Customs, Excise and Gold Tribunal - Mumbai
Lloyds Steel Industries Ltd. And M.L. ... vs Commissioner Of Central Excise on 13 January, 2005
Equivalent citations: 2005(100)ECC128, 2005(182)ELT465(TRI-MUMBAI)
ORDER Krishna Kumar, Member (J)
1. Briefly stated the facts of the case are that on 8/11/97 and 9/11/97 officers of the preventive wing of the Commissionerate of Central Excise, Nagpur searched the premises of the appellant. They drew a Panchanama, seized records, issued summons and recorded statements of various employees of the appellants. Thereafter, a show cause notice was issued to the appellant on 21/10/2002 alleging that the appellant had clandestinely cleared 23,736.950/- M.T. of HR Coils. The Commissioner vide Order dated 26/2/2004 has confirmed the demand raised in the show cause notice, imposed penalty Under Section 11AC read with Rule 173Q, ordered recovery of interest Under Section 11AB and imposed a penalty of Rs. 10 Lakhs on appellant No. 2 who was the appellant's then General Manager.
2. The contention of the appellants are as under: -
a) The appellant laid stress on the fact that the notice itself in Para 15 has made a categorical assertion to the fact that the Department had on verification found that the customers of HR sheets/plates, which had been manufactured out of HR coils and clandestinely removed, had coils and which are alleged to be the shortage and clandestinely removed, had that HR sheets/plates had been received by the respective customers under cover of Central Excise invoices on payment of duty. It was submitted that this being the admitted position, the finding of the Commissioner that there was clandestine removal of HR coils is contrary to the result of the investigation.
b) It was also contended that no physical verification of stock of HR sneets/plates etc. was conducted by the Department on 9/11/97 as the Panchanama drawn on 9/11/97 which was recorded in Hindi States that only "Jayaja" i.e. inspection of the stock of HR sheets/plates was taken as distinct from the word "Ganana" i.e. counting which is mentioned in the earlier Panchanama drawn a day earlier i.e. on 8/11/1997 under which stock of HR coils was verified.
c) The appellant further pointed out that it had informed the Department about conversion of HR coils into HR sheets/plates and requested the Department to verify the stock thereof by a letter received by the Department on 10/11/1997. The appellant as in the said letter also made a clear averment that no physical verification of stock had been conducted by the search party on 9/11/1997 and that the balance lying in the RG1 register was taken as equal to the quantity lying in stock. Reliance was also placed on letter dated 8/12/1997, wherein it is informed the Department that process of reconciliation of captive consumption of HR coils and production at its CTL - II machine has been completed and that it had arrived at a correct position of the captively consumed HR coils and stock manufactured at the CTL - II plant. In the said letter the appellant had also pointed out to the Department that on investigation it had come to light that the stock of HR coils which was consumed at its 2nd HTL machine during the period April to August 1997 had not been reflected in the Excise reports due to a programming error as a result of which production of HR sheets/plates out of stock of HR coils was not accounted for in the Excise reports. By the said letter the appellant informed the Department that necessary corrective entries were being made in the accounting books i.e. RG1 and that invoices would be raised as and when the goods would be sold. It was submitted that despite the aforesaid letter, the Department did not choose to physically verify the stock of HR sheets/plates that was claimed to be lying within the factory premises itself.
d) It was also contended that there was no clandestine removal of HR coils and that the difference in stock was only because of an error in the software program which fact had been accepted by Mr. Masankar, Senior Manager, EDP. Reliance in this regard was placed on the affidavit of the Masankar wherein he has also affirmed that statement was also recorded by the Investigative Officers in which he had explained the nature and the existence, reason for the error in the computer program.
3. Shri M.K. Gupta, Id. Jt. CDR appearing for the revenue submitted as under: -
a) that there is no month to month correlation shown in the contractors bills with the material allegedly transferred to the CTL machines.
b) that the letter dated 9/10-11/1997 is not available in the Department file.
c) that it was possible for the appellant to have manufactured the goods, stated to have been cleared to the various buyers out of fresh raw-material during the period 10/11/1997 till 8/12/1997 and therefore the letter dated 8/10/1997 did not conclusively establish Appellants case.
