hand; the transport and money to buy with the buyers etc., There are many instances where the order for supply noted in the order book had not fructified due to various facts and circumstances involved. The assumption that all the entries found in the long note books represented only the unaccounted removal w/o bills is highly improper and totally untenable. Many instances of supplies with bills were taken out from the entries found in the register and matched. This position was also accepted by the respondent herein in his observation found in para 31 @ page 54 of the order in original. Even though he had accepted that Shri S. Kannan has matched some entries but had gone on to observe without any justification that these are instances of double removals against 38 single invoice to conclude that the said four registers contained only unaccounted sales. Such an observation is extraneous to the assumption. 18.5. It is the submission of the Ld. Counsel that, even assuming that the entries might have a connection to certain unaccounted removal, even then the department should have embarked on a proper investigation to bring on record justifiable and acceptable evidence showing the purchase of excess raw material for its production, evidence of the actual production, removal of unaccounted goods manufactured with reference to transport documents obtained from transport operators, statement from the buyers and their ledgers for the purchase for the unaccounted purchases made by them and evidence for the payment of the additional consideration for the unaccounted removals to the appellants. In this case no such specific and cogent evidences have been gathered to justify the assumption that the entries found in the long note books were indeed related to only unaccounted supplies. 18.6 The ld. Counsel submits that, though the appellants were procuring raw materials required to produce fireworks, from various dealers/producers, the notice has referred to and relied upon the statement of two persons namely Shri M. Thenrajan, Prop of M/s Lakshmi Metal Products and Shri S. Balakrishnan of M/s Krishna Chemicals. In so far as M/s Krishna Chemicals is concerned, it is seen from his deposition that he has been supplying chemicals only on invoices and very rarely a small quantity will be supplied without bills and excepting a case of 45 bags of Bariam and Strontium valued at Rs.60,000/-, all supplies have been made on bills only. The so-called supply of small quantity of 39 chemical valued @ Rs.60,000/- is too small and insignificant when compared to the purchases made during the past three years to even comment. In any event, the officers did not seize or rely upon any of the records including the private records maintained by the said suppliers to substantiate their allegation or to corroborate his statement. Hence the deposition has no face value. With regard to M/S Lakshmi Metal Products, the ld. Counsel submits that even though they had initially stated that most of their sales are through bills only and only a very less quantity will be supplied without bills, but later they adopted the version of the department and confirmed that they had supplied chemicals without bills as per the entries found in the records shown to them by the officers. The version of the deponent is not convincing for the reason that he has not referred or relied upon any of the records/ledger or any other records maintained by him for the sale of chemicals to the appellant or realisation of such sale proceeds. Since he being a trader, has towed the line of the department's version to avoid any trouble, with the only intention of satisfying the officers to buy peace to avoid any possible trouble. The department also on its part did not initiate any action on the said supplier for his act of the alleged collusion and evasion of duty or have not even informed the said fact of sale by them to the VAT authorities for the unaccounted supplies obviously for the reason that there was no documentary evidence to justify the charge and to ensure his continued support to nail the appellant. The Ld. Counsel submits that the bald statement which is exculpatory in nature has no evidentiary value without the supporting documentary or other corroborative evidence either in the form of his statutory records or VAT records or any private records for the sale and supply to the appellant. 40 18.7. The Ld. Counsel further submits that the department has failed to bring in evidence about the total quantity of raw material procured from the above suppliers and how much was used to produce the accounted production and how much was used for the unaccounted production, input output ratio to substantiate purchase and utilisation of raw materials for the un accounted production in proportion. Without such details, the statements of the raw material supplier being only of academic in nature not corroborating the allegation, the same is not admissible in evidence [pg. 209 - 217].
18.8. It is the submission of the Ld. Counsel that , the carton box supplier, Shri R. Srikanth, Partner of M/S Jai Krishna Packaging Industries, in his statement dated 08.02.2012 had informed that they have been supplying corrugated boxes to all three units and most of their transactions are with bills and some without bills and with regard to chittas and computer printout he said that some may relate to without bills and mostly they supplied only with bills. There seems to be nothing incriminating in his statement to arrive at the conclusion that all transactions with Meena Group are without bills only and therefore nothing could be inferred from his statement to believe that huge quantities of corrugated boxes were procured from the said firm to be used for packing un-accounted fireworks. [pp209-212]. Further, Shri. T. Krishnamurthy, Partner of M/S Sri Krishna Packaging Industries in his statement dated 0802.2012 admitted to have supplied packing material to all the three units mostly with bills and occasionally without bills. Ld. Counsel submits that with reference to question no 10 regarding the 41 small chittas, he had clarified during cross examination that he did not see all the entries in the computer printout [ pp289-290] and admitted that most of the entries available in the computer printout does not relate to his company and he has singed the statement without proper verification. His statement coupled with the deposition during cross examination does not corroborate the alleged extensive evasion of duty and unaccounted sales of Meena Group of companies. It is the submission of the Ld. Counsel that the statement given by shri. M. S. L. Sheik Mydeen, Partner of M/s M.S.L Packaging Industries dated 24.05.2021 is too brief. It does not contain any serious incriminating stuff. He seems to have towed the line of the officers by merely accepting their suggestion in reply to question no 4.
19. As regards the statements/records from buyers, the Ld. Counsel submits that during the material time the appellant had more than 100 customers both up-country and within Tamil Nadu. Though they undertook local supplies in their own van, out station supplies and interstate supplies were done though lorries and trucks belonging to the various transport agencies. The investigating agency could not produce even a single lorry receipt or transport records/consignment note etc from any one of the transport agencies to sustain their charge of un- accounted removal. The fact that goods were transported through public transport were provided in their reply. As they do not have any national permit their van cannot cross T. Nadu border at all. To get over the inability of the investigation to produce the consignment note or lorry receipt and in order to justify their unreasonable charges, they merely observed that the appellants had used their vans for all the unaccounted 42 supplies, which is far from truth. The investigation agency also could not show a single instance that their van was intercepted or caught by the Commercial tax / VAT flying squad or VAT check post for carrying goods without invoice. Thus, the charge of unaccounted removal is merely in the realm of speculation.
19.1. The Ld. Counsel further submits that if the allegation of huge un- accounted supplies without bills as per the data entered in the long note books is true, then nothing prevented the investigation to carry of thorough verification at their buyer's end. It may not be out of place to submit that DGCEI has all India presence and have offices throughout India and have also All India jurisdiction, and therefore they could have visited or summoned the buyers with their purchase records to corroborate the entries found in the ling note books. For reasons best known they have not attempted this basic exercise or it is possible that after carrying out such an exercise they could not find any evidence and hence the notice had not referred to the said fact. In any event it is well settled that entries found in any alleged incriminating private records needs to be corroborated from the buyers' end, which has not been done.
19.2 The Ld. Counsel contends that the department did not rely upon any buyers' statement excepting five persons, out of which four are local and one from Bangalore. Each one of them had deposed that they had procured firework from each of the three units. If the statements given by the five alone is reliable and shown as representative, then the respondent out to have dropped the demand pertaining to the other such 43 alleged buyers. One cannot assume that that the same tie up would be maintained with all the other buyers also. Even with respect to the said five customers, excepting their statement no other records either private or official maintained by them for their purchase was procured, relied or even referred. A bald statement without corroboration with their purchase records is next to nullity and lacks credibility. It is only the local customers who had deposed that fireworks were supplied in their own van and this may not hold good for supply to the out-station buyers. Out of five only three local buyers have deposed that they received their supplies in the van owned by the appellant. None of the out-station buyers have said so. The finding of the respondent that the appellants had been supplying fireworks in their own van hence they could not get any transport documents is totally devoid of truth. Without placing reliance on the transport documents such as L.R. or consignment note which would contain the quantity, weight and value of goods transported, the charge of unaccounted removal stands un proved. 19.3. It is further submitted by the Ld. Counsel that assuming that the deposition of the said customers is true, legal action ought to have been initiated against them for their complicity and abetment in the alleged illegal transaction by way proceeding under Rule 26 of CER 2002 and also their case should have been referred to the State VAT authorities for action against them. Since no action seems to have been initiated against them, their statements are clearly proved to have been obtained under a promise of turning a blind eye on their alleged act as a quid pro quo to supporting the case of DGCEI.
4419.4. The Ld. Counsel submits that during the cross examination, even the said five local buyers have deposed that they had signed the statement as desired by the officers. The truth of their deposition was tested before the LAA which is a judicial proceeding and the evidentiary value of the cross-examination proceedings have more credence than the recorded deposition before the investigating officers. The depositions made during the cross examination needs to be factored in to the initial statements and only the revised or modified version must be relied upon. If the deponent has turned hostile it is for the authorities to discard their oral evidence. In this case even though all the deponents had clarified their position and the nature of deposition made by them before the investigating officers, the LAA instead of referring to the cross- examination proceedings and their revised version continued to rely only on their initial self-serving statements and proceeded to confirm the proposal verbatim which is not legal or appropriate.
20. As regards the statement from agents and dealers, the Ld. Counsel submits that the notice also referred to the statements recorded from six agents and dealers and except for the fact that each one of them admitted to purchasing fireworks from each of the three units, the rest are all seems to be version of the officers. The statements affirm the physical existence of all the three firms separately and the supplies made by these units individually. The statements did not refer to any of the records maintained by these dealers for their purchases either statutory or private including the purchase ledger which they are, as per the commercial practice, required to maintain to corroborate their version. The department also did not obtain any of their private or statutory 45 records/ledgers etc to substantiate the charge of supplies by the appellants without issue of bills or for the receipt of payment of the consideration either in cash or through accounts. The dealers being traders merely towed the line of the officers to escape the wrath and punishment. During the cross examination all of them have deposed and clarified that they did not verify or check the various entries said to have been found in the computer print outs containing 19 pages which was in the possession of the officers which is said to contain information about the supplies alleged to have been made without bill and the corresponding payment in cash but admitted that they have merely signed the statement as suggested by the officers which clearly show that the information contained in their statements were neither true nor voluntary. Curiously enough the respondent also did not refer in his order about the said deposition/clarification given by the various deponents before him during cross examination but proceeded to rely and pass order on the basis of the original statement which is legally impermissible in law. [ pp289 to 301]
21. With respect to the statements of the group of three persons, the Ld. Counsel submits that the investigating officers have recorded totally seven statements from Shri S. Meenarajan; one statement each from S/Shri S. Baskaran and S. Kannan. The said statements were touted as confessional / admission statements. The said statement mainly touched upon the entries found in the four long books, [sl.no: 1 of the mahazar] assumed to contain details of unaccounted sales; five small note books [ Sl. No: 2 said to contain receipt details of unaccounted sales] ; made up file Sl.No: 13 said to contain details of wages paid; etc. 46 21.1. The Ld. Counsel submits that as submitted supra, mere admission of the alleged offence in the statements by making reference to data/s found in the above seized records/note books is not sufficient to prove a case of alleged clandestine removal resulting in evasion of duty by indulging in illicit manufacture and unaccounted clearances unless the same is corroborated by acceptable and justifiable evidences. Though the information found in the long and small note books and other records may prima facie create a suspicion about the licit nature of the activities or for that matter large scale of un accounted manufacture and supplies of excisable goods, the said information and the oral statement need to be further corroborated with third party documents such as excess purchase of raw material, excess production by way of payment of wages or electricity consumption, excess purchase and consumption of packing material, transport of unaccounted goods, unaccounted purchase by the various dealers, receipt of consideration for the clandestine supplies etc whereas no such evidence have been adduced against them and the entire case merely rested on the statements and long and short note books and bank statements. The authorities never seriously attempted to correlate the purchase of raw material with the production, no proof of excess production by way of production records, no proof of transport of goods, no statement from the 100 odd dealers or at least with main dealers along with their purchase records or quantification of the receipt of additional consideration with reference to the admitted excess purchase of fireworks without bills etc. The various statements and documents relied upon are in bits and pieces and no cohesive and 47 justifiable evidence has been let in to justify the huge evasion of duty alleged against them.
21.2. The Ld. Counsel submits that in any event since the statements stand uncorroborated in the manner known to law, its credibility is doubtful but, in this case, the entire case of the department rests on the statement and on the long and short note books seized from their premises.
22. The Ld. Counsel submits that as regards the Bank Statements, the notice has referred to the maintenance of 29 accounts both current and savings bank accounts by the three units, their 7 partners and few others. In annexure C [iii] pp 102 - 103 the total amount found in the credit side of the said account were listed alluding to the fact that they may pertain to cash receipts on account of sales without bills. While there are cash deposits pertaining to the large no of sales with bills since in the trade of fireworks most payments are received in cash only that too during the material period. This apart the credit side receipt also represent transfer from current Account to the partner's account and deposit due to closure or foreclosure of FDs. A reconciliation statement was also submitted along with the reply to substantiate their defence. It is not un common for person to hold more than one Bank account for so many reasons namely better service, nearness, loan of OD facility. There is no legal bar for individuals to maintain several accounts with different banks. The department has collected details about the said bank accounts and the deposits made into the said accounts and furnished the same as annexure C-[iii]. The notice had clearly recorded that the said 48 information is only for the purpose of corroboration of the allegation made in the notice. According to the notice the accounts represented receipt of consideration for the licit and illicit sales but the notice did not make any attempt to segregate the receipts pertaining to licit and illicit transactions. The deposits made into these accounts were not treated as the receipt of consideration for the unaccounted sales and no demand or work sheet was prepared based on such entries found. They also did not correlate the receipt of money transaction wise or customer wise or even month wise sale of unaccounted transactions. The officers had also failed to take note that transfer from one bank to another bank is not accrual of receipts and similarly transfer from current account to personal account of the partner for whatever reasons such as their share of profit or transfer of fund for personal use or for any purpose. Similarly in the personal SB accounts there are credits in the deposit side due to closure of FDs as well as loans and advances. The investigating officers did not at all bother to arrive at the net receipts/deposits after eliminating the multiple entries to correlate it to the unaccounted sales. In view of the total lack of information the reliance placed on the said bank statements marked as annexure C -[iii] is not relevant as the same has not been properly shown as connected with the alleged unaccounted transactions to enable the appellants to file their response. May be that was the reason the LAA also did not bother to make any reference or rely upon the said bank statements in his findings. Hence the reference to the bank accounts/bank statements and annexure C [iii] is not relevant to the issue in question.
49
23. On the imposition of penalties, it is the submission of the Ld. Counsel that the impugned order has imposed equal penalty of Rs. 1, 97, 59, 664/- on the above three persons under Section 11 AC apart from imposing a separate penalty of Rs 19,00,000/- on each one of them invoking Rule 26 of CER 2002. It is the submission of the Ld. Counsel that the said group of three persons cannot be at one stroke regarded as the manufacturer and a single financial entity and at the same time, on the other hand, treated as separate individuals concerned with the alleged illegal removal of the goods so as to invite a penalty under Rule
26. Rule 26 is applicable to persons other than manufacturers only and imposition of penalty under Section 11 AC and Rule 26 ibid therefore is bad in law and not maintainable.
24. The Ld. Counsel also submits that when the very demand confirmed by the adjudicating authority is erroneous and un-sustainable in law for the for the aforesaid reasons, the penalty imposed on the perceived infractions also has to necessarily fail. The Ld. Counsel also contends that the Adjudication has been inordinately delayed as the notice issued in 2012 was adjudicated only in 2015 and thus there is a violation of the mandate of Section 11A(11) of CEA and places reliance on the Judgement dated 10-2-2024 of Delhi High Court in M/s.VOS Technologies India Pvt Ltd v The principal ADG & Anr. and the Tribunal Final order Nos.59511-59720/2024 dated 25.11.2024 in M/s. Kopertek Metals Pvt Ltd v Commissioner of CGST. The Ld. Counsel also submits the decisions in M/s. Balaji Packagings v Commissioner of GST & Central Excise, Tirunelveli and Madurai (Vice-Versa), 2023 (9) TMI 180-CESTAT CHENNAI, CCE, Tirunelveli v Universal Fireworks Industries, 2015 (317) 50 ELT 277 (Tri-Chennai), Renu Tandon v UOI, 1993 (66) ELT 375 (Raj) and Final Order No.40295-40298/2022 dated 18.08.2022 in M/s. Vadivel Pyrotech Private Ltd v The Commissioner of CGST & Central Excise, Madurai. The Ld. Counsel also submitted the Circular 6/92 dated 29-05- 1992 of CBEC on the subject of clubbing of clearances of various firms- different firms to be treated as different manufacturers for exemption limit-reg.
25. The Ld. Counsel submits that the impugned order has failed to establish and justify the proposals made, namely, that the value of clearances of all the units must be clubbed, and if so for what justifiable reasons, and against whom, that it has failed to establish the alleged illicit clearances, by letting in admissible evidences as per law. It is further submitted that the impugned order merely reproduces the evidences adduced in the notice, verbatim borrowed, without considering the submissions of the appellants and thus are hardly sufficient to invoke even the principle of preponderance of probability to sustain the allegations made. In all it is submitted that the order in original has confirmed the demand purely on conjectures, surmises and presumption and hard evidence is a casualty and thus prays to set aside the impugned common order passed by the Adjudicating Authority and to allow their appeals with consequential benefits if any.
26. Ld. AR Shri Anoop Singh appeared on behalf of the respondent and reiterating the findings in the impugned order, submits that if mutuality of interest and flow back of funds are proved the Department has a case. 51 The ld. AR emphasises the findings of the Adjudicating Authority at para 31, 34 and 35.
27. The Ld. AR submits that in para 31 the Adjudicating Authority has held that Shri S. Kannan claimed that the registers said to contain clandestine removals of fireworks are rough note books and were maintained for all the three units to have track of the orders and supplies; the diaries and note books recovered, from the residential premises of Shri S. Kannan containing the details of debtors/creditors, stock of finished products and raw materials after each Dewali, were also claimed to be in the nature of including the income & expenditure concerning their textiles business, agricultural income earned and the business of fireworks; the file bearing Sl. No. 26-1/2 and 26-2/2 (Sl. No. 14 & 30 of Annexure B to the SCN) containing the torn invoices were raised just 3 to 4 days prior to search operation and such of those invoices made out were torn on account of the fact that those invoices were prepared in anticipation that goods would be made ready by the units before the close of the day whereas on account of shortage of as productions, such quantity could not be made due to reasons such as prevalence of inclement weather during that part of winter season or shortage of raw materials or packing materials or visit of officials of various departments necessitating to stop the clearing activities, the same could not be made ready and dispatched; sometimes the parties concerned to whom such invoices were raised cancel their orders abruptly leading ourselves to tear those invoices and such torn invoices were used for rough work. The investigation has brought out the fact that they were in the habit of raising invoices of the same number with 52 different consignments to different parties. Once the consignment reached the destination of the Customer, the said invoices are torn and used as rough sheets. This fact has been accepted by triad in their respective statements. Shri S. Kannan has also admitted the same in his reply, but quoting various reasons for such cancellation of invoices; this activity shows that they never respected the laws relating to Commercial Tax; the invoices are regarded as negotiable instrument;, though the situation warrants cancellation of invoices, they should not have been torn but instead they should have cancelled and kept in file for inspection or verification by the statutory authorities; they should have raised an invoice for same consignment with a new number, thus the investigation established their character of raising invoices of same number for different consignments and such torn invoices were found recovered to adduce evidence to the malafide activities of them; the four registers contained the removal of fireworks in coded form were admitted to be the registers maintained for the removal of fireworks manufactured in 3 factories in an illicit manner or unaccounted manner; now he claimed those registers were rough notes in nature, however he admitted that those registers show the clearances of fireworks manufactured in all the 3 units; however he tried to match some of the consignments with the invoices as shown in the List-I. This fact may be true, but the investigation has established that dispatches of two consignments in a single invoice as could be seen from the order forms containing in file No.30-2/2 (Sl. No. 11 Annexure-B to the SCN) wherein the details of payments for 2 consignment one under invoice with sales tax and the another one without invoice and without tax. Hence, I am of the opinion that though Shri S. Kannan matched some of the entries in the register 53 with invoices, all the entries in those 4 registers must be the consignment of fireworks cleared to the customers in an illicit manner as admitted by the triads in their respective statements, for the reason that in as much as two consignments were cleared under one invoice, which was accounted, the other consignment found place in the said four registers must have been unaccounted one. The Ld. AR submits that the statements were retracted only in reply after more than two years and that in so far as the quantification is concerned it can be remanded for reverification of the quantification.
28. The ld. AR submits that clubbing of the clearances was in order as the three brothers handled the administration, finance and production separately for all three units but proper books of accounts unit wise was not maintained. He draws attention to para 34 of the impugned order where the adjudicator has held that the investigation also brought out the unaccounted purchase of raw materials such as Aluminium and Magnesium alloy powder, Barium and Strontium Nitrate and Packing materials which were found recorded in the 2 long sized note books recovered from the M/s. Meena Trading Company Above all, the 3 brothers who have masterminded the illicit activities of procuring raw materials without bills, manufacturing of fireworks without maintaining any books of account and sale of fireworks without bills have also admitted that they have only carried out all those activities relating to their 3 factories; their relative were also included into the constitution of the firms to create an impression that they are separate firms to claim the exemption in respect of each factory in addition to the clandestine activities; had their claim that they are independent in all respects been 54 true, fireworks manufactured in M/s. Meena Fireworks would not have been permitted into the premises of other factory namely M/s. Meena Fireworks Industry and so did in the case of M/s Meena Sparklers to M/s. Meena Fireworks and vice versa; the raw materials procured in the name of M/s. Meena Fireworks and M/s. Meena Sparklers need not to be brought and stored in the M/s. Meena Fireworks Industry where Shri. S. Bhaskaran was always available; he distributed required raw materials to the other units as and when required as admitted in his statement dated 05.01.2011; Shri S. Kannan has stated in his statement dated 10.10.2011 that orders from customers given over phone were booked in plain papers and the same will be destroyed on confirmation of the arrival of the goods, from the customers; the cash transaction relating to the supply of raw materials, job workers and wages to the labourers and even to the personal use of the partners were handled by Shri S. Meenrajan; S/Shri S. Meenrajan, S. Baskaran and himself were the real partners of all the 3 firms and hence they did not segregate the supply of fireworks to the customers; for maintaining different partnership for each firm they included their wives and parents as partners; as soon as the consignment of fireworks under cover of invoices reached the customers the said invoices returned to them were destroyed, a new consignment of fireworks would be dispatched under the same number of invoices; he prepared the order forms containing in the file bearing the Sl. No 30-2/2 (Sl. No. 11 of Annexure B to the SCN), on seeing the estimate memo dated 24.08.2010 he stated that the 2 order forms contain the cost of fireworks to be supplied to M/s Sri Vairava Traders, Hassan for Rs 60,541/- and Rs. 85,895/-; those orders also reflected an amount of Rs. 59,110/- and Rs. 83,956/-which did not include the Mahamai and Sales 55 Tax; those data denoted the supply of 2 consignments against each order; one supply was made under the cover of invoice and the other consignment with the same contents supplied without invoices, this practice was followed by them in respect of all parties; the consignment of fireworks mentioned in 4 registers (25-1/4 to 25-4/4) were unaccounted dispatches of fireworks from the factories; the payments received in cash towards illicit sale of fireworks were handed over to Shri S. Meenrajan who deposited it in anyone of the personal accounts; such cash receipts were also used for payments to the suppliers of raw materials; fireworks such as Lars/Wallas were brought from M/s Meena Fireworks to M/s Meena Fireworks Industries; the amount deposited in the account of Shri S. Kaliswaran, partner of M/s Sri Balaji Traders were payments received towards the illicit removal of fireworks from their factories; small note book bearing Sl. Nos 15-2/10 and 7 were written by him and the contents therein represented the unaccounted income and expenditure, the expenditure was nothing but the disbursement of cash towards illicit purchase of raw materials; on seeing the contents in the diary bearing Sl No. 4 recovered from his residence showing the date relating to the year 2009, he admitted that the amount of Rs. 1,05,70,872/- was the net profit earned by the sale of fireworks manufactured from M/s. Meena Fireworks, M/s Meena Fireworks Industry and M/s. Meena Sparklers.
