Customs, Excise and Gold Tribunal - Tamil Nadu
M/S. Hrikrishna Polymers (P) Ltd., N. ... vs C.C.E., Chennai-Ii on 8 May, 2001
ORDER
Shri Jeet Ram Kait
1. For the purpose of hearing these appeals, the applicants/appellants are required to pre-deposit duty and penalties as under in terms of the order in original no. 5/2000 dated 28.3.2000 passed by the Commissioner of Central Excise, Chennai-II:
(a) Duty of Rs. 40,27,050/- demanded from the appellant Company under the provisions of Rule 9(1) of the CE Rules, 1944 read with proviso to Section 11A(1) of the CE Act, 1944, and ordered adjustment of Rs. 10,47,589/- already paid by the appellants towards the above noted demand, besides imposing an equal amount of penalty under the provisions of Rule 173Q/11AC of the CE Act, 1944. There is another penalty of Rs. 50,000/- on the appellant company under Rule 173Q of the CE Rules, 1944. The Commissioner also held that M/s HPPL are liable to pay interest on the duty confirmed in terms of Section 11AB of the CE Act. 1944.
(b) Penalty of Rs. 15,00,000/- each on appellants N. Ramachandran, Chief Executive and R. Narayanamoorthy M.D. respectively of the appellant company.
(c) Penalty of Rs. 1,00,000/- on N. Ponnuswamy, Director of the appellant Company.
2. The stay applications have been filed for waiver of pre-deposit of the above noted amounts. Since we propose to dispose of the appeals themselves, we grant waiver of pre-deposit of the amounts involved and take up the appeals for disposal.
3. The brief facts of the case are that appellant Company (hereinafter referred to as M/s HPPL) are engaged in the manufacture of HDPE woven fabrics/sacks falling under chapter sub-heading 3926 and 3923 respectively. Based on intelligence that M/s HPPL are indulging in evasion of duty by clearing the goods clandestinely without payment of duty by adopting different modus operandi, the officers of the department attached to the Preventive Unit conducted search in the factory and office premises of M/s HPPL. The search lead to recovery of certain incriminating documents. Scrutiny of the documents and statements recorded from various officers of M/s HPPL revealed that M/s HPPL used two sets of invoices for removal of goods while paying Central Excise duty on one set.
Statement was recorded from Shri R. Narayanamoorthy on 25.09.96 wherein he has stated that M/s HPPL have occasionally prepared second set of invoices and Central Excise duty has not been paid on the second set of invoices and that this has been done due to stiff competition in the business. Statement was also recorded from Shri N. Ramachandran, Chief Executive of the Company on 04.10.96 in which he has stated inter alia that Central Excise duty was discharged to the maximum possible extent and he admitted about clearing excisable goods more than once using the same serial number due to absence of Excise clerk. He also admitted that M/s HPPL had not maintained statutory records properly. Statement was also recorded from N. Ramachandran on 20.11.96 wherein he has stated inter alia that M/s HPPL continued to supply goods to M/s SPIC under Invoice No. 22 to 35 for the period form 23.10.94 to 03.01.95 and also collected excise duty from M/s SPIC and these invoices have not been produced to the department. Further corroborative statements were recorded from Shri N. Ponnuswamy, Director, and others who have admitted in their statements that the entire activities of M/s HPPL were being looked after by Shri R. Narayanamoorthy, M.D. and his son N. Ramachandran, Chief Executive.
4. As a follow up action show cause notice was issued to M/s HPPL calling up them to show case cause as to why duty and penalty as enumerated in para 1 above should not be demanded and imposed on the company and its officers for contravention of various provisions of the Central Excise Act, and the Rules made thereunder. M/s. HHPL replied to the show cause notice on 12.11.99. After detailed consideration of the replies to the show cause notice and the submissions made by M/s HPPL, the Commissioner has arrived as the following finding:
32(i) The noticee has indulged in clearance of HDPE bags without payment of duty the year 1994-95, 1995-96 and 1996-97 without observing any Central excise formalities.
(ii) They were also preparing two sets of invoices with the same serial number for removal of excisable goods but have discharged duty only on one set of invoices which were made available to the department.
(ii) In respect of certain invoices collected excess duty from the customers but paid less duty to the department.
(iv) The company is liable for penal action under Section 11AC of Central Excises Act, 1944 and Rule 173 Q of Central Excise Rule, 1944.
(v) Shri. N. Ramachandran, Chief Executive of M/s. Harikrishna Polymers is liable for penal action under rule 209A of Central Excise Rules, 1944.
(vi) Shri R. Narayanamoorthy, Shri No Ponnusamy of M/s. HPPL is liable for penal action under Rule 209A of Central Excise Rules, 1944.
33. In reply to the above allegations, the noticee has stated that the entire proceedings have been initiated on the basis of erroneous assumptions without any support of evidence and have been initiated on the basis of statements without the support of any documentary proof.
The above contention of the noticee cannot be accepted for the reason that the second sets of invoices on which goods were supplied without payment of duty have been recovered from the buyers' end and Shri R. Narayanamoorthy and Shri N. Ramachandran have accepted in their statements dated 25.09.96 and 20.11.96 respectively about the removal of excisable goods during the said period. This clearly shows that the proceedings are based on documentary evidences in the form of invoices issued to the buy coupled with the confessional statement and this is not base don presumptions and assumptions as contended by the noticee.
34. They have also mentioned that with regard to the second set of invoices, it is not known as to how the department has come to the conclusion that the said invoices are second set of invoices when there is no mention about the first set of invoices.
