Madras High Court
Jaya Soap Works vs Collector Of Central Excise, Madras on 1 August, 1994
ORDER
S. Kalyanam, Vice President
1. since the issue arising for determination in the above appeals is common, inter-connected and inter-related they are consolidated and taken up together for disposal by this common order.
2. Proceedings were instituted against appellant Jaya Soap Works mainly on the ground that they manufactured and cleared Acid slurry without payment of duty during the period from 1986-87 to 1990-91 i.e. 5 years resulting in the order of levy of duty on appellant Jaya Soap Works. Proceedings were further instituted on the ground that this Acid slurry manufactured and cleared by appellant Jaya Soap Works without payment of duty were supplied to various Five Sister concerns i.e. (i) Priya Soap Works (ii) Moogambigai Soap Works (iii) Ambal Chemicals (iv) Jaya Detergents and (v) Jayam Soap Works and the said Sister Units Manufactured Detergent cakes out of the non-duty paid acid slurry received from appellant Jaya Soap Works and cleared without payment of duty and the proceedings against these sister concerns resulted in the respective impugned orders for levy of excise duty as per the respective impugned orders besides penalties.
3. The authorities conducted search on 22-1-1991 at the premises of Jaya Soap Works at Soorapet and the factory-cum-office premises at Otteri, Madras and during the search several records which the authorities considered relevant for the purpose of investigation were seized and statements were recorded. During the investigation it was revealed that Jaya Soap Works for the manufacture of Acid slurry had procured Sulphuric acid and LAB and had not accounted for the same. The allegation was that LAB was purchased from Tamil Nadu Petro Products Ltd, a Joint Sector Undertaking of the Government of Tamil Nadu and that purchases were made in fictitious names and also on the names of various employees of Jaya Soap Works and were used in the manufacture of Acid slurry by Jaya Soap Works without bringing the same in the account. Likewise it was alleged that another important ingredient for the manufacture of acid slurry was purchased from various five dealers i.e. Shawalace, Kumar Chemicals and Industrials Ltd. Andhra Sugars, Gee Gee Khay Chemicals and Krishna Industrial Chemicals Pvt. Ltd. and in respect of the alleged purchase of Sulphuric Acid from out of five units, in respect of 3 Units i.e. Shawalce, Kumar Chemicals and Andhra Sugars, the quantity cleared from the premises of the dealers and the quantity received at the premises of Jaya Soap Works were tallied and in fact there were little excess, and shortage was only with reference to the quantity alleged to have been purchased from the other two units i.e. Gee Gee Khay Chemicals and Krishna Industrial Chemicals Pvt. Ltd. The Department examined one Gurumurthy of Gee Gee Khay Chemicals and recorded his statement on 8-5-1991. Like wise in respect of Krishna Industrial Chemicals, statement was recorded from V. S. Krishnan, MD on 31-1-1991, 26-4-1991 and a letter was also taken from V. S. Krishnan on 16-5-1991. The investigation on the basis of the above evidence ultimately culminated in the various impugned orders.
4. Shri Ramakrishnan, the learned Consultant for the appellants at the outside submitted that initially the important question that will have to be considered is as to whether the evidence on record brings home the charge that acid slurry was manufactured by appellant Jaya Soap Works as alleged in the show caused notice and whether the allegation of the Department is supported by acceptable legal evidence available on record. It was submitted that if it is proved and demonstrated that the evidence on record does not indicate or would not prove that acid slurry could have been manufactures by Jaya Soap Works as alleged, then the very basis on which the demand has been raised would not survive and consequently the case of the Department that such non-duty paid acid slurry was cleared clandestinely and the other issues concerned would not survive and consequentially the duty demanded on such allegation on the sister concerns would also fall to the ground.
5. In developing this argument, the learned Consultant referred us to para 66 of the impugned order where the learned lower authority has addressed himself to the following questions :
"(a) Whether JSW have purchased LAB from M/s. TPL, Manali in the names of some fictitious companies and utilised the same in their factory and manufactured Acid slurry and cleared the same without bringing into the statutory account and without payment of Central Excise Duty payable thereon and whether applicants for the Demand Draft and the recipients from the Bank, for the purchase of LAB are the employees of JSW.
(b) Whether JSW have purchase Sulphuric Acid, the other raw material required for the manufacture of Acid slurry from M/s. KICPL, Gummudipoondi and M/s. Gee Gee Khay Chemical Industry, Madras, without bills and utilised the same in their factory in the manufacture of Acid slurry.
