Custom, Excise & Service Tax Tribunal
M/S. Kalpana Industries vs Commissioner Of Central Excise & S.T., ... on 1 May, 2015
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL, West Zonal Bench, Ahmedabad Appeal No. : E/623-624/2010 (Arising out of OIA-AKP/288-289/DMN/SDMN/2009-2010 dated 29.01.2010, passed by Commissioner (Appeals) Central Excise, & S.T., Daman) M/s. Kalpana Industries : Appellant (s) Shri N.K. Surana, Director VERSUS Commissioner of Central Excise & S.T., Daman : Respondent (s)
And Appeal No. : E/655/2010 Commissioner of Central Excise & S.T., Daman : Appellant (s) VERSUS M/s. Kalpana Industries : