Customs, Excise and Gold Tribunal - Bangalore
M/S Devi Rubber Products Others vs Commissioner Of Central Excise, Cochin on 10 May, 2001
Equivalent citations: 2001(135)ELT797(TRI-BANG)
ORDER
Shri S.S. Sekhon
1. A show cause notice was issued to Shri G. Rajappan Proprietor, M/s Devi Rubber Products, it's Manager Shri K. Ravindran, foreman Shri N. Ramachandra Nair and clerk Shri G Ramanan Nair for contravening the provisions of the Central Excise Act and the Rules in as much as during the period Nov 83 to March 87, the appellants (Devi Rubber Products) manufactured and cleared excisable goods namely tread rubber without payment of excise duty under the provisions of Central Excise Act resulting in duty evasion of Rs 57,41,330.80/- without obtaining a licence they manufactured goods, did not account the same and removed the same without the cover of GP-I. The matter was decided by the then collector who found that he could not determine the demand of but but imposed a penalty and against that order Revenue as well as the appellants came in appeal to the Tribunal and the Tribunal vide their order dated 23.6.95, remanded the matter to the Original Authority for re-consideration of the issue afresh. (As per the case reported at CCE Cochin Vs Devi Rubber Products 1996 (83) ELT 630.) Consequently the proceedings were taken up by the Commissioner, who vide his order dated 30.9.97, impugned before us, held that the computation of production was correctly shown and after taking into account the accounted production, found a clandestine clearance of 455.66 tonnes of tread rubber from Nov 1983 to December 1986 had taken place. Thus he found there was an evasion of duty to the extent of Rs 57,41,330.80. He confirmed the same under the proviso of Section 11A of the Central excise Act. He also imposed a penalty of Rs 5,00,000/- on Shri Rajappan proprietor under Rule 173-Q and ordered the confiscation of land, building, plant and machinery of the manufacturer and ordered the redemption of the same on a fine of Rs 2,00,000/-. He also imposed penalties of Rs 25,000/- each on the manager, the foreman and the clerk under Rule 173-Q. The present appeal has been filed by the proprietor against this order.
2. The matter was heard on 2.5.2001. Shri A.K. Nambiar learned advocate appeared for the appellants and Shri Thomas George learned DR for the department. After hearing the submissions made and considering the material we find:
(a) The learned Commissioner has after considering the statements of the manager and the foreman found.....
"On the basis of Shri Ravindran's statement that weekly production was seven tonnes per day, it is obvious that in a month the production was 28 tonnes."
and concluded that these two persons were completely responsible for the production. Their statements could be relied. He found that the subsequent retractions made regarding the statements being made under threat and duress, even when made during the cross-examination, could be relied upon as the statements disclosed number of facts which were exclusively in their personal knowledge and they did not come with any documentary or other evidence to dis-prove the initial statements or have given alternate explanations regarding total production and formula. Therefore, relying on the decision in the case of KTMS Mohammade and others, he held that it was for the maker of the statement, who alleges inducement, promise, threat, to establish that such improper means have been adopted. In this case since no such evidence was brought. He did not accept the retractions. These statements were considered by him along with the statement of one Shri G Ramanan Nair, to come to a conclusion that sufficient material was on record to show that all the raw materials purchased were not being accounted (Bill of M/s Samira Enterprises No 1418 dated 27.5.86 and other bills surrended by M/s Vazhokala agencies Kottayam which were in the name of Shri Rajappan and 12 invoices of M/s Carbon and Chemicals India Ltd., showing purchase of carbon black issued in the name of Rajappan, Revindran etc and non-existing firms like M/s Excel Rubbers) were considered by him to be proof of purchases being made by the appellants. He also relied on the statements of recovery of invoices of non-existing companies and the admissions by Shri T.N.George proprietor, M/s Prakash Tyres, Shri R. Gopinathan, Proprietor, Gopen Tyres and Shri S. Dileep, Accountant of M/s Devi Tyres, the customers who were purchasing the tread rubber from the appellants. He came to the conclusion that only a small quantity was accounted and did not accept the defence put up that the statements have been recorded under threat for reasons already recorded.
(b) The learned Commissioner also concluded about the production as in the show-cause notice from the sulphur consumed. These findings as recorded in Para 12 of the order are.....
