Custom, Excise & Service Tax Tribunal
Jain Farm Fresh Foods Ltd vs Tirupati - Cgst Commissionerate on 12 March, 2024
(1)
E/31086, 31089, 31112 & 31113/2016
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Division Bench
Court - I
Excise Appeal No. 31086 of 2016
(Arising out of Order-in-Original No. TTD-EXCUS-000-COM-09-16-17 dt.25.08.2016 passed
by Commissioner of Customs, Central Excise & Service Tax, Tirupati)
Jain Farm Fresh Foods Ltd
Unit-I, 100, Gollapalli Village, Gangadhar ......Appellant
Nellore Mandal, Chittoor, AP - 517 125
VERSUS
Commissioner of Central Tax
Tirupati
9/86-A, Behind West Church Compound,
......Respondent
Amaravati Nagar, MR Palli, Chittoor, AP - 517 502 with Excise Appeal No. 31089 of 2016 (Arising out of Order-in-Original No. TTD-EXCUS-000-COM-10-16-17 dt.25.08.2016 passed by Commissioner of Customs, Central Excise & Service Tax, Tirupati) Jain Farm Fresh Foods Ltd Unit-II, Avalakonda Road, Gangadhar ......Appellant Nellore Mandal, Chittoor, AP - 517 125 VERSUS Commissioner of Central Tax Tirupati 9/86-A, Behind West Church Compound, ......Respondent Amaravati Nagar, MR Palli, Chittoor, AP - 517 502 with Excise Appeal No. 31112 of 2016 (Arising out of Order-in-Original No. TTD-EXCUS-000-COM-09-16-17 dt.25.08.2016 passed by Commissioner of Customs, Central Excise & Service Tax, Tirupati) Sameer Sharma Associate Vice President, Unit-I, 100, Gollapalli Village, ......Appellant Gangadhar Nellore Mandal, Chittoor, AP - 517 125 VERSUS Commissioner of Central Tax Tirupati 9/86-A, Behind West Church Compound, ......Respondent Amaravati Nagar, MR Palli, Chittoor, AP - 517 502 (2) E/31086, 31089, 31112 & 31113/2016 and Excise Appeal No. 31113 of 2016 (Arising out of Order-in-Original No. TTD-EXCUS-000-COM-10-16-17 dt.25.08.2016 passed by Commissioner of Customs, Central Excise & Service Tax, Tirupati) Sameer Sharma Associate Vice President, Unit-II, Avalakonda Road, ......Appellant Gangadhar Nellore Mandal, Chittoor, AP - 517 125 VERSUS Commissioner of Central Tax Tirupati 9/86-A, Behind West Church Compound, ......Respondent Amaravati Nagar, MR Palli, Chittoor, AP - 517 502 Appearance Shri M.H. Patil & Shri T. Chandran Nair, Advocates for the Appellants. Shri A.V.L.N. Chary & Shri B. Sangameshwar Rao, ARs for the Respondent.
Coram:
HON'BLE MR. ANIL CHOUDHARY, MEMBER (JUDICIAL) HON'BLE MR. A.K. JYOTISHI, MEMBER (TECHNICAL) FINAL ORDER No. A/30199-30202/2024 Date of Hearing: 20.12.2023 Date of Decision: 12.03.2024 [Order per: ANIL CHOUDHARY] The above referred four appeals, two appeals by the Appellant-Company (Unit-I & Unit-II) and two by its Associate Vice President, Shri Sameer Sharma, are filed against two separate Orders-in-Original No. (i) TTD-EXCUS-000-COM- 09-16-17 and (ii) TTD-EXCUS- 000-COM-10-16-17, both dated 25.08.2016, passed by the Commissioner of CGST & Central Excise, Tirupati Commissionerate.
2. The common issue involved in the appeals No.E/31086/2016 & E/31089/2016 filed by the Company is whether demand of duty confirmed on alleged shortage of goods said to be found on the basis of comparison of the quantity accounted in SAP system and the quantity accounted in defunct manual RG1 Register is correct, when the Dept. has not considered the quantity of fruit pulps accounted by the Appellants in SAP system, at the time of arriving at so called excess quantity of goods for confiscation but, at the same time, adopted the very same figures accounted in SAP system for alleging shortage of goods and confirmation of demand thereon.
(3)E/31086, 31089, 31112 & 31113/2016 3.1. Since the facts and circumstances in both the appeals of the company, i.e. Unit No.1 & Unit No.2, are identical, except few dates, quantities, demands, etc., facts of Unit No.1 are narrated for the purpose of deciding all the appeals.
3.2. The Appellants were manufacturing various types of fruit pulps and were classifying under Heading 2007. The Fruit Pulps were cleared by them for home consumption as well as for export, on payment of duty or under bond, as the case may be.
3.3. It was stated that on or around 15.8.2010, the Appellants switched over to maintenance of their records, including the production and clearance details, in their SAP system. However, the same was not informed to the Dept. It is claimed that although the production and clearances records were maintained up-to-date in SAP system, the Dealing Clerk was also maintaining production and clearance figures in a manual RG1 Register, for his control purposes.
3.4. Anti-Evasion Officers from Commissionerate visited Unit-I of the Appellants on 02.02.2013 and verified physical stock of finished goods with those accounted for in so called manual RG1 Register (not official record) and the Officers found excess physical stock, in comparison with the stock accounted in manual RG1 Register. The Appellants claims that they informed the visiting Officers about not maintaining manual RG1 Register, after switching over to computerized accounting in their SAP system, and the production and clearance figures accounted in SAP system is the correct ones. The Appellants, by their letter dated 16.02.2013 also, informed the Commissioner that they are maintaining production and clearances record in SAP system, w.e.f. 15.8.2010 and do not maintain any manual records for Central Excise purpose and in fact, the internal private record which the officers referred to as RG-1 was for internal control. In fact, no such "RG-1 register" exists any more. 3.5. Thereafter, the Officers again visited the factory on 20.2.2013, verified stock of finished goods, compared the same with the stock reflected in SAP account and found certain shortage, instead of huge excess stock found on earlier visit on 2.2.2013. Similar visit and stock taking was done at Unit-II also.