29. The Ld. AR states that further in para 35 the Adjudicator has found that despite his admission of the facts contained in the private documents recovered from their office premises and his residential promises, Shri. S.Kannan stated in his reply that they have deposed 56 those statements under threat of arrest and coercion; being an Engineering graduate having ample experience in the marketing, maintaining separate accounts in different banks for deposing the illicit receipts earned through the unaccounted sale of fireworks, floating a firm said to be grinding chemicals on job work basis without raising any invoice /coolie bills, Shri S. Kannan cannot be considered as a lay man deposing statement under threat of the officers as claimed by him, had it been so he could have retracted the statements even after the issue of show cause notice on 13.08.2012, whereas he brought all these allegations only in the reply submitted after the lapse of more than 2 years. Therefore, the counter contention placed by him lost its strength against the charges levelled against them in the show cause notice. Since, the investigation has established that these 3 persons namely S/Shri S Meenrajan, S. Baskaran and S. Kannan indulged in the unaccounted transactions relating to their 3 units and non-maintenance of books of accounts with a solid ground that they (the three partners) are physically available in the factories one after the other leads to draw a conclusion that these 3 persons have exercised administrative, managerial and financial control over all the firms; further the despatch of raw materials, delivery of finished goods from one unit to other and sale of fireworks of all varieties manufactured in all the 3 units under invoice of each firm irrespective of place manufacture established by the investigation and the turnover of each firms was more or less equal, irrespective of different production capacity and number of manufacturing sheds drives home the point that all these 3 units are inter depended on each other and hence, the value of clearances accounted and unaccounted sold by all the 3 firms are clubbable and the 57 transaction value determined based on the price list giving normal discount of 30% on such clandestine removals arrived at by the investigation appeared to be in order. It is seen from the show cause notice and the reply submitted by one of the partners Shri S Kannan, the allegation levelled by the investigation were all based on the documentary evidences and the statements from the partners, the suppliers and the customers were also confessing those evidences and as such statements are only corroborative in nature which cannot be considered to be recorded under the threat of arrest as claimed by the partner; and the course of recording the statements also seemed to be very cordial as the deponents are replied on their own way to the questions posed to them therefore reject the request of the partner to cross examine the officers which would delay the process of adjudication which has been so far delayed by more than 2 years. Further, the right to cross-examination is not an absolute right. The question whether the petitioner was entitled to cross-examination, is question which may largely depend on the facts and it is for the adjudicating authority to decide. Ld. AR reiterates the reliance placed by the adjudicator on the decisions in Modi Alkalies & Chemicals Ltd, 2004 (171) ELT 155 (SC), Parle Bisleri Pvt Ltd, 2011 (263) ELT 15 (SC), Supreme Engineering Works, 1996(82) ELT 102 (Tri) and L.R. Industries, 1999 (114)ELT 550 (Tri) while stating that the decision relied upon by the Adjudicator in H.T. Bhavnani Chemicals (P) Ltd, 1997(92) ELT 502 (Tri) may not apply as three units therein were in one single plot.
30. The Ld. AR submits that when the corporate veil is lifted it is clear that the existence of the three companies independently was a sham and 58 the distinct legal nature cannot be used as an eyewash to portray their independent nature as the companies are indeed interdependent and related through financial control and management and therefore the value of clearances is to be clubbed together.
31.Ld.AR submits that the plea of delay in adjudication was never raised before the adjudicating authority or in the grounds of appeal and was being raised for the first time during arguments and in any event the delay has occurred due to the action of the appellants who too had taken adjournments and thus contributed to the delay and thus the case laws relied upon are distinguishable.
32. In rejoinder Ld. Counsel submits that suspicion cannot take place of proof and for clubbing estimate of quantum of clearance from each factory and how they were cleared etc. had to be arrived prior to clubbing and that while the reply of the appellant met each and every point of the SCN, the impugned Order did not rebut the specific contentions refuting the so called evidence in SCN. There is no evidence as to how the ingredients of Rule 26 were attracted and the reply contentions were not dealt with in the impugned OIO.
33. Heard both sides and perused the appeal records as well as the citations produced as relied upon.
34. The principal two issues that arise for determination are:
1) Whether the finding of the Adjudicating Authority that M/s. Meena Fire Works Industries, M/s. Meena Fire Works and M/s. Meena Sparklers are to be treated as one single manufacturer manufacturing and clearing fireworks from their factories in terms 59 of section 2(f) of Central Excise Act read with para 2(v) of the Notification No.8/2003-CE dated 01.03.2003 as amended, is tenable.
2) Whether the finding of the Adjudicating Authority that the value of clearances of fireworks including sparklers manufactured and cleared from M/s. Meena Fire Works Industries, M/s. Meena Fire Works and M/s. Meena Sparklers during the period 2007-08 to 2011-12 should be clubbed together in terms of para 2(v) of the Notification No.8/2003-CE dated 01.03.2003 as amended to determine the aggregate value of clearances for demanding duty from the said three firms, is tenable.
35. The other findings of the adjudicating authority of confirmation of the demand along with order of appropriation, imposing of penalties are all consequential and their tenability would hinge on the determination of the above two issues.
36. At this juncture, it becomes necessary to juxtapose certain paragraphs of the SCN and the findings of the Adjudicating authority consequent to the SCN proposals, which are tabulated as under:
SCN Paragraphs Paragraphs of the Findings in OIO 21. From the above it appears that the three 40. In view of the above discussions, it brothers viz, Shri S. Meenrajan, Shri. S appears that the fireworks of all varieties Bhaskaran and Shri. S. Kannan, who have manufactured and cleared accountedly and jointly associated one another with common unaccountedly by the three brothers from understanding to evade duty and to fulfil their M/s. Meena Fire Works Industries, M/s.Meena goal, have illicitly procured raw materials, Fireworks, and M/s. Meena Sparklers manufactured fireworks in the units, M/s. irrespective of place of manufacture without Meena Fire Works Industries, M/s. Meena Fire payment of Central Excise duty levied Works and M/s.Meena Sparklers and cleared thereon. Therefore, I hold that they are one
all varieties of fireworks under the invoices of single manufacturer in terms of Section 2(f) 60 three units irrespective of place of of Central Excise Act read with para 2(v) of manufacture and also without raising invoices the Notification No.8/2003-CE dated and without payment of Central Excise duty 01.03.2003 as amended. The value of thereon. They have also not informed the clearances made are to be clubbed together local Central Excise authorities truthfully and duty demanded from them under the reflecting their transactions in the statutory provisions of Section 11A(4) of Central Excise records and returns. Hence the Central Excise Act, 1944 also they are liable for penal duty payable on the fireworks manufactured action under Section 11AC of Central and cleared in the said three units Excise Act, 1944 and Rule 25 of CER, manufacturing fireworks is demandable 2002. The three brothers S/Shri. S. from them under the provisions of Section Meenrajan, S. Baskaran and S. Kannan who 11A(4) of Central Excise Act 1944 and they have associated themselves with common are liable for penal action under Section 11AC understanding to evade duty by indulging in of Central Excise Act, 1944 and Rule 25 of illicit activities of manufacturing fireworks in CER, 2002 (emphasis supplied) all the said three factories and selling them without valid invoices and without payment of
22. Further it appears that Shri. S. Meenrajan excise duty and thereby they are Shri. S. Bhaskaran and Shri. S. Kannan have individually liable for penal action under associated themselves with the common Rule 26 of CER 2002. Further it appears that understanding to evade duty by indulging in they are liable to pay interest on the duty illicit activities of manufacturing fireworks in not paid under Section 11AA of Central Excise all the said three factories and selling them Act, 1944. Accordingly I pass the following without valid invoices and without payment order; (emphasis supplied) excise duty and thereby they are individually liable for penal action under rule 26 of CER 2002.
24*. Further it appears that they are liable to pay interest on the duty not paid under Section 11AA of Central Excise Act, 1944.
* As numbered in SCN
25. Now, therefore M/s. Meena Fire Works Industries, M/s. Meena Fire Works and M/s. Meena Sparklers represented by the three brothers viz., Shri. S. Meenrajan, Shri. S. Baskaran and Shri. S. Kannan, Elayirampannai sons of Shri. T. Selvaraj are required to show cause to the Commissioner of Central Excise, Office of the Commissioner of Central Excise, C.R. Building, Bibikulam, Madurai within 30 days of this notice as to 61 why: (emphasis supplied)
(i) M/s. Meena Fireworks Industries, i) I hold that M/s. Meena Fireworks M/s. Meena Fire Works and M/s. Industries, M/s. Meena Fire Works and Meena Sparklers represented by the M/s. Meena Sparklers represented by the three brothers viz., Shri. S. Meenrajan, three brothers viz., Shri. S. Meenrajan, Shri. Shri. S. Baskaran and Shri. S Kannan, who S. Baskaran and Shri. S Kannan, who have have associated one another with the associated one another with the common common understanding to evade excise understanding to evade excise duty by duty by indulging in illicit business indulging in illicit business activities of the activities of the three firms, should not three firms, are to be treated as one single be treated as one single manufacturer manufacturer manufacturing and clearing manufacturing and clearing fireworks fireworks from their factories in terms of from their factories in terms of section section 2(f) of Central Excise Act read with 2(f) of Central Excise Act read with para 2(v) of the Notification 8/2003-CE dated para 2(v) of the Notification 8/2003- 1-3-2003 as amended CE dated 1-3-2003 as amended.
(ii) The value of clearances of fireworks ii) I hold that the value of clearances of including sparklers manufactured and fireworks including sparklers manufactured cleared from M/s. Meena fire Works and cleared from M/s. Meena fire Works Industries, M/s. Meena Fire Works and Industries, M/s. Meena Fire Works and M/s.Meena Sparklers during the period M/s.Meena Sparklers during the period 2007- 2007-08 to 2011-12 should not be clubbed 08 to 2011-12 should be clubbed together in together in terms of para 2(v) of terms of para 2(v) of Notification 8/2003-CE Notification 8/2003-CE dated 1-3-2003 as dated 1-3-2003 as amended, for the reasons amended, for the reasons set out above to set out above to determine the aggregate determine the aggregate value of value of clearances for demanding duty clearances for demanding duty from the from the said three firms represented by said three firms represented by three three brothers, as they have jointly and brothers, as they have jointly and severally severally indulged in the licit and illicit indulged in the licit and illicit activities of activities of the said three firms the said three firms.(emphasis supplied)
(iii) an amount of Rs.1,91,84,139/- towards iii) I confirm the demand of Central Excise duty, Rs.3,83,682/- towards Rs.1,97,59,664/-[(Rupees one crore ninety Educational Cess and Rs.1,91,843/- seven lakhs fifty nine thousand six hundred towards Secondary & Higher Education and sixty four only)( Central Excise duty Cess thus totalling to Rs.1,97,59,664/- Rs.1,91,84,139/- + Educational Cess (Rupees one crore ninety seven lakhs fifty Rs.3,83,682/- + Secondary & Higher nine thousand six hundred and sixty four Education Cess Rs.1,91,843/- )] payable on only) payable on the total value of the the total value of the fireworks cleared fireworks cleared unaccounted and unaccounted and accounted during the period 62 accounted during the period from April from April 2007 to 31-03-2012 from them 2007 to 31-03-2012 (as detailed in under 11A(10) of Central Excise Act, 1944 Annexure-D to the SCN) should not be demanded from them under sub section 4 of Section 11A of Central Excise Act, 1944
(vi)* a penalty should not be imposed on v) I impose a penalty of Rs.1,97,59,664/- them under Section 11AC of the Central (Rupees one crore ninety seven lakhs fifty Excise Act, 1944 nine thousand six hundred and sixty four only) on them under Section 11AC of the Central * As numbered in SCN Excise Act, 1944 for the contravention of Section 11A(4) of Central Excise Act, 1944
37. We discern an inherent ambivalence in the SCN proposals in that, while para 21 of the SCN after detailing the investigation and evidences conclude that the three brothers viz, Shri S. Meenrajan, Shri. S Bhaskaran and Shri. S. Kannan, who have jointly associated one another with common understanding to evade duty and to fulfil their goal, have illicitly procured raw materials, manufactured fireworks in the units, M/s. Meena Fire Works Industries, M/s. Meena Fire Works and M/s.Meena Sparklers and cleared all varieties of fireworks under the invoices of the three units irrespective of place of manufacture and also without raising invoices and without payment of Central Excise duty thereon, and the Central Excise duty payable on the fireworks manufactured and cleared in the said three units manufacturing fireworks is demandable from them under the provisions of Section 11A(4) of Central Excise Act 1944 and they are liable for penal action under Section 11AC of Central Excise Act, 1944 and Rule 25 of CER, 2002 and further they are individually liable for penal action under rule 26 of CER 2002 and also they are liable to pay interest on the duty not paid under Section 11AA of Central Excise Act, 1944; yet, para 25 of the SCN calls upon M/s. Meena Fire Works 63 Industries, M/s. Meena Fire Works and M/s. Meena Sparklers to show cause to the adjudicating authority as to why M/s. Meena Fireworks Industries, M/s. Meena Fire Works and M/s. Meena Sparklers should not be treated as one single manufacturer manufacturing and clearing fireworks from their factories in terms of section 2(f) of Central Excise Act read with para 2(v) of the Notification 8/2003-CE dated 1-3-2003 as amended and the value of clearances of fireworks including sparklers manufactured and cleared from M/s. Meena fire Works Industries, M/s. Meena Fire Works and M/s.Meena Sparklers during the period 2007-08 to 2011-12 should not be clubbed together in terms of para 2(v) of Notification 8/2003-CE dated 1-3-2003 as amended, for the reasons set out above to determine the aggregate value of clearances for demanding duty from the said three firms, confirms the demand payable from them and imposes equivalent penalty under section 11AC on them.