"However, it has not been possible to exactly compute the actual production on the basis of the statements and other circumstances. Therefore the SCN has computed the production on the basis of ordinary sulphur consumed. Shri G. Ramachandran Nair, the Foreman of the company has stated that 110 gms of ordinary sulphur is required for manufacture of 25 kg of tread rubber. The company has claimed that the total sulphur for every 25 kg of tread rubber was 375 gms. Shri Ravindran has stated that 265 gms of crystex sulphur and 110 gms of ordinary sulphur is required for 25 kg of tread rubber. Therefore, I do not find any infirmity in working out the total production on the basis of the formula that 110 gms of ordinary sulphur is required for 25 kg of tread rubber. If there was information about the total quantity of crystex sulphur consumed during the relevant period, the total production could be worked out on the basis of the formula that 265 gms of crystex sulphur is needed for 25 kg of tread rubber. Since information is available only regarding the total quantity of ordinary sulphur and the quantity of ordinary sulphur used in every mix the SCN has worked out the production on this basis. From the SON it is noticed that for the period from November 1983 to December 1986 (37 months), the total production has been worked out as 6,91,818.180 kgs. Shri Ravindran has stated that weekly production was seven tones. Therefore, the monthly production of tread rubber would have been 28 tonnes. Therefore, the monthly production of tread rubber would have been 28 tonnes and on this basis, for the above mentioned period of 37 months the production according to Shri Ravindran would have been 1036 tonnes. As against this admission, the SCN has only alleged that they produced 691 tonnes. Therefore, it would appear that the total production worked out in the SCN is in fact much less than the actual production. Shri Ravindran in his statement has given some details of the sales of tread rubber from the factory. According to him, they used to clear three tones of tread rubber each thrice in a month to M/s Janatha Tyre Retreading Company, Arni and M/s Janatha Tyre Retreading Company, Thiruvannamalai from the factory. These two retreading companies were owned by Shri Rajappan, the proprietor of M/s DRP. These clearance alone used to come to nine tones per month. Besides, Shri Ravindran admitted that they used to clear 9-10 tonnes in a month to their depot at Salem. In addition, he has admitted that he used to supply 500 kgs of tread rubber to his customers viz., M/s Keerthi Tyres, Mankamkuzhi; M/s Achutha Tyres, Kayamkulam; M/s Prakash Tyres, Mavelikara, M/s Gopan Tyres, Nangiarkulangara; M/s Devi Tyres, Harippad; M/s Samson Tyres, Kayamkulam etc. If these clearance alone are taken for 37 months, it would come to 684.5 metric tonnes. This also tallies with the production computed in the SCN. The total production as computed in the SCN is based on the formula given by the man in charge of the production in the factory. It is much less than the production admitted by the Manager of the company and it tallies with the clearances admitted by the Manager."
(c) The learned advocate while stressing the point of non-consideration of the formula, submitted for the consumption, of two kinds of sulphur being used have submitted the following points for consideration.:
A. A mere perusal of the impugned order of the Commissioner would reveal that he has mechanically proceeded to confirm the demand in the show cause notice without adverting to the merits of the allegation in the show cause notice. The impugned order confirms the demand on the basis of three types of evidence - (a) The statements of staff regarding production capacity and non-accountal of raw materials, (b) The statements of buyers regarding quantity of tread rubber purchased by them and (c) Details contained in certain invoices which were seized from the premises of raw material suppliers. While each of these types of evidence do not, individually or collectively, support a finding of clandestine removal, the estimation of clearances is done based on the consumption figures of one raw material - ordinary sulphur - as stated in the formula given by Ramachandran Nair. While dealing with each category of evidence, the Commissioner does not appreciate the facts which discredit the evidence relied on by the department. The statements can, at best, raise a suspicion in the minds of the authorities but they do not conclusively prove any clandestine removal. This is illustrated by the following facts:
The statement of staff regarding production capacity and non-accountal of raw materials The evidence under this category consists mainly of the statements obtained from Sri. K. Raveendran - Manager, Devi Rubber Products; Sri. Ramachandran Nair - Foreman, Devi Rubber Products; and Sri. Ramanan Nair - Clerk, Devi Rubber Products; While the aforementioned persons have all filed written complaints with the Commissioner of Central Excise regarding the cruel manner in which the statements were extracted from them, these have been brushed aside lightly by the Commissioner. Moreover, the Commissioner does not notice the inconsistencies in the said statements with regard to the figures representing production capacity mentioned therein.