3.6. Thereafter, few letters were written by the Appellants to the Department to bring on record various factual position and requesting for release of the seized goods, provisionally on execution of bond, etc. The Appellants (4) E/31086, 31089, 31112 & 31113/2016 also challenged the seizure of goods before the Andhra Pradesh High Court also.
3.7. After recording statements of various Executives of the Appellants and also third parties, show cause notice was issued by the Commissioner on 31.07.2013 proposing to confiscate excess fruit pulps found in the factory and to impose redemption fine and impose penalty under Rule 25(1)(b) of CER, 2002.
3.8. Through their reply dated 17.10.2013, the Appellants claimed that there was no excess stock, as stock taking was not done properly and the records were also not considered in its entirety.
3.9. After hearing the Appellants, the Commissioner, vide Order-in-Original dated 30.05.2014, confiscated the excess stock of fruit pulp; imposed redemption fine of rupees one crore, imposed penalty of Rs.25 lakhs on the company and Rs.20 lakhs on Mr. Sameer Sharma. Similar SCN was issued and Order passed in respect Unit.2 also.
3.10. Both Unit Nos.1 & 2 and Mr. Sameer Sharma challenged the Orders before this Tribunal by filing separate appeals. The Dept. also filed two appeals praying for enhancement of redemption fine. The Company opted for SVLDRS scheme and settled the issue. Therefore, a separate Order No.A/30437-30442/2023 dated 20.12.2023 was passed dismissing all the six appeals, as withdrawn.
3.11. In the meantime, two separate SCNs, both dated 07.05.2015, were issued to Unit Nos.1 & 2, proposing to recover specified amounts of duty on the fruit pulp, allegedly cleared clandestinely; alleged undervaluation of the fruit pulp stock transferred to their sister unit; MS drums/liners allegedly removed clandestinely; interest on the aforesaid duties and also to impose penalty on the company and its Associate Vice President, Mr. Sameer Sharma.
3.12. Appellants filed their replies and claimed that there was no shortage or clandestine removal of fruit pulp or MS drums; or undervaluation of fruit pulp stock transferred to their sister unit, based on various submissions and evidences. The Commissioner heard the Appellants on 10.06.2016, when they made various oral and written submissions. Thereafter, vide letter dated 22.06.2016, the Appellants submitted details of production and clearances of fruit pulps maintained in the SAP system during the disputed period.
3.13. The Commissioner, through impugned Orders dated 25.8.2016, confirmed demand of specified duty, ordered interest and also imposed (5) E/31086, 31089, 31112 & 31113/2016 penalties on the company and Mr. Sameer Sharma. The company and Mr. Sameer Sharma challenged the Orders before this Tribunal, by filing separate appeals, referred to above.
4. The Appellants were heard on 20.12.2023, when Shri M.H. Patil, Shri Chandran Nair and Shri Viraj Reshamwala, Advocates, on behalf of both the Appellants. and Shri AVLN Chary and Shri B. Sangameshwar Rao, Ld. Authorised Representatives, attended on behalf of the Department.
5. On behalf of the Appellants, Shri M.H. Patil, Ld. Advocate, argued that impugned orders are not sustainable on merits as well as on limitation and in support, he made the following submissions:
5.1. That the sole ground based on which the demand has been confirmed by the Commissioner is that there was certain difference in quantity of fruit pulp accounted for in RG1 Register (defunct) and those physically available in the factory premises, when compared with the stock accounted for in SAP system and, accordingly, the differential quantity is presumed to have been cleared clandestinely without payment of duty; 5.2. That the Appellants were maintaining all their records, including statutory records relating to production and clearance of the final products, in SAP system. The production and clearances of fruit pulp was accounted for on day- to-day basis in SAP system and this fact was brought to the notice of the Officers, who conducted the stock taking, on the very first day of their visit to the factory;
5.3. That comparison of physical stock with defunct manual RG-1 stock is incorrect, as manual RG1 was not updated on regular basis and correct stock, on day-to- day basis, was maintained in SAP system, which fact was informed to the Officers at the time of first stock verification done in the factory during February & March 2013;
5.4. That when the Dept. has not taken into consideration and not accepted the accounts maintained in SAP system, while issuing first SCN for confiscation of alleged excess stock of finished goods, the Dept. cannot take an altogether different stand and consider and rely upon those documents (SAP system) for issuing second SCN for demanding duty on alleged shortage of final products, when physical stock is compared with and stock maintained in SAP system;(6)
E/31086, 31089, 31112 & 31113/2016 5.5. That when there was excess stock while issuing first SCN for confiscation, there cannot be shortage, arising out of the very same investigation and documents, while issuing second SCN for demanding duty; 5.6. That when the Dept. considered and compared physical stock with defunct RG1 Register, for the purpose of arriving at excess stock and confiscated the same, despite the Appellants' repeated requests that correct stock was as accounted in SAP system, the Dept. cannot take an altogether different stand and compare the quantity accounted in SAP system with quantity accounted in defunct RG1 Register, to arrive at alleged shortage and demand duty thereon;
5.7. That the Dept. should have a definite stand so far as the documentary evidences are concerned and should not take different stands at different points of time to allege shortage or excess of goods, which is totally incorrect and unsustainable in the eyes of law;
5.8. That when the alleged shortage found on 20.02.2013 was only 1,11,636 kgs, it is not known how the Dept. is claiming that there was shortage of 90,44,263 kgs and confirming duty thereon;
5.9. That if the balance quantity recorded in SAP system and correct physical stock available is compared, there was no excess stock and rather there was shortage of some marginal quantity, which was owing to leakage of drums, date expired stock, puffing, handling/storage loss, etc.; 5.10. That the aforesaid anomalies itself evidences that physical stock-taking, comparison of figures in manual RG1 Register and the production and clearances accounted in SAP system was not done by the Officers in a fair and reasonable manner;
5.11. That when physical stock verification carried out by the Officers was not fool proof and there were anomalies, the benefit of doubt should be extended to the assessee;
5.12. That clandestine removal of goods should not be alleged based on assumption or surmises. Department should prove clandestine removal with cogent and tangible evidences, in support of which reliance is placed on the following judgments:
(i) Oudh Sugar Mills - 1978 (2) ELT J-172 (SC)
(ii) D.B. Electricals - 2005 (188) ELT 470 (SC)
(iii) Maan Aluminium Ltd. - 2015 (322) ELT 184 (SC) 5.13. That when the stock verification carried out by the Officers suffered certain anomalies, as aforesaid, the benefit of doubt should be extended to the assessee, in support of which reliance is placed on the following judgments:(7)
E/31086, 31089, 31112 & 31113/2016
(i) Bhushan Strips Ltd. - 2005 (179) ELT 419 (T)
(ii) Bhushan Ltd. - 2005 (186) ELT 197 (T)
(iii) Nilesh Steel & Alloys - 2008 (229) ELT 399 (T) 5.14. That the Dept. has not brought in any independent evidence to prove clandestine removal of such a huge quantity of fruit pulp. It is a fact on record that no incriminating documents were found or recovered by the Officers during their both visits to the factory and the so called shortage was alleged solely based on incorrect method/manner of physical verification and improper comparison of figures shown in RG1 Register/ER1 Returns and in SAP system;
5.15. That it is noteworthy that for manufacture and clearances of such a huge quantity of fruit pulp, enormous quantity of raw materials and packing materials were required. The Dept. has not adduced any evidence of unaccounted purchase of raw materials/packing materials required for manufacture of fruit pulp alleged to have been clandestinely removed; 5.16. That it is a settled law that the burden of proof of clandestine removal is on the Dept. and the same has to be proved with cogent and tangible evidence and not mere suspicion, in support of which reliance is placed on the following judgments:
(i) Amforge Industries Ltd. - 2019 (367) ELT 208 (Bom)
(ii) Auto Gollon Industries - 2018 (360) ELT 29 (All)
(iii) Nissan Thermoware P. Ltd. - 2011 (266) ELT 45 (Guj)
(iv) Arsh Casting Pvt. Ltd. - 2010 (252) ELT 191 (HP)
(v) Air Carrying Corp (I) Pvt. Ltd. - 2009 (248) ELT 175 (Bom)
(vi) Davinder Sandhu Impex Ltd. - 2016 (337) ELT 99 (Tri)
(vii) Balajee Structurals (India) - 2016 (341) ELT 457 (Tri) 5.17. That there was no shortage of fruit pulp, as alleged, which would be clear from the following:
(1) Stock position on the day of first visit of the Officers to the Unit No.1 on 2.2.2013 was as under:
S.No. Particulars Quantity/kgs
(i) Stock of fruit pulp accounted for in SAP 1,36,78,029
system during the disputed period
(ii) Stock of fruit pulp physically found as per 91,78,800
stock taking carried out by the CE-Officers
(iii) Excess Quantity as alleged by the Dept. 44,99,229
(2) Stock position on the day of second visit of the Officers to the Unit (8) E/31086, 31089, 31112 & 31113/2016 No.1 on 20.2.2013 was as under:
S.No. Particulars Quantity/kgs
(i) Stock of fruit pulp accounted for in SAP 1,34,60,191
system
(ii) Stock of fruit pulp physically found as per 1,33,48,554
stock taking carried out by the CE-Officers
(iii) Shortage Quantity as alleged by the Dept. 1,11,636
From the above, it is clear that such a huge excess stock of 44,99,229 kgs found on first visit of the Officers on 02.02.2013 was not found/available on the second visit on 20.02.2013 (within a matter of 20 days), and the Dept. has not adduced any plausible evidences of clandestine removal of such a huge stock. This itself proves that the stock verification was not done in proper and justifiable manner, but in a biased manner;
5.18. That in support of the contention that there was no excess or shortage of fruit pulp when the physical stock is compared with the stock accounted for in SAP system and each and every kg of fruit pulp was cleared on payment of duty, the Appellants submitted date-wise inventory of opening stock, production and clearance on daily basis, during the disputed period, through their letter dated 22.6.2016. 5.19. That documentary evidences would prevail over oral statements, based on the settled law on the issue;
5.20. That, in any case, non-maintenance of statutory records/RG1 alone cannot be a ground to allege clandestine removal of goods; 5.21. That, in any case, the computation of demand is also not proper, as the Dept. has taken the total production accounted in SAP system, subtracted the quantum of production accounted in RG1 & so called quantity physically found in the factory at the time of stock verification and the differential quantity was claimed to be shortage and alleged to be cleared clandestinely;
5.22. That the valuation adopted by the Appellants for stock transfer of fruit pulp to their sister unit at Jalgaon was correct and no favoured treatment was afforded and, hence, differential duty, as alleged/confirmed through the impugned SCN/Order, is not sustainable;
5.23. That, in any case, the fruit pulp stock transferred to sister unit was used by them for manufacture of their final products which were ultimately (9) E/31086, 31089, 31112 & 31113/2016 cleared on payment of appropriate duty for home consumption and/or exported under bond or under rebate scheme. Therefore, whatever duty paid on the fruit pulp by the Appellants would have been available as Cenvat credit to their own sister unit and, hence, the entire exercise lead to revenue neutral situation and, accordingly, there would not have been any inducement to undervalue the fruit pulp stock transferred by the Appellants;