38. We notice that the said ambivalence is affirmed in the impugned order in original and has resulted in the same ambivalence materialising as the findings of the adjudicating authority, as can be seen from paragraph 40 wherein the adjudicating authority holds the three brothers as one single manufacturer in terms of section 2(f) of Central Excise Act read with para 2(v) of the notification No.8/2003-CE dated 01-03-2003 and further that the value of clearances made are to be clubbed together and duty demanded from them under the provisions of section 11A(4) and they are liable for penal action under Section 11AC of Central Excise Act, 1944 and Rule 25 of CER, 2002 and further they are individually liable for penal action under rule 26 of CER 2002 and also they are liable to pay interest on the duty not paid under Section 11AA of Central Excise 64 Act, 1944 and then while passing the order at 40(i) holds that M/s. Meena Fireworks Industries, M/s. Meena Fire Works and M/s. Meena Sparklers, are to be treated as one single manufacturer manufacturing and clearing fireworks from their factories in terms of section 2(f) of Central Excise Act read with para 2(v) of the Notification 8/2003-CE dated 1-3-2003 as amended and that the value of clearances of fireworks including sparklers manufactured and cleared from M/s. Meena fire Works Industries, M/s. Meena Fire Works and M/s.Meena Sparklers during the period 2007-08 to 2011-12 should be clubbed together in terms of para 2(v) of Notification 8/2003-CE dated 1-3-2003 as amended, to determine the aggregate value of clearances for demanding duty from the said three firms. The demand of duty and imposition of penalty under Section 11AC is also on them.
39. It is also pertinent that both the SCN and the impugned Order in Original indicate that they are issued to the three firms as well as the three brothers.
40. On a perusal of condition (v) and (vii) of para 2 of the exemption notification No.8/2003-CE dated 01-03-2003, they are seen to stipulate as under:
"(v) where a manufacturer clears the specified goods from one or more factories, the exemption in his case shall apply to the aggregate value of clearances mentioned against each of the serial numbers in the said Table and not separately for each factory;" (emphasis supplied)
(vii) the aggregate value of clearances of all excisable goods for home consumption by a manufacturer from one or more factories for from a factory 65 by one or more manufacturers, does not exceed rupees four hundred lakhs in the preceding financial year."
41. Thus, there ought to be a manufacturer who has a factory or factories, the clearances of which are to be taken in aggregate for determining the exemption in the event of a manufacturer having clearances from more than one factory. Therefore, for the purposes of clubbing of clearances it is an imperative prerequisite that one unit is identified or determined as the principal entity to which the clearances from the other units or factories then get clubbed and the proposal for demand is then required to be raised on the said principal entity. Evidently, the attempt of the Department here is to deny the benefit of exemption notification individually to the three units, as the Department is of the view that the three brothers have indulged in subterfuge of maintaining separate units while exercising financial and managerial control over all the three. Yet, as seen from the aforementioned proposal in the SCN as well as the impugned order confirming the demand, the Department has decidedly failed to determine which of the unit is the principal entity when they have issued the SCN calling upon the three firms to show cause why their clearances ought not to be clubbed. The Department is also unclear as to whether the demand would sustain if it considers the three brothers together as one single manufacturer or whether it is required to consider the three firms together as a single manufacturer and seemingly with marked caution while stating both the contentions in the SCN, decides to call upon only the units to answer why the three units ought not to be taken together to be a single manufacturer and why the aggregate value of clearances ought not to be taken for demanding duties from the said three firms and at the same 66 time in the quantification shown in annexure D to the SCN titled it "Worksheet showing duty liability of three brothers viz. S/Shri. S. Meenrajan, S. Baskaran and S. Kannan payable on the fireworks manufactured and cleared from M/s. Meena Fireworks Industries, M/s. Meena Fire Works and M/s. Meena Sparklers, Elayirampannai." However, when the confirmation of demand was to be made, the uncertainty continued to plague, and the demand is confirmed "from them" and penalty under section 11AC of the Central Excise Act, 1944 is also imposed "on them", leaving it to anybody's guess whether "them" is to be taken as the three brothers or the three units. In any event, no provision of the Central Excise law or the rules made thereunder have been brought to our notice whereby the Department on its own accord can nominate or anoint a group of persons as the 'manufacturer' or a group of firms as the 'manufacturer.' We thus find considerable force in the preliminary contention of the Ld. Counsel for the appellant that neither the Partnership Act of 2015 or the Central Excise Act of 1944 empowered the central excise officers to create a separate financial entity consisting of three individuals to hold them liable for the payment of duty for the clearances effected from the three independent factories owned and managed by different partnership firms and that such creation of a legal entity by fiction is neither legal nor valid in law and no tax liability can be fastened on the said creation. This Tribunal in Amit Talwar v CCE, Delhi-I, 2018 (362) ELT 324 (Tri-Del) has held that it is well-settled that demand cannot be made jointly and severally. Likewise, in Chemicos v CCE, Meerut, 2012 (281) ELT 121 (Tri- Del), this Tribunal while holding that both the units therein cannot be held liable for the demand has held that it is well settled law that the 67 duty cannot be confirmed against the two assessees without arriving at a finding against whom the same is required to be confirmed.
42. The lack of clarity in determining the 'manufacturer' from whom the demand of duty in the event of clubbing of clearances ought to be made and non-identification of any such principal entity and instead embarking on proposing a demand on a department mooted 'group of persons comprising of the three brothers' / 'group of firms' comprising of the three firms, neither of which proposal has any legal basis in the provisions of Central Excise Act, 1944 or the Rules made thereunder, indicates the indelible taint of non-application of mind that permeates the entire proceedings right from conceptualisation of the demand in the SCN to the confirmation of the demand in the impugned order in original. Such an attempt of foisting a fictional financial entity onto the appellants and pegging a demand thereon, is devoid of any legal backing and vitiates the proceedings in toto. At this juncture, it is also apposite to notice the findings of a coordinate bench of this Tribunal in the Final order Nos.40741-40742/2023 dated 01-09-2023, in the case of M/s. Balaji Packagings v Commissioner of GST & Central Excise, the relevant portions of which are as under:
"25. The Ld. Counsel for assessee has relied on Board Circular No.6/92 dated 19.05.1992 issued under Section 37B of Central Excise Act, 1944 to argue that Board has given instructions that different firms have to be treated as different manufacturers for the purpose of SSI limit. The said circular reads as under :
"The question whether different partnerships having common partners, are treatable as separate manufacturers of the same manufacturer, would be a question of fact in each case to be determined on the basis of such factors among other, like composition of the partnership, existence 68 of the factory, licence, nature of goods manufactured etc. Different firms will be treated as different manufacturers for the purpose of exemption limit. But if a firm consisting of certain partners say A.B. & C. has got more than one factory, all these factories should, of course, be combined. Limited companies whether public or private, are separate entities distinct from the shareholders composing it. Hence each limited company is a manufacturer by itself and will be entitled to a separate exemption limit. If there are two firms with only some of the partners in common, each firm is entitled to separate exemption limit and hence the question of distributing the exemption may not arise. If one firm or one individual owns several factories, he or it gets exemption only in respect of one lot and the manufacturer being only one entity, there will be no question of distributing the exemption. Whether or not in the expression 'by or on behalf of a manufacturer' the expression 'from one or more factories' is added, the effect would be the same if the manufacturer is also the same. The expression 'one or more factories' only further clarified that whether the factory is one or more, it is the clearances by or on behalf of the same manufacturer which is to be taken into consideration for purpose of interpreting the exemption Notification. The matter requires to be viewed accordingly."
26. In the case before us, though there are partners common in these firms, the constitution of all firms are different. In other words, the pattern of partnership is not repeated in any of the firms. As per the circular, when there are firms with only some of the partners in common, each firm is entitled to separate exemption limit. The clarification though issued with regard to Notification No.175/86, the principle is applicable to the present notification 8/2003 also. The adjudicating authority has not applied the circular. The reason is discussed in para 7.4 that only when firms & companies maintain their status as separate legal entities and when amenable to piercing the corporate veil the circular will not be applicable. All these units are firms and not companies. We find the conclusion arrived by adjudicating authority to be untenable in law.
27. Another main allegation is that Sri Kasi Viswanath was the accountant common to all firms who was maintaining the accounts. So also that all firms had common office premises at BPI. It has been 69 held in various decisions that merely because the accounts were maintained at a common office, or the workers were same, it cannot be said that there is mutuality of interest. To establish mutuality of interest there should be some evidence to show that the profits of all the firms are taken by one or few persons only. In the present case, all the units are filing sales tax return, income tax return etc. separately. We do not find any evidence indicating mutuality of interest."
The tribunal then went on to hold as under:
"30. From the discussions made above, we find that department has failed to establish the allegations raised in SCN for clubbing of clearances of the 11 firms. Further, the creation of a fictitious/deemed group (GTP) to be responsible for clandestine activities also does not find favor with us. As per the provisions contained in the Partnership Act 1932, persons can come together to form a partnership firm. Such a partnership can be terminated or dissolved only as per law. An external agency like the department cannot constitute or disturb the constitution of the partnership by removing certain persons for the purpose of casting duty liability. The department has, in fact, made all eleven units to be dummy units and created a new entity 'BPKG run and operated by GTP' to be responsible for the clandestine activities. The provisions of law do not permit the same.
31. From the foregoing we are of the considered opinion that the impugned order dt. 13.07.2016 cannot sustain and requires to be set aside which we hereby do. For the same reasons, the order passed by Commissioner (Appeals) dt. 31.01.2019 requires no interference. The same is sustained.
32. In the result, the appeal filed by assessee is allowed. The appeal filed by department is dismissed."70
43) As noted supra, in the instant case before us, since the said lacunae of lack of clarity in demand exists in the demand proposal in the SCN as well as its confirmation in the impugned OIO, it is a fundamental flaw that cannot be cured and the impugned order in original is liable to be set aside on this count alone.
