Customs, Excise and Gold Tribunal - Tamil Nadu
M. Veerabadhran And Ors. vs Cce And Ravi Kumar And Co. on 8 October, 2004
Equivalent citations: 2005(98)ECC790, 2005(182)ELT389(TRI-CHENNAI)
ORDER P.G. Chacko, Member (J)
1. We have five appeals before us, one by the Revenue and the rest by the parties, all against the same order of the Commissioner of Central Excise, the operative part of which reads as under:
"(i) I confirm the duty demanded of Rs. 80,12,969 (Rupees Eighty lakhs twelve thousand nine hundred and sixty nine only) on M/s Ravi Kumar & Co., in respect of Supari cleared in bulk as well as in packets during the period from 1.4.95 to 11.3.97 under Rule 9(2) read with proviso to Section 11 A(l) of the Central Excise Act, 1944, as detailed in the Annexure enclosed. I appropriate Rs. 10,00,000 (Rupees Ten lakhs only) paid by M/s Ravi Kumar & Co., towards this demand.
(ii) I confiscate the supari seized at the premises of M/s Ravi Kumar & Co., valued at Rs. 5,88,557 (Rupees Five lakhs eighty eight thousand five hundred and fifty seven only) and at the residence of Shri K. Shankar Rao valued at Rs. 25,125 (Rupees Twenty-five thousand one hundred and twenty-five only) under Rule 173Q of Central Excise Rules, 1944. However, considering the extenuating circumstances, I give them an option to redeem the same on payment of a nominal fine of Rs. 50,000 (Rupees Fifty thousand only) considering the time elapsed.
(iii) In confiscate the goods valued at Rs. 1,58,150 (Rupees One lakhs fifty eight thousand one hundred and fifty only) seized from M/s Vijayalakshmi Enterprises under Rule 173Q of Central Excise Rules, 1944. However, considering the extenuating circumstances, I give them an option to redeem the same on payment of a nominal fine of Rs. 15,000 (Rupees Fifteen thousands only).
(iv) I confiscate the goods valued at Rs. 1,28,000 (Rupees One lakh twenty eight thousand only) seized from Shri Paranthaman under Rule 173Q of Central Excise Rules, 1944. However, considering the extenuating circumstances, I give them an option to redeem the same on payment of a nominal fine of Rs. 121,000 (Rupees Twelve thousand only).
(v) I confiscate the goods valued at Rs. 33,000 (Rupees Thirty three thousand only) seized from Shri Veerabhadran under Rule 173Q of Central Excise Rules, 1944. However, considering the extenuating circumstances, I give them an option to redeem the same on payment of a nominal fine of Rs. 5,000 (Rupees Five thousand only).
(vi) I confiscate the Plant and Machinery belonging to M/s Ravi Kumar & Co., utilized in the manufacture of the offending goods under Rule 173Q (2) of the Central Excise Rules, 1944. However, 1 give an option to redeem the same on payment of a fine of Rs. 10,000 (Rupees Ten thousand only), (vii) I impose a penalty of Rs. 10,00,000 (Rupees Ten lakhs only) on M/s Ravi Kumar & Co., under Rule 173Q of Central Excise Rules, 1944 and Rs. 19,44,620 (Rupees Nineteen lakhs forty four thousand six hundred and twenty only) under Section 11 AC of Central Excise Act, 1944. M/s Ravi Kumar & Co., are also liable to pay the interest under Section 11AB of Central Excise Act, 1944 on the duty involved.
(viii) I also impose penalty of Rs. 10,000 (Rupees Ten thousand only) each on M/s Vijayalakshmi Enterprises, Shri Paranthaman and Shri Veerabhadran separately on each of them under Rule 209A of the Central Excise Rules, 1944."
M/s. Ravi Kumar & Co., proprietorship of one Shri K. Shankar Rao, appellant in Appeal No. E/166/2002, is aggrieved by a demand of duty, confiscation of excisable goods and penalty. The appellants in Appeal No. E/168/2002 are aggrieved by confiscation of excisable goods as well as imposition of penalty. The appellants in Appeals Nos. E/165/2002 and E/167/2002 are aggrieved by imposition of penalties. The demand of duty confirmed against M/s. Ravi Kumar & Co., is on a scented supari viz. "Ajantha Sugandhi Supari" held to have been clandestinely manufactured and cleared during 1.4.1995 to 11.3.1997. While quantifying this demand, Ld. Commissioner deducted duty from invoice price of the goods to arrive at assessable value in terms of Sections 4 (4)(d)(ii) of the Central Excise Act, 1944 as prayed for by the assessee. This abatement of duty is under challenge in the Revenue's Appeal No. 284/2002. The Revenue has also challenged the Commissioner's finding that scented supari was not dutiable during the period prior to 16.3.1995.