5.24. That since all the MS Drums and LDPE Liners obtained without payment of duty, under Rule 19(2) of CER, 2002 read with Notn.No.43/2001- CE(NT) dated 26.6.2001, were used for filling in the fruit pulp, either in Unit-I or Unit-II, and the same were cleared on payment of duty for home consumption and/or for export, no duty is payable on MS Drums; 5.25. That not a single Drum or Liner was sold to any outside parties, without payment of duty, as entire quantity was used in Unit-I or Unit-II for packing of the fruit pulp and the Dept. also did not produce any evidence in support the allegation of clandestine removal of the MS Drums or Liners;
5.26. That it is a settled position of law that when the entire exercise leads to revenue neutral situation, demand is not sustainable, in support of which reliance is placed on the following judgments:
(i) Jay Yushin Ltd. - 200 (119) ELT 718 (T-LB)
(ii) Nirlon Limited - 2004 (177) ELT 836 (T)
(iii) Nirlon Limited - 2016 (320) ELT 22 (SC)
(iv) Indeos ABS Ltd. - 2010 (254) ELT 628 (Guj)
(v) -do- Dept's appeal dismissed by SC-2011 (267) ELT A-155 (SC)
(vi) Anglo French - 2018 (360) ELT 1016 (T)
(vii) -do- Upheld by Supreme Court - 2018 (360) ELT A-301 (SC)
(viii) Mahindra & Mahindra Ltd. - 2019 (368) ELT 105 (T)
(ix) -do- Upheld by Supreme Court - 2019 (368) ELT A-41 (SC) 5.27. That the demand is time barred, as extended period is not invocable in the absence of any conscious or deliberate suppression of facts and/or mis- statement based on the following judgments:
(i) Nestle India - 2009 (235) ELT 577 (SC)
(ii) Continental Foundation - 2007 (216) ELT 177 (SC)
(iii) Chemphar Drugs & Liniments - 1989 (40) ELT 276 (SC)
(iv) Padmini Products - 1989 (43) ELT 195 (SC)
5.28. That when Returns (ER1) were filed, from time to time, the Dept. was aware of the facts and, hence, extended period is not invocable, in support of which reliance is placed on the following judgments:
(i) Swastik Engineering - 2010 (255) ELT 261 (T)
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E/31086, 31089, 31112 & 31113/2016
(ii) -do- Upheld by Karnataka High Court - 2014 (302) ELT 333
(Kar)
(iii) Accurate Chemical - 2014 (310) ELT 441 (All.)
(iv) Tinplate Company - 2013 (289) ELT 414 (Jhar) 5.29. That when the records were audited, the Dept. is aware of all requisite information and, hence, extended period is not invocable, in support of which reliance is placed on the following judgments:
(i) Pragathi Concrete Products - 2015 (322) ELT 819 (SC)
(ii) Rajkumar Forge Ltd - 2010 (262) ELT 155 (Bom)
(iii) MTR Food - 2012 (282) ELT 196 (Kar) 5.30. That there was inordinate delay in issuance of the present SCN, as way back in February 2013, the Dept. was aware of the so called stock discrepancies and the present SCN was issued only on 07.05.2015, i.e. after the lapse of more than two years, hence, the same is barred by limitation, based on the following judgments:
(i) Kushal Fertilisers - 2009 (238) ELT 21 (SC)
(ii) Orissa Bridge & Construction - 2011 (264) ELT 14 (SC)
(iii) Gammon India - 2002 (146) ELT 173 (T)
(iv) -do- Upheld by Supreme Court - 2002 (146) ELT A-313 (SC) 5.31. That in the absence of any conscious and deliberate suppression of facts or wilful mis-declaration, extended period is not invocable and for the very same reason, penalty is not imposable, either on the company or its Executive.
5.32. That, in any case, penalty is not imposable in the absence of mens rea; 5.33. That Shri Sameer Sharma has acted as an employee of the company, while discharging his duties, and there was no mala fide on his part nor does he has any undue gain, whatsoever. Therefore, personal penalties imposed on him are not sustainable.
5.34. Based on the above submissions, the Ld. Advocate prayed for allowing all the appeals.
6. Shri A.V.L.N. Chary and Shri B. Sangameshwar Rao, Ld.ARs, vehemently argued taking recourse to the findings in the impugned orders and, more particularly, drew our attention to Panchanama and the statements of the various Executives and urged:-
6.1. that the claim of the Appellants that when Department has not taken into consideration and not accepted the accounts maintained in SAP system while issuing the first SCN for confiscation of excess stock of finished goods, now the Department cannot take different stand and consider and (11) E/31086, 31089, 31112 & 31113/2016 rely upon those documents (SAP system) for demanding duty on alleged shortage of final products cannot be entertained, is not correct as both the cases are independent and separate;
6.2. that the claim of the assessee that when there was excess stock while issuing the first SCN for confiscation, there cannot be shortage, arising out of the very same investigation and documents, while issuing second SCN for demanding duty is not tenable, as production maintained in their private record (SAP System) was admitted by the assessees as authentic; 6.3. that the contention of the assessee that there is huge variation in the quantity of excess and shortage of goods found on first and second visits and there are anomalies in stock verification carried out by the Officers and the benefit of doubt should be extended to them, cannot be accepted;
6.4. that the contention of the assessees that non-maintenance of statutory records/ RG-1 alone cannot be a ground to allege clandestine removal of goods based on settled position of law on the issue and that documentary evidences would prevail over oral statements, is also not sustainable; 6.5. that the Department has brought in independent evidence by way of statements, Panchnama, etc.;
6.6. that the claim of the assessee that the burden of proof of clandestine removal is on the Department and the same has to be proved with cogent and tangible evidence and not mere suspicion, cannot be accepted, as admitted facts need not be proved;
6.7. that there was undervaluation of the fruit pulp stock-transferred by the assessee to their sister units;
6.8. that extended period is invocable in view of suppression of facts and mis-
statement and for the very same reasons penalties are also sustainable. 6.9. that the claim of the Appellants that the limitation starts from the cause of action is not stainable in view of Hon'ble Supreme Court judgment in the case of Mehta & Co., reported in 2011 (264) ELT 481 (SC). 6.10. Based on the above submissions, Ld. ARs prayed for dismissing the appeals filed by the Appellants.
7. In rejoinder, Ld. Advocate argued that Division Bench judgment of Hon'ble Supreme Court judgment in Mehta & Co (supra) is not applicable to the present case, in view of an earlier Full Bench judgment in Gammon India [2002 (146) ELT A-313 (SC)]. In support of the arguments, the Ld. Advocate, filed additional written submissions contenting as under:(12)
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7.1. that 2-Judge Bench Hon'ble Supreme Court judgment dated 10.02.2011 in Mehta & Co. (supra), holding that SCN is permissible to be issued within five years from the date of knowledge, is not applicable to the present case, in view of Hon'ble Supreme Court 3-Judge Bench judgment dated 01.05.2002 in Gammon India (supra), upholding Tribunal judgment holding that SCN issued after nearly two years of completion of enquiry would be barred by limitation. Hon'ble Supreme Court in the said judgment in Gammon India has specifically held as under:
"We have heard learned Counsel for the appellant. We see no reason to interfere with the finding of the Tribunal, insofar as limitation is concerned. It is, therefore, unnecessary to go into the question whether the assessee was manufacturing trusses, for the reason that such fabrication was being carried on at the site on which they were constructing a bridge.
The civil appeal is dismissed.
No order as to costs."
7.2. that it is also a fact that the said 3-Judge Bench judgment of Hon'ble Supreme Court in Gammon India was not brought to the notice of the Hon'ble Supreme Court in Mehta & Co.'s case. If the said judgment would have been brought to the notice of the Hon'ble Supreme Court, while deciding the case of Mehta & Co., the outcome could have been different; 7.3. that as per Article 141 of Constitution of India, the law declared by the Hon'ble Supreme Court shall be binding on all Courts within the territory of India;
7.4. that now the issue for decision before this Hon'ble Tribunal is whether the law declared by 3-Judge Bench judgment of Hon'ble Supreme Court in Gammon India would prevail or law declared by 2-Judge Bench judgment of Hon'ble Supreme Court in Mehta & Co. would prevail; 7.5. that in case of conflict between judgments of Hon'ble Supreme Court itself, it is the latest judgment which will be binding on the inferior Courts, unless the earlier one was of a Larger Bench, in support of which reliance was placed on the following judgments:
(i) Mattulal vs. Radhe Lal - (1974) 2 SCC 365
(ii) Union of India & Another vs. K.S. Subramanian - (1976) 3 SCC 677 7.6. that Hon'ble Tribunal in the case of Abaris Healthcare [2018 (362) ELT 153 (T)], has held that Dept. having failed to issue SCN within one year from filing of declaration, and issued SCN only after three years of filing such declaration, the same was barred by limitation. While coming to the (13) E/31086, 31089, 31112 & 31113/2016 above conclusion, the Hon'ble Tribunal has referred to the said judgment in Mehta & Co. also.
7.7. that the contention that demand is barred by limitation also gets substantiated from the fact that the Appellants were making persistent requests to consider the stock accounts maintained in their SAP system, instead of defunct manual Daily Production Account (RGI Register), on various dates, including on the date of visit of the Officers, date of stock taking, recording statements, etc. on 02.02.2013/ 06.02.2013/ 20.02.2012, vide their letters dated 16.02.2012, 20.02.2013, 27.02.2013, 13.03.2013, etc. Over and above this, the Appellants substantiated that not only there was no excess stock of Fruit Pulp in both of the units, as wrongly claimed by the Officers, but also there was no shortage of goods, except meagre quantity of less than one percent due to handling loss, spillage, evaporation, etc. which was within the permissible limit, considering the nature of products involved. 7.8. that invoking Article 145(5) of Constitution of India, 5-Judge Constitution Bench of Hon'ble Supreme Court, vide its judgment dated 19.09.2022, in Trimurthi Fragrance - (2022) 15 SCR 516 has held that majority decision of a Bench of larger strength would prevail over the decision of a Bench of lesser strength.
7.9. that in the case of Trimuthi Fragrance (supra), Hon'ble Supreme Court (in para G) has held that a Bench of lesser quorum cannot disagree or dissent from the view of law taken by a Bench of larger quorum. The said para of the said judgment is reproduced below, for ease of reference:
"G. The conclusion (1) is that a decision delivered by a Bench of largest strength is binding on any subsequent Bench of lesser or coequal strength. It is the strength of the Bench and not number of Judges who have taken a particular view which is said to be relevant. However, conclusion (2) makes it absolutely clear that a Bench of lesser quorum cannot disagree or dissent from the view of law taken by a Bench of larger quorum. Quorum means the bench strength which was hearing the matter."
7.10. that in the judgment of Trimurthi Fragrance (supra), Hon'ble Supreme Court also referred to the judgments in Union of India and Anr. v. Raghubir Singh [(1989) 2 SCC 754] and Sher Singh v. State of Punjab [(1983) 2 SCC 344], wherein it was held that it would be detrimental to the rule of discipline and the doctrine of binding precedents by not following 3-Judge Bench judgment by 2- Judge Bench.
(14)E/31086, 31089, 31112 & 31113/2016 7.11. that the Ld.ARs has relied upon the following judgments, in support of the contention that judgment in the case of Mehta & Co. (supra) would be applicable to the present case:
(i) Experion Developers - 2023 INSC 748
(ii) Secundrabad Club - 2023 INSC 736
(iii) Neminath Fabrics - 2010 (256) ELT 369 (Guj)
(iv) NTPC - 2017 (5) GSTL 412 (Tri) 7.12. that Hon'ble Supreme Court judgment dated 18.08.2023, in Experion Developers [2023 INSC 748], relied upon by Ld.AR, would be out of context to the case on hand, as in Experion Developer's case, holding that doctrine of merger would not apply in view of Hon'ble Supreme Court judgment in Pawan Gupta v/s Experion Developers [2020 SCC OnLine NCDRC 788], is case specific and the litigation was inter se the party, although that case has acquired finality, in view of dismissal of Dept.'s appeal in Pawan Gupta's case. For arriving at this conclusion, Hon'ble Supreme Court referred to and discussed the following two judgments:
(i) Kunhayammed and Ors - (2000) 6 SCC 359
(ii) Khoday Distilleries Ltd. - (2019) 4 SCC 376 7.13. that in the in case of Kunhayammed & Ors, 3-Judge Bench of Hon'ble Supreme Court has held (in para 44) that statement of law contained in the order is declaration of law by the Hon'ble Supreme Court under Article 141, even by dismissing a Civil Appeal in limine by a speaking order. In such cases, the lower Court's order gets merged with the Hon'ble Supreme Court's order. This judgment has been followed by Supreme Court in various subsequent judgments, including in Khoday Distilleries Ltd. (supra).
7.14. that in the case cited by Ld. AR, although Hon'ble Supreme Court had dismissed the Civil Appeal filed by the Dept., vide its judgment dated 19.07.2020, the same was not invoked in Experion Developers on the ground that the Architect's certificate was not produced and relied upon in Pawan Gupta's case, while the same was the basis in Experion Developers' case, which although relied upon was not discussed. 7.15. that, as against this, in the present case, substantial question of law of general importance involved is whether the Dept. was estopped from issuance of SCN after one year from the date of knowledge (Dept. was in know with relevant facts by drawing panchanamas on 02.02.2013, 06.02.2012 and 20.02.2013, withdrawal of relevant records, recording of statements of various Executives, etc. in February/March 2013). The (15) E/31086, 31089, 31112 & 31113/2016 statement of Mr. Sameer Sharma recorded on 06.01.2015 was just a reiteration of earlier averments and no new facts were emerged. This might have been done by the Dept. to circumvent the time limit for issuance of SCN. Therefore, the cause of action would start from 02.02.2013, 06.02.2013 and 20.02.2013 and the SCNs to both Units were issued on 07.05.2015, after the normal period of one year. 7.16. that the disputed issue in both the cases, Mehta & Co. and Gammon India, is the same, i.e. applicability of limitation of one year from the date of knowledge. Hence, 3-Judge Bench judgment dated 01.05.2002 (although earlier in time) would prevail over 2-Judge Bench judgment dated 10.02.2011 in Mehta & Co., by invoking the ratio of various judgments referred to above;
7.17. that second judgment relied upon by Ld. A.R. is in the case of Secunderabad Club dated 17.08.2023 [2023 INSC 736], wherein it has been held that ratio of Bangalore Club and Cawnpore Club, relied upon would not apply, as this decision would bind party inter se. 7.18. that in the present case, the issue involved in both the contesting judgments [Mehta & Co and Gammon India] is same and, hence, 3-Judge Bench judgment of Hon'ble Supreme Court would prevail over 2-Judge Bench judgment of Hon'ble Supreme Court, as elucidated in the case of Trimurthi Fragrance (supra). Reliance was also placed on the following judgments:
(i) Pyare Mohan - (2010) 10 SCC 693
(ii) B. Eswaraiah - 2014 SCC Online AP 386
Wherein it was held that when there is conflict between two or more judgments of Hon'ble Supreme Court, the judgment of Larger Bench is to be followed.
7.19. that Hon'ble Andhra Pradesh High Court, in its judgment dated 11.02.2014, in B. Eswaraiah [2014 SCC Online AP 386], after having considered various judgments of Apex Court, has held that latter judgment, passed ignoring the earlier judgment of equal quorum or larger bench, would not have binding effect, since the later judgment is passed ignoring/without considering the earlier judgments. If the later Bench refers to earlier judgments and distinguish the same, the later one will have binding effect;
7.20. that the judgment of Hon'ble Supreme Court in Mehta & Co. was passed ignoring/not considering the 3-Judge Bench judgment in Gammon India (16) E/31086, 31089, 31112 & 31113/2016 and, hence, ratio in Gammon India would prevail over the ratio in Mehta & Co., although it is later in time;
7.21. that based on 3-Judge Bench judgment in Gammon India would prevail over 2- Judge Bench judgment in Mehta & Co and, therefore, the SCN dated 07.05.2015, issued after over two years from the cause of action is barred by limitation;
7.22. that in connection with the valuation of stock transfer of Fruit Pulps from the Appellants' Chittoor Units to their Jalgaon Unit, it was submitted that, considering the amendment to Rule 8 of Valuation Rules and Point 5 of CBEC Instructions dated 01.07.2002, the Hon'ble Tribunal has held that payment of duty on 110% of cost of production on clearances to sister units/own units is correct, even if part of the production was sold to other independent buyers, in support of which reliance was placed on the following judgments:
(i) Surya Roshni Ltd. - 2017 (357) ELT 978 (T)
(ii) Rashtriya Ispat Nigam Ltd. - 2019 (366) ELT 856 (T)
(iii) Ultratech Cement Limited- 2017 (11) TMI 1385 - CESTAT, New Delhi 7.23. that, so far transfer of MS Drums procured without payment of duty, under Rule 19(2) of CER, between Unit No.1 & 2 is concerned, it was submitted that all the MS Drums, thus procured, were used for packing of Fruit Pulps exported by either Unit and not a single drum was used for clearance for domestic market. Therefore, duty thereon is not sustainable.
