Custom, Excise & Service Tax Tribunal
Gumphekar Dasharath Prahlad vs Aurangabad on 27 January, 2011
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI APPEAL NOS: E/2008 to 2011/2001 [Arising out of Order-in-Original No: 02/C.Ex/2001 dated 09/04/2001 passed by the Commissioner of Customs & Central Excise, Aurangabad.] For approval and signature: Hon'ble Shri Ashok Jindal, Member (Judicial) and Hon'ble Shri P.R. Chandrasekharan, Member (Technical) 1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? : No 2. Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? : -
3. Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4. Whether Order is to be circulated to the Departmental authorities?
:
Yes The Shrigonda Sahakari Sakhar Karkhana Ltd. Bhoyate Vinayak Sahebrao Jangale Abasaheb Baburao Gumphekar Dasharath Prahlad ...Appellants Vs Commissioner of Central Excise Aurangabad ...Respondent Appearance:
Shri S.S. Sekhon, Advocate with Ms. Aparna Hindagi, Advocate for the appellants Shri N.A. Sayyad, Authorised Representative (JDR) for the respondent CORAM:
Hon'ble Shri Ashok Jindal, Member (Judicial) and Hon'ble Shri P.R. Chandrasekharan, Member (Technical) Date of hearing: 25/01/2011 Date of decision: 09/03/2011 ORDER NO:
Per: P.R. Chandrasekharan:
Briefly stated the facts of case are as follows:
a) M/s. Shrigonda Sahakari Sakhar Karkhana Ltd., Ahmednagar ('SSSKL' for short) are manufacturers of sugar, molasses, denatured alcohol and fuel oil. The department received intelligence to the effect that M/s. SSSKL were clearing molasses without payment of duty and one of the tanks in which molasses is stored is filled with some black colour liquid instead of molasses. The Superintendent (Preventive) of the Ahmednagar Central Excise Division along with staff visited the factory premises of the said assessee on 11/11/1997. They conducted stock challenge of the molasses stored in the factory premises in the presence of Shri B.M. Nawale, Lab Chemist. It was noticed that in steel tank No.1 the book balance indicated stock of molasses to be 3569.300 MTs whereas the actual physical balance was only 2999.750 MTs indicating a shortage of 569.550 MTs. In steel tank No.2 the corresponding figures were 2997.400 MTs, 3092.05 MTs whereby showing an excess quantity of 94.650 MTs. The Lab Chemist who was present could not offer any satisfactory explanation as regards the shortage.
b) A sample of the molasses stored in steel tank No.1 and No.2 distillery tanks and katcha pits were drawn and sent for chemical examination. Statement of Shri Dashrath Prahlad Gumphekar, Chief Chemist was recorded on 18/11/1997 wherein he was shown the statement of Shri B.M. Nawale recorded on 09/11/1997 and he also admitted to the measurements and shortages of 569.55 MTs noticed in steel tank No.1. Statement of Shri V.S. Bhoyate, Managing Director was recorded on 24/02/1998 and he also admitted to the shortages as mentioned above. Reports of the samples tested indicated that the liquid contained in steel tank No.1 had a TRS of 2.61% whereas those contained in steel tank No.2 had TRS of 46.55%. Similarly, the molasses in distillery tank had a TRS of 37.61% while that drawn from katcha pits were unfit for distillation. Similarly, the analysis reports of various samples received from the Dy. Chief Chemist also indicated that the samples drawn from tank No.1 had a TRS of les than 5% and could not be used for distillation. M/s. SSSKL, on the other hand, had also drawn samples of molasses from the katcha pits and steel tank No.1 and sent to M/s. Western Maharashtra Development Corporation Ltd., Chitall and the said Corporation vide their letter dated 19/12/1997 communicated the analysis report indicating that the sample in katcha pits had 'nil' percent of TRS and sample contained in steel tank No.1 had a TRS of 0.29% indicating that both the samples were unfit for distillation.