(c) Whether the Acid slurry manufactured out of the above unaccounted raw materials had been supplied without payment of duty to their sister units namely (i) M/s. Moogambigai Soap Works (2) M/s.Priya Soap Works (3) M/s. Jaya Detergents, (4) M/s. Jayam Soap Works and (5) Ambal Chemicals."
6. It was contended that the Collector has taken into consideration the fact that for manufacture of acid slurry two important raw materials are Sulphuric Acid and LAB. In respect of Sulphuric acid, reliance was placed on the following documents :
(1) Letter dated 10-5-1991 of V. Gurumurthy of Gee Gee Khay Chemical Industry.
(2) Statement of Gurumurthy dated 8-5-1991.
(3) In respect of alleged purchase of Sulphuric Acid from Krishna Industrial Chemicals, statement of V. S. Krishnan M D., dated 3-1-1991 and statement, dated 26-4-1991 and the alleged letter of Kumar Chemicals, dated 16-5-1991 copy of which admittedly was not furnished to the appellant and which has been relied upon in the impugned order.
7. Shri Ramakrishnan, Consultant vehemently contended that a reading of the impugned order of the Collector would show that the Collector himself did not feel satisfied by the evidence on record and felt the need for a better evidence to give a finding with reference to the alleged evasion of duty. It was urged that the Collector has given his findings totally on the basis of suspicion, surmise and conjectures and presumptions and the learned Consultant assailed the correctness of his findings. The learned Consultant analysed the evidence in regard to the alleged purchase of sulphuric acid as referred to in the letter of Gurumurthy, Proprietor, dated 10-5-1991 and contended that this letter is very vague and only sets out therein the belated recollection of the said Gurumurthy without any reference to the basis and primary records. It was contended that the Department seized all the original records from Gee Gee Khay Chemicals Industry. In spite of the fact that the original records were seized they were not made available to the appellant resulting in total prejudice. The learned Consultant contended that in law when original records are available with the Department the same be made available to the adverse party and without specifying the records, reliance placed on such record would not be sustainable in law and the Department has placed reliance on the letter of Gurumurthy who recollected the particulars of the original records from his memory which is vague. In this connection, the learned Consultant referred to the cross-examination of the said Gurumurthy, Proprietor of M/s. Gee Gee Khay Chemical Industry on 20-2-1992 which reads as under :
"Q. 1 In your statement dated 8-5-1991 you have given the name of M/s. Jaya Soap Works first and the names of M/s. Lucas TVS and M/s. Chemoleums Private Limited afterwards as your major customers. It is correct ?
Ans. It is not correct. M/s. Lucas TVS and M/s. Chemoleumns are too big Companies when compared to M/s. Jaya Soap Works. The Excise Officers only extracted the statement in that manner.
Q. 2 On what basis have you said that M/s. Soap Works purchased 400 MT of Sulphuric Acid ?
Ans. Without any basis, actually I cannot give information off hand, then they suggested 'can we writ down 800 MT" "I denied" Then they said "can we writ down 600 MT" for that also "I denied" once again they said why should not we put 400 MT and also wrote similarly.
Q. 3 Did you peruse your office record before giving particulars of quantity ?
Ans. No. I did nor peruse any of my office records before giving the quantity particulars and I was also not permitted to peruse the records nor we had the time for perusal. Further, the particulars were given only at DRI Office and not in our office.
Q. 6. Then why did you give such a statement and such particulars ?
Ans. Actually at that time I was infected with chicken pox and I was not in a condition to stand any questions or give statement in my own capacity. Simply to get rid of the pressure of the officers I wrote whatever they dictated and the subsequent particulars were also typed and taken in similar manner."
The learned Consultant on the basis of the above admissions of the said Gurumurthy contended that the so-called letter 10-5-1991, copy of which was not made available to the appellant, and in which the said Gurumurthy has stated that they have been supplying Sulphuric acid not only to Jaya Soap Works but also to mother Companies such as TVS etc. cannot be relied upon. The learned Consultant in particular referred to the following question and answer :
Q. "What is the normal quantity of Sulphuric Acid that is delivered in a month by Rajeswari Chemical Carrier at Jaya Soap Works from the customers mentioned above per month ?