It has been clearly indicated in the Annexure 'B' to the S.C.N. that wherever duty has been paid the same has been shown in first set of invoices and wherever duty is not found the same are shown as second set of invoices with same serial numbers.
35. They have contended that for the year 1996-97, as per Annexure, the department has shown 15 invoices for the duty calculation whereas in the Grounds leading to the allegations, only 6 invoices were shown and thus relegating them to conjecture and speculation regarding the duty liability.
I do not accept the contention of the notice. The list of invoices shown in the Annexure 'B' to the S.C.N. is exhaustive whereas the six invoices mentioned in the Grounds leading to the allegations have been shown only as examples. Therefore, there is no question of any conjecture and speculation as invoices in shown in Annexure 'B' relate to clearance of unaccounted goods without payment of duty.
36. The notice has contended that in the Annexure B to the S.C.N. for the year 1996-97 it has been stated against Invoice No. 28 & 29 "Cleared on DCs" and "not raised invoices" respectively. With regard to Invoice Nos. 54 & 55, the mention of paras 17 & 18 respectively is there. They could not comprehend any specific charge levelled under the notice, which is necessary to counter effectively.
The remarks against Invoice No. 28 & 29 are not very much r relevant and appear to have remained by error. The fact is that all the invoices mentioned in Annexure 'B' relate to clearances of goods clandestinely without payment of duty and therefore, remarks mentioned against any of the invoices including above are of no significance and not relevant and can be ignored.
37. The notice has stated that the extended period under Section 11A will not apply in this case for the reason that the entire changes have been made based on certain purchase orders and on strength of some letter correspondence between the department and the other manufacturers.
The above argument of the notice does not hold water for the reason that the goods were cleared suppressing the fact of second set of invoices from the department which were recovered from the buyer and the same was also corroborated by the statements of Shri. R. Narayanamoorthy and Shri. N. Ramachandran in which they have not squarely denied the fact of such clandestine removal. Hence, the proviso to Section 11A is very much invocable.
38. The notice has also contended that there was acute financial problems and non-remunerative market conditions, the management was busy in acquiring fresh market share and hence, they could not concentrate on day to day accounting, which was done by part-time employees who have failed in maintaining proper account. Hence, there was no intention to evade payment of duty and it was only a simple negligence on the part of their employees.
The above contention of the notice cannot be accepted for the reason that they have not produced any documentary evidence to prove the above and it is only a tactic to divert the attention of the adjudicator. In any case, this argument of their does not help their case in anyway.
39. It has been contended that the credit available for the inputs used by them for the manufacture of the finished goods in sufficient to meet the payment of the duty on the finished goods at the time of clearance to their customers.
I find that the notice has accepted that they have committed the offence of removal of goods by not properly accounting the actual clearances and the failure on their part to pay the actual duty is due to "inadvertent" accounting procedures due to handling of the accounts by outsiders. The plea of the assessee that input credit available to him was sufficient to cover the duty on finished goods does not help the offence committed by the assessee in any way. If it was so, then why the assessee indulged in evasion, which is proved beyond doubt instead of availing the credit.
40. The notice has further replied that it is a well settled law that clandestine removal of goods being a serious allegation, suspicion cannot substitute factual evidence for which they have cited certain case laws.
This cannot be accepted for the reason that it is not a case based on suspicion. It has been proved beyond any doubt that the assessee has clandestinely cleared good by using a second set of invoice and cleverly suppressed the fact with the department. Moreover, such unaccounted clearance and the failure to pay duty on such clearances have been admitted by Shri. R. Narayanamoorthy and Shri. N. Ramachandran vide their statements. The case laws cited by the notice has got no relevance in the instant case.
41. The notice has sought for the benefit of Modvat credit available or inputs involved in the manufacture and the clearance of excess goods in terms of Rule 57A of Central Excises Rules, 1944 in case the department intends to proceed on the basis of the charges and they have relied upon the following case laws in support of their cause.
1. Chamundi Steel Rolling Mills Vs. CCE 1996 (81) ELT 562 TRI.
2. Indian Oxygen Ltd Vs. CCE 1995 (80) ELT 573 TRI.
3. Gujarat Ambuja Cement Vs. CCE 1997 (850 ELT 154 TRI.
4. Vivek Rolling Mills Vs. CCE 1994 (73) ELT 660 TRI.
5. Vijay Polycraft P.Ltd Vs. CCE Tribunal Order 596/597/97 at 17.3.97.
6. Lakshmi Saraswathy Textiles Ltd Vs. CCE Tribunal Order 120/97.
They have also claimed MODVAT credit to the extent of Rs. 35,52,531.42 as per the statement given along with the reply. Without prejudice to the above submissions, they have claimed that they have further debited an amount of Rs. 4,43,352/- vide RG 23A part II Sl. No. 225 dated 09.09.99 for the Invoice Sl.Nos. 57 to 60 and hence the demand pertaining to the clearances under the above invoices appearing in Sl. No. 9 to 12 Annexure B to the Show Cause Notice is not sustainable in law.