For eg: The first part of the statement of Ravindran shows that the factory used to work 2 shifts per day for 4 days for the mixing work and that in each shift 15 mixes of 25 Kgs each was used. This would mean that in a week, the production would be (15 x 25) x 2 x 4 = 375 x 2 x 4 = 3000 Kg (3 Tonnes); Consequently the corresponding figures for a month, and 37 months (The period covered by the show cause notice) would be 12 Tonnes and 444 Tonnes; This is a marked variation from the latter part of the statement of Ravindran which suggests that the weekly production was 7 Tonnes and the monthly production 28 Tonnes, thereby resulting in 691 Tonnes over the period covered by the show cause notice. Not surprisingly, the Commissioner relies only on the latter part of the statement, which suggests the higher production figure.
Similarly, the parts of the aforementioned statements relied upon the support the finding of non-accountal of raw materials, are also vague and cannot be relied on to support the said allegations. The findings in respect of the blank invoices recovered from the residence of Sri. Ramanan Nair are purely speculative in nature. Sri. Ramanan Nair has satisfactorily explained the presence of those invoices at his residence and stated that he was doing part time work for the said units in addition to the work done for the appellant unit. Moreover, the statements have to be read in the light of the circumstances under which they were given and they have not been corroborated by independent evidence of any kind.
The statements of buyers regarding quantity of tread rubber purchased by them Reliance is placed by the Commissioner on the statements of Sri.T.M.John (Prakash Tyres, Mavelikkara), R.Gopinathan (Gopan Tyres, Nangiarkulangara) and S.Dileep (Accountant, Devi Tyres, Haripad) - all purchasers of tread rubber from the appellant. While in these statements, the witnesses state that they have been receiving tread rubber from the appellant unit at an average rate of 500 Kgs, 500 Kgs and 1000 Kgs per month respectively, these persons have, during cross examination deposed that the figures were given based on the directions issued by the Central excise Officers. They have also deposed that the average rate of procurement of tread rubber from the appellants was 150 Kgs, 275 Kgs and 750 Kgs respectively, per month. The inference regarding non-accountal of finished goods in the production records is based solely on the strength of the initial statements extracted from the aforementioned persons. The only corroboration to this evidence, which is attempted in the show cause notice, and later in the impugned order, is the reliance on certain alleged discrepancies in some invoices collected from suppliers of raw materials. It will be seen that even these alleged discrepancies are non-existent and have been satisfactorily explained by the appellant unit.
Details contained in certain invoices which were seized from the premises of raw material suppliers The allegation of non-accountal of raw materials is based on details contained in certain invoices seized from the premises of the raw material suppliers. The inference drawn from the contents of the invoices are far from satisfactory, as is evident from the following;
The show cause notice, as also the impugned order, relies on a Bill No. 1418 dated 27.5.1986, issued by M/s Samira Enterprises, Kottayam, covering the supply of 200 Kgs of Zinc Oxide and states that this quantity of raw material has not been accounted by the appellant unit. In the reply, (Page 115-116 of the Paper Book) the appellant had clearly explained that the Bill related to a delivery which was effected on 22.5.1986. The appellant had made an entry on that date in its From IV Register. Moreover, the Bill itself contains a noting of a Chalan No. 225 dated 22.5.1986, thereby establishing that the said bill related to a consignment which was received by the appellant on 22.5.1986. It cannot be said that the appellant had not accounted the said purchase of raw material;
Reliance is placed on certain Bills recovered from M/s Vazhakala Agencies, Kottayam, which cover supplies of a chemical - Vulkanox - to a person named Rajappan. The Commissioner has no hesitation in coming to the conclusion that the Rajappan referred to in the said bills is G.Rajappan, the proprietor of the appellant unit. It is worth noting that there is no other evidence to support the inference of the Commissioner. The Commissioner goes on to find that Sri. Ramachandran Nair, in his statement, has deposed that the purchases covered by these bills were made for the appellant unit. A perusal of Sri. Ramachandran Nair's statement (Page 161-162 of the Paper Book) would show that he has not made any such statement;
Reliance is placed on 12 invoices of Universal Agencies, Kottayam, who are the consignment stockists for Carbon & Chemicals Ltd. The invoices describe the consignee as Rajappan, Ettumanoor; Ravindran Sons, Mavelikkara; Excel Rubber, Tiruvalla; Ravindran, Changanassery; Ravindran, Kottayam; Ramachandran, Mavelikkara; etc. The Commissioner relies on the similarity in the names of the consignees to those of persons working in the appellant unit, to infer that these were sales to the appellant unit. The appellant has categorically denied that it has any relationship with the persons described in the aforementioned invoices.
While these statements do not conclusively point to any clandestine removal, the Commissioner has accepted the aforementioned evidence, without independent corroboration, to sustain a finding of clandestine removal. It is trite that, suspicion cannot take the place of proof and hence the demand against the appellant unit cannot be sustained.
