Custom, Excise & Service Tax Tribunal
M/S Rajratan Synthetics Ltd vs Cce, Indore on 28 June, 2013
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, NEW DELHI PRINCIPAL BENCH, COURT NO. III Excise Appeal No. 3807-3808 of 2004 Excise Appeal No. 2556, 2796-2798/2005 [Arising out of Order-In-Original No 39/Commr./CEX/IND/2002 dated 28th July 2004 passed by CCE, Indore] For approval and signature: Honble Ms. Archana Wadhwa, Member (Judicial) 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? No 2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3 Whether Their Lordships wish to see the fair copy of the Order? Seen 4 Whether Order is to be circulated to the Departmental authorities? Yes Excise Appeal No. 3807 of 2004 M/s Rajratan Synthetics Ltd. Appellants Vs. CCE, Indore RespondentExcise Appeal No. 3808 of 2004
M/s Devender Kumar Jain, Director Appellants
Vs.
CCE, Indore Respondent
Excise Appeal Nos. 2556, 2796-2798 of 2005
Commissioner of Central Excise Appellants
Indore, MP
Vs.
M/s Rajratan Synthetics Ltd. Respondent
Paras Kumar Jain, Chairman
Devender Kumar Jain, M.D.
Manish Kumar Jain, Authorised Signatory
Appearance:
Ms. Reena Khair, Advocate for the Appellant
Mr. Sanjay Jain, DR for the Respondents
CORAM:
Hon'ble Ms. Archana Wadhwa, Member (Judicial)
Hon'ble Mr. Rakesh Kumar, Member (Technical)
Date of Hearing : 05.04.2013
Date of Decision: 28.6.2013
ORDER NO .FO/ A/ 56788-56793/2013-Cus(Br)
Per Archana Wadhwa (for the Bench):
All the appeals are being disposed of by a common order as they arise out of same impugned order passed by the Commissioner vide which he has confirmed the demand of Rs.6,27,997/- against M/s. Rajratan Synthetics Ltd and has imposed penalty of Rs.25,000/- on Shri Devendra Kumar Jain, Managing Director. Vide the same impugned order, the Commissioner has dropped the demand of duty of Rs.14001383 against M/s. Rajratan Synthetics Ltd. which was proposed to be confirmed against them on various counts by way of show cause notice issued to them. He has also not imposed any penalty on M/s. Rajratan Synthetics Ltd under Section 11 AC of the Act or on the other noticee Shri Paras Kumar Jain, Chairman and Shri Manish Kumar Jain, authorized signatory under Rule 209 A,. as proposed in the notice. Being aggrieved with that part of the impugned order vide which duty stand confirmed and penalty imposed; the appellants are in appeal and being aggrieved with that part of the impugned order vide which the Commissioner has dropped the demand and has not imposed penalties on Chairman and the authorized signatory as also on M/s. Rajratan Synthetics Ltd. under Section 11 AC, Revenue has filed the appeals.
2. We have heard Ms. Reena Khair, learned advocate appearing for the assessee and Shri Sanjay Jain, learned DR for the Revenue.
3. Briefly stated the facts of the case are that M/s. Rajratan Synthetics Ltd. are engaged in the manufacture of Polyester Partially oriented yarn (POY) falling under Chapter 54 of the Central Excise Act. Revenue, on receipt of an intelligence that the appellants are indulging in clandestine activities, visited their factory on 29.4.1997. Searches were also conducted in the office premises of said manufacturing unit as also the residential premises of the Chairman and the Director of the company, as also at various transporters premises, who were engaged in supplying their transport services to the said assessee. During the course of searches, several incriminating documents along with computer floppies etc. were recovered and seized by the officers. The officers also collected the documents seized earlier by the Preventive branch of the Central Excise officers on 13.2.1996.
4. During further course of investigation, statement of various persons were recorded. It is seen that along with intelligence report, Revenue also received photocopies of 5 invoices, which were allegedly parallel invoices on which the said assessee had cleared POY. During the course of recording of statements, said photocopies of alleged parallel invoices were also shown to various persons.
Shri Rakesh Chandra Saxena, authorized signatory of the appellant at the relevant time in his statement dated 8.6.99 admitted that said parallel invoices were bearing his signatures and invoice No. 37 which did not bear his signature, was signed by Shri D. Jain, Director of the Company. He deposed that said parallel invoices were being made by them for unauthorised removals of POY.