I find that MODVAT credit can be extended only on those inputs which have suffered duty and which are received in the factory and used in manufacture of final products after proper accountal. Furthermore, credit can be extended only when the procedures set out under Rule 57A to Rule 57J of Central Excise Rules, 1944, is followed. I rely on the judgment of the Tribunal in the case of M/s. P.G. Conductors vs, CCE, Jaipur - 1996 (81) ELT 336 Tri. Where in it has been held that for availing MODVAT credit - declaration is a substantive requirement and not a procedural or technical one because Rule 57G prescribes that the assessee shall file a declaration and obtain a dated acknowledgement of the said declaration. The above requirement is also stressed in the case of M/s. Paro Food Products vs. CCE reported in 1988 (38) ELT 332 (T). Therefore, other judgments cited by the assessee cannot be made basis for granting the credit now. Apart from this, I find that neither the assessee has produced any proof of receipts of inputs in his factory nor any proof of their use in manufacture of finished products after accounting the same in his own records on RG23A part I & II. It is noteworthy that the assessee was availing MODVAT credit on identical inputs during the relevant period. Had he actually received inputs in his factory under the invoices now produced then why he did not take MODVAT credit after proper accountal of the same of records. All this shows that the invoices now being produced were actually neither available with him at that time nor the goods were also received and used by him in the manufacture. Therefore, I do not accept that credit can be granted to the assessee on invoices now being produced. I have also to stress that as per MODVAT rules, especially under Rule 57E, the benefit of MODVAT cannot be extended for the payments mode after committing an offence. The intention of the government is that MODVAT should not be extended to he user factory when the supplier has committed an offence. On the same analogy I find that no MODVAT can be extended on inputs that are used to manufacture clandestinely cleared goods. I also find that the Notice has not rebutted the allegations in the Show Cause Notice per se that they have committed the offence with an intention to evade payment of excise duty and instead proceeded to claim the MODVAT credit on the inputs based on certain invoices, which were produced to the adjudicating authority. On perusal of these invoices, I find that most of the invoices are only original copy of the invoices and the same cannot be correlated with an record whether the inputs mentioned in the invoices were actually received and used in the manufacture of products which were cleared clandestinely. As per MODVAT Rules, credit can be claimed only on the transporter's copy. Hence, on this ground also no credit is admissible to the assessee. As regards the deduction of amount of Rs. 4,43,352/- claimed to have been paid by the assessee, I find that no proof to the effect that the amount has been debited vide RG23A part II Sl. No. 225 dated 09.09.99 for the invoices Sl. Nos. 57 to 60 has been produced and therefore, the same cannot be allowed to be deducted towards duty liability determined against them.
42. M/s. HPPL, without prejudice to the above submissions, have claimed abatement of duty element from the wholesale price as per Section 4(4)(ii) of Central Excises Act, 1944, in view of the Hon'ble Supreme Court judgement in the case of Bombay Tyre International vs UOI and MRF vs UOI. This has been reiterated by the notice vide his reply dated 12.11.99 quoting some more case laws.
I find that assessable value has ben arrived in the S.C.N. treating the entire price shown in invoices as cum-duty price. Then the abatement of duty ha already been allowed in S.C.N. and there is no case for any further reduction. In so far as the proposal to impose the mandatory penalty under the provisions of Section 11AC and levy of interest proposed under Section 11AB, they have submitted that the same can be effected only w.e.f. 28.09.96 in view of the Civil Appeal Order of the Hon'ble Supreme Court in Maracandy Prasad, Radhakrishna Prasad vs. CCE. They have also quoted some more case laws in their reply dated 12.11.99. They have also requested the Commissioner to desist from imposing any further hardship by way of penal action under Rule 173Q of Central Excise Rules, 1944, since, they are already under financial difficulties.
43. I find that the notice has not rebutted the allegations in the Show Cause Notice per se that they have committed the offences with an intention to evade payment of excise duty and instead proceeded to question the technicality of the invocation of Section 11AC and Section 11AB of Cental Excises Act, 1944 by quoting the case law of Maracandy prasad Radhakrishna Prasad vs. CCE. The general presumption is that Section 11AC would be prospective against any kind of retrospectivity of penal provisions. This presumption, however, applies only where penalty is levied for the first time or the existing penal provisions re revised to the prejudice of the citizens. Although the said sections 11AC and 11AB were not in vogue during the period prior to 28.09.96 but Rule 173Q was very much on Statute books which authorizes the adjudicating authority for imposing penalty up to 3 times the value of goods for identical offence. Section 11AC provides for the penalty equal to the duty evaded. Therefore, in reality and substance, the effect of Section 11AC is to reduce the quantum of penalty, which can be levied, therefore, the presumption against retrospectivity, would not apply in this case. The only limited area under which the procedure stands modified is while under Rule 173Q, the officer would decide upon the quantum of penalty, in the instant case, the quantum of penalty is fixed by the statute. Therefore, the provisions of Section 11AC do not affect any substantive rights as such. The real change, if at all, is by way of reduction in the amount of penalty in the generality of case, and therefore, the provisions would apply to all proceedings pending and certainly to all proceedings commenced after the insertion of the provision. The Notice has also requested to waive any penal action under Rule 173Q of Central Excise Rules, 1944 since they are already under serious financial difficulties. I find that there is no contemplation in the Act and the Rules that leniency has to be shown to any offender, if subsequent to committing the offence, he has become sick. The penalty is imposable keeping in view the gravity of the offence and not economic health of the unit. I, therefore, find no force in assessee's request for leniency. I, therefore, hold that penalty is imposable on the assessee on Rule 173Q/Section 11AC for the offence committed.
44. Further, the notice has contended that Section 11A and Rule 9(2) are applicable only when duty are short paid and not paid and where the goods were cleared without payment of duty clandestinely. In the above circumstances, t he notice has stated that the provisions of Section 11D are otherwise applicable. However, even the provisions of Section 11D can also not be invoked as there is no machinery provision in the said section to collect such duty. They have also quoted the case law of ETTER IT EVEREST LTD vs. UOI 1997(89) ELT 28 (MAD) and has stated that in view of the above judgement the amount collected from the customers in the name of excise duty is not recoverable under Section 11D and Section 11A. Further, they have stated that the amount of Rs. 55,327/- (last page of the worksheet) cannot be demanded in view of the Hon'ble High Court judgement cited supra.
I find that the duty has been demanded from the assessee under Section 11D. In the instant case, the notice has supplied excess quantity to the buyer vide Invoice No. 13/15.09.94 & 17/30.09.94 and collected excess excise duty accordingly but did not pay to the department, which id due to the ex-chequer. Hence, it is a case of short levy and the proviso to Sec 11A(1) will be applicable for demanding the duty in this case and Section 11D is not at all applicable. Accordingly, I also hold that the duty amount of Rs. 55,327/- is demandable under Section 11A(1) of Central Excise Act, 1944.
45. They have pointed out hat in the S.C.N. for the year 1995-96, (sl.No.4), the amount has been wrongly mentioned as Rs. 82,695/- instead of Rs. 79,695/-.
I agree that there has been a clerical mistake in arriving at the duty amount as Rs. 82,695/- instead of Rs. 79,695/- thus resulting in a difference of Rs. 3,000/-. Accordingly, the demand amount is adjusted.
46. With regard to the proceedings against Shri. N. Ramachandran, he has stated that the is not the Chief Executive of the company and is in no way connected with the Company. He has stated that he has already retracted the statements recorded from him.
I find here that he has already accepted in his statements that he is the Chief Executive of the company. The contention that he has already retracted the statements recorded from him does not hold water as it seems to be an afterthought and the part played by the notice has been proved conclusively in the investigation as well as from the statements recorded form Shri. N. Ponnuswamy & others. Therefore, I hold Shri N. Ramachandran has abetted the offence with full contemplation and is liable for penal action under Rule 209A of Central Excise Rules, 1944 for abetting the offence.
47. Shri R. Narayanamoorthy has stated that the staff working in the company was looking after the day to dy work of the company and he was pre-occupied with the Court case relating to the Pollution Control, He has also stated that he is not involved in the improper accounting to the raw materials and finished goods and therefore, no penalty be imposed.
I find that Shri R. Narayanamoorthy being the Managing Director of the company cannot claim immunity of his pre-occupation with some other work. He himself has admitted in his statements about the clandestine clearances made from the factory. In the above circumstances, I hold that Shri. R. Narayanamoorthy has abetted the offence and is liable for penal action under Rule 209A of Central Excise Rules, 1944.
48. Shri R. Ponnuswamy, Director of M/s. HPPL, has stated that S.C.N. admits that he is not in-charge of any day-to-day activities of the company and hence, no penalty is imposable.
There is no contemplation in the Show Cause Notice that Shri. R. Ponnuswamy is not in charge of any day to day activities. Being a Director of the company, Shri. R. Ponnuswamy, cannot shirk the responsibilities for the offences committed in his company. I, therefore, hold he is liable for penal actin under Rule 209A of Central Excise Rules, 1944, for abetting the offence.
5. Shri T.Ramesh, learned Counsel appeared for all the appellants and re-iterated the grounds of appeal. The grounds taken by the appellants are as under :
GROUNDS OF APPEAL A. The impugned order passed by the learned Commissioner is bad in law and on facts and hence liable to be set aside.
B. The findings that the appellants have intentionally manufactured and cleared excisable goods in excess of the accounted quantity without payment of duty is not correct. The entire dispute is with regard to certain invoices under which the appellants have allegedly supplied the materials of M/s SPIC, M/s Godawari Fertilisers, M/s Madras Fertilisers etc. They are big manufacturers of Chemicals and Fertilisers. They use HDPE bags for packing the finished goods. They would not accept the materials without bills. The appellants had enough Modvat credit to discharge the Central Excise duty due on the alleged clearances. Hence there is no necessity for the appellants to remove goods without payment of duty. At the relevant time the appellant's factory was practically bankrupt and was facing acute labour problem. No permanent staff was available for maintaining the records. The appellants have employed part time employees who have looked after the day today activities of the factory. They have committed many clerical mistakes in the documents prepared due to lack of experience and knowledge. The appellants never had any intention to evade payment of duty. Hence the invocation of extended period is not justified.
C. The department ha not proved the case with proper evidences. There is no evidence available except some defective statements. Mr. N. Ramachandran who has no connection with the unit of the appellants' was compelled to state that he is the Chief Executive of the appellant's unit. Duty cannot be demanded and penalty cannot be imposed based on such defective statements. Entire allegations have been made based on the suspicious of the officers. It is settled law that suspicion however strong cannot take the place of proof. Hence the impugned order is not sustainable in law.
MODVAT D. The appellants are entitled for Modvat credit on the raw materials used in the manufacture of finished product. Admittedly the appellants have proper invoices of her receipt of raw materials and also there is no dispute that the said raw materials were used in the manufacture of finished goods., Hence the appellants are entitled for Modvat credit.