(See: 1978 (2) ELT J 172 (SC); 1983 (13) ELT 161 (SC); 1995 (76) ELT 631 (Tri.)) B. The estimation of the extent of alleged clandestine removals effected by the appellant unit is done by calculating the consumption of one raw material - Ordinary Sulphur. It is pertinent to note that in the manufacture of Tread Rubber, Sulphur is not the main ingredient. The main ingredients are Raw Rubber and Carbon Black. The consumption details of both these raw materials have not been gone into by the department. It is trite that a finding of clandestine removal cannot be based on the consumption details of a single raw material, and that too one which is not the principal raw material (See; 1986 (26) ELT 997 (Tri.); 64 ECR 444 (Tri.) 1992 (60) ELT 361 (Ker-DB); 1993 (65) ELT 542 (Tri.); 1994 (69) ELT 300 (Tri.); 1997 (93) ELT 177 (Tri.); 1998 (98) ELT 787 (Tri.); 1988 (102) ELT 354 & 402 (Tri.); 1999 (111) ELT 407 (Tri.); 1999 (114) ELT 543 & 872 (Tri.)) C. The Commissioner bases his estimation on the formula stated by Sri. Ramachandran Nair, which shows that 0.110 Kgs of Ordinary Sulphur, was used in a mix of 25 Kg of Tread Rubber. The Commissioner failed to note that as per the said formula, there was also another type of Sulphur used - Crystex Sulphur - and the total Sulphur used in the mix was 0.375 Kgs. The formula, therefore, clearly showed that in a mix of 25 Kgs of Tread Rubber, there had to be a utilisation of 0.375 Kgs (at least) of Sulphur - in whatever form. If, therefore, Crystex Sulphur was not available or used, the appellant would have had to use Ordinary Sulphur to an extent of 0.375 Kgs in a mix of 25 Kgs of Tread Rubber. This aspect has not been noted by the Commissioner, who finds that only 0.110 Kgs of Ordinary Sulphur is required for a mix of 25 Kgs of Tread Rubber. This is patently erroneous because the appellant had given detailed statements regarding the use of Sulphur (in both forms) during the period covered by the show cause notice (Page 126-131 of the Paper Book) D. The Commissioner totally ignores the letter dated 12.6.1989 issued by the Rubber Research Institute of India (Page 125 of the Paper Book) which shows that for a mix of 176.2 Kgs of Tread Rubber, 2.5 Kgs of Ordinary Sulphur would be required. This is equivalent to 0.355 Kgs of Sulphur for a mix of 25 Kgs of Tread Rubber. The letter also states that the consumption of Sulphur would be more if the Sulphur used was insoluble Sulphur. The letter from the Rubber Research Institute of the Government of India ought to have been relied on by the Commissioner. It is trite that reports of Government authorities cannot be lightly brushed aside by the adjudicating authorities (See: Reliance Cellulose Products Vs CCE - 1997 (93) ELT 646 (SC)) E. The Commissioner also does not take into account the quantity of Sulphur used in the manufacture of Cushion Gum and Under Thread Strips which are also produced at the appellant's unit. The estimation done by the Commissioner proceeds on the basis that Sulphur is used only in the manufacture of Tread Rubber.
F. The imposition of a penalty on the appellant unit and its employees was wholly unjustified. The impugned order does not specifically refer to acts or omissions which form the basis for the imposition of a penalty. At any rate, the penalty imposed is wholly dis-proportionate to the offence alleged to have been committed by the appellant unit and its employees.
(d) The learned DR for the revenue has reiterated the findings of the Commissioner and relied upon the decision in the case of Triveni Rubber Products (1994 (73) ELT 7(S.C) to submit that the plea of the appellants regarding the reliance of only the consumption of sulphur needs no consideration in light of this decision as Supreme Court in this case had found:
"7. "On a reading of the Rule we cannot agree that the officer empowered by the Collector or the Collector cannot determine the normal production unless all the factors mentioned in the Rule are present simultaneously. The Rule does not say so nor is it capable of being so interpreted. In a case like the present one, where the accounts are found fabricated and untrue, the figures of raw-material utilized or the particulars of labour employed may not be available. It is not the case of the appellant that even though acceptable material with respect to these factos were available it was not considered"
(e) We have carefully perused the Supreme Court decision relied upon by the DR. We find from the decision of the Tribunal in this very case, reported as Triveni Rubber Products ( 1994(72) E.L.T. 897 (T) against which the matter went up for consideration in the Hon'ble Supreme Court in the case relied upon by the learned DR; a perusal of the Tribunal decision in 72 ELT of the issue decided in that case, reveal, it that was a case of determination of 'Normal Production' as prescribed under Rule 173 E of the Central Excise Rules as recorded in para- 5 of the decision recorded by CEGAT as follows:-
"5.....The determination by the Collector was purported to be done in exercise of the powers under rule 173 E of the Central Excise Rules....."