Ans. Of the above customers as far as I recollect M/s. Rajeswari Chemical Carrier have transported and delivered approximately 40 M.T. per month to M/s. Jaya Soap Works, M/s. Krishna Industrial Chemical Pvt. Ltd.
It was contended that as per the admission made by the said Gurumurthy, M/s. Rajeswari Chemical Carriers transported Sulphuric Acid to bigger companies like Shawalace & Co. Ltd., M/s. Kumar Chemicals, M/s. Kothari Industrial Co. .... etc. and other companies and even if a quantity of 40 M.T. per month is reckoned as supply to Jaya Soap Works it would only work out to 480 M.T. per year whereas as per his letter dated 10-5-1991 for 10 months the supplies effected allegedly from Krishna Industrial Chemicals to Jaya Soap Works is only 260.090 and from their own company out 210.115 M.T., 62.190 was accounted for. The learned Consultant reiterated this point only in support of this plea i.e. the vital discrepancy in the figure would only show that neither the documents relied upon nor statement based on which clandestine removal is alleged can be relied upon. The burden is squarely on the Department to prove and establish by credible evidence whereas evidence available on record is mutually at variance with each other and they should be rejected in toto and the benefit of doubt should be given in favour of the assessee. In this connection the learned Consultant further referred to para 83 of the impugned order wherein the Collector has referred to the letter of the said Gurumurthy and observed as under :
"A mere letter cannot constitute as basic evidence. However, a letter being voluntary in nature can be relied upon."
It was contended that this finding of the Collector is mutually contradictory. The learned Consultant further submitted that the said Gurumurthy during cross-examination has already disowned the voluntary nature of his statement as shown in the extract given above. In summing up, the learned Consultant pleaded that the original basic records should be made available to the appellant. The records admittedly are available with Department and were seized without making the original records available to the appellant. The evidence on which reliance has been placed and which stand contradicted cannot be relied upon.
8. In respect of the alleged purchase from Krishna Industrial Chemicals, the learned Consultant contended that the statement of Shri V. S. Krishnan, MD, dated 31-1-1991 and 26-4-1991 would only show that they effected supplies only to the extent of 79.470 MT for the period from 5-7-1989 to 31-1-1991. The learned Consultant submitted that apparently in the letter, dated 16-5-1991 of Shri V. S. Krishnan which was admittedly not given to the appellant, the said V. S. Krishnan vaguely stated that 25 MT approximately during the period from August 1989 to March 1990 and during 1990-1991 average 50 MT every month has been supplied to Jaya Soap Works. It was urged that this letter dated 16-5-1991 has no evidentiary value and the adjudicating authority is in error to have placed reliance on the same. It was submitted that copy of this letter was not given to the appellant and the document which is not referred to in the show cause notice is the one on which reliance has been placed. At this stage Shri R. Subramanian, the learned DR intervened to say that even though copy of this letter was not given and this is not one of the documents relied upon in the show cause notice; the contents of the same have been set out in para 9.1 of the show cause notice. The learned Consultant submitted that this letter gives figures elaborately without any reference to the basic records and the figures are given from memory and it would be difficult for any person to come out with figures with regard to the supplies of the past transactions apparently from memory and it is incumbent upon the Department to get the original records i.e. the basic documents with reference to which the statement can be recorded. It was, therefore, urged that inasmuch as copy of this letter was not made available to the appellant, the same would not have any evidentiary value. The learned Consultant also referred to the cross-examination of V. S. Krishnan dated 5-3-1992 in this regard which is reproduced below :
Q. 1 Have you ever supplied Sulphuric Acid to M/s. Jaya Soap Works without invoices or in the name of other companies ?
Ans. No. I have not supplied Sulphuric Acid to M/s. Jaya Soap Works without raising invoices or in the name of other Companies.
Q. 2 At least in your statement dated 31-1-1991 or 26-4-1991 have you stated anywhere that you have supplied Sulphuric Acid to M/s. Jaya Soap Works without raising bills or in the name of other Companies ?
Ans. No, I have not said so in both may statements.
It was therefore contended that this letter date 16-5-1991 has been contradicted by the evidence on record and therefore the same cannot be relied upon.
