Custom, Excise & Service Tax Tribunal
4.Whether Order Is To Be Circulated To ... vs Cce, Delhi-I on 6 August, 2010
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
West Block 2, R.K.Puram,New Delhi-110066
Principal Bench, New Delhi.
E/266-268/06
(Arising out of Order-in-Original No.147/2005 dt.28.10.05 passed by Commissioner of Central Excise, Delhi-I)
For approval and signature:
Honble Mr. Justice R.M.S.Khandeparkar, President
Honble Mr. Rakesh Kumar, Member (Technical)
1.Whether Press Reporters may be allowed to see:
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2.Whether it would be released under Rule 27 of :
the CESTAT (Procedure) Rules, 1982 for
publication in any authoritative report or not?
3.Whether their Lordships wish to see the fair :
copy of the order?
4.Whether order is to be circulated to the :
Department Authorities:
____________________________________________________
M/s. Devi Dass Garg
Sh. Rakesh Kumar Garg
Sh. Santosh Kumar Garg Appellants
Versus
CCE, Delhi-I Respondent
Appearance Sh. Krishna Kant, Advocate - for the Appellants Shri S.K.Panda, Authorised Representative (Jt.CDR) for the Respondent Coram: Honble Mr. JUSTICE R.M.S.KHANDEPARKAR, PRESIDENT Honble Mr. RAKESH KUMAR, MEMBER (TECHNICAL) Date of Hearing : 9.2.2010 Date of Decision : 6.8.2010 Order No.___________________________ Per Rakesh Kumar:
These are the appeals against order-in-original No.147/05 dt.28.10.05, passed by Commissioner of Central Excise, Delhi-I, by which the Commissioner, in addition to confirming duty demand of Rs.33,20,03,239/- against M/s. Amar Jyoti Packers, 223, Village Budhpur, P.O. Alipur, Delhi (hereinafter referred to as AJP) under proviso to Section 11A(1) of the Central Excise Act,1944 (hereinafter referred to as Excise Act), alongwith interest on this duty under Section 11AB ibid, and imposing penalty of equal amount on AJP under Section 11AC of the Excise Act, also imposed penalties of Rs.21 crores, Rs. 25 crores and Rs.21 crores on Shri Devi Dass Garg, Shri Rakesh Kumar Garg and Shri Santosh Kumar Garg respectively under Rules 25 & 26 of the Central Excise Rules,2001/2002 on the ground that it is Shri D.D. Garg, Shri R.K. Garg and Shri S.K. Garg, (hereinafter collectively referred to as Gargs) who were the persons behind AJP.
2. The facts leading to these appeals are, in brief, as under:
2.1 AJP, a proprietary firm of one Shri Mahesh Kumar Gautam is a manufacturer of Pan Masala and Gutka of Rajdarbar brand which are chargeable to Central Excise Duty under sub-heading 21.06.2000 of the Central Excise Tariff, as it stood during the period of dispute. M/s. Narsi Food (P) Ltd., 53/42, Shiv Mandir Road, Alipur, Delhi-36 (hereinafter referred to as NFPL) is a private limited company with Shri R.K. Garg and Shri D.D. Garg as Directors and it was manufacturing Narsi Gold brand pan masala and Jackpot brand Gutka. M/s. Surya Traders, Bees Kila Road, Jindpur, Delhi (hereinafter referred to as ST) is a proprietary firm of one Shri Sunil Kumar Aggarwal. M/s. Sonal Food Products, Delhi (hereinafter referred to as SFP) is a partnership firm of Shri D.D. Garg and Shri S.K. Garg and owns Rajdarbar, Rahat, Rustam and Rajtilak brands. AJP were using Rajdarbar brand on their Gutka and pan masala under an agreement with SFP permitting them to use this brand against the royalty payment.
2.2 On 20.10.2000, the premises of AJP, NFPL, ST; D-1/2, Model Town, Delhi, C-36, Mahendru Enclave, Delhi were searched by the officers of Central Excise Commissionerate, Delhi-I. While nothing incriminating was from C-36, Mahendru Enclave, Delhi, from D-1/2, Model Town, Delhi, which was the office premises of Gargs, certain records pertaining to M/s. Royal Hindustan Pvt. Ltd.; M/s. Briwasi Construction Farms and Leasing Ltd. etc. were recovered which were resumed under Panchnama.
2.2.1 In course of visit to factory premises of AJP, it was found that -
(i) its manager was Shri Vinod Kumar Bansal, who was present in the factory at the time of officers visit;
(ii) there were 20 pouch packing machines installed in the factory, while 6 more pouch packing machines were in repairing ;
(iii) as seen on operating the pouch packing machines in presence of Shri Bansal, each machine was capable of producing 200 pouches of 2 gms. each per minute; and
(iv) production and clearance of finished goods for 18.10.2000, 19.10.2000 and 20.10.2000 had not been recorded in RG-I register.
Shri Vinod Bansal in his statement dt.20.10.2000, admitting that each machine was capable of packing 200 pouches of 2 gms. per minute, stated that the pan masala and gutka mixture was being received from ST and the plastic lamination was being received from M/s. Plasto Graph India, that earlier a unit M/s. Krishna Packers was operating from the same premises which was also manufacturing gutka and pan masala and that most of the machines installed in AJP had been purchased from M/s. Krishna Packers.
