Custom, Excise & Service Tax Tribunal
Bhawani Ferrous Pvt Ltd vs Dhanbad on 23 August, 2023
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
KOLKATA
REGIONAL BENCH - COURT NO.1
Excise Appeal No.76028 of 2015
(On behalf of Appellant)
(Arising out of Order-in-Original No.09/CE/Commr./DNB/2015 dated 07.08.2015
passed by Commissioner of Central Excise & Service Tax, Dhanbad)
M/s Bhawani Ferrous Private Limited
Baijnathpur Maheshmara, B. Deoghar
Appellant
VERSUS
Commissioner of Central Excise & Service Tax,Dhanbad
H.E.School Road, Vistipara, Hirapur, Dhanbad
Respondent
WITH Excise Appeal No.76029 of 2015 (On behalf of Appellant) (Arising out of Order-in-Original No.09/CE/Commr./DNB/2015 dated 07.08.2015 passed by Commissioner of Central Excise & Service Tax, Dhanbad) Shri Manish Kumar Sultania, Director of M/s Bhawani Ferrous Private Limited Baijnathpur Maheshmara, B. Deoghar Appellant VERSUS Commissioner of Central Excise & Service Tax,Dhanbad H.E.School Road, Vistipara, Hirapur, Dhanbad Respondent AND Excise Appeal No.76030 of 2015 (On behalf of Appellant) (Arising out of Order-in-Original No.09/CE/Commr./DNB/2015 dated 07.08.2015 passed by Commissioner of Central Excise & Service Tax, Dhanbad) Shri Vikram Kumar Sultania, Director of M/s Bhawani Ferrous Private Limited Baijnathpur Maheshmara, B. Deoghar Appellant VERSUS Commissioner of Central Excise & Service Tax,Dhanbad Respondent 2 Excise Appeal No.76028-76030/2015 APPERANCE :
Shri K.K.Anand, Advocate for the Appellant Shri P.K.Ghosh, Authorized Representative for the Respondent CORAM:
HON'BLE MR.ASHOK JINDAL, MEMBER (JUDICIAL) HON'BLE MR.K.ANPAZHAKAN, MEMBER (TECHNICAL) FINAL ORDER NO...76526-76528/2023 DATE OF HEARING : 23 .08.2023 DATE OF DECISION : 23 .08.2023 Per Ashok Jindal :
The appellants are in appeal against the impugned order wherein the demand of duty has been confirmed against M/s Bhawani Ferrous Private Limited along with interest and penalties on all the appellants were imposed on account of clandestine removal of goods during the period from March, 2008 to August, 2008 by issuance of show-cause notice on 08.04.2013.
2. The facts of the case are that the appellants are engaged in the manufacture of iron and steel products, namely, MS Ingots, MS Bars, MS Wires.
2.1 During the material period, the appellants were manufacturing MS Bars under brand name "Kamdhenu" in terms of License User Agreement dated 15.10.2007, wherein the appellants were permitted to use the Kamdhenu Trade Mark for sale of TMT Bars in the State of Jharkhand on a royalty of Rs.150/- per MT + Service Tax. 2.2 The appellants intimated the same to the Revenue vide letter dated 23.02.2008 with a copy of Agreement.
2.3 On 12.11.2008, a search was conducted on the premises of M/s Kamdhenu Ispat Limited (KIL) including the purported secret accounts 3 Excise Appeal No.76028-76030/2015 office at J-1200, Palam Vihar, Gurgaon resulting in recovery of various incriminating records along with three laptops and two pen drives showing evasion of Central Excise duty as well as Service Tax, which, inter alia, showed that royalty was being collected by KIL from their franchise unit by use of "Kamdhenu" brand name without declaring it in their accounts. The receipt of such royalty amount from the Franchisee Manufacturers of KIL in the name of a firm, Jai Ambey, which is not existing and fictitious.
2.4 The statement of employee of KIL was recorded. A hard disk was seized from the various premises of KIL were sent for Forensic analysis to GEQD, Hyderabad. Further, the statement of official of KIL was recorded.
2.5 A show -cause notice dated 24.10.2011 was issued to KIL on the basis of evidences seized from the premises of J-1200, Palam Vihar,Gurgaon for demand of service tax for the period 2006-07 to 2010-11 on the royalty and commission income, which was allegedly received in cash from various franchisees units. 2.6 Thereafter, on 04.09.2012, the statement of one of the appellants, Shri Manish Kumar Sultania, was recorded, who stated that the amount of royalty was being paid through cheque to KIL and he did not know the reason how and why their franchisor showed the excess amount received from their company.