4. Responding to the submissions of Id. Jt. CDR, the counsel for the appellant submitted that:
a) that Page 122 of the Appeal paper book draws the correlation between the quantity transported by the transporter as indicated in the contractors bill and the quantities claimed to have moved to the CTL machines.
b)(i) the letter dated 9/10/1997 bears an acknowledgement from the Department which is not disputed in the impugned order.
ii) the mere absence of the letter in the Department file does not help the Departments case. In any case the subsequent letter dated 8/12/1997 repeats the contents of the earlier letter and in respect of this subsequent letter, there is no dispute about its availability in Departments file. The fact that the Department chose not to cause verification evenafter the letter dated 8/12/1997 is enough to draw inference against the Department
b) That a case of clandestine removal cannot be made merely on the basis of suspious and presumptive positions since there was no evidence existing to prove any excess purchase of raw-material, excess consumption of electricity or other relevant circumstances to prove actual manufacturing or clearance of goods. It was submitted that there was in fact no allegation to this effect in the show cause notice.
5. We have carefully gone through the case records and the submissions made before us by both the sides and we are of the view that the order of the Commissioner is not sustainable for the following reasons:
(i) Appellant's contention that no detailed physical stock taking of HR sheets/plates was undertaken by the Department on 9/11/1997 seems to be well founded as there is a marked difference in the language employed in the two Panchanamas one dated 8/11/1997 and the other dated 9/11/1997. While the first Panchanama used the word "ganana" i.e. counting. The later uses the expression "jayaja" which means inspection.
ii) our above view is also fortified by the fact that the first Panchanama drawn on 8/11/1997 (which uses the expression "ganana" i.e. counting) actually refers to a chart which was prepared giving calculations of stock with reference to specific HR coil numbers. The 2nd Panchanama drawn on 9/11/1997 with respect to the stock of HR plated/sheets, CR coils, HRCA coils etc., there was no such chart or calculation referred to therein and in fact the Panchanama categorically states that only "jayaja" i.e. inspection was carried out.
iii) In the light of the glaring difference in the nature of the two Panchanamas of which the 2nd is most crucial, the Commissioner could not have come to 'a sound conclusion as to the existence of shortage by summarily rejecting the request for cross examination of the Panch witnesses.
iv) if the Panchanamas are read as it is we can not but help, observing the 2nd Panchanama does not record any physical verification of a credible and reliable nature, purported to have been conducted on 9/11/1997.
v) The finding of the Commissioner that the stock differences was so huge it could not have overlooked anybody's attention ,overlooks the fact that it is very difficult for anybody to estimate the cumulative weight of steel goods lying in different portions of the factory which is claimed to be spread over hundreds of acres. In any case a serious charge of shortage and clandestine removal cannot be sustained on the basis of such generalised observations and opinions of the Commissioner.
vi) we also observe that the appellant had made a claim in the course of investigation that the physical verification of stock had not been carried out on 9/11/1997 and stock recorded was only based on estimate. In his letter dated 9/11/1997 the appellant had offered to the Department to carry out a joint physical verification of the stock. Though the Commissioner claims that the said letter is not available in his file, even though the letter seems to bear an acknowledgement, there is absolutely no answer to the appellants 2nd letter dated 8 December 1997 receipt of which is not diputed. wherein the appellant had informed the Department the fact that its reconciliation process of captive consumption and production at CTL II machine was complete and it had come to light that the stock of HR coils which were shifted to CTL II machine during the period April to August 1997 for being cut to length and the resultant product i.e. HR sheets which was lying at the project site had not been captured by the computer program based on which a production report was generated, on the basis of which the Excise records were maintained. In the said letter, the appellant has stated that necessary entries were being made in the RG1 register and that invoices would be raised as and when the goods would be sold. In view of this letter, as also the fact that the clearances of HR sheets of equivalent quantity were effected during the period 25/12/1997 to 12/1/1998, the Department had enough time and opportunity to go and verify the physical stock.