c) Accordingly, the department felt that the stock of molasses in steel tank No.1 of 3569.360 MTs as per the book balance was not molasses but substituted material. Shri D.P. Gumphekar, Chief Chemist, in his statement had explained that the molasses in tank No.1 were a mixture of molasses already drawn and molasses diluted and pumped from the seven earthen pits which contained duty paid molasses produced in the factory during the season 1995-96. The department had allowed the assessee to store 8970 MTs of molasses in the katcha pits during the 1995-96 sugar season. In their statements, both Shri Nawale, Lab Chemist and Shri Gumphekar, Chief Chemist, had admitted that the entries in the accounts books were no correctly recorded and the molasses in the earthern pits were diluted by the rain water.
d) In view of above, the department was of the view that the entire quantity of 8970 MTs stored in the katcha pits and also 3569.300 MTs stored in the steel tank No.1 had become unfit for consumption. Since the said quantity of 8970 MTs had been shown in the books of accounts as having been used in their distillery for the manufacture of ethyl alcohol the department was of the view that the assessee had produced excess molasses without recording into the books of accounts and utilised the same captively in the manufacture of alcohol without payment of Central Excise duty. As regards the quantity of 3569.300 MTs found in steel tank No.1, the department was of the view that since the same has been mixed with the molasses stored in katcha pits an equivalent quantity of molasses has been manufactured and utilised in the distillery in the manufacture of ethyl alcohol without payment of Central Excise duty.
e) Accordingly, a show-cause notice was issued to the assessee, M/s. SSSKL demanding duty of Rs. 35,78,650/- under the proviso to Section 11A(1) of the Central Excise Act, 1944; interest on the said amount of duty under Section 11AB of the Central Excise Act; proposing to impose penalty on the company under Section 11AC thereof read with Rule 173Q of the Central Excise Rules, 1944 and also proposing to impose penalties on the Managing Director, Chief Chemist, Dy. Chief Chemist, and the Distillery Incharge under Rule 209A of the Central Excise Rules, 1944. The said show-cause notice was adjudicated by the Commissioner of Central Excise and Customs, Aurangabad vide order No. 02/C.Ex/2001 dated 09/04/2001. The learned Commissioner confirmed the duty amount demanded in the show-cause notice, confirmed the interest liability on the said duty amount under Section 11AB of Central Excise Act, 1944, imposed equal amount of penalty on the company under Section 11AC and imposed penalty of Rs. 10,000/- each on the Managing Director, Chief Chemist, Dy. Chief Chemist and Distillery Incharge under Rule 209A of the Central Excise Rules, 1944.
2. The assessee is in appeal before us against the said order passed by the learned Commissioner.
3. Their main contention is that molasses has a dual control under the Central Excise Act as well as under the State Excise Act and the State excise authorities under the Bombay Molasses (Control) Act, 1956 and the Bombay Molasses (Sales, Supply & Price) Control Order, 1960 exercise very strict physical control and supervision on the production, storage and movement of molasses from the sugar factory and no quantity of molasses can be removed without obtaining permission from the State excise authorities. It is their submission that the State excise department, which has a strict physical control on molasses, have not made any allegations of shortage of molasses or clandestine removal of molasses in their case and the Central Excise department has not verified the facts with records maintained by the State excise authorities. They further submitted that the quantity of 8970 MTs was manufactured during the period 23/03/1996 to 20/07/1996 and duty was paid thereon vide 70 invoices bearing Nos. 50 dated 20/03/1996 to 161 dated 27/06/1996 at the time of storing the said molasses in the katcha pit. The said quantity was taken for distillation in the distillery vide State excise TP Nos. 364 dated 01/12/1996 to TP Nos. 384 dated 13/02/1997. As regards the quantity of 3569.300 MTs found in steel tank No.1 they had removed those quantity for distillation under invoice Nos. 18 dated 13/01/2000 to 29 dated 25/02/2000 on payment of appropriate duty of Rs. 500/- per MT and the relevant State excise TP Nos. 18 of 13/01/2000 to 