2.2.2 M/s. ST was found to be processing raw-material such as Supari, Illaichi, Tobacco, Kattha, Chuna, Menthol and Khushboo to make pan masala and gutka powder and the same was being sold in cash to AJP and NFPL. The goods were being sent to AJP and NFPL under challans wherein the description of the goods was being mentioned as Supari and Kattha instead of cut, mixed and ground Supari, Kattha, tobacco, chuna, illaichi etc. A challan No.1 dt.20.10.2000 was recovered from the premises of ST but against that challan, no invoice or bill had been raised, which showed that the raw material received by AJP from ST under this challan were not accounted for by AJP. Shri Dev Kumar Sharma, Accountant of ST, present at the time of search, in his statement dt.20.10.2000 stated that the headquarters of the ST is at D-1/2, Model Town-III, Delhi and that owners of this factory are Gargs, one of whom is Shri R.K. Garg and that cut, ground and mixed Supari, Tobacco, Chuna, Kattha, Menthol etc. packed in gunny bags is sold mainly to AJP and NFPL in cash. Shri Dev Kumar Sharma, in his further statement dt.19.3.04, confirming his earlier statement dt.20.10.2000, stated that whenever any goods were dispatched by ST to AJP, the same were being sent under challan which always used to bear S.No.001, that no bills or invoices were being issued in respect of such goods, that original copy of challan used to be sent with the goods and duplicate used to remain in the factory, that on receiving confirmation regarding receipt of goods in AJP, both the copies of challan used to be destroyed, that on 20.10.2000 at the time of officers visit, the challan No.001 dt.20.10.2000 was yet to be destroyed, but all earlier challan have been destroyed, that the work relating to receipt of payments for the goods sold was being done at D-1/2, Model Town-III, Delhi and the work relating to purchase of raw-material was also being done there and that while Shri Sunil Kumar Aggarwal visited the factory, he never discussed anything relating to work with him.
2.3 Summons dt.20/10/2000, 23/10/2000. 6/4/2000, 23/11/2000, 7/12/2000. 5/4/2002 and 23/4/2002 were served on Shri M.K. Gautam, Proprietor of AJP to appear before the investigating officers, but he appeared only on 26.4.2002 when his statement was recorded under Section 14 of the Excise Act wherein he stated that an agreement dt.13.4.2000 has been signed by AJP with SFP for using Rajdarbar brand name, that the real owners of AJP were Gargs i.e. Shri Devi Dass Garg, Shri R.K. Garg and Shri S.K. Garg; that he was working only as Pujari in the temple in the house of Shri R.K. Garg, for which he gets Rs.2000/- to Rs.3000/- per month; that he knows nothing except working as priest, performing religious rites which was his family profession; that about two to three years back Shri R.K. Garg got some papers signed by him saying that the same were required for the ration card; that all the papers of AJP i.e. cheque books, account books etc. were being signed by him on the instructions of Gargs; that he is proprietor of AJP only on paper and does not know how much goods were dispatched with bills and how much without bills and that the entire work of AJP was being looked after by Shri Vinod Bansal under the instructions and supervision of Gargs. In his subsequent statements dt.4.11.03 and 12.3.04. while confirming his earlier statement dt.26.4.02, he stated that the purchase of raw-material by AJP from ST was on credit; that machines installed in AJP had been purchased from M/s. Krishna Packers on credit and that ST and Krishna Packers were related to Garg family.
2.4 Summons dt.6/11/2000, 23/11/2000, 7/12/2000 and 8/4/2000 were served on Shri Sunil Kumar Aggarwal, Proprietor of ST and he finally appeared before the investigating officers on 22/4/02, when his statement was recorded under Section 14 of the Excise Act wherein he stated that the factory premises of ST is owned by Shri D.D. Garg, from whom it has been taken on 11 months lease w.e.f. 1.4.98; that he is not aware whether the said lease agreement was renewed or not; that he does not know in whose name the electricity connection of the factory or two landline telephones installed have been taken; that Shri Vinod Bansal, authorized signatory of AJP, has no connection with ST; that he is not aware as to why Shri Bansal has signed as authorized signatory of ST in a sales tax document presented to Sales Tax Department and that he cannot explain as to why the computer servicing report No.2005 dt.23.4.01 in respect of computers of ST was signed by Shri Vinod Bansal with M/s. Internet Computers. Shri Sunil Kumar Aggarwal in his further statements dt.9/8/02, 14/7/03, 21/7/03 31/10/03 and 19.2.04 stated that while he has no connection with D-1/2, Model Town-III, Delhi, he is not aware as to how the goods dispatched by M/s. Sai Fragrance & Flavours under their invoice No.124 dt.10.5.2000, 183 dt.30/5/2000, 315 dt.17/7/2000 and 434 dt.8/9/2000 in the name of M/s. Surya Traders, D-1/2, Model Town-III, Delhi, reached the factory premises of ST at 31/22, Bees Killa Road, Jindpur, Alipur, Delhi, that he had taken loan, as and when required from M/s. Candy Properties, M/s. Narsi Hotels etc.; that he is the proprietor of M/s. Surya Ornaments also operating from the same address as that of ST; that M/s. Surya Ornaments were engaged in purchase of old gold jewellery, getting it converted into gold bars and sale of gold bars and that during April,1999 Sept.,99 period, old gold jewellery worth Rs.2,74,33,404/- was purchased from various family members of Garg family in cash and the same after being converted into gold bars, was sold in Rs.2,84,44,028/-.
2.5 Apart from M/s. Surya Ornaments, another firm M/s. Shreeji Jewelers owned by Shri Subhash Mital also claimed to have purchased huge quantity of old gold jewellery from various members of Garg family during 1998-99, 1999-2000 and 2000-2001 and sold the same in cash after converting into gold bars. M/s. Shreeji Foods also owned by Shri Subhash Mittal was a firm dealing in various ingredients of gutka and pan masala. This indicated that sale of gold jewelry to M/s. Shreeji Jewelers and M/s. Surya Gold were nothing but use of the several modus operandi to channelise the income from clandestine sales of Rajdarbar brand gutka and pan masala by franchisee manufacturers such as AJP.