7.24. that demand confirmed on transfer of Fruit Pulps and MS Drums, from one Unit to other, would not be sustainable in view of revenue neutral situation, as whatever duty paid by the sender-unit would have been available as credit to the recipient-unit.
8. Heard both sides and perused the documents.
9. We have carefully considered the exhaustive arguments made by both sides. The issue to be decided in the appeals is whether demand confirmed on alleged shortage of goods and therefore, clandestine removal thereof, as claimed by the investigation officers, on the basis of comparison of the quantity accounted in SAP system with the quantity accounted in manual RG1 Register, which was said to be defunct, is correct when the Dept. did not consider the quantity of fruit pulps accounted for in SAP system, despite request, at the time of arriving at the alleged excess quantity for confiscation, whereas the very (17) E/31086, 31089, 31112 & 31113/2016 same figures were considered for alleging shortage and confirmation of demand thereon.
10. We find that the sole ground based on which the demand has been confirmed by the Commissioner is that there was certain difference in quantity of fruit pulps accounted for in so called manual RG1 Register, which the Appellants claims to be a defunct one, and those physically available at the time of stock verification, when compared with the stock accounted for in SAP system. The Department's claim is that differential quantity between the two has been considered as clandestinely removed by the Appellants and the demand has been confirmed accordingly. It is an admitted fact that the Appellants were maintaining all their records, including statutory records relating to production and clearance of the final products, in SAP system. Inter alia, the production as well as clearances of fruit pulp was accounted for on day-to-day basis in said SAP system and this fact was brought to the notice of the Officers, who conducted the stock taking, on the very first day of their visit to the factory and subsequently, by way of various correspondence exchanged by the Appellants with the Commissioner. We find that despite repeated requests, the Department preferred to compare the physical stock with defunct RG-1 stock, even though correct stock, on day-to-day basis, was maintained by the Appellants in their SAP system. We understand that the records maintained in SAP system cannot be manipulated easily. For the reason best known to department, no attempt was made by department to cross check the veracity of averments made by appellant regarding maintenance of record on SAP systems was made.
11. We find that when the Dept. did not accept the records maintained by the Appellants in their SAP system while issuing the SCNs for confiscation of excess stock of finished goods claimed to be found by the Officers, then the Dept. cannot take an altogether different stand and rely upon the records maintained in SAP system and compare it with so called RG-1 for confirming demand on the alleged shortage of goods. The Dept. cannot breathe hot and cold simultaneously. When there was excess stock while issuing SCNs for confiscation, there cannot be shortage, arising out of the very same investigation and documents, while issuing second SCNs for demanding duty. We are of the view that when the Dept. compared physical stock with defunct RG1 Register, for the purpose of arriving at excess stock to confiscate the same, the Dept. cannot take a different stand and compare the quantity accounted in SAP system with quantity accounted in defunct RG1 Register, to (18) E/31086, 31089, 31112 & 31113/2016 arrive at alleged shortage and demand duty thereon. The Dept. should have a definite stand so far as the documentary evidences are concerned and should not have taken different stands at different points of time, which is not acceptable in the eyes of law. We find that the stock-taking, comparison of the production and clearances accounted in so called manual RG1 Register and in SAP system was not done by the Officers in a fair and reasonable manner and there are lot of anomalies in the way the entire issue has been concluded. Therefore, we are of the view that the claim of the Appellants that if the balance quantity recorded in SAP system and correct physical stock available is compared, there was no excess stock and rather there was negligible shortage due to leakage of drums, date expired stock, puffing, handling/storage loss, etc.
12. When physical stock verification carried out by the Officers was not fool proof and there were anomalies, we are of the view that the benefit of doubt should be extended to the assessee. Further, the allegation of clandestine removal of goods cannot be based on assumption or surmises and the Department should prove clandestine removal with cogent and tangible evidences, as contended by the Appellants, with support of Hon'ble Supreme Court judgments. When the stock verification carried out by the Officers suffered certain anomalies, as claimed by the Appellants, benefit of doubt should be extended to the assessee based on the judgments relied upon by the Appellants in their support. We find that the Dept. has not brought in any independent evidence to prove its claim of clandestine removal. It is an admitted fact that no incriminating documents were found or recovered by the Officers during their both visits to the factories and the so called shortage was alleged solely based on physical verification and method adopted by them for comparison of figures shown in RG1 Register/ER1 Returns and in SAP system, which appears to be not a correct method, when the Dept. was taking different stand at different points of time.
13. Further, we find that for manufacture and clearances of such a huge quantity of fruit pulps clandestinely, enormous quantity of raw materials and packing materials were required and the Dept. did not find any evidence of unaccounted purchase of raw materials or packing materials required for manufacture of fruit pulps alleged to have been clandestinely removed. Based on the settled law, the burden of proof of clandestine removal is on the Dept. and the same has to be proved with cogent and tangible evidence and not mere (19) E/31086, 31089, 31112 & 31113/2016 suspicion and the ratio of judgments relied upon by the Appellants in their support are applicable.