44) Be that as it may, we notice that the adjudicating authority has arrived at his findings on the premise of statements given by the three brothers regarding the transactions including that pertaining to the entries in the four long books assumed to contain the details of unaccounted sales, five small note books said to contain receipt details of unaccounted sales and a made up file containing details of wages paid etc, statements of the customers, statement of supplier of raw materials, statement of shri. S. Kaleeswaran, partner of Balaji Traders and statement of Shri. K B Selvarajan incharge of Meena Trading Co, statement of other partners of the three manufacturing units. The contentions of the brothers that the statements were obtained under threat of arrest and coercion was discounted stating that it was made only in the reply submitted after two years and the explanations given were not considered stating that they were fiction. The request of the counsel for the appellant for cross examination of the investigating officer and the officers before whom the statements were recorded was denied stating it will delay the adjudication proceedings.
45) We note that, recently, we had an occasion to examine the manner in which a statement given under Section 14 of the Central Excise Act is to be admitted in evidence for consideration by the Adjudicating 71 Authority, in the case of M/s. Geetham Steels Pvt Ltd and Others v. Commissioner of GST & Central Excise, Salem, vide Final Order No.40260-40274/2025 dated 21.02.2015. The relevant portions are as under:
57. "If we notice the provisions of Section 9D, what flows from it is that 9D(1) stipulates when a statement given under section 14 would be relevant for the purpose of proving, "in any prosecution for an offence", the truth of the facts which it contains and provides for various scenarios in the sub-
sections thereto at (a) and (b). It is only when the Department first adduces evidence in the proceedings before the adjudicating authority, of the existence of the aforementioned scenarios in section 9D(1)(a) that the deponent's statement is taken as a substantive piece of evidence, without the deponent deposing thereto before the adjudicating authority. That would still not obviate the requirement of the Gazetted officer before whom the statement was given, deposing the factum of such statement having been recorded from the deponent- which is the method or manner of proving the recording of the statement, which statement under section 14 is already considered relevant for the purpose of proving the truth of the fact it contains- that is to say, the said deposition of the Gazetted Officer stating that the deponent had indeed given the statement before him, would be the manner of admitting or mode of proof of the admissible substantive evidence.
58. Again, 9D(1)(b) provides for the deponent's statement given before the Gazetted Officer to be admitted as substantive evidence, when the person who made the statement is examined as a witness in the case before the adjudicating authority and the adjudicating authority is of opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice. This sub section (b) of 72 Section 9D(1) takes care of a situation where the witness who is deposing before the adjudicating authority turns hostile and on an evaluation of the circumstances of the case the adjudicating authority decides to discard the version given by the witness before it and instead place reliance on the earlier statement given before the Gazetted Officer. As elucidated supra, this also applies in a case where the witness deposing stands by his earlier statement and is thereafter offered for cross-examination to the opposite side and in case of minor inconsistencies/no inconsistency, if the adjudicating authority is of the opinion, having regard to the circumstances of the case that the statement should be admitted in evidence in the interests of justice, the adjudicating authority can do so as per this Section 9D(1)(b).
59. However, implicit in this procedure stipulated in 9D(1)(b) is the necessary requirement for the adjudicating authority to depose all the deponents who have given statement under Section 14, save as those that are unavailable in the scenarios given in 9D(1)(a), for the purposes of evaluating whether the statements are voluntary, to attest that he had deposed the contents of the statement and then take a considered decision whether the truth of the facts contained in the statement stand proved or disproved in the facts and circumstances of the case. In other words, it is only after such examination in chief, that the adjudicating authority can arrive at a considered decision, whether to declare the witness appearing before it as a hostile witness and then to decide in the facts and circumstances whether to rely on the earlier statement; or if upon finding major inconsistencies between his earlier deposition and in the contradictions brought about in cross-examination, to not rely on the earlier statement; or if it is only minor discrepancies as that which does not majorly disturb the essential truth of his deposition, to rely upon it, if 73 in the circumstances of the case, the adjudicating deems it fit in the interest of justice.
60. Therefore, we are of the view that Section 9D(2) not only legislatively mandates the adjudicating authority to apply the provisions of S.9D(1), depending on the facts and circumstances of the case, to the extent possible , but also when read along with Section 9D(1)(b), leads to the inexorable conclusion that the adjudicating authority necessarily has to conduct an examination in chief of the deponent of the statement so as to determine not only the voluntary nature as well as truthfulness of the facts the statement given under Section 14 before the Gazetted Officer contains, but also to determine whether or not the witness is hostile, and to decide whether or not to place reliance on the statement as per the mandate of Section 9(1)(b) in the circumstances of the case, as has been elaborated supra. This interpretation is also in consonance with the decision of the Honourable Apex Court in K I Pavunny's case as stated supra, wherein the Apex Court emphasised that in the case of a retracted confession the court should examine whether the confessional statement is voluntary; in other words, whether it was not obtained by threat, duress or promise and if the Court is satisfied from the evidence that it was voluntary, then it is required to examine whether the statement is true. Such an interpretation is also in line with the decision of the jurisdictional Madras High Court cited supra and given the pari materia provisions of the Customs Act, 1962, we are of the view that the said interpretation would hold good under the pari materia provisions of Customs Act as well." This tribunal had also thereafter summed up the position in law as under:
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"66. In sum, the following emanate from the aforesaid discussions and judgements :
A. The statement given under Section 14 of the Central Excise Act, 1944 (or under Section 108 of the Customs Act, 1962) in response to a summons by a gazetted customs/excise officer, is not hit by Section 25 of the Indian Evidence Act, 1872, because a customs/excise officer is not a "police officer".
B. At this stage, it is merely a recorded statement--not yet admissible or relevant. It becomes relevant under the circumstances stated in S. 9D of the CE Act 1944/S.138B of the Customs Act.
C. The fact that a statement is made and recorded, and is said to be relevant as per IEA/BSA, does not mean it is proved. D. For the S.14/S.108 statement to be admissible under general circumstances there must be an examination in chief and a subsequent cross examination that would bring it into the evidentiary pool for consideration. It needs to be examined whether the statement is voluntary; in other words, whether it was not obtained by threat, duress or promise. If the adjudicating authority is satisfied from the evidence that it was voluntary, then it is required to examine whether the statement is true. If the adjudicating authority on examination of the evidence finds that it is true, it can be relied upon in determination of the issue in dispute in the circumstances of the case.
E. However, if the condition of sub-section (a) of S.9D(1)/S.138B(1) do not exist, then it is incumbent upon the adjudicating authority to 75 invariably examine in chief the deponent of the statement given under Section 14/Section 108 in order to determine whether or not sub-section (b) of S.9D(1)/S.138B(1) would be attracted. That is to say, implicit in this procedure is the necessary requirement for the Court to depose all the deponents who have given statement under Section 14/Section 108, save as those that are unavailable in the scenarios given in 9D(1)(a), for the purposes of evaluating whether the statements are voluntary, whether they depose to having made the recitals in the statement recorded under Section 14/Section 108 and then take a considered decision whether the truth of the facts contained in the statement stand proved or disproved in the facts and circumstances of the case. In other words, it is only after such examination in chief, that the adjudicating authority can arrive at a decision whether or not to declare the witness appearing before it as a hostile witness and then to decide in the facts and circumstances whether to rely on the earlier statement or not, as more elaborately elucidated supra. Needless to say, such examination in chief has to be conducted by the adjudicating authority in the presence of the assessee/representative of the assessee. This is in accordance with the decision of the Honourable High Court of Punjab and Haryana in Jindal Drugs Pvt Ltd v. UOI, 2016 (340) ELT 67 (P & H) F. When the adjudicating authority is examining the witness, it should be noted that minor contradictions, inconsistencies or embellishments of venial or trivial nature which do not affect the kernel of the Department's case should not be taken to be a ground to reject the statement deposed before the Gazetted officer in its entirety. It is only when such contradictions/inconsistencies cast a serious doubt about the truthfulness or creditworthiness of the witness so as to render the evidence unacceptable, that the adjudicating authority 76 may not be in a position to place reliance on such evidence. Serious contradictions and inconsistencies which materially affect the case of the Department have to be understood in clear contradistinction to mere minor discrepancies in the statement of the witness. G. Cross-examination is thus not an absolute right and if the conditions of sub-sections (a) or (b) of S.9D(1)/S 138B(1) exist, then the statement becomes relevant and can be made admissible without cross examination in the circumstances more elaborately elucidated supra.
H. As laid down by the Hon'ble High Court in J & K Cigarettes v. CCE, 2009 (242) ELT 189 (Del), while invoking Section 9D of the Act, the concerned adjudicating authority is to form an opinion on the basis of material on record that a particular ground, as stipulated in the said Section, exists and is established; such an opinion has to be supported with reasons; and before arriving at this opinion, the authority would give opportunity to the affected party to make submissions on the available material on the basis of which the authority intends to arrive at the said opinion as it is always open to the affected party to challenge the invocation of provisions of Section 9D of the Act in a particular case by filing statutory appeal, which provides for judicial review."
46. We find that in the impugned proceedings, the Adjudicating Authority has not observed the mandate of Section 9D while admitting in evidence the statements given under Section 14 of the Central Excise Act, 1944 and has not deposed the deponents who had given such statements and where deposed and cross-examined has not stated any reason why the statements as originally deposed alone is to be relied on or in other words, the adjudicating authority has not given 77 any reason for discarding the deposition made during cross- examination, such as that he is treating the witness as hostile or that the contradiction/inconsistencies are minor enough to be discarded.
47. We find that the appellant has, by the answers elicited in cross examination of Shri. T. Krishnamoorty, of Sri Krishna Packaging Industries, Shri. R. Srikanth of Jai Krishna Packaging Industries (both aforementioned are manufacturers of packing materials), S.Kaleeswaran of M/s. Balaji Traders,(agent cum trader), Shri S. Subramani of M/s.Nithin Enterprises, Shri. K Raja Mohammed Sait of M/s. Shifa Stores, Chennai, Shri. C Sundaresan of M/s. Asian Crackers, Sivakasi, (all three aforementioned are stated as Dealers of M/s Meena Fire Works Industries) Shri. S. Balakrishnan of M/s. Sri Krishna Chemical Industries,(supplier of raw materials); evidenced that these deponents have more or less resiled from their statements deposed under Section 14 before the Departmental Officers.
48. In such circumstances, the request of the appellant for cross examination of the Investigating Officer, after having given up his request for cross examination of the other Departmental Officer sought, cannot be said to be unreasonable. We therefore hold that the denial of cross-examination of the investigating officer by the adjudicator is a violation of the appellant's right in this regard as held by the Honourable High Court of Allahabad in CCE, Allahabad v. Govind Mills Ltd., 2013 (294) ELT 361 (All) and CCE Meerut I v R.A. Castings Pvt Ltd, 2011 (269) ELT 337 (All) .
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49. We also note that a coordinate bench of this Tribunal has in the case of M/s. Vadivel Pyrotech Private limited v The Commissioner of CGST & Central Excise, vide Final Order No. 40295-40298/2022 dated 18.08.2022, held that as per Section 9D of the CEA, 1944, the statement can be relied only if the person is examined. The relevant portion is as under:
"37. Apart from the computer printouts, another evidence relied for confirming duty is the statement of Sales Tax Consultant Shri. Subbiah. It is alleged that he admitted issuing two set of invoices. The Ld. Counsel submitted that in spite of request, the appellant was not afforded an opportunity to cross examine any of the witnesses. As per Section 9D of the Central Excise Act, 1944, the statement can be relied only if the person is examined. Again, on perusal of records, there is no documentary evidence to show the two set of invoices have been recovered by the department. The department has relied upon the statement of Accounts Manager Shri. Gopinath. In absence of examination/cross examination his recorded statement is of no evidentiary value."
50. We therefore find that the reliance placed by the adjudicating authority on the statements of deponents not subjected to examination in chief as well as the reliance placed on the depositions of the witnesses who have resiled without explaining whether or not they are being treated as hostile or why their previous statements are considered reliable, is wholly untenable and opposed to evidentiary principles and mandate of Section 9D of the CEA, 1944.