2.6 Shri R.K. Garg, Shri D.D. Garg and Shri S.K. Garg, in their statements, accepted the Franchise agreement of SFP with AJP and claimed that the sale of gold jewelry by them and their family members to M/s. Surya Gold and M/s. Shreeji Jewelers, had actually taken place.
2.7 From the above, it appears that AJP, though, on paper owned by Shri M.K. Gautam, a family pujari of Garg family, was actually owned and controlled by S/Shri R.K. Garg, D.D. Garg and S.K. Garg and while the machines installed in it could, in optimum conditions, produce at the rate of 200 pouches per minute and in one eight hour shift could produce 1920000 pouches of 2 gms each i.e. approximately 160 bags per day, they were accounting for the production of 3,00,000 to 3,60,000 pouches of 2 gms. Each i.e. about 25-30 bags and it appeared that the rest of the production was being cleared clandestinely without payment of duty. On this basis, duty evasion by AJP during 1.4.2000 to 20.10.2000 and 21.10.2000 to 31.8.2002 periods was estimated to be Rs.5,51,94,181/- and Rs.27,68,09,058/- respectively. AJP voluntary deposited an amount of Rs.25 lakhs vide TR-6 Challans dt.22.11.2000 and 17.1.2000. On this basis, a SCN dt.14.5.04 was issued to AJP, Shri D.D. Garg, Shri R.K. Garg, Shri S.K. Garg, Shri M.K. Gautam and others for
(a) demand of Central Excise Duty amounting to Rs.33,20,03,239/- from AJP in respect of clandestine clearances of Rajdarbar brand Gutka alleged to have been made during the period from 1.4.2000 to 31.8.2002, alongwith interest on this duty under Section 11AB and appropriation of Rs.25 lakhs already deposited towards this demand;
(b) imposition of penalty on APJ under Section 11AC of Excise Act; and
(c) imposition of penalty under Rule 209 & 209A of Central Excise Rules,1944/Rule 25/26 of Central Excise Rules,2001/2002 on ST, Shri D.D. Garg, Shri R.K. Garg, Shri S.K. Garg and Shri Vinod Bansal.
2.8 The above show cause notice was adjudicated vide order-in-original No.147/05 dt.28.10.05 by which -
(a) duty demand of Rs.33,20,03,239/- was confirmed against AJP alongwith interest under Section 11AB and an amount of Rs.25 lakhs already paid was appropriated towards this demand;
(b) penalty of Rs.33,20,03,239/- was imposed on AJP; and
(c) while penalty of Rs.10 lakhs was imposed on Shri Vinod Bansal, authorized signatory/Manager of AJP under Rule 209A of Central Excise Rules, 1944/Rule 26 of Central Excise Rules, 2001/2002, penalty of Rs.21 crores, Rs.25 crores and Rs.21 crores was imposed on Shri D.D. Garg, Shri R.K. Garg and Shri S.K. Garg respectively under Rule 209 & 209A of Central Excise Rules, 1944/Rule 25 & 26 of Central Excise Rules, 2001/2002.
2.9 These appeals have been filed by Shri D.D. Garg, Shri R.K. Garg and Shri S.K. Garg challenging the imposition of penalty on them.
3. Heard both the sides.
3.1 Shri Krishna Kant, Advocate, the learned Counsel for the Appellants pleaded that there are no allegations in the show cause notice that the Appellants handled or dealt with the goods manufactured and cleared by AJP and hence penalty under Rule 209A of Central Excise Rules,1944/Rules 26 of Central Excise Rules,2001/2002 is not attracted; that penalties imposed on the Appellants are joint penalties under Rule 209 & 209A of Central Excise Rules, 1944/Rule 25 & 26 of Central Excise Rules, 2001/2002, which are not sustainable and in this regard, reliance is placed o Tribunals judgments in cases of Singam Mark & Co. vs CCE, Salem reported in 2005 (189) ELT.111; Panetrical Engg. Vs CCE, Mumbai-V reported in 2005 (186) ELT.120 and Indsil Industries Ltd. vs CCE, Coimbatore reported in 2005(188)ELT.195; that other than the statements of Shri M.K. Gautam, there is no other independent evidence indicating that the Gargs were controlling AJP; that Shri Gautam had retracted his Ist statement dt.26.4.02, that this statement had been recorded under duress; that a FIR had been filed lodged by Shri Gautam before Police on 26.4.2002 complaining that he had been beaten up and alongwith the FIR, a medical report from Lok Nayak Hospital, New Delhi had been submitted; that statement dt.26.4.02 of Shri Gautam was not his voluntary statement; that Shri Vinod Bansal in his seven statements has nowhere stated that the Gargs were the real persons behind AJP; that Gargs were manufacturing Gutka only upto 1995-96 and since then, they have been only allowing the use of their brand names for royalty, that Gargs had no control on AJP; that it is Shri M.K. Gautam who was running AJP and was signing all the returns like monthly ER-1 return, income tax return; that in absence of any independent corroborative evidence, Shri M.K. Gautams statements have no evidence value; that it is settled law that a retracted statement is of no evidence value unless corroborated by independent evidence; that when duty demand is against AJP, no penalty can be imposed on Gargs who had no connection with AJP; that as per Commissioners finding in para 178 & 179 of the order-in-original, it is Shri Vinod Bansal who was the main person involved in the duty evasion; that no enquiry has been conducted with the buyers of gutka/pan masala; that the loans provided to AJP by some companies, some of which are owned by Gargs, have been paid by AJP; that there is no finding in the impugned order that Gargs physically dealt with the goods clandestinely cleared by AJP and therefore, no penalty can be imposed on them under Rule 209A of Central Excise Rules,1944/Rule 26 of Central Excise Rules,2001/2002; that in this regard, reliance is placed on Tribunals decisions in cases of Kamdeep Marketing Pvt. Ltd. vs CCE, Indore reported in 2004 (165) ELT.206 and A.M. Kulkarni vs CCE, Aurangabad reported in 2003 (56) RLT. 573, that the quantum of duty demand against AJP is based only on the basis that each of the 20 machines installed in AJPs premises could produce 200 pouches of 2 gms. each per minute and the factory worked in one shift of 8 hours daily for 25 days in a month; that there is no evidence regarding the quantity of raw-material purchased or the quantum or value of the goods sold, and that in view of this, there is no justification for imposition of penalty on Gargs i.e. Shri D.D. Garg, Shri R.K. Garg and Shri S.K. Garg.
