Customs, Excise and Gold Tribunal - Bangalore
Pacific Pharmaceuticals Pvt. Ltd., Dr. ... vs The Commissioner Of Central Excise on 13 February, 2007
Equivalent citations: 2007(118)ECC313, 2007ECR313(TRI.-BANGALORE), 2007(216)ELT263(TRI-BANG)
ORDER T.K. Jayaraman, Member (T)
1. These appeals have been filed against the OIA No. 68/2006-Central Excise dated 27.04.2006 passed by the Commissioner of Central Excise (Appeals), Bangalore.
2. Revenue proceeded against the appellants on grounds of clandestine removal and manufacture of Pharmaceutical Formulations on the basis of discrepancies between the Batch Manufacturing Report and credits in the Daily Stock Accounts. The period of dispute is from January 1999 to November 2001. The total amount involved is Rs. 19,26,861/-. Equal penalty has also been imposed. The appellants strongly challenge the impugned order.
3. Shri B.N. Gururaj, the learned Advocate who appeared for the appellants, urged the following points:
(i) The Preventive Officers visited the premises of the appellants. They noticed difference between the production reported in the Batch Manufacturing Report (BMR for short) and the Daily Stock Account. Some invoices with same serial number but addressed to different parties were noticed. After taking the statement from the officers of the appellant unit, proceedings were initiated for recovery of duty on the ground that the differential quantity between the BMR and the Daily Stock Account had been clandestinely removed. There were some other charges also. The appellants, realising that they were indeed wrong in certain matters, voluntarily paid duty on the shortage of stocks duly attributable to invoices with same serial numbers. The amount paid was Rs. 1,84,123/-. Further, a sum of Rs. 51,295/- was paid.
(ii) Substantial part of the demand is based on the difference between the BMR and the Daily Stock Account. The entire quantity produced was reported in BMR. However, the entire quantity would not be fit for packing and despatch. Due to physical defects such as breakage, powder dust, wrong packing and short packing, there would be rejections. These rejections, which are returned, form part of the semi-finished stock. At a later date, when new batch of same formulation is manufactured, the semi-finished goods are re-used.
(iii) Allegations of clandestine manufacture and removal, in so far as it related to Annexure-I and Annexure-II, was based on assumptions, presumptions, surmises and conjectures and not based on even a singly instance of clandestine removal.
(iv) There is no evidence of excess consumption of raw materials, packing materials, powder and the like. No source of fund for this clandestine activity had been unearthed.
(v) The stock of semi finished goods valued at Rs. 32 lakhs (subsequently corrected as Rs. 16 lakhs) available at the time of search had not been taken into account. This would itself account for substantial part of the value on which duty was demanded.
(vi) Both the lower authorities have failed to appropriate a sum of Rs. 51,295/- paid by the appellant.
(vii) There is not a single consignment of allegedly clandestinely removed goods caught or even evidence of a single buyer.
(viii) The Commissioner (Appeal) erred in assuming that the burden of proof in this case is cast on the appellants while it is well settled that the burden of proof in all such cases is on the Revenue.
(ix) The lower authorities have not taken into account the various decisions cited by the appellant.
(x) The lower authorities have ignored the evidence gathered by the department itself. On the date of investigation itself, Smt. B.J. Prema, Packing in-charge of the appellant company, in her statement under Section 14 of the Act, stated that after complete manufacture of formulations, bottling or tablet packing, items are rejected due to physical defects such as dust on tablets, chipping, short-packing instead of ten per strip. In such cases, the defective goods are de-foiled and returned to production. She had further stated that such defective goods would be used in subsequent batches of same formulations. The appellant also produced the bank statement.
(xi) The appellant discharged the duty liability when the demand was supported by evidence as in the case of Annexures III to VI.
(xii) The appellant, in the statement of Mr. Niranjana Murthy, Production Chemist, stated that in the process of manufacture of formulations, the waste was 10% and the yield was about 90%. This fact was admitted by the department and adopted in the Statement of Facts annexed to the notice. Nevertheless, the department has presumed yield of 98% or 99% in Annexure I to the notice, while quantifying the duty demand. On this count itself, about Rs. 50 lakhs would have emerged as waste and scrap, which would have accounted for about 40% of the value on which duty had been demanded.
(xiii) The demand in Annexure I and II was based on the entire production during the disputed period. The authorities were duty bound to exclude the stock found during investigation.
(xiv) Subsequent to the date of investigation, several older batches of formulations were credited to RG1 stock which were manufactured during disputed period. The appellant had produced before the original authority correlation of these batches with production credit notes entered in RG1 book. Since such quantity also formed part of Annexure I and II, the authorities below were bound to exclude the quantity of products available but not finished on 20.11.2001. The duty demand was thereby inflated on account of the authorities ignoring the facts on record.