2. We have examined the records and heard both sides. It appear from the records that M/s Ravi Kumar & Co., were engaged in the manufacture of scented betel-nut powder which was cleared under the brand name "Ajantha Sugandhi Supari". The said goods was classifiable under Sub-Heading No. 2106.90 prior to 16.3.1995 and under Sub-Heading No. 2107.00 from 16.3.1995. It appeared to the Department from the results of investigations that M/s Ravi Kumar & Co. had suppressed purchase of raw materials arecanuts etc.) and packing materials (printed flexible plastic film laminates) and indulged in clandestine manufacture and clearance of scented supari powder. It appeared that such clearances were made to M/s Vijayalakshmi Enterprises, M/s. Ajanta Enterprises and M/s Murali Enterprises. On this basis, the Department issued a show-cause notice to M/s. Ravi Kumar & Co. and others proposing to demand duty for the period 1.4.1994 to 11.3.1997 from M/s Ravi Kumar & Co., to confiscate the excisable goods seized from their premises as well as the premises of some of their dealers and to impose penalties on all of them. The show-cause notice also proposed to deny the benefit of SSI exemption under Notification No. 1 /93-CE dated 28.2.1993 for a part of the period of dispute, alleging that the aggregate value of clearances by M/s Ravi Kumar & Co. for the relevant financial years had exceeded the prescribed exemption limits. An amount of Rs. 10 lakhs which was paid by M/s Ravi Kumar & Co. during the course of investigations, at the instance of Central Excise authorities, was proposed to be appropriated towards the above demand. Section 11 AC of the Central Excise Act, in addition to Rule 173 Q of the Central Excise Rules, 1944, was invoked in the show-cause notice to penalize M/s Ravi Kumar & Co. while Rule 209 A of the Central Excise Rules, 1944 was invoked against the other noticees for imposing penalty. The demand of duty and other proposals in the show-cause notice were contested by the parties concerned. The Commissioner, who adjudicated the dispute, passed the aforesaid order.
3. Ld. Counsel representing the appellants in the parties' appeals has challenged the demand of duty on numerous grounds. He questioned the very basis of the demand. He submitted that the demand was based on a sort of formula worked out arbitrarily by the officers of Central Excise on 4.4.1997 in the Mahazar drawn for seizure of goods viz. scented betel-nut (supari) powder (finished stock). It was submitted that the officers visited the factory of M/s. Ravi Kumar & Co. on 12.3.1997 and 4.4.1997. On the first occasion, the officers made an inventory of the machineries found in the factory as also the stocks of raw materials and semi-finished goods found there. It was found that scented supari powder in pouches of various M.R.P. denominations (0.20 Ps, Q.25 Ps, 0.60 Ps, Re.1 and Rs. 2) of a total value of Rs. 5,88,557 was kept in the factory as finished stock, unaccounted in RG 1 but ready for dispatch. These and other findings were recorded in a Mahazar on the same day 12.3.1997) in the presence of independent witnesses and a representative of M/s Ravi Kumar & Co. The stock of finished goods entered in the Mahazar dated 12.3.1997 was seized on 4.4.1997 in the presence of Shri K. Shankar Rao (Proprietor) and independent witnesses. The Mahazar drawn for this purpose stated a formula for computing the quantity of supari which might have been manufactured and cleared by the party during the 1.4.1994 to 11.3.1997. The Counsel submitted that this formula was irrational and speculative and the demand of duty based on it was not sustainable. No empty pouche was in existence in the premises when the officers visited. What was available then was laminated plastic film rolls and not pouches. It was also pointed out that no weighment of any goods was made by the officers and that no weighing machine was available in the premises.