D.1. In this regard the appellants place reliance on the judgement of the Hon'ble Supreme Court in the case of FORMIC INDIA DIVISION VS CCE - 1995 (77) ELT 511 (SC) wherein the assessee was allowed the benefit of Proforma Credit whether there was procedural compliance or not. Similarly the Tribunal in the case of BYCO INTERNATIONAL AND OTHERS VS CCE - 1993 (49) ECR 126 held that Modvat credit should be extended while quantifying the demand. In the case of GUJARAT AMBUJA CEMENT VS CCE 1996 (85) ELT 154 (T) the Tribunal while holding that extended period of demand would be attracted however held that the a benefits of Modvat credit couldn't be denied, while confirming the demand. For the sake of brevity the appellants are citing a few decisions of Tribunal wherein similar view was taken. APEX STEELS (P) LTD S CCE - 1995 (80) ELT 368 (T); CHAMUNDI STEEL RE-ROLLING MILLS VS CCE, 1996 (81) ELT 563 (T) and INDIA OXYGEN LTD VS CCE - 1997 (89) ELT 557 (T).
D.2. The learned Commissioner without stating why the decisions relied by the appellants are not applicable to the instant case, relied on the decisions of Hon'ble Tribunal in P.G. Conductors Vs. CCE, Jaipur - 1996 (81 ELT 336 (T) and Paro Food Products Vs. CCE - 1988 (38) 332 (T) to reject the claim of the appellants. In the said decision the Tribunal has held that filing of declaration is substantive requirement and not a procedural or technical one and rejected the claim. But in the instant case the learned Commissioner himself in the same paragraph admits that the appellants have filed declaration and was availing Modvat credit. Hence the said decisions cited by the learned Commissioner is not applicable to the facts of this case. The decisions relied by the appellants are squarely applicable to the facts of this case. The decisions relied by the appellants are squarely applicable to the facts of this case. The Hon'ble Tribunal time and again held that Modvat benefit to be extended even if extended period is invoked in demanding duty.
D.3. The findings of the Commissioner that the invoices produced by the appellants t the time of adjudication were not actually available and the goods were not received and used in the manufacture of finished goods are not based on evidence but based on assumption. There is no iota of evidence available for the presumption of the adjudicating authority. The learned Commissioner has not conducted any investigation in this regard to record such findings. The raw materials were purchased from reputed Companies like Reliance Industries Limited, V. D. Swami & Co. Ltd, Xmold Polymers (P) Ltd etc and name of the consignee is clearly written in the invoices. Only mistake on the part of the appellants was that the appellants have not taken the credit at the relevant time due to mistake committee by t he part time workers. Further if the Commissioner has concluded that the appellants have not procured the raw materials required for he manufacture of finished goods then he should have dropped the proposal made in the show cause notice. Finished goods could not be manufactured without raw materials. There are no findings to the effect that the raw materials accounted in the statutory records were sufficient to manufacture goods allegedly manufactured in excess of the accounted quantity and cleared. The findings that the appellants have manufactured finished goods in the excess of the accounted quantity but the appellants have not purchased raw materials required for the manufacture of such finished goods are contradictory and hence not sustainable in law.
D.4. The finding that the benefit to Modvat cannot be extended to the user factory when they have committed an offence has no merit. There is no such bar at the relevant time in the Modvat Rules intention of the Government cannot be a basis to deny statutory benefits, as one has to go by the words used in the relevant Rules and not by the intention of the Government.
D.5. The finding that the appellants have produced original copy of the invoices and as well as the transporter's copy and Modvat credit can be claimed only on the transporter's copy is not sustainable in law. The appellants submitted original copies in respect of certain input invoices and transporter's copies in respect of remaining input invoices. In respect of some invoices the transporter's copies were not submitted as the same was misplaced. But as per Rule 57G (2A) of Central Excise Rules, 1944 a manufacturer can take credit based on original invoice if the duplicate copy of the invoice has been lost. The appellants rely and refer to the decisions of Hon'ble Tribunal in the following cases. 1. ZINC-O-INDIA Vs. CCE, Jaipur - 1996 (88) ELT 373 (T). 2. TRISHUL ALLOYS PVT. LTD. Vs. CCE, Calcutta - 1997 (92) ELT 249 (T). and 3. RAYMOND LTD Vs. CCE, Pune - 1997 (93) ELT 489.
APPLICATION OF PROVISIONS OF SECTION 11AC AND 11AB E. The provisions of Section 11AC and 11AB are not applicable to the case on hand. The alleged offence in this case is said to be committed during the period from 1994-95 to 25.9.1996. During the relevant period, the Section 11AC and Section 11AB are not in vogue. Sections 11AC and 11AB were introduced in to the statute only on 28.9.96 and hence not applicable to the offence committed during the earlier period when such provisions are not in the statute. Imposing penalty and collecting penal interest is a quasi-criminal proceeding and under criminal law, rule of penalty cannot be construed with retrospective effect.
E.1. Clause 1 of Article 20 of the Indian Constitution says "No person shall be convicted of any offence except for violation of law in force at the time of commissioning of the Act, charged as an offence, nor be subjected to a penalty greater than that might have been inflicted under the law in force at the time of the commission of the offence. In KEDARNATH VS STATE OF WEST BENGAL - AIR 1953 SC 504, the accused committed an offence in 1947. Which under the act then in force was punishable by imprisonment or fine or both. The act was amended in 1949, which enhanced the punishment for the same by an additional fine, equivalent to the amount of money, procured by the accused, through the offence. The Supreme Court held that the enhanced punishment could not be applicable to the Act committed by the accused in 1947 and set aside the additional fine imposed by the amended act.