9. The learned Consultant then addressed arguments on the issue relating to another raw material i.e. LAB. The learned Consultant contended that the Collector in para 70 of the impugned order has given finding if favour of the assessee that reliance cannot be placed on the statement recorded from various persons such as Ravikumar, T. Babu, Kumaresan and A. Kumaresan etc. who allegedly purchased Drafts for supply of LAB by TPL to appellant Jaya Soap Works. The finding in of the Collector in para 70 of the impugned order are as under :
"... there is no evidence to show that S/Shri Ravikumar, T. Babu, Kumaresan and A. Kumaresan are the employees of JSW. In this connection I perused the Attendance Register/Muster Roll register of JSW. No such names mentioned above could be found. No statement have also been recorded by the investigating officers to establish any nexus between these persons and JSW. As such it is not possible top hold them as employees of JSW. Under the circumstances, the allegations linking the obtaining of Demand Drafts by JSW through the above-mentioned persons have not been established."
The learned Consultant also referred to the signature/hand-writing of Muthukumar who is stated to have signed for certain Drafts for the purchase of LAB on behalf of Jaya Soap Works and contended that the Collector has given a finding in favour of the appellant in this regard in para 72 of the impugned order which is reproduced below :
"On a careful perusal of the said certificate, I find that there is a lot of force in the contention of JSW. There is no evidence to controvert the above documents. Further the certificates being issued by a Government College, credence has be given to the same. Even if the investigating officer had felt that the signatures found in the said Demand Draft applications are the signature of Shri Muthukumar, in order to prove the same, the proper course of action required on their part will be to refer the same to the hand-writing experts rather than forming a tentative conclusion on their own. Admittedly, this has not been done".
The learned Consultant therefore, submitted that applying the same logic adopted, no reliance can be placed in respect of the delivery challans allegedly signed by some employees i.e. Sampath, Vedamuthu and Murugan for taking delivery of LAB to Jaya Soap Works, without the opinion of expert. The learned Consultant submitted that in respect of other employees of Jaya Soap Works, they were not confronted by the investigating officers with signatures in the invoices to show that they have signed the delivery challans and a finding against Appellants has been given in the impugned order on the ground that their signatures were compared with the office Attendance Register and in order to prove that the signatures are those of the employees mentioned above, the proper course of action was to refer the same to the handwriting experts, which has not been done. The learned Consultant in this connection referred to the cross-examination of these persons on 18-3-1992 where they admitted that they purchased LAB not only for this Company but also others and the officers found out during investigation that the Company sent them out of employment. It was therefore, contended that if in the absence of any specific evidence that the signatures in the delivery challans are really the signatures of the employees of Jaya Soap Works and that the goods allegedly purchased by these persons allegedly reached Jaya Soap Works, no adverse finding can be given against the appellant Jaya Soap Works. It was urged that if there is any doubt in this regard, the benefit should enure in favour of Jaya Soap Works. The learned Counsel also referred to the finding of the Collector in para 78 of the impugned order which reads as under :
"There is specific mention that the LAB load meant for others had been delivered to JSW".
10. The learned Consultant further submitted that Tamil Nadu Petro Products is a Joint Sector of the State Government and they must be in possession of the records or original documentary evidence for receipt of payment apart from statutory evidence like gate pass in regard to clearance of goods by TPL to the destination. There must also be records to show the orders received by TPL, the quantity supplied, payment received and also other evidence with reference to the mode of transport of the goods and payment of freight charges. When such unimpeachable original documents should be available, the investigating authority should have gone into the same to find out as to whether LAB was delivered to Jaya Soap Works and also whether the goods in question was transported from their factory to Jaya Soap Works. It was submitted that LAB is a very heavy material and cannot be transported by all and sundry and requires special mode of transport. Therefore, the adjudicating authority should not have placed reliance on the statement of these persons in the absence of any credible evidence brought on record by the investigating agency.
11. Shri R. Subramanian, the learned DR took us through the entire impugned order and contended that in respect of Sulphuric Acid, the relevant records have been made available to the appellant from Gee Gee Khay Chemical Industry and Krishna Industrial Chemical Ltd. The learned DR further submitted that it would have been better if the investigating agency had gone into the payment received by TPL for LAB and also the mode of transport by examination of the relevant records. Shri Subramanian, further submitted that for making available the evidence, if the Tribunal feels, a direction may be given for a reasonable opportunity to the appellants to put for the their plea in regard to the charges.