51. That apart, we find that the appellant's contentions on quantification of the duty demand as given in para 18.2, 18.5, 25 and 79 26 of their reply dated 30-03-2015 have not been controverted by the Adjudicating Authority. We find that admittedly even the long note books relied for quantifying the alleged unaccounted removal contains entries only for the period from April 2007 to September 2009. Admittedly for the period from October 2009 to March 2010 there was no evidence available pertaining to unaccounted clearances and the show cause notice had proceeded to quantify the same adopting the average value of the preceding year's clearances, that is clearance from October 2007 to March 2008 and October 2008 to March 2009 to arrive at an average value of clearances per day and then to presumptively quantify the unaccounted clearance for the period October 2009 to March 2010, as is evident from the remarks in the column in the worksheet at Annexure C(i) and para 15.3 of the SCN at page 84-85. Similarly, for the period 2010-11 and 2011-12 the show cause notice has not even an iota of evidence to rely on for determining the quantification of the alleged clandestine removals. For the year, 2010-11, as indicated in Annexure C (iv) the Notice premises calculations on a ratio of coolie charges paid to factory labours vis a vis contract labours as deposed by Shri. Meenarajan in his statement dated 22.05.2012. After noting the actual coolie charges paid to factory labour during 2010-11 (upto 25.09.10) based on the aforesaid ratio, the officers proceed to arrive at the coolie charges paid to contract labour. The figures of the coolie charges paid to factory labour and the figures of coolie charges paid to contract labour so worked out are totalled and to such a total the actual bonus paid to factory labour is added to then arrive at the total amount paid as coolie and bonus during 2010-11. Then yet again on an assumption 80 that such coolie and bonus total would be 20% of the total sale value, based on such worked out total the officers arrive at a presumptive 20% of sale value and then multiplies the same by five to arrive at 100% of the sale turnover for 2010-11. We do not condone such arbitrary determination of unaccounted clearance value and consequential determination of tax liability and hold such quantification arrived at as illegal. It is also pertinent that the adjudicating authority has despite conceding in para 31 of the impugned order in original that the appellants were able to match some of the consignments that were listed in the rough note book which the department claims as indicating the unaccounted clearances, with clearances from their units under invoices as shown in List I, which List I was filed along with their reply, has surprisingly not found it necessary to exclude such accounted entries while determining the quantification of unaccounted clearances, which too has rendered the said inflated quantification of duty demand untenable in law. The appellant in para 18.13 is seen to have rebutted the allegation of clandestine removal premised on the entries in Annexure B 14 and 30 giving details of accounted clearances including copies of relevant invoices in List IV to their reply. In fact, the categorical rebuttals to the relied upon documents as elaborated in the appellant's reply have not been controverted in any manner by the adjudicating authority.
52. At this juncture, we would also advert to the nature of evidence required to prove allegations of clandestine removal. This aspect was examined in our decision in the case of M/s. Geetham Steels Pvt Ltd and Others v. Commissioner of GST & Central Excise, Salem, vide Final Order No.40260-40274/2025 dated 81 21.02.2015, wherein we had held that such evidence adduced should be clear and convincing evidence. The relevant portions are as under:
"80 We now address the standard of proof that is required when it comes to matters of clandestine removal. The 'standard of proof' denotes the level of conviction or the 'decisional threshold' that enables the court to decide whether the party who shoulders the burden of proof has discharged the same. In customs and excise matters, where the assessee can be visited with financial penal consequences, Courts have always tried to apply a qualified preponderance of probabilities standard. They have attempted to draw a fine line by saying that the burden on the revenue is not as high as that of a criminal trial given that it is a Fiscal statute (and the customs/excise officers being not police officers). However, they have also stated that in such matters involving financial penal consequences, especially penalty under S.11AC, it cannot be imposed on a mere suspicion without adequate proof and positive evidence must be established of the person's intent to commit fraud or wilful suppression or misstatement of facts etc., with intent to evade payment of duty. In Uniworth Textiles v CCE, Nagpur, 2013 (288) ELT 161 (SC), while considering the ingredients required to invoke the extended period of limitation, the Supreme Court observed that it is a cardinal postulate of law that the burden of proving any form of mala fide lies on the shoulders of the one alleging it. The Apex Court referred to its decision in Union of India v. Ashok Kumar & Ors. - (2005) 8 SCC 760 wherein it was held that "it cannot be overlooked that burden of establishing mala fides is very heavy on the person who alleges it. The allegations of mala fides are often more easily made than proved, and the very seriousness of such allegations demand proof of a high order of credibility." Thus, while the general standards of proof for civil cases are the preponderance of probability and the standards for criminal cases are 82 beyond reasonable doubt, these standards have also been eschewed in favour of "clear and convincing evidence" when the allegations are of more serious nature and also attract heavy financial consequences. At the cost of repetition, we reiterate that the three steps in sequence involved in applying the principles of evidence law, as we had elucidated supra, would be to at first find out whether the fact, the evidence in respect of which it is sought to be adduced to prove it, is relevant, and the next step would be to see whether the evidence that is being sought to be adduced to prove such a relevant fact is admissible and lastly whether the fact or facts so proved are sufficient to determine the issue. Sufficiency is completely determined only by adjudicating authority and is thus the adjudicating authority's evaluation of the extent of the bearing the proven facts have in the matter as per the standards of evidence called for in the adjudication process, which in matters of clandestine removal would call for "clear and convincing evidence" .
81. We see that the standard of proof required in cases of clandestine removal including the aspects that need to be proved have been touched upon by High Courts and Tribunals in numerous decisions. In Continental Cement Company v UOI, 2014 (309) ELT 411 (All), the Honourable High Court of Allahabad has held as under:
"12. Further, unless there is clinching evidence of the nature of purchase of raw materials, use of electricity, sale of final products, clandestine removals, the mode and flow back of funds, demands cannot be confirmed solely on the basis of presumptions and assumptions. Clandestine removal is a serious charge against the manufacturer, which is required to be discharged by the Revenue by production of sufficient and tangible evidence. On careful examination, it is found that with 83 regard to alleged removals, the department has not investigated the following aspects :
(i) To find out the excess production details.
(ii)To find out whether the excess raw materials have been purchased.
(iii)To find out the dispatch particulars from the regular transporters.
(iv)To find out the realization of sale proceeds.
(v)To find out finished product receipt details from regular dealers/buyers.
(vi)To find out the excess power consumptions.
13. Thus, to prove the allegation of clandestine sale, further corroborative evidence is also required. For this purpose no investigation was conducted by the Department."'
82. In Commissioner of Central Excise v. Brim Products, 2011 (271) ELT 184 ( Pat.), the Honourable High Court of Patna has held as under:
9. In our opinion, since the charge was for clandestine manufacture and surreptitious removal of finished final product, the same is required to be proved beyond doubt by the Revenue. One has to keep in mind that, though being the main ingredient, betel-nut is not the only raw material which is used in manufacture of Pan Masala. That apart, since the investigation has been carried only at the transporters end, no presumption could be drawn with regard to manufacture and removal of the final product. Presumptions and assumptions cannot take place of positive legal evidence, which are required for proving the charge. Even if, it is assumed that some raw materials were received at the factory of the respondent during the said period, the same cannot become 84 conclusive proof of production and clandestine sale to different parties.
Due to lack of positive evidence, benefit of doubt will always go in favour of the assessee.
10. Accordingly, we answer the reference against the Revenue and in favour of the assessee and it is held that the receipt of one of the raw materials, does not conclusively prove clandestine manufacture and surreptitious removal of finished final product. Further, since the charge is regarding clandestine manufacturer and removal of finished product for evading excise duty, the same cannot be held to be proved on the basis of principle of preponderance of probabilities and the Revenue has to prove the same beyond doubt. The reference is answered accordingly.
83. In Arya Fibres Pvt Ltd v. CCE, Ahmedabad II, 2014 (311) ELT 529 (Tri-Ahmd), a coordinate bench of this Tribunal after considering various Tribunal decisions formulated certain parameters to be established by Revenue in matters where clandestine removal are being alleged. The relevant paragraphs are as below:
40. After having very carefully considered the law laid down by this Tribunal in the matter of clandestine manufacture and clearance, and the submissions made before us, it is clear that the law is well-settled that, in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenue which mainly are the following :
(i) There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions;
(ii) Evidence in support thereof should be of:85
(a) raw materials, in excess of that contained as per the statutory records;
(b) instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty;
(c) discovery of such finished goods outside the factory;
(d) instances of sale of such goods to identified parties;
(e) receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons authorized by him;
(f) use of electricity far in excess of what is necessary for manufacture of goods otherwise manufactured and validly cleared on payment of duty;
(g) statements of buyers with some details of illicit manufacture and clearance;
(h) proof of actual transportation of goods, cleared without payment of duty;
(i) links between the documents recovered during the search and activities being carried on in the factory of production; etc. Needless to say, a precise enumeration of all situations in which one could hold with activity that there have been clandestine manufacture and clearances, would not be possible. As held by this Tribunal and Superior Courts, it would depend on the facts of each case. What one could, however, say with some certainty is that inferences cannot be drawn about such clearances merely on the basis of note books or diaries privately maintained or on mere statements of some persons, may even be responsible officials of the manufacturer or even of its 86 Directors/partners who are not even permitted to be cross-examined, as in the present case, without one or more of the evidences referred to above being present."
53. We find that in the instant case the evidence adduced is woefully inadequate, much less 'clear and convincing evidence'. Apart from the reliance placed on the statements, which we have determined as inadmissible for the reasons elaborated supra, the information found in the long and small note books and other records at best would prima facie create a strong doubt about the unaccounted manufacture and clearance of fireworks and sparklers. However, there is no evidence let in by way of excess purchase of raw material(even the statements of the raw materials suppliers taken do not indicate the quantum of raw material that is alleged to have been supplied), excess production, excess purchase and consumption of packing material (again the statements of the suppliers of packing material does not indicate any quantum), evidence of transporters who have actually transported the alleged unaccounted goods, receipt of consideration etc. While undoubtedly credit of amounts in the bank statements have been provided, not even a single entry has been evidenced or linked as payment received for clandestinely cleared goods. Such bank statement has been stated to be shown in the notice only for purpose of evidencing that the actual quantification and demand of duty made in annexure D is less than the amount credited in the Bank Accounts during the respective years. This caveat in the SCN itself evidences that the investigators have not bothered to try to segregate the 87 receipts pertaining to licit and illict transactions. There is no corelation of receipt of money transaction wise or customer wise. Mere indication of credit entries is of no avail without any explanation as to the nature of such credits. The SCN at para 13.9 alleges that the appellants had deposited Rs.17,00,000/- in TMB and such entries were touted as indication of profit earned out of illicit transactions. The appellant in its reply at para 18.8 has categorically rebutted the same stating that no such deposit was made and in evidence enclosed letter dated 24.03.2012 of the Manager of the said Bank and contended that such wrong averments were made to prejudice the mind of the adjudicating authority. In fact, the adjudicating authority has not controverted the categorical rebuttals of these entries which the appellant has stated is misplaced and has explained in the aforementioned para of the reply. The reconciliation statement in respect of the bank accounts provided along with the reply to substantiate their defence was also not controverted by the adjudicating authority.