3.2 Shri S.K. Panda, the learned Jt. CDR defending the impugned order by reiterating the Commissioners findings in it, pleaded that there is ample evidence to prove that it is the Gargs who were the persons behind AJP and Shri Gautam was only a frontman; that though Shri Gautam retracted his statement dt.26.4.02, in his subsequent statements dt.4.11.03 and 12.3.04, he again confirmed the correctness of his statement dt.26.4.02, that in view of this, his statements dt.26.4.02, 4.11.03 and 12.3.04 have to be treated as his true, correct and voluntary statements and hence, admissible as evidence, that the medical certificate of Lok Nayak Hospital does not show that Shri Gautam had been beaten up; that the statements of Shri Gautam implicating Shri D.D. Garg, Shri R.K. Garg and Shri S.K. Garg are corroborated by the statement dt.20.10.2000 of Shri Dev. Kumar Sharma, Accountant of ST, wherein he stated that actual owners of ST are Gargs and headquarters of ST is D-1/2, Model Town-III, Delhi, that Shri Dev Kumar Sharma has not retracted his statement; that the statement of Shri Dev Kumar also shows that ingredients of gutka and pan masala cut, ground and mixed were being supplied by ST to AJP without any bills against cash payments; that the fact that Shri Vinok Bansal, Manager/Authorised Signatory of AJP, had also signed certain documents of ST as its authorized signatory shows that it is the S/Shri D.D. Garg, R.K. Garg and S.K. Garg alongwith their employee Shri Vinod Bansal, who are the persons behind both AJP and its raw-material supplier ST; that Shri Gautam was only a Pujari employed by Gargs in their house and he knew nothing about manufacture and marketing of gutka and pan masala; that it is the Gargs who were manufacturing and selling gutka and pan masala by using the cover of AJP; that purchase of machinery of AJP from M/s. Krishna Packer had been financed by the firms/companies under the control of Gargs, that the statement of Shri Sunil Kumar Aggarwal, Prop. of ST also shows that it is the Gargs who were controlling this firm, as he was not even aware as to whether the lease deed in respect of the premises of ST with Shri D.D. Garg has expired or has been extended and in whose name the power connection and telephone connections are installed, that para 35 of the impugned order-in-original describes in detail the modus operandi adopted by ST for sending bags of gutka and pan masala powder to AJP without accounting in their accounts, that para 36 and 38 of the order-in-original describe in detail as to how the black money generated by unaccounted sale of Rajdarbar gutka and pan masala by AJP was being converted into white income of Gargs by showing the sale of gold jewelry by them to M/s. Surya ornaments and M/s. Shreeji Jewelers owned by the persons controlled by Gargs; that as held by the Tribunal in case of Dr. Writers Food Products vs CCE, Pune-II reported in 2009(242)ELT.381, for imposition of penalty under Rule 26 of Central Excise Rules,2001/2002, corresponding to Rule 209A of Central Excise Rules,1944, on a person, his dealing with the clandestinely cleared goods physically is not necessary; that the evidence on record as summed up by the Commissioner in para 158 of the impugned order, clearly shows that it is the Gargs who were the actual persons behind AJP and that in view of this, the Commissioner has rightly imposed different penalties on them.
3.3 In rejoinder, Shri Krishan Kant, Advocate, pleaded that the Department had issued central excise registration certification to M/s. Krishna Packer and AJP after verifying their genuineness, that only the hospitals can say anything about genuineness of a medical report; that cross examination of Panch witness of the search of factory premises of AJP and ST and Shri Dev Kumar Sharma was not allowed and that all the sales of ornaments referred to in para 36 & 38 of the order-in-original were during period prior to the period of dispute and therefore, the allegation that the profits from clandestine sales of gutka and pan masala by AJP during period from 1.4.2000 to 31.8.2000 were converted into white income of Gargs by showing sale of gold jewelry by them to M/s. Shreeji Jewelers and M/s. Surya Ornaments, is not correct.
4. We have carefully considered the submissions from both the sides and perused the records. In these appeals, it is only the penalty imposed on the Appellants under Rule 209A of Central Excise Rules, 1944/Rule 26 of Central Excise Rules, 2001/2002 which are under challenge and these penalties have been imposed on the Appellants on the ground that Shri M.K. Gautam, the proprietor of AJP is only a front, while the actual owner of AJP are the Appellants, and actually clandestine clearances were effected by them and they were also responsible for possession, removal and sale of clandestinely cleared pan masala/gutka. Thus the main points to be decided in this appeal are
(a) whether the Appellants Shri D.D. Garg, Shri R.K. Garg and Shri S.K. Garg are the actual persons behind AJP and its operation; and
(b) if so, whether penalty is imposable on them under Rule 209 of Central Excise Rules, 1944/25 of Central Excise Rules, 2001/2002 as well as under Rule 209A of Central Excise Rules,1944/26 of Central Excise Rules, 2001/2002.