2.7 On the basis of investigation conducted at the end of KIL and the statements recorded, on 01.04.2013, the premises of the appellant were searched, wherein a shortage of 72 MT of MS Bar were found. 4
Excise Appeal No.76028-76030/2015 2.8 Thereafter, on 08.04.2013, a show-cause notice was issued to the appellants demanding Central Excise duty to the extent of Rs.3,02,65,980/- on the quantity of 9088.58 MT of Kamdhenu Brand MS Bars for the period March, 2008 to August, 2008 was evaded by them by clearing the MS Bars of Kamdhenu Brand by clearing MS Bars of Kamdhenu Brand without payment of Central Excise duty. It was alleged that the appellants had paid the royalty to KIL over and above what they had declared to the Department.
2.9 Further, it was also alleged that the appellant had cleared 72 MT of MS Bars clandestinely on the quantity found short at the time of visit on 01.04.2013 without payment of duty.
2.10 The show-cause notice was contested by the appellant. 2.11 Thereafter, adjudication took place and demand proposed in the show-cause notice was confirmed along with interest and penalties on the appellants were imposed.
2.12 Against the said order, the appellants are before us.
3. The ld.Counsel appearing on behalf of the appellant, submits that in the case, the case has made out against the appellants that they have paid the amount of royalty over and above as per their records to M/s KIL. The same was found entry in the account of KIL and on the basis of the certain printouts.
3.1 During the course of investigation from KIL, the appellants were incapable to explain how the franchisee has paid the amount in cash and the payment particulars towards royalty by the franchisee and not able to explain it. It was his submission that they have made all the payments of royalty through cheque only.
5
Excise Appeal No.76028-76030/2015 3.2 Thereafter, he submits that on the basis of third party record, the demand against the appellants is not sustainable. 3.3 He submits that in case one of the other franchisee of M/s KIL, the identical matter came for consideration before this Tribunal in the case of Giriraj Irosteel Company Private Limited Vs. Commissioner of Central Excise, Meerut II reported in 2019 (370) ELT 1649 (Tri.All.). In the said case, this Tribunal has dropped the proceedings against franchisee holding that the charge of clandestine removal is not sustainable on the basis of the records recovered from the possession of KIL.
3.4 With regard to shortage of 72 MT of M.S.Bars, it is his submission that on the date of visit, around more than 32000 bundles of MS Bars were found in stock and on the basis of one bundle of each size has been weighted and on the basis of it, it has been alleged that there was a shortage of 72 MT whereas whole of the stock as per books was 1704.28 MT and as per the said weighting method, it works out 1632.003 MT. The said weighment is done only on only one bundle each size. In such huge quantity of stock, shortage cannot be ascertained and it is only an eye estimation. Therefore, there is no shortage of stock, which has been alleged cleared clandestinely by the appellants. Therefore, the said demand is not sustainable.
4. On the other hand, the ld.A.R. for the Revenue supports the impugned order.
5. Heard the parties and considered the submissions. 6
Excise Appeal No.76028-76030/2015
6. On the basis of arguments advanced by both the sides and as per the impugned order, the demand has been confirmed against the appellants on two grounds :
(a) the appellant has paid royalty to M/s KIL over and above what they have declared to the Department and
(b) certain shortage of 72 MT of MS Bars was found on 01.04.2013 at the time of visit.
Issue (a)
7. We find that the similar case came up before this Tribunal in the case of Giriraj Irosteel Company Private Limited (supra), wherein the facts of the case are as under :
"2. Brief facts of the case are that M/s. Giriraj Irosteel Company Pvt. Ltd. (hereinafter referred to as 'appellant') were engaged in the manufacture of MS Bars and MS Ingots. They were registered with Central Excise and were paying Central Excise duty and were also filing ER-1 returns regularly. Appellant entered into an agreement with M/s. Kamdhenu Ispat Ltd. (hereinafter referred to as 'M/s. KIL') on 7-5-2007 and as per the said agreement appellant was entitled to use trademark 'Kamdhenu' on the goods manufactured by the appellant. In lieu of use of said trademark, appellant were required to pay specified amount per MT along with applicable Service Tax on the same to M/s. KIL after the end of month on the basis of total quantity of goods manufactured by them for which such trademark was used. On 12-11-2008 several premises belonging to M/s. KIL were searched by the officers of DGCEI. One of the premises searched by them was at J-1200, Palam Vihar, Gurgaon. At the said premises certain Pen-drives, Computers and Laptops were 7 Excise Appeal No.76028-76030/2015 recovered by the officers. The said recovered electronic devices were got examined through Government Examiner of questioned documents. On the basis of data retrieved by the Government Examiner of questioned documents, the officers of Central Excise Intelligence came to know that said data also had record of the royalty charges recovered by M/s. KIL from the franchisee users including the present appellant. Therefore, Officers of Central Intelligence initiated investigation in respect of the appellant. The manufacturing