4. The further evidence for the Department, according to Counsel, lay in the confessional statements given by the Proprietor of M/s Ravi Kumar & Co. and their dealers. Counsel submitted that all these statements were subsequently retracted, but the retraction was rejected by the Commissioner on the ground of delay. The original statements of dealers were relied on for inferring that raw materials such as raw arecanuts were procured from them by M/s Ravi Kumar & Co. and, without accountal, used for manufacturing scented supari. Counsel argued that the statements which were subsequently retracted could not be relied on to reach a finding of clandestine manufacture of scented supari. The finding of clandestine manufacture and clearance was entirely based on assumptions and presumptions. It was argued that a demand of duty could not be raised on a purely theoretical basis unsupported by positive evidence. In any case, it could not be basis for raising demand of duty for the past period. In support of this argument, Ld. Counsel relied on a plethora of decisions. In one of these cases, viz Ghodavat Pan Masala Products and Ors. v. CCE, Pune, 2004 (62) RLT 891 (CESTAT-Mumbai), the Tribunal rejected the Department's case, against the assessee, of clandestine production and removal. The case of the Department was based only on theoretical calculation of pouches generated per kg. of 'Printed Laminated Rolls'. Certain confessional statements made by the assessee were also retracted in that case. The Tribunal held that, in the absence of corroborative evidence to show excess production, removal and transportation of finished goods, it was not to be found that there was clandestine manufacture and removal of such goods.
5. Ld. Counsel also submitted that the so-called excess stock of finished goods was found at around 5.00 p.m. on 12.3.1997 and the same was no excess at all as it was about to be accounted for in RG-I the next day morning as per their practice known to the Department. In the absence of positive evidence, the assumption that the said quantity of finished goods was meant for clandestine removal was misplaced and such goods was not liable to be confiscated. In this connection, Counsel relied on the Tribunal's decision in CCE, Madurai v. Ponjestly Filament Pvt. Ltd., 2003 (156) ELT 235 (Tri.-Chennai). We have also perused other decisions cited by the Counsel. Counsel also submitted that money of the submissions made before the Commissioner were not considered.
6. Ld. SDR sought to justify the Commissioner's findings recorded against the parties. At the same time, she submitted that the view taken by the Commissioner that scented supari was not dutiable for the period up to 16.3.1995 was not correct. The Hon'ble Madras High Court's judgment (Single Bench) relied on by the Commissioner for taking the above view has been appealed against by the Revenue and that appeal is pending before a Division Bench of the High Court. SDR also reiterated other grounds in the Revenue's appeal, raised against grant of abatement of duty to the assessee in terms of Section 4 (4)(d)(ii).
7. We have considered the submissions. Insofar as the Revenue's appeal is concerned, the challenge is against the dropping of demand of duty on scented supari for the period prior to 16.3.1995 and the grant of abatement under Section 4(4)(d)(ii) to the assessee in the matter of valuation of goods. We find that the Commissioner relied on the Hon'ble Madras High Court's judgment in Writ Petition No. 4265 to 4267/1994, in the case of A.R. Safullah and Ors. to hold that 'Betelnut Powder' was different from 'Pan Masala' and hence could not be classified as Tan Masala' for Central Excise purpose. 'Betelnut Powder' became excisable for the first time with effect from 16.3.1995 with insertion of a new entry for it in the Tariff. Ld. SDR has pointed out that the High Court's judgment in the above Writ Petition has been appealed against. However, in answer to a query from the Bench, it has been reported by SDR that the operation of the above judgment has not been stayed in the Writ Appeal. The decision in the Writ Petition was that betel-nut powder (supari) was not excisable. The Revenue has no case that the question of excisability of supari for the period prior to 16.3.1995 is not covered by the High Court's judgment. Therefore, in the absence of stay of operation of the said judgment, we have only to affirm the Commissioner's order as regards dutiability of betel-nut powder (supari) for the period prior to 16.3.1995. Ld. Commissioner has rightly held the goods to be non-dutiable for the said period by following the ruling of the High Court. The second challenge in the Revenue's appeal is against abatement of duty in valuation of the goods, allowed to the assessee under Section 4 (4)(d)(ii). This challenge cannot be sustained in view of the Tribunal's Larger Bench decision in Sri Chakra Tyres v. CCE, 2002 (80) ECC 588 (LB): 1999 (108) ELT 361. We arc told by Ld. Counsel that this decision of the Larger Bench has been upheld by the Supreme Court in CCE, Delhi v. Maruti Udyog Ltd., 2002 (80) ECC 249 (SC): 2002 (141) ELT 3 (SC). Thus the Revenue's appeal fails and the same is rejected.