E.2. In BRIJI MOHAN Vs COMMISSIONER OF INCOME TAX - 120 ITR 1 - SC the Hon'ble Supreme Court held that In case of penalty, however, we must remember that a penalty is imposed on account of the commission of a wrongful act, and plainly it is the law operating on the date of which the wrongful act is committed which determines the penalty. Where penalty is imposed for concealment of particulars of income, it is the law ruling on the date when the act of concealment takes place, which is relevant. It is wholly immaterial that the income concealed was to be assessed in relation to an assessment in the past.
E.3. Similar situation has arisen in Central Excise at the time of introduction of Rule 209 A in Central Excise Rules, 1944. The High Court of Bombay, in the case of S.L. KIRLOSKAR Vs. UNION OF INDIA - 1995 (68) ELT 533 (BOM) held that "Rule 209 A was enacted with effect during April 14, 1986. Being a Rule of levy of penalty, the Rule cannot be construed with retrospective effect".
E.4. The Tribunal in I.T.C. LTD VS COLLECTOR OF CENTRAL EXCISE, DELHI - 1994 (72) ELT 315 (T) held that "A penalty on the appellants under Rule 209 is not sustainable at the time when the rule was nonexistent".
E.5. The CEGAT in the case of ABHNAV DEYING AND FINISHING MILLS VS COLLECTOR OF CENTRAL EXCISE, CHANDIGARH - 1994 (71) ELT 205 (T) held that 'Penalty is not imposable under Rule 209A of Cental Excise Rules, 1944 in respect of offence committed prior to the introduction of the said Rule in 1986"
E.6. The Hon'ble Supreme Court in RAMHUKAM TEXTILES PVT LTD & OTHERS has upheld the above decision of the CEGAT (1999 (107) ELT A 64-65).
E.7. Similar after the introduction of Section 11AC and Section 11AB of Hon'ble CEGAT repeatedly held that the provisions of Section 11AC and 11AB are not applicable to the offence committed prior to the introduction of the said sections. The CEGAT, South Zonal Bench, Madras in LAKSHMI PACKAGING (P) LTD. VS. COMMISSIONER OF CENTRAL EXCISE AND CUSTOMS, COIMBATORE - 1998 (98) ELT 91 (T) held that "Statutory penalty of 100% under Section 11AC of the Cental Excise Act, 1944 not impossible since the said section came into force only on 28.9.96".
E.8. In MARUTI UDYOG LIMITED VS. COLLECTOR OF CENTRAL EXCISE, NEW DELHI - 1998 (191) ELT 675 (Tribunal), the CEGAT held that "Section 11AB provides for levy of interest equal to the duty amount in cases where duty become payable on clearances effected after this sections was introduced in the stature and such duty has not been paid. Section 11AB(2) states that the provisions of subsection (1) of Section 11AB shall not apply to cases where the duty become payable before 28.9.96. Under the Central Excise law, duty on manufactured goods become payable at the time of removal of goods and this is the scheme of the various provisions of the Rules such as Rule 9, 49, 173F, 173G etc. Therefore, the appellants are not liable to pay interest as the provisions of Section 11AB are not applicable in the present case".
E.9. The CEGAT in MARCANDY PRASAD RADHAKRISHNA PRASAD PVT. LTD. VS. CCE., CALCUTTA - II 1998 (102) ELT 705 (T) held that "Section 11AB for recovery of interest and Section 11AC for mandatory imposition of penalty equivalent to 100% duty evaded are not to applied retrospectively since provisions contained therein are substantive character and not just procedural-Section 11AB(2) of Central Excise Act 1944 clearly specify that recovery of interest would not be applicable to duty evaded during period prior to coming in force of said section".
E.10. The CEGAT, Madras in COMMISSIONER OF CENTRAL EXCISE VS. M.P. TAPES - 1998 (103) ELT 128(T) held that "Penal interest could not be imposed in respect of duty short paid for the period prior to incorporation of Section 11AB of the Act. The penal interest is by way of penalty. Any penal law can only have prospective effect and not retrospective effect. This is the principle upheld by the Supreme Court in the case of Brij Mohan. The same principle would apply to penal interest".
E.11. The Hon'ble Supreme Court of India recently dismissed the Civil Appeal No. D/18869 of 1998 filed by Commissioner of Central Excise, Calcutta against the CEGAT order in the case of MERCANDY PRASAD RADHAKRISHNA PRASAD PVT. LTD VS. CCE thereby upheld the decision of Tribunal wherein it was held penalty under Section 11AC and recovery of interest under Section 11AB cannot apply retrospectively prior to the introduction. (1999(107) ELT A 121)".
E.12. Hence in this case mandatory penalty and penal interest are not impossible/recoverable under Sections 11AC and 11AB of Central Excise Act, 1944.
E.13. The observation of the learned Commissioner that since the proceedings were initiated after the enactment of finance bill the provisions of Section 11AC of Central Excise Act, 1944 is applicable to the case is not correct. Penal provisions cannot have retrospective effect. Even though the show cause notice was issued after 28.9.96 the offence alleged was committed prior to 28.9.96 and hence penalty cannot be imposed based on new provision. The provisions of Section 11AC and 11AB are substantive in character and not just procedural. In a similar situation wherein show cause notice was issued after the introduction of Section 11AC for the offence committed prior to 28.9.96, the Tribunal set aside the penalty imposed under Section 11AC of Central Excise Act, 1944 and the said decision was upheld by the Hon'ble Supreme Court and the decision of Apex Court is binding on the department as per Article 141 of the Indian Constitution. The Hon'ble Apex Court in UNION OF INDIA VS KAMALAKSHMI FINANCE CORPORATION LTD - 1991 (55) ELT 433 (SC) held that orders passed by Collector (Appeals) and Tribunal is binding on all adjudicating and appellate authorities within their respective jurisdiction. The Apex Court further held that the Revenue has to unreservedly follow appellate authorities order unless operation thereof suspended by the competent court.
E.14. The conclusion of the Commissioner that Section 11AC has not bestowed discretionary power on the adjudicating authority to impose less or more penalty has no relevance since the issue involved is about applicability of provisions of Section 11AC to the offence allegedly committed prior to 28.9.96 and not about the powers of adjudicating authority. Further now it is settled that penalty mentioned in Section 11AC is not mandatory but only maximum.
E.15. The Hon'ble Supreme Court of India in the case of STATE OF MADHYA PRADESH VS BHARAT HEAVY ELECTRICALS - 1998 (99) ELT 33 (SC) held that "the expression " shall be liable to pay penalty equal to ten times the amount of entry tax" in section 7 (5) of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam 1976 lays down only the maximum amount of penalty which could be levied and the assessing authority has the discretion to levy lesser amount, depending upon the facts and circumstances of each case".
E.16. The Tribunal in COMMISSIONER OF C.EX. MEERUT-I VS. KUCHHAL UDYOG - 200 (115) ELT 778 (T) held that "Considering the provisions of all these Acts, the Apex Court was pleased to observe that the expression "shall be liable to pay penalty" only connotes that maximum amount of penalty could be levied by the assessing authority to that extent. The penalty amount mentioned therein was not mandatory but only maximum".
E.17. The Tribunal in ESCORTS JCB LTD VS CCE, NEW DELHI - 199 (35) RLT 9 (CEGAT) held that "Section 11AC provides that in cases falling under that provision a person shall also be liable to pay a penalty equal to the duty determined therein. According to us the limit fixed therein is the maximum limit and it is not mandatory that in all cases such maximum should be imposed as penalty. Authority is having a discretion to impose lesser penalty".
E.18. The findings that the penalty leviable under Section 11AC is generally less than the penalty which was impossible under Rule 173 Q is meaningless. In the case on hand in the show cause notice there were proposals to impose penalty under two provisions, one under Rule 173 Q and another under Section 11AC. The adjudicating authority has imposed penalty under Rule 173 Q and also imposed penalty under Section 11AC of Cental Excise Act, 1944. Hence the only question to be decided is whether the penalty imposed under Section 11AC is legally sustainable or not. Hence the discussion that under Rule 173 Q more penalty can be imposed and hence Section 11AC are applicable for the offence said to be committed earlier to the introduction of the said provision is not relevant and legally not sustainable.
E.19. Though the learned Commissioner has recorded a lengthy findings regarding imposition of penalty under Section 11AC comparing it to the provisions of Rule 173Q but failed to record any findings with the regard to Section 11AB. There is no comparable penal interest class in the statute similar to Section 11AB prior to 28.9.96. The learned Commissioner it appears was not able to give any findings in this regard may be due to the fact the he has no findings to record. Without recording any reason as to how a penal provision is applicable in spite of the judgment of Hon'ble Supreme Court penal interest cannot be recovered. On this score alone the impugned order is liable to be quashed.
E.20. Hence in this case mandatory penalty and penal interest are not impossible/recoverable under Sections 11AC and 11AB of Central Excise Act, 1944.
MISTAKES IN THE DUTY CALCULATION F. The appellants have claimed deductions based on the mistakes committed in the worksheet attached with the show cause notice. The learned Commissioner has accepted certain mistakes pointed out and reduced the duty demand accordingly. However the learned Commissioner has not recorded any finding with regard to certain mistakes and not appreciated the arguments of the appellants in full in respect of other points raised. In the show cause notice duty has been demanded on the clearances effected after the search and seizure. No suppression can be alleged on the clearances effected after the search and seizure. The officers in fact allowed the appellants to debit duty due to such clearances subsequently in RG23A. It appears that regular invoices raised after the search and seizure was also included in the show cause notice only to increase the demand, which resulted in higher penalty.
VALUE OF CLEARANCES G. In the show cause notice the provisions of Section 11D of Central Excise Act, 1944 was also invoked. The appellants have contested that the provisions of Section 11D is not invokable in view of the judgement of Hon'ble High Court of Madras in the case of Eternit Everst Ltd. In the impugned order the learned Commissioner has held that provisions Section 11D is not applicable but held that duty can be demanded under Section 11A(1). But the Commissioner has failed to appreciate the fact that in that event then the duty if any collected by the appellants should be treated as part of the assessable value and duty has to be demanded on the same. Entire amount collected as duty cannot be recovered.
DEDUCTION UNDER SECTION 4(4) (d)(ii) H. The demand has been made without considering the deductions available under Section 4(4)(d)(ii) of Central Excise Act, 1944. The duty payable is to be deducted from the assessable value. The appellants are eligible for deduction of duty payable as per the provisions of section 4(4)(d)(ii) in terms of the decision of Tribunal in the case of 1. KWALITY PRINTERS VS CCE, BOMBAY - 1994 (73) ELT 901 (T); 2. CCE, CHANDIGARH VS PAWAN TYRES (P) LTD - 1997 (93) ELT 635 (T); 3. EXPRESS RUBBER PRODUCTS VS CCE, BARODA - 1996 (101) 495 (T) AND 4. SRI CHAKRA TYRES LTD & OTHERS VS CCE, MADRAS - 1999 (108) ELT 361 (T).