unit of the appellant was visited by the officers on 5-5-2012. At the time of visit statements of Shri Jagdish Prasad Jindal, Manager and Shri Deepak Maheswari, Accountant were recorded. In his statement dated 5-5-2012 Shri Jagdish Prasad Jindal, Manager stated that they used the brand 'Kamdhenu' since 2007-08 and paid royalty @ Rs. 200 per MT after the end of the month and the payments were made through cheques and no payment was ever made in cash. In respect of the difference between the details of royalty payment provided by him and available in the retrieved data, he informed that he had no knowledge about the same and stated that the appellant had paid royalty and service charge as per the chart provided by him which tallied with their ledger and bills raised by M/s. KIL. In his statement dated 5-5-2012 Shri Deepak Maheswari, Accountant stated that the payments to M/s. KIL were made through bank only and no cash payment was ever made in respect of royalty. On the basis of difference between royalty payments reflected in the books of account of appellant and those in the retrieved statement, it appeared to Revenue that appellant had paid royalty both through cheque and cash and total royalty paid if calculated would resulted in more quantity manufactured by the appellant than reflected in ER-1 return for the months of April, 2008 to September, 2008. Therefore, through show cause notice dated 3- 5-2013 a demand of Central Excise duty of around Rs. 5.5 crores was raised against the appellant with proposal to impose penalties on the other two appellants. The proposal for imposition of 8 Excise Appeal No.76028-76030/2015 penalty on the other two appellants was through invocation of Rule 26 of Central Excise Rules, 2002. On contest, the said show cause notice was adjudicated through the impugned Order-in- Original wherein the Original Adjudicating Authority has confirmed the demand of Central Excise duty amounting to Rs. 5,58,89,762/- and has imposed equal penalty on the appellant. Further, under the provisions of Rule 26 of Central Excise Rules, 2002 he imposed penalty of Rs. 50 lakhs on Shri Purushottam Rathi, Director of the appellant and the other appellant in the present case and a penalty of Rs. 25 lakhs was imposed on Shri Suneel Kumar Agarwal, Director of M/s. KIL. Aggrieved by the said order, all the three appellants are before this Tribunal."
And in these set of facts, this Tribunal has observed as under :
"6. Having considered the submissions from both the sides and on perusal of record, we note that fundamental argument is on account of absence of any evidence about the alleged manufacture of goods on which Central Excise duty is demanded. Learned Counsel for the appellant has submitted that there was no inquiry made by Revenue regarding the alleged production and sale of the goods and realization of sale proceed thereof and non- identification of customers and there was absence of any evidence about clandestine removal. The Learned Counsel also relied on the decision by Hon'ble Allahabad High Court in the case of M/s. Continental Cement Company v. Union of India (supra). Learned Counsel has also referred to para No. 19 of the show cause notice. On perusal of para No. 17 to para No. 20 of the said show cause notice, it is clear that on the basis of information retrieved by Government Examiner of Questioned Documents and on the basis of royalty charges paid by the appellant as reflected in their books of account, it appeared to Revenue that the royalty payment as reflected by retrieved data was more than actually reflected in the books of appellant. Therefore, on the basis of 9 Excise Appeal No.76028-76030/2015 alleged excess payment of royalty charges, Revenue has calculated the quantity of goods on which such royalty charges were paid and compared the said quantity with the quantity reflected in the records of the appellant and on the balanced quantity demanded Central Excise duty. For demand of such Central Excise duty, Revenue has not produced any evidence about the excess production of final product nor produced any evidence in respect of procurement of excess raw material. There is no evidence on record about the dispatch of excess quantity of goods through the transporters. Further, customers were also not identified and the consumption of power was also not taken into consideration. We note that Hon'ble Allahabad High Court in the case of Continental Cement Co. (supra) in paras 12 & 13 has held as follows :-
"12. Further, unless there is clinching evidence of the nature of purchase of raw materials, use of electricity, sale of final products, clandestine removals, the mode and flowback of funds, demands cannot be confirmed solely on the basis of presumptions and assumptions. Clandestine removal is a serious charge against the manufacturer, which is required to be discharged by the Revenue by production of sufficient and tangible evidence. On careful examination, it is found that with regard to alleged removals, the department has not investigated the following aspects :
(i) To find out the excess production details.
(ii) To find out whether the excess raw materials have been purchased.
(iii) To find out the dispatch particulars from the regular transporters.
(iv) To find out the realization of sale proceeds. 10
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(v) To find out finished product receipt details from regular dealers/buyers.
(vi) To find out the excess power consumptions.