8. The main one among the parties' appeals is that of M/s Ravi Kumar & Co., wherein the appellant has challenged the demand of duty on scented supari for the period 1.4.1995 to 11.3.1997. This demand is based on the following evidences gathered by the Department:
(i) Mahazar dated 4.4.1997
(ii) Confessional statements of Shri K. Shankar Rao (Proprietor of M/s Ravi Kumar & Co.) and his dealers.
After an assessment of the whole evidence, we find that the quantitative basis for the demand of duty is what is contained in the Mahazar dated 4.4.1997 rather than anything stated by the witnesses, This Mahazar is reproduced below:
WITNESS Place: M/s. Ravi Kumar & Co.
1. N.R. Dillibabu, Aged 70, No. 21 North Mada Street
S/o Raghavalu Naidu Villiwakkam Madras-49
2. G. Nanda Kumar, Aged 25, Date: 4.4.97
S/o Ganapathy Time: 14-30 onwards.
On being called upon by the officers of Headquarters Preventive Unit, Central Excise Commissionerate, Chennai, we the above-mentioned witnesses agreed to bear witnesses to the proceedings to take place at M/s. Ravi Kumar & Co. Madras -49 today i.e., 4.4.97. At the time of the officers visit Shri K. Sankara Rao Proprietor was present. The officers went round the factory and the following quantity of Scented Betel Nut Powder (finished stock) stored separately as listed below:
Rate/per pkt. Value
(in Rs.) (in Rs.)
(1) 0.25p pouches in 297 bags(each bag 6.65 296257
containing 150 packets)
(2) 0.60p pouches in 26 bags (each bag 20 52000
containing 100 packets)
(3) Re. 1 pouches in 102 bags (each bag 35 214200
containing 60 packets)
(4) 0.20p pouches in 16 bags (each bag 5 24000
containing 300 packets)
(5) Rs. 2 pouches-30 packets 70 2100
Total 588557
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The officers then identified the goods listed above as those goods which were detained by the Central Excise Officers on 12.3.97 by verifying the number of bags with reference to the contents and denominations of each individual bag. The value of the goods is Rs. 588557. On the reasonable belief that the goods listed in this Mahazar were intended to be cleared without payment of duty, the said goods were seized under the relevant provisions of the Central Excise Act/Rules, 1944. No other goods other than those listed in this Mahazar was seized. The officers then went round the factory and found the following denominations of pouches. The officers verified the pouches with reference to its individual weight filled/empty, and also verified the output of each individual denomination of pouches per 100 gms Betel Nut Powder/Packing laminated Rolls, the details of which are given below:
------------------------------------------------------------------------
Denomination of Betel Nut No. of Empty No. of filled pouches/100
Pouches pouches/100 gms gms.
------------------------------------------------------------------------0-20p 773 117 0.25p 650 93 0-60p 320 65 Re. 1 234 45 Rs. 2 91 24
------------------------------------------------------------------------
The officers also obtained the samples based on which the above ratios were arrived as the same was required for investigation under the Central Excise Act/Rules, 1944. The proceedings were completed at 16.15 hrs. The Mahazar was drawn on the spot and completed at 16.30 hrs during which time no harm was caused to person/property and the entire proceedings was conducted in a peaceful manner.
(1) Sd./- Mahazar drawn by me
4/4/97 Sd./-
(NR. DILLI BABU) (DAVID VIJAYRAJENDRA)
Inspector of Cex Hpu.
Madras-34
Sd./-
4/4/97
K. SANKARA RAO
(Prop. M/s. Ravi Kumar & Co.)
(2)Sd./-
4/4/97
(G.NANDA KUMAR)
Goods seized by me and sample obtained.