vii) We have also gone through the internal transport contractors bills and find that the quantities claimed to have been handled therein tally more or less with the quantities which are claimed to have been shifted to CTL machines. A few months delay in booking the quality in these bills cannot assume much signifiance as all these bills were raised prior to Novemember 1997. As such the attempt may by the Ld. Jt. CDR to cast doubt in the correctness and reliance of these bills cannot be sustained. In any case the Department cannot base its case by picking whole in the defence, it must lead independent and cogent evidence to buttress its case as the burden of proof in matters of such types lies heavily on the Department. It is also settled that suspicion itself cannot be basis for sustaining a charge of clandestine removal. In the present case, except for finding faults with the explanation given by the appellant, the Commissioner has done previous little to support his findings. In fact the following extract of Para 15 of show cause notice itself should have impelled the Commissioner to drop the show cause notice:
"the verification made with the customers of HR sheets/plates which were contended by the appellant to have been manufactured out of HR coils noticed short at the customers end by making Departmental enquiries and revealed that the goods i.e. HR sheets/plates have been received by their respective customers under the cover of Central Excise invoices."
viii) the only conclusion that can be drawn from the above is that, the Departmental investigation had proved that the stock of HR coils which was found short had been consumed in the manufacture of HR sheets/plates which had been ultimately cleared on payment of duty. This result of the investigation has been adversely commented by the Commissioner in Para 47 of the impugned order, wherein the Commissioner has held that:
"here in this context it appears that the investigation too has lost the proper track. Because the goods if any claimed to be were available and cleared without any physical verification by the investigating agency after a gap of 1 month cannot be treated as the same goods which were dealt in the Panchanama dated 8/9/11/1997. This is more so because the assessee had themselves submitted in their reply that their installed capacity in 6 Lakhs M.T. of HR coils which comes approximately 50,000 M.T. per month. Since, the quantity involved in the instant case is 23,736 M.T. and the time gap involved is more than a month, there is an innate possibility of manufacture of this much quantity of fresh goods during the intervening period. Hence it appears that the investigation have lost a vital point regarding the indepth investigation as to from where the raw-materials for the said goods claimed to be cleared in the month of December 1997 were procured by the assessee and when the said goods were manufactured by them. However, since the instant show cause notice is silent on this point, it is not being deemed proper to pass any comments on the same and it is felt prudent to concentrate on the allegation made in the show cause notice and evidence relied and available on record.
The above observations are quite surprising as they seem to suggest that the investigation agency should only bring out convenient evidence and not disclose the entire factual position. We are of the view that a finding of fact which the notice has arrived at after investigation cannot be discarded merely based on the whims and fancies of the Adjudicating Authority. It is settled law that the Adjudicating Authority has to confine himself within the four corners of the show cause notice and consequently, we do not give any credence to the finding of the Commissioner in Para 47 of the impugned order.
ix) The claim of the appellant that there was programming error which resulted in an erroneous report being generated from the computer, seems to have been found correct during the course of investigation, as the computer Incharge i.e. Mr. Masankar had in his affidavit filed before the Commissioner affirmed that his statement had been recorded during the course of investigation, where he has explained the entire circumstances which led to the programme error. There is no specific denial of this fact in the Commissioner's order and yet the contents of statement of Shri Masankar have not been disclosed by the Department. As such, the contents of Shri Masankar's affidavit remain unrebutted and deserves acceptance.
x) In our view, shortage of HR coils noticed on 9/11/1997 could have been a ground for initiation of investigation, but however, when the assessee has time and again through a series of correspondence informed the Department that there is no clandestine removal, but only an accounting glitch, which the Department also verified by causing verification with the buyer of the goods manufactured from HR coil found short. In our view, once the investigation carried out by the Department had to lead to the inevitable conclusion that there was no clandestine removal but on accounting glitch as claimed by the appellant, the show cause notice ought to have dropped and set aside.
6. For above reasons, we set aside the demand for duty and penalty imposed Under Section 11AC read with Rule 173 Q. While doing so, we c fit that a penalty of Rs. 2,000/- which is the maximum permissible imposed on the appellant under Rule 226 of erstwhile, Central Excise Rules, 1944 for incorrect maintenance of books of account. Since demand for has been set aside, the penalty imposed on Shri M.L. Agrawal is also set aside.
7. Appeal No. E/1788/04 is partly allowed in the aforesaid terms Appeal No. E/1789/04 is allowed.
(Pronounced in Court on 13.01.05)