Statement of Shri D. Jain Director of the Company was recorded on 30.8.99 wherein he denied the said parallel invoices belonging to their manufacturing unit and the signatures appearing on the same were either of Shri Rakesh Chandra Saxena or his signatures.
During further course of investigation, Revenue gathered that quantum of waste generated during the course of manufacturing of POY was being shown by the said applicant as much more than the actual quantum of actual generation. As such, they entertained a view that excess generation of waste shown by the appellant and cleared by them was actually clearance of POY. Shri Rakesh Chandra Saxena, in his statement admitted that quality yarn was being cleared under the guise of waste and this was general practice with the assessee.
During further course of investigation, the Revenue recorded the statement of various transporters and also scrutinized the records recovered from their premises. On scrutiny of said records maintained by transporter companies read with the statement of various authorized representatives of transport companies, Revenue entertained a view that appellant was clearing POY in the guise of waste and wherever the bills raised by the transport company were cancelled, it was doubted that clearances were actually affected, without payment of duties and as such, the appellant is guilty of clandestine removal.
Apart from the above, it was seen that the appellant was recovering extra amount ranging from Rs.4.50 per Kgs to Rs.7.00 per Kg. from their customers on account of freight insurance, loading etc. According to the Revenue, they under-valued their final product and recovered the value under the heading of other charges.
5. Based upon the said investigations, Revenue issued the show cause notice, proposing confirmation of demand on various ground. As already recorded the Commissioner dealt with each and every aspect and dropped the demands raised on all counts except confirming the demand in respect of five parallel invoices which were received by the Revenue along with intelligence report.
6. After appreciating the submissions made by both the sides and after going through the impugned orders, we find that major part of the demand of duty of Rs. 63,25,514/- and of Rs. 42,99,390/- were proposed to be confirmed against the appellant based upon the records seized from the premises of transporters, i.e. M/s. New Indore Kashmir Transport Co. and M/s. New Indore Kashmir Transport Carrier and M/s. Arpit Road Lines, The Commissioner has dropped the said demands on the main ground that the documents seized from the premises of third party do not pass the test of provisions of Section 36A of the Central Excise Act, 1944 and the presumption as regards their truthfulness cannot be assumed. In terms of said section presumption regarding the truth of contents of documents is applicable only where the seized documents has produced any evidence against the person from whom the seizure was made. He has also taken into consideration the appellants submission that no proceedings stand initiated against the person from whom the documents have been seized and as such, the burden to prove the genuineness of the said documents lies upon the Revenue who has not produced any evidence. He has accordingly observed that entire case of the Revenue is based upon the intelligence report and by referring to various decisions, he has held that third party document cannot be relied upon without proper corroboration either in the form of extra procurement of raw material consumed or financial transactions. The Revenue has relied upon the oral testimony of Shri Rakesh Chandra Saxena, Shri Ashok Mehta, transporter, Sardar Kuldeep Singh and Shri Rajendra Bagrecha, Accountant cum cashier of M/s. Arpit Roadlines etc. The manufacturing company has taken a categorical stand that Shri Saxena had given false statement so as to take revenge against the management since the services of Shri Saxena were terminated as he was found engaged in misusing Companies funds. It is also seen that Shri Saxena never appeared for cross examination, though he filed an affidavit reiterating his stand. Shri Rajendra Bagrecha who appeared for cross examination has clarified that cancellation of the bills was done by their transport unit wherever goods has not been sent and reverse entries were made in the books of accounts. He has also deposed during cross examination that they were not transporting any goods without GRs. Similarly, Shri Ashok Mehta, transporter of M/s. Arpit Roadlines deposed that they always prepare challans and builty for transporting the goods. He denied sending goods without any LR. Similarly, it is seen that Sardar Kuldeep Singh, owner of M/s. New Indore Transport Company during his cross examination very clearly deposed that they were transporting the goods against builty only and are always maintaining book register for recording order booking of vehicles etc. As Tribunal in the case of Kothari Pouches Ltd. vs. CCE, New Delhi reported as [2001 (135) ELT 531 (Tri-Del)] has held that confirmation of demand entirely on the basis of documents of the transporters, without any independent collaborating evidence cannot be upheld. The Tribunal further observed that in the absence of any questioning of the consignee of the goods about receipt of clandestine removal, confirmation of demand was not warranted. To the similar effect is another decision of the Tribunal in the case of Kothari Synthetics Industries Ltd. vs. CCE [2002 (141) ELT 558 (Tri) laying down that the entries made in the transport register of the Transporter company could not be accepted as exclusive proof of clandestine receipt of grey fabrics from the transporter company and thereafter removal of the same after processing, without payment of duty, for want of corroboration by any tangible evidence. In the case of M/s. Rhino Rubbers Pvt. Ltd. vs. CCE, Bangalore [1996 (85) ELT 260 (Tri) ] it was held that it is not safe to rely only on the third parties invoices where no link has been established and set aside the demand confirmed against the appellant in that case.
