Customs, Excise and Gold Tribunal - Tamil Nadu
Bhagavathy Mechanical And Electrical ... vs C.C.E. on 11 May, 1994
Equivalent citations: 1994(72)ELT928(TRI-CHENNAI)
ORDER S. Kalyanam, Member (J)
1. These appeals are directed against the order of the Collector of Central Excise, Madras, dated 17-5-1989 disallowing MODVAT Credit and directing reversal of MODVAT Credit in a sum of Rs. 5,26,604.84 under Rule 57I of the Central Excise Rules, 1944 as against appellant M/s. Bhagavathy Mechanical and Electrical Industry, herein after referred to as M/s. Bhagavathy, and directing expunction of MODVAT Credit in a sum of Rs. 96,182.87 on the other appellant i.e. M/s. Indo Tech electric Company, besides penalty of Rs. 20,000/- and Rs. 10,000/- respectively on the appellants under the provisions of the Central Excise Rules, 1944.
2. These appeals were heard extensively on a number of days and at the conclusion of the hearing on 6-5-1994 the Bench allowed the appeals, and for want of time, the judgement could not be dictated and it was announced in the open Court that detailed order would follow.
3. M/s. Indo Tech Electric Company (ITEC) are manufacturers of electric transformers etc. and mainly supply goods to Electricity Boards, Railways and other Industrial undertakings. Appellants M/s. Bhagavathy are manufactureres of transformer radiators/transformer tanks/transformer frame parts and are holding licence under the Act. The authorities on the basis of intelligence that M/s. ITEC were indulging in wrong availment of MODVAT concession by creating front Companies visited the factories of both the appellants on 12-2-1988 and recovered certain evidence and the proceedings were instituted against the appellants on the ground that M/s. Bhagavathy is a fictitious Company floated by the other appellant for the purpose of availing erroneous MODVAT Credit and that appellant M/s. Bhagavathy did not manufacture any Radiators out of parts received allegedly from other places but instead received only completely manufactured radiators which were received from M/s. Pondicherry Forging and Engineering Works and M/s. Pushpak Electric Corporation, Bangalore and the fully manufactured radiators were received directly at the factory of M/s. ITEC and the proceedings eventually culminated in the impugned order.
4. Shri K. Narayanan, the learned Counsel for the appellants submitted that the essense of the charge in the show cause notice was M/s. Bhagavathy was a fictitious Company created for the purpose of wrong availment of MODVAT Credit. It was urged that in the entire case records there is absolutely no acceptable legal evidence to substantiate the charge of the Department. The burden to prove the charge is squarely on the Department and this burden has not been discharged at all. The department did not conduct any investigation to find out as to whether all the machines that are required for manufacture of radiators are available in the factory of appellants M/s. Bhagavathy, before giving a finding and before levelling a charge that there was no manufacturing activity or machines for the manufacture of radiators in the factory of appellants M/s. Bhagavathy. No statements were recorded from the managing partner of M/s. ITEC and M/s. Bhagavathy on the allegation of receipt of fully manufactured radiators instead of radiator parts and they were also not questioned about the same. The Department also has not recovered any documentary evidence in proof of the allegation that M/s. Bhagavathy received only completely manufactured radiators. The authorities have misled themselves by misconstruing Chalan No. 133/87 dated 17.1.87 that the goods therein were received on a Sunday at the factory of M/s. ITEC. Since there was no watch and ward in the factory of M/s. Bhagavathy which is in the closest vicinity, the department is in error to have taken the entry made by the security personnel of the goods as radiators and the fact remains that security personnel did not * open package at all. The statements of the security personnel also did not support the case of the Dept. The department examined the person i.e. the suppliers of radiator parts such as M/s. Pondicherry Forging and Engineering Works and M/s. Pushpak Electric Corporation, Bangalore and in the statement ' of Shri Hegde, Proprietor of M/s. Pushpak Electric Corporation, Bangalore, it has been very clearly stated that they supplied only radiator parts to appellants Bhagavathy. Likewise Shri Sankaranarayanan, Manager of Pondicherry Forgings has also clearly stated that his Company supplied only radiator parts to M/s.Bhagavathy and a number of documents were produced before the authorities in proof of the fact that radiator parts supplied by the suppliers were defective and a number of them not conforming to the standard prescribed by the appellants and even though these documents formed part of the documents, they have not been considered in the impugned order nor referred to therein. The important fact is that the appellants M/s. Bhagavathy received radiator parts and manufactured radiators and supplied the same to various customers and this fact has been lost sight of by the authorities. Apart from Indo Tech, their various customers are Radio and Electricals Ltd. Vigneswara Electricals Pvt. Ltd. and others. It does not stand to reason as to why M/s. Bhagavathy should receive completely manufactured radiators and despatch the same to various outstation customers. The learned Counsel also explained the reason and necessity for appellants M/s. Bhagavathy to manufacture radiators out of the parts received, as full-fledged radiators received from various outstations always gave rise to leakage and the Electricity Department complained about radiator leakages as a general phenomenon and it is only to avoid such leakages and damages to radiators, it was thought proper and expedient to manufacture radiators by the appellants themselves at their factory which is in the closest vicinity of M/s. ITEC. The learned Counsel elaborately read through the statements of Shri Sankaranarayanan, Managar of Pondicherry Forgings dated 18-2-1988 Shri RE. Sundaresh, Managing Partner of M/s. Bhagavathy dated 2-2-1988 and also 16-2-1988 and also produced statement indicating radiator parts received from M/s. Pondicherry Forgings and cleared to various parties after manufacture of radiator to various parties. It was urged that in spite of such detailed record, the Department during investigation did not find any material to show the records were not acceptable or the consignees mentioned in the record did not receive the radiators from the appellants i.e. M/s. Bhagavathy. The entire order is based on suspicion and conjecture without any legal basis and is therefore not sustainable.
5. Shri J.M. Jeyaseelan, the learned DR adopted the reasoning of the learned adjudicating authority and contended that it is for the appellants Bhagavathy to prove that they have necessary manufacturing unit to manufacture radiators.
6. As stated above, we have heard the parties extensively and gone through the records in depth. The show cause notice proceeds on the allegation that appellants M/s. Bhagavathy was a dummy and fictitious Unit. The department under the impugned order found that M/s. Bhagavathy is a licenced Unit functioning and manufacturing excisable goods. The question that arises primarily for our consideration in the entire case is whether M/s. Bhagavathy did not manufacture radiators at all and was created only by the relations of M/s. ITEC as a fictitious Company only to claim higher notional MODVAT Credit. Primarily in this context, the Department should have taken some expert opinion to find out as to what are the machineries/equipments that are indispensable for the manufacture of radiators and confronted M/s. Bhagavathy the appellants with reference to the same. During the course of investigation, the authorities examined Shri Sankaranarayanan, who is a graduate and Manager in Pondicherry Forgings an Engineering Works and he was cross-examined on behalf of the appellants and he stated that they did not supply radiators in the name of radiator parts. He has clearly admitted in cross-examination that they have not manufactured radiators after coming under the MODVAT Scheme as they have filed declaration only for radiator parts.
"He has only stated that as per the MODVAT declaration filed under Rule 57G of the MODVAT Rules, 1944, the final product on which MODVAT Credit was availed was parts of radiators and the input is CR sheets". During cross-examination, Shri Sankaranarayanan was also shown a Photostat copy of the classification list and was also shown Invoice No. 133 dated 17-1-1987 on the basis of which the department initially commenced enquiries. He has stated that they had supplied only radiator parts and not radiators. The MOD VAT declaration filed by M/s. Pondicherry Forgings has been accepted by the Department and MODVAT Credit has been allowed and the Department has not held that the MODVAT declaration filed by M/s. Pondicherry Forgings was incorrect or Wrong. He has also produced copy of the order dated 2.3.87 placed by M/s. Bhagavathy for radiator parts only and not for radiators. The department should have verified the invoice and bills at M/s. Pondicherry Forgings. There is no shred of evidence to indicate that they supplied completely manufactured radiators to appellants M/s. Bhagavathy. Yet another supplier of the goods to M/s. Bhagavathy are M/s. Pushpak Electric Corporation, Bangalore and we have gone through the statement and cross-examination of Shri V.S. Hegde Proprietor of the said Company. A perusal of Shri Hegde's statement particularly with reference to his cross-examination makes it abundantly clear that radiator parts were only supplied to M/s. Bhagavathy and there is no material evidence to show that they cleared only completely manufactured radiators to M/s. Bhagavathy. Shri Hegde has stated that from 16-7-1986 to 24-2-1988, he had supplied 1766 parts (sets) or components sets to M/s. Bhagavathy and that would not mean that Bhagavathy did not manufacture radiators of the said set. We took particular care to go through the entire evidence contained in Shri Hegde's statement and also his cross-examination and it is clear that radiator parts were only supplied to M/s. Bhagavathy. M/s. Pushpak Electric Corporation also filed Modvat declaration and availed MODVAT Credit on the radiator parts cleared as finished product. Appellants M/s. Bhagavathy received radiator parts from M/s. Pondicherry Forgings and manufactured radiators and cleared the same to various parties as per details furnished by the appellants which are annexed herewith.
Radiator parts received from M/s. Pondicherry Forging and Engineering Works and cleared to various parties after manufacture.
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S. Purchase Bill Description Qty. in G.P. No. & RG-23A Part-I
No. No. Date of goods Nos. Date Entry No &
Radiator date
parts
-------------------------------------------------------------------------------------------1 2 3 4 5 6
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1. 131/2-1-1987 500x3x75 120 131/2-1-1987 58/3-1-1987
2. 132/8-1-1987 500x3x75 140 132/8-1-1987 61/10-1-1987
3. 133/17-1-1987 800x9x75 24 133/17-1-1987 62/19-1-1987 500x3x75 150
4. 134/19-1-1987 800x6x75 45 134/19-1-1987 64/20-1-1987 700x3x75 39
5. 135/21-1-1987 600x5x75 50 135/21-1-1987 65/22-1-1987 500x2x75 50
6. 136/23-1-1987 500x3x75 100 136/23-1-1987 67/24-1-1987 50x2x75 50 600x5x75 18
7. 138/30-1-1987 500x3x75 50 138/30-1-1987 71/31-1-1987 700x4x75 25 700x3x75 5
8. 139/31-1-1987 500x3x75 50 139/31-1-1987 73/2-2-1987
1. 58/3-8-1987 500x3x75 100 58/3-8-1987 77/4-8-1987
2. 59/7-8-1987 500x2x75 40 59/7-8-1987 80/8-8-1987 500x3x75 50 800x5x75 67 800x6x75 26 1000x10x75 6
3. 63/17-8-87 500x3x75 38 63/17-8-1987 85/18-8-1987 700x5x75 35
4. 64/21-8-1987 600x5x75 34 64/21-8-87 86/22-8-87 700x5x50 50
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Finished Removal Name& Completed Qty. in REMARKS product G.P. No. & Address of Radiators Nos. Entry Date the consig- sizes in RG-I nee
-------------------------------------------------------------------------------------------7 8 9 10 11 12
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5-1-19.87 49/5-1-1987 Radio & 500x3x75 120
Elecls. Ltd.
10-1-1987 50/10-1-1987 Indo Tech 500x3x75 140
Electric Co.
31-1-1987 56/31-1-1987 -do- 800x9x75 24
20-1-1987 51/20-1-1987 -do- 500x3x75 96
23-1-1987 52/23-1-1987 -do- 500x3x75 54
29-1-1987 55/29-1-1987 Radio & 800x6x75 45
Elecls. Ltd.
55/29-1-1987 do- 700x3x75 39
24-1-1987 53/24-1-1987 New 600x5x75 3
Potential
29-1-1987 55/29-1-1987 R.E.L. 600x5x75 47
31-1-1987 56/31-1-1987 Indo Tech 500x2x75 50
28-1-1987 54/28-1-1987 -do- 500x3x75 84
31-1-1987 56/31-1-1987 -do- 500x2x75 50
29-1-1987 55/29-1-1987 R.E.L. 600x5x75 18
5-2-1987 58/5-2-1987 Indo Tech 500x3x75 50
31-1-1987 56/31-1-1987 Indo Tech 700x4x75 25
21-2-1987 61/21-2-1987 R.E.K. 700x3x75 5
4-2-1987 57/4-2-1987 Vignes- 500x3x75 16
wara Ele-
cals P. Ltd.
5-2-1987 58/5-2-1987 Indo Tech 500x3 34
11-8-1987 80/11-8-1987 Indo Tech 500x3x 100
17-8-1987 83/17-8-1987 -do- 500x2x 40
11-8-1987 80/11-8-1987 -do- 500x3x 50
17-8-1987 83/17-8-1987 -do- 800x5x 67
14-8-1987 81/14-8-1987 -do- 800x6 26
10-8-1987 78/10-8-1987 Radio & 1000x10x 6
Elecls.
27-8-1987 85/27-8-1987 Indo Tech 500x3x 38
27-8-1987 84/27-8-1987 Vigneswa- 700x5x 35
ra Elecls.
29-8-1987 87/29-8-1987 R.E.L. 600x5 34
27-8-1987 84/27-8-1987 Vignes- 700x5 50
wara-
Elecls.
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The department has not adduced any evidence to show that the particulars given above are not correct. We also find that the learned Counsel has also produced delivery chalans of Pondicherry Forgings dated 26-6-1986 indicating supply of radiator parts to M/s. Bhagavathy. Shri Sundaresh, Managing Partner of M/s. Bhagavathy has stated that in his factory they got drilling machine, compressor and gas welding set etc. He has also stated that they buy radiator parts from Pondicherry forgings, Pushpak Electricals, Steel from Gemini Trading and Udayam Enterprises and also SK Steel Madras. Therefore, a scrutiny of the various evidence referred to above would reveal that records of supply of radiator parts to M/s. Bhagavathy and this fact is also supported by the MODVAT declarations filed by the suppliers of Radiator parts. If these units did not supply radiator parts to the appellants it does not stand to reason as to why no proceedings were drawn against those suppliers if the MODVAT declarations were wrong. On a query from the Bench in this regard, the learned DR after scrutiny of the documents submitted that he is not able to give any reply to the same. Therefore, on consideration of the entire evidence on record, we are inclined to hold that there is no acceptable legal evidence to substantiate the allegation in the show cause notice in regard to erroneous availment of MODVAT Credit. In this view of the matter on consideration of the entire evidence, we hold that the charge has not been substantiated. In the result the impugned order is set aside and the appeals allowed.