29 of 25/02/2000. Further, in the monthly RT12 returns molasses stock statements, spirit production statements, etc. were submitted to the department as well as to the State excise authorities and these information is available with the department and, therefore, it cannot be alleged that there has been any clandestine production or removal of molasses. As regards the statement given by Shri B.M. Nawale and Shri D.P. Gumphekar, these statements were recorded under duress after office hours and, therefore, they cannot be relied upon. Further, the statements are in handwriting of Shri Rasne, Superintendent of Central Excise and the said officer had put his words in the statements recorded under duress without supplying the copies of the statements. They further submitted that they had filed RT-8(C) return for the season 1996-97, which is the official manufacturing report for the sugar season, which indicates the total hours of working, quantity of cane crushed, quantity of sugar produced, quantity of molasses produced, quantity of bagasse recovered, etc. during the entire period. This is a statutory return filed under the Central Excise Rules. In addition to the above, they had also filed RT 7(C) returns indicating the above particulars on monthly basis under Rule 83 of the Central Excise Rules and these returns have been filed not only before the Central Excise authorities but also to the state excise authorities. A perusal of these returns would indicate that during the season 1996-97 the total molasses produced by them was 12837.283 MTs and the quantity of sugar cane crushed was 3,47,132.115 MTs. If they had produced and cleared molasses for a total additional quantity of 12539.300 MTs, as alleged in the show-cause notice, and sent to the distillery during December, 1996 to February, 1997 without recording for the same, that would require additional sugar cane of almost 3,47,132.115 MTs. Further, crushing would have taken 128.31 days additionally and the additional sugar that could have been produced would be of the order of 3,76,448 quintals. Since molasses is only a byproduct in the manufacture of sugar, if there is an allegation for clandestine production and removal of molasses, there should have been an allegation for the manufacture of sugar and demand of duty thereon which has not been done in the instant case, because molasses cannot be produced without production of sugar. Further, the molasses stored in katcha pits were removed during December, 1996 to February, 1997 and even if something was left in the pit, sample drawn in February, 1997 indicating that such molasses had deteriorated due to rain water, the said report cannot be applied to the removals made in December, 1996 to February, 1997. As regards the 3569.3 MTs of molasses in the steel tank No.1 on which duty has been demanded on the basis of sample drawn on 11/11/1997, they had drawn another sample from the very same tank on 10/12/1997 under the supervision of the State excise officials which was also sent for analysis to the Western Maharashtra Development Corporation Limited and the said Corporation vide its test report dated 18/12/1997 shows TRS percentage to be 45.93% as against the department's test report indicating 2.61%. In view of this position it is their contention that there is no evidence whatsoever, relied upon by the department to prove that they have indeed produced and cleared huge quantity of molasses as alleged in the show-cause notice. They have also placed reliance on the following case laws, namely, (1) Oudh Sugar Mills vs. Union of India 1978 ELT J172 (SC); (2) LML Limited vs. Commissioner of Central Excise 1991 (51) ELT 434; (3) Leather Chemicals and Industries Ltd. vs. Commissioner of Central Excise, Calcutta 1984 (15) ELT 451; (4) Commissioner of Central Excise, Baroda vs. Kosan Metal Products 1988 (38) ELT 573 (SC); (5) Bajaj Hindusthan Ltd. vs. Commissioner of Central Excise, Kanpur 1994 (72) ELT 710 and (6) Ashok SSK vs. Commissioner of Central Excise 2000 (177) ELT 708 in support of the above contentions.
4. The department was asked to verify and report whether the assessee had filed RT 8(C) returns dated 06/06/1997 and, if not, what action was taken for non-filing of returns. The jurisdictional range Superintendent has confirmed that on verification of the office records the assessee had not filed any RT 8(C) return dated 06/06/1997 and no action has been taken against the assessee for non-filing of the said returns.