14. We find that the anomaly in the stock taking conducted by the visiting Officers is evident from the stock position on the day of first visit of the Officers to the Unit No.1 on 2.2.2013, as given below:
S.No. Particulars Quantity/kgs
(i) Stock of fruit pulp accounted for in SAP 1,36,78,029
system during the disputed period
(ii) Stock of fruit pulp physically found as per 91,78,800
stock taking carried out by the CE-Officers
(iii) Excess Quantity as alleged by the Dept. 44,99,229
and the stock position on the day of second visit of the Officers to the Unit No.1 on 20.2.2013 was as under:
S.No. Particulars Quantity/kgs
(i) Stock of fruit pulp accounted for in SAP 1,34,60,191
system
(ii) Stock of fruit pulp physically found as per 1,33,48,554
stock taking carried out by the CE-Officers
(iii) Shortage Quantity as alleged by the Dept. 1,11,636
From the above, it is clear that huge excess stock of 44,99,229 kgs found on first visit of the Officers on 02.02.2013 was not found/available on the second visit on 20.02.2013 (within a matter of 20 days) and the Dept. has not adduced any evidences of clandestine removal of such a huge stock, except bare allegation based on statements of some Executives. This proves the Appellants' claim that the stock verification was not done by the Officers in proper and justifiable manner. We find that from the date-wise inventory of opening stock, production and clearance on daily basis, during the disputed period, submitted by the Appellants through their letter dated 22.6.2016, it is clear that there was no excess or shortage of fruit pulp when the physical stock is compared with the stock accounted for in SAP system. In this connection, we accept the contention of the Appellants that documentary evidence would prevail over oral statements. We find that just because the statutory records like or similar to RG1 alone cannot be a ground to allege clandestine removal of goods. It is also a fact that statutory records like RG1, etc. have been done away with long ago and the records maintained in the normal course of (20) E/31086, 31089, 31112 & 31113/2016 accounting were accepted for central excise purposes. Therefore, Department's reliance on manual RG1 Register, when the accounts are maintained in SAP system is misconceived and cannot be accepted. Especially when the veracity of account maintained on SAP has not been doubted. Thus, in nutshell, in the facts of the case, the SAP alone was the proper account being maintained and there cannot be any comparison with so called RG1 register either for excess or for shortage. The physical stock taking is a verifiable fact which needed to be compared with production and clearance of pulp as reflected in SAP system.
15. We also find that the computation of demand is not proper, as the Dept. has taken the total production accounted in SAP system, subtracted the quantum of production accounted in RG1 & so called quantity physically found in the factory at the time of stock verification, and the differential quantity was claimed to be shortage and alleged to be cleared clandestinely, which is not correct, as the Dept. should have compared physical stock with the details accounted in SAP system. Taking all the aspects of the case and the evidences, we find that the Department has not been able to conclusively prove clandestine removal of goods. Therefore, duty demand confirmed on alleged clandestine removal by Unit No.1 and Unit No.2 is not sustainable and deserves to be set aside.
16. So far as valuation adopted by the Appellants for stock transfer of fruit pulp to their sister unit is concerned, we find that the same is correct, as they have adopted comparable price and no favoured treatment was afforded and, hence, differential duty confirmed in the impugned Order, is not sustainable. We further find that fruit pulp stock transferred to sister unit was used by them for manufacture of their final products which were ultimately cleared on payment of appropriate duty for home consumption or exported under bond or under rebate scheme. Therefore, whatever duty paid on the fruit pulp by the Appellants would have been available as Cenvat credit to their own sister unit. Therefore, entire exercise also leads to revenue neutral situation and there was no inducement for the Appellants to undervalue the fruit pulp stock transferred by them to their sister units. Therefore, the demand confirmed on this count is not sustainable and deserves to be set aside.
17. We find that Unit Nos.1 & 2, are of the very same company, although separately registered, and both the Units were exporting their products. Therefore, we accept the contention of the Appellants that since MS Drums and LDPE Liners, obtained without payment of duty, under Rule 19(2) of CER, 2002 (21) E/31086, 31089, 31112 & 31113/2016 read with Notn.No.43/2001-CE(NT) dated 26.6.2001, were used for filling in fruit pulps, either in Unit No.1 or Unit No.2 and such drums containing fruit pulps cleared on payment of duty for home consumption or exported on payment of duty or under bond, no duty is payable by either Unit on MS Drums alleged to have been transferred from one unit to another. The Appellants claimed that not a single Drum or Liner was sold to any outside parties, without payment of duty, as entire quantity was used in Unit-I or Unit-II for packing of the fruit pulp has to be accepted, in the absence of any contrary evidences produced by the Dept. in support its claim of clandestine removal of MS Drums or Liners.
18. So far as the penalties are concerned, we find that in the absence of any conscious and deliberate suppression of facts or wilful mis-declaration and also in the absence of mens rea, penalty is not imposable. Therefore, the penalty imposed on the Appellant-company deserves to the set aside. Since Shri Sameer Sharma, Associate Vice President of the Company, has acted as an employee, in the ordinary course of discharging his assignments, and he could not have unduly gained anything personally, penalties imposed on Shri Sameer Sharma is not sustainable and deserves to be set aside.
19. Based on our above discussions, we find that the impugned Orders are not sustainable on merits. Accordingly, we allow all the appeals filed by Unit No.1 & Unit No.2 of the Appellant-company and by Shri Sameer Sharma, with consequential relief, if any, in accordance with law.
(Pronounced in the Open Court on 12.03.2024) (ANIL CHOUDHARY) MEMBER (JUDICIAL) (A.K. JYOTISHI) MEMBER (TECHNICAL) Veda