12. We have carefully considered the submission made before us. Indeed extensive and long arguments were heard in the appeals. On going through the entire records and on consideration of the entire submissions, we find that the primary question that arises for determination, whether Acid slurry was manufactured and cleared by Jaya Soap Works clandestinely without payment of duty as alleged. The adjudicating authority has correctly addressed himself to the relevant issues in this regards as extracted above. It is not disputed that for manufacture of Acid slurry the two important raw materials are Sulphuric Acid and LAB. So far as Sulphuric Acid is concerned, the contention is that the same was purchased by Jaya Soap Works from five units and out of the five units, purchases from three units i.e. Shawalace & Company, Kumar Chemicals and Andhra Sugars, have been fully accounted for and is not in dispute. The dispute is only with reference to the purchases made from the other two units i.e. Gee Gee Khay Chemical Industry, Krishna Industrial Chemicals Ltd. In regard to Gee Gee Khay Chemical Industry, the only evidence relied upon by the Department is a letter, dated 10-5-1991 and the statement of one Gurumurthy, dated 8-5-1991. The plea in regard to contradiction between the statement and the letter is apparent and the same has been set out above. We also note Shri Gurumurthy of Gee Gee Khay has totally disowned his version in the cross-examination extracted above. In the above circumstances the evidence on record does not inspire confidence in our mind and therefore reliance cannot be placed on the same for levy of duty. We are of the view that in such a situation the authorities should have made over the original records, which were seized from them to the appellants, in fairness by giving an opportunity to put forth their case. We note that it might be impossible for any person however, competent he might be to recollect from memory the past transactions that took place particularly with reference to the quantity of Sulphuric acid supplied, the names of various parties to whom such supplies were made, the date of supply particularly when supplies are effect continuously. We not that the various basic records which have been relied upon by the Department have not been made available to the appellant. We also note that records if transport of LAB with vehicle numbers were also not made available to the appellant. Likewise in respect of the supplies made by Krishna Industrial Chemicals, reliance has been placed only on the letter of Shri V. S. Krishnan, dated 16-5-1991, copy of which was not given to the appellant. In this letter average quantity of sulphuric acid supplied to appellant Jaya Soap Works has been given without referring to any basic records. The basic records were seized by the Department and they should be made available to the appellant to enable the appellant to meet the challenge. In this connection we also refer to the admission of Shri V. S. Krishnan in his cross-examination dated 5-3-1992 extracted above. Therefore we are of the views that no reliance can be placed against the appellant either on the statement of Shri V. S. Krishnan or on his letter dated 16-5-1991, copy of which was not given to the appellant. We emphasise that the original basic records that have been seized should be made available to the appellant if the Department wants to place reliance on the same in support of the charge of clandestine removal of the goods not accounted for and manufactured out of the same. Therefore, on consideration of the entire evidence on record, we are satisfied that the various basic records on which reliance has been placed by the Department against the appellant have not been made available to the appellant. We therefore, set aside the impugned order No. 5/92 dated 27-5-1992 relating to Jaya Soap Works and remand the issue for reconsideration in the light of the observations made above. We make it clear that the Department cannot embark upon further investigations nor collect any new evidence against the appellants. The Department is directed to make available the basic original records admittedly seized from Gee Gee Khay Chemical Industry and Krishna Industrial Chemicals Pvt. Ltd. Which formed the basis for Shri Gurumurthy and Shri V. S. Krishnan to give out their figures in support of the charge against the appellants. Without furnishing the basic records, reliance cannot be placed either on their statements or on their letters. With considerable hesitation we are remanding the matter only with a view to give an opportunity to the Department to make available the basic records without which the appellants in fairness cannot be expected to meet the charge of clandestine removal of the goods. We note that the proceedings being penal in nature, the onus is on the Department. It is only keeping these factors in mind we remand the appeal in the interest of justice.
13. Since the proceedings against the sister concerns flow basically out of the proceedings against appellant Jaya Soap Works and since acid slurry is the main raw material for manufactures of detergent cakes, we set aside the impugned order in respect of the other 5 Units also and remand the issues for re-adjudication, in accordance with law.
14. The Departmental appeals have been filed questioning the legality and correctness of the impugned orders of the Collector seeking confirmation of the duty in full in terms of the show causes notices besides appropriate penalty relatable to the gravity of offence and the duty sought to be evaded. Since the matter has been remanded for reconsideration in accordance with law for reasons set out in this order, the appeals filed by the Department would also stand dismissed as all the issues arising for determination will be considered by the adjudicating authority afresh in terms of the order of remand.