5. The department's contention is that the assessee has not maintained the books of accounts correctly which has been admitted by various officers of the assessee-company and the samples drawn and test reports thereon clearly indicate that the liquid said to be molasses stored in the steel tank No.1 and katcha pits had very low TRS percentage and they are unfit for distillation. Accordingly, the quantity of molasses should have been diverted and replaced with some other liquid indicating clear evidence of clandestine production and removal. The department also relies upon a number of judgments in support of their contention, namely, Twenty First Century Wire Rods Ltd. vs. Commissioner of Central Excise & Customs, Goa 2010 (250) ELT 94; Commissioner of Central Excise, Madras vs. Systems & Components Pvt. Ltd. 2004 (165) ELT 136 (SC); Chicago Pneumatic India Ltd. vs. Commissioner of Central Excise, Mumbai - II 2008 (221) ELT 373; Lucky Dyeing Mills P. Ltd. vs. Commissioner of Central Excise & Customs, Surat 2008 (222) ELT 543; Saif Electronics Ltd. vs. Commissioner of Central Excise, Vapi 2006 (205) ELT 676 and Madhukar SSK Ltd. vs. Commissioner of Central Excise, Nasik 2005 (190) ELT 508.
6. We have considered the rival submissions very carefully. The department's case is one of clandestine production and removal of molasses by the assessee. Since molasses is a byproduct of sugar industry molasses cannot be produced without producing sugar. In the instant case, there has been no allegation of clandestine production and removal of sugar from the assessee's factory. Therefore, without alleging clandestine production and removal of sugar, there cannot be any allegation relating to clandestine production and removal of molasses. In other words, the department's case has no legs to stand on its own. Consequently, the department's allegation has no corroborative evidence to support its case. Since molasses is a controlled item, both under the Central Excise law and also under the State excise laws, there cannot be any clandestine production and removal without the same being noticed by the State excise authorities. As rightly contended by the assessee, no case has been made against them by the State excise authorities who issued transport permits for the assessee to remove molasses to their distillery. The least that the department could have done in this case is to cross-check with the State excise authorities and the records maintained by them to satisfy, whether, indeed, there has been production and clearance of the molasses to the extent of 12539.300 MTs as made out in the show-cause notice which has not been done in the instant case. Further, molasses has to be produced out of crushing of sugar cane. To produce the quantity of molasses alleged to have been clandestinely produced and removed, the assessee should have procured 3,41,732.115 MTs of sugar cane. Such huge quantity could not have been procured by anyone without documentation relevant to their purchase, transport, payment and so on. No investigation worth the name has been conducted by the department in this regard. Further, as rightly pointed out by the assessee, to crush this much quantity of sugar cane the factory should have worked additionally for about 128 days, which means there will be consumption of electricity, other fuels, employment of workers and payment of wages to these workers. None of these aspects has been gone into by the department while making the allegations raised in the show-cause notice. In the case of Oudh Sugar Mills Ltd. vs. Union of India (supra) the Hon'ble apex court has held that show-cause notice cannot be issued and duty confirmed based on assumptions and presumptions and the demand of duty cannot be sustained unless there is clear and categorical evidence for removal of goods without payment of duty. There has to be tangible evidence before a conclusion can be drawn in respect of production and clearance of goods. Any conclusion drawn on the basis of inferences involving unwarranted assumptions are vitiated by an error of law. Further, in the case of molasses, the State excise authorities have a physical control and special supervising staff are posted in the factory and distillery unit to safeguard the case of State excise revenue on molasses and allied products. The State excise authorities, in this case, have not made any allegation of shortage of molasses or any unaccounted production of molasses. In view of this position, when there is a physical control of the department of State excise and also records based control by the Central Excise authorities there cannot be any allegation of clandestine removal of goods without substantive evidence as has been held in the case of LML Limited vs. Commissioner of Central Excise (supra). It is also a well settled position of law that in the case of clandestine removal, the department has to adduce evidence and the department cannot make allegations based on conjunctures and surmises as has been held in the case of Leather Chemicals and Industries Ltd. vs. Commissioner of Central Excise (supra). One could cite several judgments on the subject matter to show that the department has to produce substantial and reliable evidence to prove the case of clandestine production and removal which the department has failed miserably in this case.
7. In the light of the above discussions, we are of the view that the department has failed miserably in proving the case of clandestine production and removal. Accordingly, we set aside the impugned order dated 09/04/2001 passed by the learned Commissioner of Customs and Central Excise, Aurangabad and allow the appeals filed by the parties.
(Pronounced in Court on 09/03/2011) (Ashok Jindal) Member (Judicial) (P.R. Chandrasekharan) Member (Technical) */as 15 15