5. Coming to the first question as to whether the appellants i.e. Shri D.D. Garg, Shri R.K. Garg and Shri S.K. Garg are the actual persons behind AJP and its operations, we find that there is no dispute about the fact that the proprietor of AJP Shri M.K. Gautam, was working as a pujari in the house of Shri R.K. Garg on monthly wages of Rs. 2,000/- to Rs. 3,000/-. There is no dispute about the fact that Gutka/ Pan Masala powder i.e. Supari, Tobacco, Chuna, Kattha, Illaichi, Perfumes etc., cut, ground and mixed, was being received from ST on credit and in the premises of AJP, only the packing into the pouches was being done. Similarly, there is no dispute about the fact that AJP were using Raj Darbar brand on Gutka/Pan Masala pouches, which was owned by the SFP, a partnership firm of Shri D.D. Garg and Shri S.K. Garg under an agreement and the purchase of plant and machinery by AJP from M/s Krishna Packers had also been financed by the companies in which Shri D.D. Garg and Shri R.K. Garg and Shri S.K. Garg were Directors. However, the main evidence relied upon by the Department in support of this allegation is as under :-
(1) Statement dated 20/10/2000 of Shri Dev Kumar Sharma, Accountant of ST, wherein he stated that it is the Garg family which are the actual owners of this firm and that the headquarters of ST is D-1/2, Model Town III, Delhi.
(2) While on paper, ST and AJP had no connection, from the premises of ST, some documents were recovered on which Shri Vinod Bansal, Authorized Signatory and Manager of AJP had signed as Authorized Signatory of ST ;
(3) Statements dated 22/4/02, 9/8/02, 14/7/03, 21/7/03, 31/10/03 and 19/2/03 of Shri Sunil Kumar Agarwal, Proprietor of ST, wherein while admitting that the premises of ST had been taken on lease from Shri D.D. Garg against a lease agreement, he stated that he is not aware as to whether the lease agreement had been extended or not, as the same had been signed in April 1998 and was valid for 11 months, that he did not know as to in whose name the power connection and telephone connections of ST have been installed, that he is not in a position to explain as to how Shri Vinod Bansal, Authorized Signatory of AJP has signed as Authorized Signatory of ST, a document of ST presented to Sales Tax Department and similarly how Shri Vinod Bansal has signed as Authorized Signatory of ST, a report regarding computer servicing of the computers of ST, that he is not in a position to explain as to how a goods dispatched by M/s Sai Fragrance & Flavours under invoices No. 124 dated 10/5/2000, 183 dated 30/5/2000, 315 dated 17/7/2000 and 434 dated 8/9/2000 in the name of M/s Surya Traders, D-1/2, Model Town III, Delhi, reached the factory premises of M/s Surya Traders (ST) situated at 31/22, Bees Killa Road, Jindpur, Alipur, Delhi, that he had taken loan from M/s Candy Proprietors and M/s Narsi Hotels etc. as and when required, that he is also proprietor of M/s Surya Ornaments operating from same premises as that of ST and M/s Surya Ornaments during April 1999 to September 1999 period had purchased gold jewellery worth Rs. 2,74,33,404/- from various family members of Garg family and after converting the jewellery into gold bars, had sold the gold bars in Rs. 2,84,44,028/- ;
(4) Showing the purchase of huge quantity of gold ornaments during 1998-99, 1999-2000 by M/s Shreeji Jewellery, with Shri Subhash Mittal as Proprietor, from various family members of Garg family and its sale after getting the same converted into gold bars ;
(5) Statements dated 26/4/02, 4/11/03 and 12/3/04 of Shri Mahesh Kumar Gautam, wherein he has repeatedly stated that he was working only as pujari in the house of Shri R.K. Garg on monthly wages of Rs. 2,000/- to Rs. 3,000/-, that he knows nothing except for working as priest performing religious rites which is his family profession, and that he was signing the various papers of AJP only on the instructions of Shri R.K. Garg, Shri D.D. Garg and Shri S.K. Garg.
5.1 The appellant, however, plead that other than the statement of Shri M.K. Gautam, there is no other independent evidence showing that it is the appellant who were behind AJP and its operations and that even the statements of Shri M.K. Gautam are not reliable as the statement dated 26/4/2000 of Shri M.K. Gautam has been retracted by him on the very next day and an FIR was filed with the police against the Investigating Officers complaining of having been beaten up by them and in this regard he has also submitted a medical examination report from Lok Nayak Hospital.
5.2 The factory of AJP had been searched on 20/10/2000 and at that time, on learning that Shri M.K. Gautam is the proprietor of AJP, a summon had been served but he failed to turn up. Thereafter a series of summons were served to him on 23/10/2000, 6/11/2000, 23/11/2000, 7/12/2000 and 5/4/2002 but he did not turn up. Ultimately, he appeared on 26/4/02 in response to the summons dated 23/4/02. The manner in which he avoided the investigating officers indicates that he had something to hide. Moreover when there is no dispute about the fact that he was working only as a pujari on monthly wages of Rs. 2,000/- to Rs. 3,000/- in the house of Shri R.K. Garg, it is difficult to believe that overnight he became a manufacturer of a popular Raj Darbar brand Gutka and Pan Masala and became well versed in the intricacies of manufacturing and marketing of Gutka and Pan Masala. It is in this background that his first statement dated 26/4/02 has to be seen wherein he has stated that he was only a pujari performing puja in the house of Shri R.K. Garg and it is only on the instructions of Garg that he was signing various papers pertaining to AJP. Thus, notwithstanding the retraction of his statement dated 26/4/02 by him, this statement has the ring of truth. Moreover, we also find that though he lodged a complaint with the police complaining of having been beaten up by the investigating officers, there is nothing on record to show as to whether any action was taken by the police on his complaint and whether any order by any court was passed in respect of the same. Even the medical examination report of Lok Nayak Hospital submitted by him simply mentions his symptoms as loose motions, vomiting and abdominal pain with umbilical region tenderness and there is no remark or observation of the Doctor in this report as to whether there were any signs of his being beaten up. Therefore, we are of the view that his retraction based on complaint to police lodged by him and medical examination report does not prove in any way that his statement dated 26/4/02 had been recorded under duress or coercion. Honble Supreme Court in the case of Vinod Solanki vs. UOI reported in 2009 (233) E.L.T. 157 (S.C.) has held that mere retraction of a confession is not sufficient to make a confessional statement irrelevant for a purpose of proceeding in a criminal or quasi-criminal case. In this case from the circumstances it does not appear that the statement 26/4/02 was recorded under coercion or duress. Moreover, we also find that further statements of Shri Gautam was recorded on 4/11/03 and 12/3/04 and while during this period he had enough time to think over the pros and cons of sticking to his earlier statement dated 26/4/02, in both these statements recorded on 4/11/03 and 12/3/04 he confirmed his earlier statement dated 26/4/02 as true and correct and in these statements he also stated that the purchase of machinery installed in AJP had been made from M/s Krishna Packers on credit and that M/s Krishna Packers and M/s Surya Traders were related to Garg family. In view of these circumstances, we hold that the statements dated 26/4/02, 4/11/03 and 12/3/04 of Shri M.K. Gautam have to be treated as true, correct and voluntary statements and hence admissible as evidence.