54. The adjudicating authority in his findings has relied on the statements of the three brothers and the fact that diaries and other note books recovered from the residential premise of Shri. S. Kannan showed details of transactions of all the three units to hold that this proves that the triad have exercised financial control over all the 3 factories. Further he has found that the three partners were physically available in the factories one after the other which leads to drawing a conclusion that these three persons have exercised administrative, managerial and financial control over all the firms; further the dispatch of raw materials, delivery of finished goods from one unit to other and 88 sale of fireworks of all varieties manufactured in all the three units under invoice of each firm irrespective of place of manufacture and the turnover of each firm, despite different production capacity, was more or less equal, drives home the point that the three units were interdependent on each other. We find that the adjudicating authority has not rebutted the appellant's contentions that all the three firms were partnership firms created at different points in time, consisting of different partners and functioning at different premises manufacturing different products with different brand names. They have different manufacturing sheds and workers. There is no allegation that the other units are only on paper since the manufacturer of the products have taken place in each of the said three firms separately and there is no allegation that all the units manufacture all the products. It is also not the case of the Revenue that all the units dispatch products of other firms at all instances. In fact, no efforts seem to have been undertaken to quantify the alleged clandestine removal from each of such units that were being proposed to be clubbed, when admittedly all the units were engaged in manufacturing separately. The occasional sourcing of goods manufactured by other firms and dispatching it may at best be instances of trading for any reason, for example, not wanting to refuse a customer requirement for fear of losing the order, but that cannot be a reason to hold that the units are inter dependent, more so when their separate physical existence with distinct products and different manufacturing facilities as well as separate labour are not in dispute. The brothers helping each other out in the course of conducting the businesses of the respective firms that they are partners of, cannot be misconstrued as administrative, financial or managerial control of one 89 over the other, control requiring one to be subservient or subordinate to another. The units indisputably were in possession of legal documents such as separate PAN, VAT registration, Explosive licence, SSI certificate etc and were filing separate VAT returns and Income Tax returns. Even the reliance on bank statements was not to evidence any flow of funds but to persuade an inference that the credits therein are indicative of receipt of money pertaining to unaccounted removals. In fact, there has been no evidence let in of flow of funds indicating financial control one of the essential ingredients to indicate inter dependence. It is also no more res integra that grounds of maintenance of accounts in a common office, too cannot be a factor for denying SSI exemption to the individual units. In this regard, the finding of this Tribunal, apart from para 27 of the decision in Balaji Packagings reproduced supra, in the case of M/s. Vadivel Pyrotech Private limited v The Commissioner of CGST & Central Excise, vide Final Order No. 40295-40298/2022 dated 18.08.2022, has held as under:
"38. One other ground for clubbing the clearances is that M/s.VPPL has been maintaining the accounts of all other units. As already seen from the above decisions, merely because one unit is maintaining the accounts of the other units, it cannot be said that the other units are dummy units. In para-10 of SCN, the account details obtained from various banks have been reproduced. However, there is no discussion that the amounts were paid to raw material suppliers for purchasing raw material in the name of dummy units so as to facilitate clandestine clearance in the name of the main unit. After discussing various bank details, in para 10.11 of the SCN, it is stated that Vadivel Group of firms have maintained various accounts not only in the name of their firms but also in the name of other units and received money and used in their business activities. These bank statements do not show that there 90 is flow back of funds in the nature of transactions for purchase of raw material or collection of amounts from the customers.
39. For clubbing the clearances, the department has to establish mutuality of interest, flow back of funds between the main unit and the alleged dummy units. For this, the department has to produce evidence that the main unit was purchasing raw material through the dummy units and also removing the finished products manufactured by them through the dummy units. It also has to be established that the dummy units do not have any existence or facilities for manufacture of goods on their own. Such evidences are absolutely absent in the present case. Merely because Shri V.Arumugasamy, his son and family members were partners in the different units cannot be a ground to say that there is mutuality of interest. Ld. Counsel has adverted to Circular No.6/92 dated 19.05.1992. The relevant part of the said circular reads as under :
"1. Different firms will be treated as different manufacturers for the purpose the purpose of exemption limit. But if a firm consisting of certain partners say A,B, or C has got more than one factory, all these factories should be of course be combined. Limited companies whether public or private are separate entities distinct from the shareholders composing it. Hence, each limited company is a manufacturer by itself and will be entitled to a separate exemption limit.
2. If there are two firms with only some of the partners in common, each firm is entitled to separate exemption limit and hence the question of distributing the exemption may not arise. If one firm or individual owns several factories, he or it gets exemption only in respect of one lot and the manufacturer being only one entity there will be no question of distributing the exemption;"
3. Whether or not the expression "by or on behalf of a manufacturer the expression "from one or more factories" is added, the effect would be the same if the manufacturer is also the same. The expression "one or more factories" only further clarifies that whether the factory is one or more, it is the clearances by or on bahalf of the same manufacturer which is to be taken in to consideration for the purpose of interpreting the exemption notification."
It is clear from the circular that all the units have to be treated differently and each firm is eligible for the exemption of notification separately even if the partners in the different units are one and the same.
91
40. The Hon'ble High Court of Rajasthan in the case of Renu Tandon Vs Union of India - 1993 (66) ELT 375 (Raj.) held that in the absence of evidence of common funding and financial flow back two units cannot be treated as one and the clearances cannot be clubbed.
41. The Tribunal in the case of Coimbatore Engineering Works Vs CCE Coimbatore - 2009 (239) ELT 366 (Tri.-Chennai) held that borrowing funds in need is not a bar between two units eligible for SSI benefit.
42. In the case of CCE Kanpur Vs Sharad Industries - 2013 (294) ELT 561 (Tri.-Del.), it was observed that husband and wife are entitled to do their own business and if husband is looking after the business of wife, it would not make the unit owned by wife as dummy unit. The prime requirement, for clubbing the clearance of two units is that both the units do not have any independent existence or independent machinery and infrastructure to manufacture the goods. If both the units are complete by itself, capable of manufacturing the goods without any help from the other unit, it has to be held that both the units are independent units. The evidence of common office premises, common staff and common maintenance of records cannot be a sufficient ground to club clearances of the units.
After reproducing the relevant paragraphs of the decision in CCE Kanpur v Sharad Industries, this Tribunal went on to hold as under :
"From the discussions made above, we do not find the department has been able to establish sufficient grounds for clubbing the clearances of each unit or for confirming duty against all the 6 units."
55. Ld. AR has relied on the decisions in Modi Alkalies & Chemicals Ltd, 2004 (171) ELT 155 (SC), Parle Bisleri Pvt Ltd, 2011 (263) ELT 15 92 (SC), Supreme Engineering Works, 1996(82) ELT 102 (Tri) and L.R. Industries, 1999 (114)ELT 550 (Tri). As is evident from the facts of the case discussed above, they are at variance from the facts and circumstances of the cases relied upon by Ld. AR and are thus distinguishable.
56. We now also address the issue of delay in adjudication agitated by the Learned Counsel for the Appellants. The Ld. Counsel had contended that the Adjudication has been inordinately delayed as the notice issued in 2012 was adjudicated only in 2015 and thus there is a violation of the mandate of Section 11A(11) of CEA and places reliance on the Judgement dated 10-2-2024 of Delhi High Court in M/s.VOS Technologies India Pvt Ltd v The principal ADG & Anr. and the Tribunal Final order Nos.59511-59720/2024 dated 25.11.2024 in M/s. Kopertek Metals Pvt Ltd v Commissioner of CGST.
57. We notice that the SCN issued to the Appellants was dated 13.08.2012. We are of the view that the decisions cited by the Ld. Counsel do not come to the aid of the appellants for the following reasons:
i. Firstly, the jurisdictional Madras High Court, in its Judgement dated 01-11-2022 in Conybio Healthcare (India) P Ltd. v. CC(Airport and ACC), Chennai, 2023(383) ELT 434 (Mad): (2022) 1 Centax 97 (Mad) had after noticing the provisions of Section 28(9), even after the amendment on 93 29.03.2018, post which the phrase " where it is possible to do so" stood omitted, has held as under:
"8. When the case was taken up for hearing, the Learned Counsel for the petitioner also drawn attention to Section 28(9) of the Customs Act, 1962. Section 28(9) of the Customs Act, 1962, which reads as under :
"SECTION 28. Recovery of duties not levied or short-levied or erroneously refunded. - (9) The proper officer shall determine the amount of duty or interest under sub-section (8), -
(a) within six months from the date of notice in respect of cases falling under clause (a) of sub-section (1);
(b) within one year from the date of notice in respect of cases falling under sub-section (4)."
9. He specifically placed reliance on the limitation contained therein. He, therefore submitted that there is no basis on which the show cause notice proceeding beyond the period of limitation prescribed under Section 28(9) can be preceded long after the limitation expired.
21. Reliance placed on the provisions of Section 28(9) of the Customs Act, 1962, is also misplaced. The time line prescribed under the aforesaid provision is elastic and not rigid. It cannot be invoked by the appellant to assail the continuance of the show cause notice proceeding dated 27-1-2005 as it is based on the decision of the Learned Single Judge in W.P. No. 18918 of 2000 vide order dated 24-6-2005. The hands of the adjudicating authority cannot be tied and shackled. If any error is committed by an adjudicating authority while passing it is always 94 open for an assessee to assail the same in an appellate proceeding under the Act.". (emphasis supplied) A similar view had been expressed even earlier by the Madras High Court in its Judgement dated 05-01-2022 in Unic Associates v. Commr. Of GST & C.Ex (Appeals-I), Chennai North, 2022 (61) GSTL 27 (Mad), wherein it was held as under:
" 11. Considering the same, I do not find any merits in this writ petition. Before parting with this order, I would like to stress that the authorities under the Acts overburdened with litigation and it may not be fair to hold that the orders passed long after issuance of show cause notice would be in violation of principles of natural justice. Nothing precluded the petitioner from knocking the doors of the Court under Article 226 of the Constitution of India for a Mandamus to direct the respondents to complete the assessment or bring a closure to the issue. The petitioner is equally guilty of the delay in not asking the respondents to pass an order earlier." (emphasis supplied) Recently in a judgement dated 13.09.2013 in W.P. No.9614 of 2022 in the case of M/s. Ramnath & Co Pvt Ltd v. The Dy Commr of Customs, the Hon'ble Madras High Court has held as under:95
96
As can be seen from the decision in M/s. Ramnath & Co Pvt Ltd, the jurisdictional High Court has held, in para 5.2 that "The above limitation was qualified with expression "Wherever, it is possible, to do so". Prima facie, it 97 appears that the Department was not precluded from adjudicating the show cause notice beyond six months." Thus, the jurisdictional High Court has persisted with the view that the time line prescribed is not rigid and the Department is not precluded from adjudicating even beyond the time frame indicated. The aforesaid binding decisions of the Jurisdictional High Court, are applicable in the instant case and are squarely against the proposition canvassed by the Ld. Counsel for the appellant.
ii. Secondly, it is also noticed that the Delhi High Court in its judgement dated 16-08-2023, in Swatch Group India Pvt Ltd v. UOI, 2023 (386) ELT 356 (Del): (2023) 10 Centax 5 (Del) has held as under:
"32. The unamended Section 28(9) of the Customs Act, specifically provides that the proper officer 'shall' determine the amount of duty within six months or within one year, as the case may be, from the date of notice. It only provides certain degree of inbuilt flexibility by incorporating the words 'where it is possible to do so'.
33. The phrases "as far as possible" and "as far as practicable" appear in other statutes as well came up for consideration before the Apex Court in C.N. Paramasivam and Another v. Sunrise Plaza : (2013) 9 SCC 460/[2013] 30 taxmann.com 320 (SC). It is observed that the words "possible" and "practicable" are more or less interchangeable along with the other words such as 98 feasible, performable etc. The incorporation of such words gives certain degree of flexibility to the Department such as if some circumstances or insurmountable exigencies arise, which makes the recourse unpracticable or not possible, the authorities can deviate from what was required to be done in terms of the statute. When the challenge is laid to the act of the authorities deviating from the rule, the onus shifts on the authority to prove that it was not practicable or possible to follow the rule. The same is to be adjudicated on the facts and circumstances of each case." (emphasis supplied)
iii) Thirdly, in the Kopertek case cited supra, the Tribunal has noted the facts of the case as under:
"27. The show cause notice, in the present case, was issued on 28.04.2015. It called upon the noticees to show cause within thirty days from the date of receipt of notice, failing which it was specifically provided that the matter would be adjudicated ex parte without any further communication. It is seen that the period one year from 28.04.2015 expired on 27.04.2016. Even if cause was not shown by the noticees to the said notice, the Adjudicating Authority should have proceeded to decide the matter ex parte, but what is seen is that the Adjudicating Authority even let this statutory time limit of one year pass without even adhering to the stipulation contained in the show cause notice that the matter would be decided ex parte even if no cause is shown within thirty days. It appears that it is only on 07.09.2016 i.e. almost after a period of five months after the expiry of one year that the first hearing was fixed by the Adjudicating Authority on 07.09.2016. The chart submitted by the department further shows that after the first hearing was fixed on 07.09.2016, the 99 matter was taken up on 22.02.2018 for cross- examination which period is itself after more than one year, and this cross- examination continued from 22.02.2018 to 22.03.2021 and though five dates for cross-examination were fixed in 2018, four dates were fixed in 2019 and thereafter two dates for cross-examination were fixed in 2021. There is absolutely no reason assigned in the written submissions or in the date and event chart as to why the cross-examination process continued for almost three years from 2018 upto 2021, when the adjudication itself was required to be completed within one year. Three dates for personal hearing were fixed in 2021 at an interval of almost one month and thereafter the show cause notice was adjudicated after nine months from the last date of personal hearing on 14.06.2022.