Sd./-
(Supdt. H.P.U)
4/4/97
(C. DURAIMA)
The quantitative yardstick for raising the subject demand is not discernible from this document, nor could Ld. SDR explain it to us despite her best efforts. It is unintelligible. The demand seems to be based on certain weighments of finished goods, said to have been conducted by the officers. Ravi Kumar & Co. have denied that any weighment was done. Let us assume that weighments of goods were actually made as noted in the Mahazar. These weighments admittedly pertain to goods, which were found in stock on or after 12.3.1997. Nothing relating to such weighments can be basis for demanding duty on goods alleged to have been clandestinely manufactured and cleared prior to the said date. To raise such a demand is a presumptive or speculative exercise, which cannot be countenanced. Any demand of duty on an assessee for a given period should be founded on positive evidence indicating manufacture and clearance, without payment of duty, of excisbale goods during that period. It cannot be raised on the basis of some formula devised from facts pertaining to goods produced after the said period as in the instant case. In the present case, insofar as the period 1.4.1995 to 11.3.1997 is concerned, there is no evidence whatsoever, whether it be one of procurement and utilization of raw material or of production and clearance of supari out of the factory or of sale of such goods, to show that the assessee had clandestinely manufactured and removed supari during the said period. Hence we are unable to sustain the demand of duty raised by the Commissioner on M/s Ravi Kumar & Co. for the period 1.4.1995 to 11.3.1997. The Tribunal's decision in Ghodavat Pan Masala Products (supra) is squarely in support of this view. In that case, a demand of duty raised on the assessee by the Department on the basis of certain theoretical calculations of pouches generated per kgs. of printed laminated roll was set aside by the Tribunal. The facts of the instant case are also more or less similar to those of Ghodavat Pan Masai a Products (supra). The Department worked out an unintelligible formula for assessing alleged clandestine production and removal of scented supari pouches presumably on the basis of weighments of laminated plastic rolls found in the factory. There is no dispute of the fact that the manufacture of supari in pouches is a wholly mechanised process in which betel-nut powder and laminated plastic roll are fed into a machine and the pouches containing betel-nut powder emerge. But this by itself would not sanctify any guesswork (as in this case) for estimating production for the past period on the basis of weighment of laminated plastic roll, for demand of duty. The Tribunal's decision in Ghodavat Pan Masala Products (supra), in our view, squarely worked in favour of the appellants. The appellants can legitimately claim support from certain other decisions (cited by their Counsel) also. In the case of I.T.C. Ltd. v. CCE, Bangalore [Tribunal's Final Order No. 333/1996-D dated 13.5.1996 in Appeal No. E/1318/88-D], it was held that cigarette sample checks undertaken by the Department on 5th, 6th and 8th September, 1986 were not to be made applicable to past clearance of cigarettes. In the case of Sri Sakthi Textiles (P) Ltd. v. Government of India and Ors. [Madras High Court's order dated 1.4.1972 in W.P. No. 1421/71], it was held that, on the basis of the results of tests on samples of goods, duty could not be levied on the goods manufactured and cleared prior to the period of sampling. The Government themselves had taken the same view in the case of National Textile Corporation, 1982 ELT 639 (GOI), Aggarwal Metal Works, 1982 ELT 689 (GOI) etc. In the case of CCE, Coimbatore v. Cambodia Mills Ltd., 2001 (128) ELT 373 (Mad), the Hon'ble High Court held, in respect of goods manufactured on the date of drawal of sample, that demand of duty based on the test result was sustainable only in respect of the goods manufactured on that date. A demand for the subsequent period on the same basis was held unsustainable. In the case of Emami Ltd. v. CCE, Kolkata, 2002 (148) ELT 1238, a similar view was taken by the Tribunal. We find there is no dearth of decisions on the point, which are in favour of the appellants in the instant case. We, therefore, set aside the demand of duty.
9. The goods were seized on the premise that they were kept for clandestine removal. This, again, is only a speculation, which cannot be a basis for seizure and confiscation. We set aside the confiscation. Having found that the demand of duty is not sustainable, the penalties imposed on M/s Ravi Kumar & Co. and others are also liable to be vacated, and we do so.
10. Finished goods (scented supari), which were allegedly removed by M/s Ravi Kumar & Co. were seized from the premises of their dealers, namely, S/Shri Paranthaman, Veerabhadran and Vijayalakshmi Enterprises and those goods were also confiscated by the Commissioner on the ground that the goods were received from M/s Ravi Kumar & Co. and were not accounted for. We have already rejected the charge of clandestine removal levelled against M/s Ravi Kumar & Co. It would follow that the goods seized from the dealers' premises cannot be considered to be goods removed by M/s Ravi Kumar & Co. Consequently, the confiscation of the goods seized from the dealers' premises is not sustainable.
11. In the result, the appeals of all the parties are allowed with consequential reliefs.