PENALTY I. There is no intention on the part of the appellants to clear any excisable goods without payment of duty. The penalty imposed is on higher side when compared to the facts and circumstances of the case. When there is no intention on the part of a person then no penalty can be imposed by involving Rule 173 Q. I.1 The Govt. of India in AGARWAL GOLD STORAGE AND ICE FACTORY, JULLUNDER - 1981 ELT 599 held that "imposition of penalty is not warranted if there is no intention to evade payment of duty. The Hon'ble Supreme Court of India in AKBAR BARRUDDIN JIWANI VS COLLECTOR OF CUSTOMS - 1990 (47) ELT 161 (SC) held that "to impose penalty the requisite mensrea has to be established". Hence the penalty imposed in this case is not sustainable in law.
6. The learned SDR defended the order in original. He submitted that the Commissioner has dealt with all the points raised by M/s HPPL in their defence before him and the Commissioner has passed a very detailed speaking order. He submitted that the appellants should be directed to pre-deposit the entire amount involved in this matter to safe guard the Revenue interest.
7. We have carefully considered the submissions made before us. We find that this is a case where M/s HPPL have indulged in clearance of HDPE bags without payment of duty during the year 1994-95, 1995-96 and 1996-97 without observing any Central Excise formalities. M/s. HPPL also alleged to have made duplicate set of invoices with intend to evade payment of duty and in certain cases, they have also gone to the extent of collecting duty from their customers but not depositing with the Govt. The Commissioner has invoked the provisions of Section 11A of the CE Act, for demand of duty alleging suppression of facts on the part of M/s HPPL and the Commissioner has entered a very detailed finding in this regard and prima facie Commissioner's finding in this regard cannot be found fault with. The appellants have taken a general plea that there was no permanent staff available with them for carrying out the day to day work relating to Excise matters and so on. This plea cannot be accepted as it is devoid of any merits. M/s HPPL are a very big company and they cannot escape from their responsibility of following the various Central Excise procedure with regard to production, clearance and payment of Central Excise duty.
8. Another plea taken by M/s HHPL is that they are entitled to claim Modvat Credit on the strength of original copy of the invoice. Similarly they contend that they are eligible for Modvat Credit even when procedural lapses have been committed. So far as the invocation of the longer period of limitation is concerned, prima facie we find that the Commissioner has invoked the longer period of limitation correctly. We also find that the claim of the appellants that they are entitled to claim Modvat Credit on the strength of original copy of invoice is concerned, we are not in a position to accept their plea in this regard. We find that in the case of CCE New Delhi vs. AVIS Electronics Pvt Ltd. Reported in 2000 (117) ELT 571 (T), the larger bench presided over by Hon'ble Mr Justice K. Sreedharan, Hon'ble President of the Tribunal held that in regard to loss of duplicate copy of the invoice during the period subsequent to 20.5.94 (date of insertion of Rule 57G (2A) of CE Rules, 1944), a combined reading of Rule 52A (3) and the first proviso to Rule 57G (2) and 57G (2A) makes it clear that a manufacturer could take credit only on the basis of duplicate copy of the invoice and where the duplicate copy has been lost in transit he could take credit on the basis of the original copy of the invoice provided he satisfies the Assistant Commissioner about the loss of the duplicate copy. This was a mandatory requirement and not a mere technicality and the contrary view taken in the case reported in 1998 (98) ELT 164 (T) was not approved by the larger bench. The Tribunal also held that credit is not admissible in cases where the manufacturer did not even care to inform the Assistant Commissioner about the loss of the duplicate copy. In the present case it is not the case of M/s HPPL that they have informed the Assistant Commissioner about loss of duplicate copy. It is also not their case that they have produced any corroborative evidence like FIR or any other documents to support their plea in this regard. The law helps the diligent and not the negligent.
9. We find that M/s HPPL have taken various other pleas viz. inapplicability of Section 11AB and 11AC. We find prima facie force in the submission of the learned Counsel for the appellants in regard to applicability of Section 11AB and 11AC. The alleged offence in this case is said to be committed during the period from 94-95 and up to 25.9.96. During this period, Section 11AC and Section 11AB were not in force. Section 11AB and 11AC were introduced in the Statute only on 28.9.96 inserted by Finance Act. No. 2 of 1996 with the effect from 28.9.96 and therefore the provisions of Section 11AB & 11AC cannot be made applicable to the offence committed prior to 28.9.96 and since such provisions were not in the Statute and there was no provision for imposing penalty equal to the duty demanded, there was no provision for collecting penal interest. Therefore, we would take this factor into consideration while fixing the quantum of pre-deposit to be made by the appellants. We find that M/s HPPL have not taken any plea of financial hardship. In the overall facts and circumstances of the case, we are inclined to think that interests of justice will be met if M/s HPPL are directed to pre-deposit a sum of Rs 15, 00,000/- (Rupees Fifteen lakhs) towards duty within a period of three months from the date of receipt of this order and report compliance subject to which pre-deposit of the balance amount of duty, and the entire penalty on M/s HPPL and on all other appellants shall stand dispensed with and the recovery thereof stayed during the pendency of the appeals. It is made clear that failure to comply with the terms of this order would result in dismissal of the appeals in terms of Section 35F of the CE Act, 1944. The matter will be called on 5th October 2001 for reporting compliance.
(Pronounced in the open Court on 6-7-2001)