5.3 Though on paper M/s Surya Traders (ST) were supplying the raw material Supari, Tobacco, Illaichi, Chuna, Kattha, perfumes etc. to AJP for manufacture of Gutka/Pan Masala, as is clear from the statement of Shri Dev Kumar Sharma, Accountant of ST, these ingredients were not being supplied as such but were being supplied after grinding and mixing and, thus, converting into Pan Masala/Gutka powder and that this was being done on the instructions of Gargs. Shri Dev Kumar Sharma in his statement dated 20/10/2000, which has not been retracted, has clearly stated that it is the Gargs i.e. the appellants, who were the actual owners of ST and he also explained in detail the modus operandi of sending raw material to AJP without any invoices. The statement of Shri D.K. Sharma is also corroborated by the evidence that certain consignments of raw materials received from M/s Sai Fragrance & Flavours were received in the factory of ST at 31/22, Bees Killa Road, Jindpur, Alipur, Delhi, while on the invoices the address of ST was mentioned as D-1/2, Model Town-III, Delhi, the office premises of Gargs, which shows that the statement of Shri Dev Kumar Sharma that D-1/2, Model Town-III, Delhi was the headquarters of this firm, is correct. Besides this, we also find that while Shri V.K. Bansal is the Manager and Authorized Signatory of AJP and on paper he has no relationship with ST, but Shri Bansal has signed on several papers ST as its Authorized Signatory which is a clear indication that it is the appellants who through Shri Vinod Bansal were controlling ST as well as AJP.
5.4 The question now arises as to whether the above evidence i.e.
(a) statements dated 26/4/02, 4/11/03 and 12/3/04 of Shri M.K. Gautam recorded under Section 14 of Central Excise Act, 1944 ;
(b) statement dated 20/10/2000 of Shri Dev Kumar Sharma, Accountant of ST under Section 14 of Central Excise Act, 1944 ;
(c) Signing of certain documents of ST by Shri Vinod Bansal, Manager and Authorized Signatory of AJP as Authorized Signatory of ST ; and
(d) Mentioning of the address of M/s Surya Traders by M/s Sai Fragrance & Flavours in their invoices to ST as D-1/2, Model Town-III, Delhi while the factory of ST is located at 31/22, Bees Killa Road, Jindpur, Alipur, Delhi, is sufficient evidence to show that it is the appellants who were behind AJP and ST.
5.5 On the question as to what is the standard of proof required for imposition of penalty in a departmental proceeding, Honble Supreme Court in the case of Commissioner of Police, New Delhi vs. Narender Singh reported in 2006 (4) SCC 265 has held as under :-
12. It is not in dispute that the standard of proof required in recording a finding of conviction in a criminal case and in a departmental proceeding are distinct and different. Whereas in a criminal case, it is essential to prove a charge beyond all reasonable doubt, in a departmental proceeding, preponderance of probability would serve the purpose. (See Kamaladevi Agarwal vs. State of W.B.)
13. It is now well settled by reason of a catena of decisions of this Court that if an employee has been acquitted of a criminal charge, the same by itself would not be a ground not to initiate a departmental proceeding against him or to drop the same in the event an order of acquittal is passed. 5.5.1 Honble Supreme Court, in the case of Collector of Customs, Madras vs. D. Bhoormull reported in 1983 (13) E.L.T. 1546 (S.C.), in which goods of foreign origin, alleged to have been illicitly imported into India, had been recovered from the premises of M/s Shah Rupaji Rikhaldas, Chennai and ownership of the goods had been claimed by one Shri D. Bhoormull claiming the goods to have been legally imported, but who never appeared before the Investigating Officers with the necessary documents, while considering the question of liability of the seized goods for confiscation and of Shri D. Bhoormull for penalty under Section 167 (8) of the Sea Customs Act, 1878 (corresponding to Section 111 (d) and 113 (d) of Customs Act, 1962) laid down the following two important principles regarding the standard of proof in Departmental proceedings and the burden of proof -
(1) While the burden of proving that the goods to which the provisions of Section 178A of Sea Customs Act, 1878 (corresponding to Section 123 of the Customs Act, 1962) does not apply, is on the Department, the Department is not required to prove its case with mathematical precision to a demonstrable degree and all that is required is the establishment of such a degree of probability that a prudent man may, on its basis, believe in the existence of the fact is issue and the legal proof is not necessarily the perfect proof, but nothing more than a prudent mans estimate as to the probabilities of the case (para 30 of the judgment) (2) Since it is exceeding difficult, if not impossible, for the prosecution to prove the facts which are especially within the knowledge of the opponent or the accused, it is not obliged to prove them as part of its primary burden. On the principle under lying Section 106 of the Evidence Act, the burden to establish those facts is cast on the person concerned and if he fails to establish or explain those facts, an adverse inference of facts may arise against him, which coupled with the presumptive evidence adduced by the prosecution or the Department, would rebut the initial presumption of innocence in favour of that person and in the result prove him guilty. While presumption of innocence is, no doubt, presumption juris, but it may be successfully encountered by presumption of guilt arising from facts and circumstances, like recent unexplained possession of stolen property - though the latter is only a presumption of fact. Thus, the burden on the prosecution or the Department may be considerably lightened even by such presumption of fact arising in their favour. (para 32 of the judgment).