28. A clear statutory time limit of one year is provided in sub-section (11) of section 11A for the Adjudicating Authority to adjudicate the show cause notice but no reason has been given in the impugned order as to why it was not feasible or practicable for the Adjudicating Authority to adjudicate the show cause notice. It was incumbent upon the Adjudicating Authority to have clearly spelt out the "insurmountable exigencies" leading to delayed adjudication but none has been pointed out in the impugned order. The Adjudicating Authority has to record reasons in the order adjudicating the show cause notice and not leave it to the department to speculate why the Adjudicating Authority could not adhere to the time limit provided to it under a Statute to adjudicate the show cause notice. 100
29. Learned authorized representative appearing for the department only submitted that the delay occurred on account of the appellant as the appellant did not file a reply to the show cause notice within the period of one month stipulated in the show cause notice and, in fact, no reply was filed till 07.09.2016, which was the date fixed for hearing by the Adjudicating Authority. In this connection, learned authorized representative appearing for the department not only placed reliance upon section 33A of the Central Excise Act, but also contended that since the Adjudicating Authority is required to strictly adhere to the principles of natural justice that require adequate opportunities to be given to the noticees before the adjudicating the show cause notice the Adjudicating Authority was justified in granting time to the noticees to cross-examine and also provide adequate personal hearing.
30. It is not possible to accept this contention of the learned authorized representative appearing for the department.
31. The principles of natural justice do not admit of such delayed adjudication where time limit is fixed under a Statute to adjudicate the matter. The Adjudicating Authority cannot endlessly wait and has to utilize its discretion in a fair and reasonable manner so as to balance between the principles of natural justice and the time set out in the Statute for adjudication of the show cause notice. The show cause notice required the noticees to file a reply within thirty days, failing which it was mentioned that the matter would be adjudicated ex parte.
Assuming that no reply was filed by the noticees, still the Adjudicating Authority should have proceeded to adjudicate the show cause notice ex parte as it was bound to adjudicate in show cause notice within one year, unless there were strong 101 and compelling reasons for it not to adjudicate the show cause notice within the stipulated time. Learned authorized representative appearing for the department is, therefore, not justified in making this submission. Nothing has been shown which can even remotely demonstrate that there were circumstances, much less insurmountable exigencies, which prevented the Adjudicating Authority from completing the adjudication process within the stipulated term. This Tribunal has thereafter held as under:
"40. The facts of each case have to examined to find out whether there were circumstances or insurmountable exigencies which made it impracticable for the adjudication to take place, as has been held by the Delhi High Court in Swatch Group.
41. The decisions relied upon by learned authorized representative appearing for the department, therefore, do not help the department.
42. The aforesaid discussion would lead to the inevitable conclusion that the impugned order would have to be set aside only for the reason that the adjudication was not completed within the time limit prescribed under sub-section (11) of section 11A of the Central Excise Act." (emphasis supplied) Thus, the fact that "There is absolutely no reason assigned in the written submissions or in the date and event chart as to why the cross-examination process continued for almost three years from 2018 upto 2021, when the adjudication itself was 102 required to be completed within one year" and that nothing was forthcoming from the order impugned therein, has decidedly weighed with the Tribunal while setting aside the order impugned therein. It is also pertinent that the Tribunal had reiterated the observation of the Delhi High Court, namely, "The facts of each case have to examined to find out whether there were circumstances or insurmountable exigencies which made it impracticable for the adjudication to take place, as has been held by the Delhi High Court in Swatch Group." in para 40 thereof.
58. We are therefore of the view that the aforesaid decision of this Tribunal in Kopertek Metals Pvt Ltd, which turns on the peculiar facts and circumstances of that case, cannot be construed as laying down a blanket proposition that any delay in adjudication beyond the time limit prescribed under sub-section 11 of Section 11A of the Central Excise Act would automatically result in the impugned order being vitiated for non-adherence to the time limit stipulated, dehors an examination of the facts and circumstances or insurmountable exigences which made it impracticable for the adjudication to take place, as has been held by the Delhi High Court in Swatch Group.
59. It is also pertinent to note the observation of the Delhi High Court in Swatch Group case cited supra, viz., that "When the challenge is laid to the act of the authorities deviating from the rule, the onus shifts on the authority to prove that it was not practicable or possible to follow the rule." Implicit in the said observation of 103 the Honourable High Court, is the essential prerequisite of laying such a challenge before the authority, viz., that the adjudication is being delayed due to the inaction of the authority, which in turn shifts the onus on the authority to prove why it was not practicable or possible to follow the rule.
60. We have also perused the decision of the Delhi High Court in M/s. Vos Technologies India Pvt ltd cited before us and the summation given therein is as under:
"85. The position which thus emerges from the aforesaid discussion and a review of the legal precedents is that the respondents are bound and obliged in law to endeavour to conclude adjudication with due expedition. Matters which have the potential of casting financial liabilities or penal consequences cannot be kept pending for years and decades together. A statute enabling an authority to conclude proceedings within a stipulated period of time "where it is possible to do so" cannot be countenanced as a license to keep matters unresolved for years. The flexibility which the statute confers is not liable to be construed as sanctioning lethargy or indolence. Ultimately it is incumbent upon the authority to establish that it was genuinely hindered and impeded in resolving the dispute with reasonable speed and dispatch. A statutory authority when faced with such a challenge would be obligated to prove that it was either impracticable to proceed or it was constricted by factors beyond its control which prevented it from moving with reasonable expedition. This principle would apply equally to cases falling either under the Customs Act, the 1994 Act or the CGST Act.
86. When we revert to the facts that obtain in this batch, we find that the respondents have clearly failed to establish the existence of an insurmountable constraint which operated and which could be acknowledged in law as impeding their power to conclude pending adjudications. In fact, and to the contrary, the frequent placement of matters in the call book, the retrieval of matters therefrom and transfer all over again not only defies logic it is also demonstrative of due 104 application of mind quite apart from the said procedure having been found by us to be contrary to the procedure contemplated by Section 28. The respondents have, in this regard, failed to abide by the directives of the Board itself which had contemplated affected parties being placed on notice, a periodic review being undertaken and the proceedings having been lingered unnecessarily with no plausible explanation. The inaction and the state of inertia which prevailed thus leads us to the inevitable conclusion that the respondents clearly failed to discharge their obligation within a reasonable time. The issuance of innumerable notices would also not absolve the respondents of their statutory obligation to proceed with promptitude bearing in mind the overarching obligation of ensuring that disputes are resolved in a timely manner and not permitted to fester. Insofar as the assertion of the assessees' seeking repeated adjournments or failing to cooperate in the proceedings, it may only be noted that nothing prevented the respondents from proceeding ex parte or refusing to reject such requests if considered lacking in bona fides.
87. We are further constrained to observe that the respondents also failed to act in accord with the legislative interventions which were intended to empower them to pursue further proceedings and take the adjudicatory process to its logical conclusion. We have in the preceding paragraphs of this decision taken note of the various statutory amendments which were introduced in Section 28 and were clearly intended to ratify and reinforce the jurisdiction which the Legislature recognised as inhering in them. The above observations are, of course, confined to those cases to which the Second Proviso placed in Section 28(9) would not apply. The Second Proviso where applicable would in any case deprive the respondents of the right to continue a pending adjudication or frame a final order once the terminal point constructed by statute came into effect."
In light of the confinement of these observations to cases where the second proviso placed in Section 28(9) of Customs act would not apply and given that the cases where the second proviso applies the statute itself provides a terminal point to the proceedings, we don't see any impediment in the said decision that is contrary to our views expressed above. In fact, all that is mandated is to conduct the adjudication 105 within reasonable time and even if the assessee seeks repeated adjournments, the adjudicating authority is to proceed exparte under a caution that it can be so proceeded exparte only if such requests are considered lacking in bonafides. This too, to our mind, does not constrain the adjudicating authority to accord adjournments on reasonable and bonafide requests, of course ensuring that the adjudication culminates within the statutorily mandated deadline, subject to the exceptions statutorily provided.
61. Be that as it may, we are also of the opinion, that before us, both parties are on an equal footing and are to be equally treated fairly. Therefore, in case the challenge to the act of the authority deviating from the rule, which having been not raised before the authority, is being raised before us, then given that the onus then shifts to the authority to prove it was not practicable to follow the rule in terms of the observations of the Delhi High Court cited supra, requirements of fair imparting of justice makes it incumbent, nay imperative, for this Tribunal, then to call for such reasons for delay from the concerned adjudicating authority through the Departmental representative before this Tribunal, and then to arrive at a considered decision whether or not such explanation is tenable.
62. We also hold the view that if the adjudicating authority has stated/narrated in the order, the time line of events which transpired leading to the delay in the final adjudication, that itself would permit an examination of the facts and circumstances or insurmountable exigences which made it impracticable for the adjudication to take 106 place and if prima facie it meets our satisfaction, then the requirement to seek such explanation from the adjudicating authority would be obviated.
63. Such an examination, in our view, would be in consonance with the observations not only of the Honourable Delhi High Court in the case of Swatch Group cited supra, but will also be in line with the observation of the coordinate bench of this tribunal in para 40 of the case of M/s. Kopertek Metals Pvt Ltd. While we have addressed the issue of delay in adjudication raised by the Ld. Advocate in law, we are not entering into an examination of the same on facts in this case, given that on merits we have formed a view that the matter is to be decided in favour of the appellant, and thus nothing much would turn on such an examination if embarked upon and rather that in turn might delay the adjudication at our end.
64. In the light of our discussions above after appreciating the facts and evidence and following the decisions cited supra, as regards the principal two issues that arise in the instant case, we hold that:
i. The finding of the Adjudicating Authority that M/s. Meena Fire Works Industries, M/s. Meena Fire Works and M/s. Meena Sparklers are to be treated as one single manufacturer manufacturing and clearing fireworks from their factories in terms of section 2(f) of Central Excise Act read with para 2(v) of the Notification No.8/2003-CE dated 01.03.2003 as amended, is wholly untenable and cannot sustain.107
ii. The finding of the Adjudicating Authority that the value of clearances of fireworks including sparklers manufactured and cleared from M/s. Meena Fire Works Industries, M/s. Meena Fire Works and M/s. Meena Sparklers during the period 2007-08 to 2011-12 should be clubbed together in terms of para 2(v) of the Notification No.8/2003-CE dated 01.03.2003 as amended to determine the aggregate value of clearances for demanding duty from the said three firms, is wholly untenable and cannot sustain.
65. In view of the above, in as much as we have held in favour of the appellants on merits, we are of the considered opinion that the impugned order in original confirming the demand along with applicable interest, ordering appropriation and imposing penalties on the appellants cannot sustain and are liable to be set aside. Ordered accordingly.
66. The appeals are allowed with consequential relief in law, if any.
(Order pronounced in open court on 19.03.2025)
(AJAYAN T.V.) (VASA SESHAGIRI RAO)
Member (Judicial) Member (Technical)
Psd