(xv) During investigation stage itself, the MD of the company had admitted shortage and had also discharged duty liability on such shortage. Thus, the discrepancies in the records could not have been described clandestine removals.
(xvi) On the issue of valuation, the lower appellate authority erred in upholding value based on last three months' average price prior to the date of investigation. This method of determination of value is without the sanction of law.
(xvii) The Commissioner (Appeals) erred in not considering the claim of quantity discount given by the appellant to all the stockists during the period of dispute. This was the discount known to all concerned at the time of removal, including the department. Yet, no findings have been entered on this matter.
(xviii) Lower authorities erred in invoking and upholding the demand of duty under extended period of limitation. The very fact that the entire production, irrespective of quality, had been reported in the BMR shows that there was nothing clandestine or surreptitious about the appellant's affairs. The lower authorities ignored the Apex Court's ruling in Amco Batteries Ltd. v. CCE 2003 (153) ELT 7(SC) that once the matters are disclosed in the regular books of accounts, suppression of facts cannot be alleged.
(xix) The learned Advocate relied on the following case-laws in support of his contentions:
Case-law Gist CCE, Hyderabad v. Annapurna Industries Ltd.
Consumption of inputs and packing materials to be proved by Revenue.
CCE, Bangalore v. MICO Ltd. 2001 (136) ELT 649(Tri.-Bang.) Shortage between actual stock and internal record does not prove shortage in RG1 stock.
V.K. Thampy v. CCE, Kochi Consumption of power and raw material to be proved by Revenue.
Punjab Fibres Ltd. v. CCE, Delhi Initial burden of proof on Revenue cannot be discharged by assumptions and presumptions.
Hans Castings Pvt. Ltd. v. CCE, Kanpur Proof of excess power consumption absent.
Andhra Cements Ltd. v. CCE, Guntur 2005 (191) ELT 1046(Tri.-Bang.) Demand based on Log book entries not sustainable without corroborative evidence.
CCE (Appeals), Hyderabad v. Reddy's Laboratories Ltd. 2006 (200) ELT 445(Tri.-Bang.) Every link in the clandestine transaction must be proved by Revenue.
Resha Wires Pvt. Ltd. v. CCE, Bangalore 2006 (202) ELT 332(Tri.-Bang.) Proof of excess consumption of power, raw materials, purchase of unaccounted goods by Revenue.
4. The learned JDR reiterated the impugned Order-in-Appeal.
5. We have gone through the records of the case carefully. Out of the total demand, the major portion amounts to Rs. 18,19,434/- in Annexure-II. This amount represents the duty on the differential quantity of the products as mentioned in the BMR and the Daily Stock Account. The appellants have given convincing reasons for the discrepancy. They have stated that all the items manufactured and shown in the BMR may not be suitable for packing and despatch due to various reasons and some of these items have to be re-cycled. They actually form part of the semi-finished goods, which are to be re-cycled. This is as per the statement of Smt. B.J. Prema. This fact has not been taken into account by the Adjudicating Authority. Moreover, as per the Production Chemist, the yield is only 90% in formulations. However, the department has taken the yield to 98% or 99%. This itself inflates the duty demand. There is no single instance for the removal of any product in a clandestine manner. No evidence of even a single customer is on record. The Commissioner (Appeals) is not correct in holding that the burden of proof that items have not been removed clandestinely is on the appellant. In fact the converse is true. It is the burden of the Revenue to prove that the appellants had removed goods clandestinely. The case-laws relied by the appellant are appropriate. In these circumstances, we set aside the demand of Rs. 18,19,434/-.
5.1. As regards the demands in respect of other Annexures, we find that even the original authority has dropped the demand in respect of Annexure-VI even though the appellants had paid an amount of Rs. 1,75,484/-.
5.2. In terms of the impugned OIA, the demand of Rs. 18,19,434 under Annexure-II is upheld. Again, the Annexure-V demand is reduced by the Commissioner (Appeals) as he had accepted the applicability of Ujagar Prints ratio in respect of the demand under Annexure-V. According to the appellant, the demand under Annexure-V would be reduced to Rs. 1,07,427/-. This amount has not been challenged by the appellant. However, the correctness of the appellants' claim has to be examined. For this limited purpose, we remand the matter to the original authority to re-compute the amount demanded under Annexure-V after taking into account the ratio of the Ujagar Prints case.
5.3. Regarding the penalty, needless to say, it will be based on the recomputed amount.
5.4. The penalty on Dr. K. Yathindranath Shetty, Managing Director, is not justified. Hence, the same is set aside.
5.5 The appeals are disposed of in the above terms.
(Operative portion of this Order was pronounced in open court on conclusion of hearing)