5.5.2 Tribunal, in case of K. Janandharan Pillai vs. Collector of Custom, reported in 1988 (38) ELT 647 (Trib.), relying upon the above judgment of Honble Supreme Court in case of Collector of Customs, Chennai vs. D. Bhoormull (supra) and also on the Supreme Courts judgment in case of Kaningo & Co. vs. Collector of Customs, Calcutta reported in 1983 ELT 1486 (S.C.), has held as under -
So far as trial proceedings are concerned, it is the axiomatic proposition of law that circumstantial evidence should point only to one hypothesis, namely, the guilt of the person and should be absolutely incompatible with the innocence of the person accused of an offence. But the effect of the said decisions of the Supreme Court is that the standard of proof in criminal prosecution before a criminal court is different from the standard of proof before the adjudicating authority, where preponderance of probability would be a guiding factor and proof beyond reasonable doubt, relevant in criminal prosecution before a criminal court, cannot be bodily lifted and transported in adjudication proceedings, when consideration of probabilities would be the guiding factor.
5.5.3 Thus the standard of proof required in the Departmental proceedings under the provisions of the Customs Act, 1962 or Central Excise Act, 1944 or of the Rules made thereunder, for confiscation of goods, confirmation of demand for duty evaded, and imposition of penalty is the preponderance of probability. For establishing to be preponderance of probability, the adjudicating authority or the Tribunal has to evaluate the evidence of both the sides and decide what is most probable.
5.6 Keeping in view the above principles laid down by Honble Supreme Court about the standard of proof required in departmental proceedings and the burden of proof, we are of the view that the evidence as discussed in para 5 above, makes the Departments can most probable, as even if the gold transactions of Garg family with M/s Surya Ornaments and M/s Shreeji Jewellery are ignored on the ground that these transactions pertain to 1998-99 and 1999-2000 period, while the allegation of duty evasion pertains to period from 1/4/2000 to 31/8/2002, the following facts give rise to presumption of the Gargs being the actual person behind AJP and ST, which must be rebutted by them by producing evidence in support of their contention of invoices -
(1) Shri M.K. Gautam, who, as per the records is the proprietor of AJP, has in his statements dated 26/4/02, 4/11/03 and 12/3/04, recorded over a period of about two years, has repeatedly stated that it is the Gargs who are the persons behind AJP, that he is only a Pujari performing religious rites in the house of Shri R.K. Garg on monthly wages of Rs. 2,000/- to Rs. 3,000/- that he was signing various papers like cheques, account books, etc. of AJP only on the instructions of Gargs and that the entire work of AJP was being looked after by Shri Vinod Bansal under the Supervision and instructions of Gargs and he was the owner of AJP only on paper. As discussed in para 5.2 above, these statements of Shri Gautam, notwithstanding the retraction of statement dated 26/4/02, have been held to be his true, correct and voluntary statements recorded under Section 14 of the Central Excise Act and hence admissible as evidence. Moreover, it does appeal to Common sense that a priest who knows only about the performance of religious rites earning meager income of Rs. 2,000/- to Rs. 3,000/- per month, and knows nothing about the intricacies of the manufacture and marketing of Gutka and Pan Masala, would overnight become a manufacture of branded Gutka and Pan Masala with turnover in crores and would be liberally financed by the firms/company controlled by Gargs.
(2) While on paper, Shri Sunil Kumar Aggrawal is the Proprietor or ST, the firm supplying Gutka and Pan Masala powder in bulk to AJP, the factory premises of ST are owned by Shri D.D. Garg from whom the same had been taken on 11 months bear by ST w.e.f. 1/4/98. But Shri Sunil Kumar Aggrawal was not in a position to tell as to whether the base agreement has been extended or not and how much amount was being paid to Shri D.D. Garg as base rent. The Accountant Shri Dev Kumar Sharma, on the other hand in his statement dated 20/10/2000 stated that owners are the ST and Gargs having office at D-1/2, Model Town-III, Delhi. The fact that the invoices for the goods meant for ST, dispatched by M/s Sai Fragrances and Flavours at address D-1/2, Model Town-III, Delhi, which is the address of Gargs, reached the STs premises located at 31/22, Bees Killa Road, Jindpur, Delhi also points to link between Gargs and ST and corroborates the statement of Shri Dev Kumar Sharma.
(3) Though M/s Surya Ornaments with Shri Sunil Kumar Aggrawal as Proprietor (who is also the proprietor of ST) claim to have purchased huge quantity of gold jewellery from members of Garg gamily during 1998-99, i.e. prior to the period with we are concerned in this case, the fact remains that it does not appeal to common sense that a person with no financial resources and no business experience would suddenly become a Gutka/Pan Masala manufacturer and a gold dealer having transactions in crores. The gold transactions of M/s Surya ornaments with members of Garg family, prima facie, appear to be money laundry operations.