In the present case there is no determination of 'normal production' or installed capacity, under the provisions of Rule 173 E, it is a case of appreciation of the material evidence to determine, whether, any unaccounted production of 'Tread Rubber' took place in past during the period under dispute and whether the said production was cleared without accounting or and payment of duty. The case of Clandestine Clearances cannot be judged, by determination of 'normal production' installed capacity under Rule 173 E, which by it's very reading would indicate that any shortfall in reported production from such 'norms' fixed would call for an explanation from the assessee & duty liability would arise if shortfalls are not satisfactorily explained for any prospective period. The provision of Rule 173 E, cannot be invoked to determine to fix & apply 'norms' for any retrospective period to determine, the excesses if any. We rely on 2000(124) ELT 821 (Paras 12,13). The decision therefore to our mind does not help the case of the department. This ruling of the Supreme Court would be applicable and binding to fix 'a 'norm' under Rule 173 E only.
(f) Once we find that the Supreme Court decision, relied by the learned DR is not applicable, we would be bound by the decisions relied upon by the learned Advocate for the appellants in the case of the very same commodity viz 'TREAD RUBBER' in the case of Calicut Rubber Vs CCE Cochin (1996 (64) ECR 444(T) & other cases of Clandestine production and clearance where it has been held only one raw material factor alone is not sufficient to determine excess production. (Pure Enterprises (P) Ltd., 1999 (111) ELT 407, 1997 (93) elt) 173 & Others) would entitle in this case, the benefit of doubt to go to the appellants as held in V.K. Thompy (1994 (69) ELT 300(T). (In this case use of one item of raw material viz Tread Rubber was not found to be supported by combined evidence of other products). To come to a finding that determination of the excess production, based on a single new material as per the formula viz Sulphur of only one kind, we find, does not enthuse us to uphold the findings of the Commissioner.
(g) We find that the Commissioner, in Para 12 of the impugned Order (extracted supra) begins to record the findings regarding the excess production with the sentence......
" However it has not been possible to exactly compute the actual production on the basis of statements and other circumstances......"
When the learned Commissioner found as above, it was necessary for him to deal with the contention raised in the reply to the notice regarding the fact of submission of the formula, for manufacture of Tread Rubber and other items from time to time (as per Annexure-A to reply to the Show-cause Notice) and to consider the production of other items being manufactured and accounted where Sulphur was being used. The order is delightfully silent on the said material evidence produced by the defence. Which leads us to conclude that to Commissioner, has some how or the other, made up his mind to accept the charges as recorded in the Show Cause Notice in complete disregard to the evidence produced by the defence to explain the sam.e We are re-inforced in this view of ours, when we find that the appellant has relied upon the certificates of consumption issued by the Rubber Research Institute of India a reputable institute (page 125 of paper book) for the consumption of ordinary Sulphur in the manufacture of Tread Rubber. This vital piece of material evidence of defence, has been totally ignored by the Commissioner. This leads us to accept the plea that the Commissioner has not considered the 'evidence produced by the defence and has proceeded on a predetermined objective of confirming the demand'. Non-consideration of material produced in defence is gross denial pf justice. Orders ignoring the defence plea require to be set aside.
h) Since we find that the Adjudication order is based only on the consumption of one type of Suplhur used to work out the quantum of Tread Rubber produced. The other raw-material and it's availability has not been taken into account, relying upon George John (Associate) Rubber works decision (1993 (65) ELT 542 (T), we would consider that the lower authority, has not considered the matter in depth. We would therefore order remanding the matter back to the original authority, with direction to consider the other raw-material consumption & evidence regarding the same and also the other plea of the appellants made, regarding the manufacture of other items and different formula used from time to time and the certificates and other data produced by them and therefore came to a finding.
3. In view of our findings, we would set aside the Order of the Commissioner and remand the matter back for Denovo adjudication. We keep all issues open, including the right of the appellants to submit and rely upon such other additional material as they may opt to do so in the remand proceedings. We are aware, that the matter is very old and has been remanded earlier, but when we find gross denial of justice, reluctantly we order a remand with directions that the readjudication should be completed within three months of the receipt of this order.
(Pronounced in open court on 10/5/2001)