13. Thus, to prove the allegation of clandestine sale, further corroborative evidence is also required. For this purpose no investigation was conducted by the Department."
7. The retrieval of data by Government Examiner of questioned documents only establishes that such data was maintained by M/s. KIL. We note that such maintenance of data by representative of M/s. KIL does not establish actual payment by the appellant. No evidence of actual payment has been brought on record by Revenue. Further, as held by Hon'ble Allahabad High Court that clinching evidence of the nature of purchase of raw material, use of electricity, sale of final products, clandestine removal and the more flowback of funds are required to be established in the case of clandestine removal. Such aspects have not been investigated into and therefore, the ruling by Hon'ble Allahabad High Court in the case of Continental Cement Co. (supra) are applicable in the present case. We, therefore, hold that manufacture of such quantity of goods on which Central Excise duty of around Rs. 5.5 crores was demanded is not established. Since Central Excise duty is on manufacture and manufacture is not established, therefore, there is no basis for demand of Central Excise duty to the tune of Rs. 5,58,89,762/-. Since the demand is not sustainable the penalty is on the appellants are not sustainable."
8. As in this case, the demand of duty is sought to be confirmed against the appellants on the basis of documents recovered from M/s KIL wherein it has been shown that they have received royalty over and above as declared by the appellants to the Department. Admittedly, no 11 Excise Appeal No.76028-76030/2015 efforts were made by the Revenue regarding production and sale of the goods, realization of sale proceeds, identification of customers and what is the production capacity of the appellants. In the absence of of those evidences, merely alleging that franchisee has received over and above as declared by the appellants, the charge of clandestine removal is not sustainable as held by this Tribunal in the case of Giriraj Irosteel Company Private Limited (supra).
9. Therefore, following the decision of this Tribunal in the case of Giriraj Irosteel Company Private Limited (supra), we hold that the demand alleging clandestine removal on the basis of payment of royalty recorded in the books of M/s KIL, is not sustainable.
Issue (b)
10. The shortage found during the course of stock taking on 01.04.2013, we find that more than 32000 bundles were lying in stock and on the basis of one bundle of each size, it is taken the basis for weightment, but it is not coming out from the facts that how more than 32000 bundles were counted ? These are only an eye estimation as no counting has been placed on record by the Revenue to allege the shortage of 72 MT in stock of more than 1700 MT. Therefore, as held by this Tribunal in the case of Sada Shiv Steel Mills Vs. CCE, Chandigarh I reported in 2017 (357) ELT 481 (Tri.-Chan), wherein this Tribunal has observed as under :
"12. We have seen that in the impugned order duty has been demanded on shortage of finished goods. The sole contention of the appellant is that weighment has been done on 12 Excise Appeal No.76028-76030/2015 the average basis not on actuals. The learned Adjudicating Authority while adjudicating the case has adopted the method of average weighment by sending the team to inspect and find out the average weight of ingots of different sizes. If the average weight during the course of adjudication has been taken, in that case also the shortage of 120 MT will come down to 38.796 MT i.e. too when the average weight of dimensions 3½' x 4½' and 4' x 5'are not available, therefore, we hold that the weighment done on average basis to alleged shortage of finished goods is not sustainable in the absence of any corroborative evidence of clearance of finished goods without payment of duty. Admittedly, no corroborative evidence has been produced by the Revenue in support of their claim, therefore, we hold that demand of duty on shortage of raw material/finished goods against M/s. SSCL is not sustainable, the same is set aside."
The said order was affirmed by the Hon'ble High Court of Punjab & Haryana as reported in 2019 (369) ELT 315 (P & H), wherein it has been held that on the basis of average, there is no shortage of stock found during the course of search. We hold that the Revenue has failed to establish the shortage of 72 MT on what method of weighment was adopted except weighing one bundle of each size and without recording how more than 320000 bundles were counted. Therefore, without counting the stock and on the basis of average of one bundle each size, such is a huge quantity, cannot be held any shortage.
11. In that circumstances, the benefit of doubt goes in favour of the appellants. Accordingly, on the basis of method adopted of shortage on 01.04.2013 of MS Bars, the allegation of shortage is not sustainable.
12. In view of this, the demand raised on account of shortage of goods is not sustainable.
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13. In view of the above discussions, we hold that whole of the demand alleging clandestinely removal of goods is not sustainable.
14. Accordingly, the whole of the demand confirmed against the appellants are set aside.
15. As the demand of duty is not sustainable, therefore, no penalties are imposable on the appellants.
16. In view of the above discussions, we set aside the impugned order and allow the appeals with consequential relief, if any.
(Operative part of the order was pronounced in the open court) Sd/-
(Ashok Jindal) Member (Judicial) Sd/-
(K.Anpazhakan)
mm Member (Technical)