But Shri D.D. Gargs, Shri S.K. Garg and Shri R.K. Garg, other than doubting the statements of Shri M.K. Gautam and Shri Dev Kumar Sharma, have not adduced any evidence showing that they had no connection with AJP and ST, other than the agreement of NFPL with AJP regarding the use of Raj Darbar brand. The above evidence, in our view, tilts the probability balance in favour of the Departments case.
5.7 Honble Supreme Court in case of Naresh J. Sukhawani vs. Union of India reported in 1996 (83) E.L.T. 258 (S.C.) examined the evidence value of the statement of a co-accused recorded under Section 108 of the Customs Act, 1962, which is pari-materia with Section 14 of the Central Excise Act, 1944. In this case, one Shri S. Solanki was apprehended by the Customs officers at Sahar International Airport attempting to smuggle foreign exchange out of India and Shri Solanki in his statement recorded under Section 108 of Customs Act, 1962, implicated one Shri Subhash Dudani, as the person who had given the foreign exchange to him for being taken to Hong Kong. On inquiry with Shri Dudani, he in his statement under Section 108 of Customs Act, 1962 implicated Shri Naresh Sukhwani as the person who was behind the attempted smuggling of foreign exchange. The point of dispute was as to whether the statement of Shri Dudani under Section 108 of Customs Act, implicating Shri Naresh Sukhawani is a substantive evidence sufficient to prove the charge against Shri Naresh Sukhawani. On this point Honble Supreme Court held thus -
It is contended that the statement of co-accused could be used only to corroborate other evidence as one of the circumstances under Section 30 of the Evidence Act. But it cannot be used as substantive evidence without corroboration from other independent evidence. Except the statement of Dudani, there is no other independent evidence. Mr Dudanis evidence cannot be pressed into services to arrive at the conclusion that the petitioner is involved in passing off foreign currency out of India.
4. It must be remembered that statement made before customs official is not a statement recorded under Section 161 of the Criminal Procedure Code, 1973. Therefore, it is a material piece of evidence collected by customs officials under Section 108 of the Customs Act. That material evidence incriminates the petitioner inculpating in the contravention of the provisions of the Customs Act. The material can certainly be used to connect the petitioner in the contravention in as much as Mr. Dudanis statement clearly implicates not only himself but also the petitioner. It can, therefore, be used as substantive evidence connecting the petitioner with the contravention by exporting foreign currency out of India. Section 108 of the Customs Act, 1962 and Section 14 of the Central Excise Act, 1944 being pari-materia, the ratio of the above judgment is applicable to central excise case also and accordingly, the inculpatory statement of a co-accused can be used as a substantive evidence for proving charge against the person implicated is the statement.
5.7.1 The statements dated 26/4/02, 23/10/03 and 4/11/03 of Shri M.K. Gautam, recorded under Section 14 of the Central Excise Act, by a Gazetted office of Central excise, wherein he has stated that though he was the owner of AJP only on paper and Shri Vinod Kumar Bansal looked after the work under the supervision of Gargs, he signed cheque book, account books etc. of AJP on the instructions of the owners i.e. Gargs, make him a willing accomplice as it is inconceivable that anybody would be signing the cheques, account books, balance sheets etc. of a company for years under mistake belief that the same are for the issue of his ration card, and, therefore, his statements become the inculpatory statements of a co-accused, which have to be treated as substantive evidence against Gargs. These statements, while by themselves are a substantive evidence against Gargs, are, as discussed above, corroborated by -
(a) the statement dated 20/10/2000 of Shri Dev Kumar Sharma, Accountant of ST that the real owner of ST are Gargs, coupled with the fact that there are several instances where the documents addressed to ST mentioned its address as D-1/2, Model Town-III, Delhi which is the address of Gargs, but were still received at STs factory premises at 31/22, bees Killa Road, Village Jindpur, Delhi and thereby linking ST with Gargs, and
(b) Several instance of Shri Vinod Kumar Bansal, Manager and Authorised representative of AJP, also signing papers of ST as its authorized representative and thereby linking AJP with ST.
5.7.2 In view of the above discussion, we hold that it is Shri D.D. Garg, Shri R.K. Garg and Shri S.K. Garg, who were the person behind AJP and ST.
6. Since it is the AJP with Shri M.K. Gautam as Proprietor, who has been held as the manufacture of Raj Darbar brand Gutka and Pan Masala and the duty demand has been confirmed against AJP, and since it is Shri D.D. Garg, Shri R.K. Garg and Shri S.K. Gargs, who are the actual persons behind AJP and who were dealing with the goods manufactured by AJP and were the actual beneficiaries of the activities of AJP, and since huge quantity of goods have been cleared clandestinely by AJP, for which duty demand of Rs. 33.20 crores has been confirmed against AJP, the Garg would be liable for penalty under Rule 209A of Central Excise Rules, 1944/Rule 26 of the Central Excise Rules 2001/2002. However since penalty of Rs. 33.20 crores has been imposed by the adjudicating authority on AJP under Section 11AC of the Central Excise Act, 1944, the penalty of Rs. 25 crores, Rs. 21 crores and Rs. 21 crores on Shri D.D. Garg, Shri R.K. Garg and Shri S.K. Garg, respectively, totaling Rs. 67 crores, as against duty demand of Rs. 33.20 crores, is on much higher side. In our view, penalty of Rs. 5 crores each on Shri D.D. Garg, Shri R.K. Garg and Shri S.K. Garg under Rule 209A of Central Excise Rules, 1944/Rule 26 of Central Excise Rules, 2001/2002, would meet the ends of justice. The impugned order is, therefore, upheld except for reduction of penalty on Shri D.D. Garg, Shri R.K. Gargs and Shri S.K. Gargs to Rs. 5 crores each. The appeals stand disposed off as above.
(Pronounced in the open court on 06/08/2010.) (Justice R.M.S. Khandeparkar) President (Rakesh Kumar) Member (Technical) KM & PK