By applying the ratio of law declared in the above Tribunal decisions to the facts of the present case, we find that Revenue has simplicitor relied upon the records maintained at the transporters end and the statement recorded from the transporters authorized representative, which statement also stand clarified by them during cross examination, in favour of the assessee. It is well settled law that charges of clandestine removal are serious charges and are required to be established by production of positive and tangible evidence. The same cannot be upheld on the basis of surmises and conjecture. There has to be some cogent evidences so as to prove such charges and the same cannot be simplicitor based upon third parties documents and the statement of transporters. It may be observed here that nothing incriminating was recovered from the appellants factory during search of the same. Except Shri R C Saxena authorized person who has given inculpatory statement against the assessee, the statement of other workers was not recorded. As such, without going into the detailed statements of various transporters and the entries made in there records, we find that Commissioner (Appeals) has rightly dropped the demand against the manufacturing unit on the said account.
7. As regards dropping of demand on the amount collected by the assessee, on account of freight insurance, loading etc., we find that adjudicating authority has rightly discussed the issue in para 88 of his order. He observed that even after allowing of various admissible deductions, the assessable value adopted by the assessee is correct assessable value inasmuch as they have been able to prove the same by credit notes, ledger accounts, lorry receipts etc. and bills of special packing that the extra amounts were attributable to the freight insurance and loading and were not the amounts collected towards the value of the goods. We agree with the said finding of the adjudicating authority and find no reason to interfere in the said part of the impugned order.
8. It is further seen that show cause notice issued to the appellants also alleged that they have shown excess production of waste which stand cleared by them under the cover of invoices, which was actually for POY. The Revenues contention is that waste generation should be around 7%, as examined in another factory of M/s. Shree Synthetics, Ujjain who were also engaged in manufacture of POY. The Commissioner while adjudicating the said issue has observed that Chairman as also the Managing Director of the Company attributed extra wastage to several reasons such as machines being old, power cuts and inexperienced workers etc. It is seen that they had also got their plant examined by one Shri S L Jain, M Tech FIE Chartered Engineer and approved valuer along with Shri P.P. Gaur, who had 27 years experience with different POY units and it was reported by them that the excess wastage was on account of following facts:
(i) In order to enhance the production capacity the Cam Shaft design was changed to incorportate four spools of 85mm size. The result of this is that if there is breakage in even one spool the melt/filament for all spools get spoilt. Since the flow of melt cannot be stopped heavy wastage becomes unavoidable.
(ii) Since the size of the spool is relatively smaller, frequent doffing (refilling) has to be undertaken. The time taken to change the spool (replace empty spool with filled spool) is about 15 min during which period the melt falls and becomes waste.
(iii) For enhancement of capacity these spinnerettes have been modified. The division of one spinnerrettes from one into two, without adequate space between the divided parts, the filament from the two parts tend to overlap making the material a waste.
(iv) Modifications in the design of Cam Shaft have been done without regard to the technology & design. As a result there is higher wastage in the process due to the increase in slippage.
(v) The technology is old and outdated and has become obsolete. The technology is more than 30 years old.
(vi) The cooling temperature of the quinch is not consistent and, therefore, there is greater breakage and wastage.
(vii) The mixing of water is not proper in the spin finished preparation system and requires re-placement.
(viii) The winder system friction roller motor heats up and trips frequently, so full doffing percentage is very low and this is also major reason of waste.
(ix) At present converted four end system is very typical because in one gun, operator should take four end and it is very difficult and takes about 10 to 15 minutes, in between this time heavy losses of wastage incurred.
(x) In this plant, diesel generators of about 40 yrs old (discarded from ships) are used, this is also a major cause of stoppage of production and change over from one to another generator in POY industries. Power supply should be continuous, no stoppage, no hurdles- power should be constant with a fixed voltage.
(xi) Present demand load of MPEB is 500KVA only, whereas according to the capacity of plant electricity requirement is 1500 KVA.
(xii) During the visit of plant it was noticed that some machineries are being operated by DG sets while remaining are being operated by MPEB power supply. This system leads to more change overs resulting in more breakdowns hence more wastage. Adjudicating authority took into account the above facts and observed that the Revenue has not produced any evidence to show that excess wastage was being shown by the appellant intentionally. No seizure of so called wastage has been made and no amount has been shown to have been received from the sale of POY in the garb of waste. He has also taken into account the fact that at the time of visit of the factory, no discrepancies were found in the stock of goods and even the searches conducted at the premises of their customers showed that their records tallied with the clearances shown in the statutory records etc.
9. We find no infirmity in the above view of the adjudicating authority. Revenues case is solely based upon an assumption that wastage arisen during the course of manufacture of POY should not be more than 7% and as the appellants has recorded the wastage of around 16%, they must have cleared POY in the garb of extra wastage shown by them. It may be observed here that as correctly recorded by the adjudicating authority, there is not even any iota of evidence produced by the Revenue to confirm the above allegation. Entire case is based upon assumption and presumption and neither any documentary evidence has been seized by the Revenue nor any customer has agreed to have received POY under the garb of waste. Admittedly, the process adopted by one manufacturer for manufacture of POY as also the technology, the kind of machines used and the age of machine used would be relevant factors to decide the quantum of generation of waste. Excess waste may arise out of number of facts as detailed by the expert which stand unrebutted by the Revenue. Such higher production can be on account of deviation in production parameters, fault of operators of machines, due to use of sub-standard raw materials, technology inefficiency or the power supply cut therein or may be attributed to inferior quality of fiber etc. In any case, the Revenue cannot build its case based upon the theoretical percentage calculation of waste generated, without production of any evidence to reflect upon the above allegation. No experiment was conducted in the assessee factory to find out the exact quantum of waste generation. As such, we find no reasons to accept the Revenues contention. Accordingly, their appeal against M/s. Rajratan Synthetics Ltd is rejected.
10. At this stage, we may deal with the appeal of M/s. Rajratan Synthetics Ltd. It is seen that adjudicating authority has confirmed the demand of duty of Rs.6,27,997/- against the manufacturing unit in respect of 5 invoices which stand procured by the Revenue along with intelligence report. The same were admittedly not recovered from the appellants factory. As such, the onus to show that appellant cleared the goods under the cover of said invoices lies very heavily on the Revenue. The Commissioner while confirming the demand has taken into account the statement of Shri R C Saxena. However, it is the appellants case that as Shri Saxena was relieved from his service on account of financial mishandling and he fabricated these documents and produced the same to the Revenue so as to take revenge from the appellant. However, subsequently he filed an affidavit specifically stating that these invoices were fabricated by him.
11. Without going into the said details, we find that though the said invoices were in possession of the Revenue, but there is no information available as regards the sources of their acquisition. Apart from these invoices, there is virtually no evidence on record to show that the appellant has cleared the goods under the cover of such invoices. Out of 5 invoices, 4 invoices pertain to M/s. Naman Textile Ltd.. Their premises were also raided and searches were carried out and no discrepancy was found in their records. M/s. Naman Textile also denied having purchased the goods without payment of duty. Invoice No.37 pertained to M/s. Swastik Ind Pvt. Ltd. who did not accept the goods and the same was again sold to M/s. Naman Textile, who accepted the same as having received the goods under cover of said invoice on payment of duty. In any case, as there is no source of acquisition of said 5 invoices by the Revenue, in respect of which duty stand confirmed by the Commissioner and their being no corroborative evidence to show excess manufacture of goods and the clearance of the same in the said invoices, we do not agree with the finding of the adjudicating authority that same constitute sufficient evidence to reflect upon the clandestine removal. Accordingly the confirmation of demand to the extent of Rs.6,27,997/- and penalty imposed on unit and imposition of penalty of Rs.25,000/- on Shri Devendra Kumar Jain is set aside.
12. Inasmuch as we have upheld that part of the impugned order of Commissioner vide which he has dropped the demands against manufacturing units and has set aside that part of the order vide which he has confirmed the demand, there is no merits in the Revenues appeal against Shri Paras Kumar Jain, Chairman, Shri Devender Kumar Jain, Managing Director and Shri Manish Kumar Jain, authorised signatory for imposition of penalties.
13. In view of foregoing discussion all the appeals filed by the Revenue are rejected and the appeals filed by M/s. Rajratan Synthetics Ltd and Shri Devendra Kumar Jain are allowed.
(Pronounced in the open court..)
( Archana Wadhwa ) Member(Judicial)
( Rakesh Kumar ) Member(Technical)
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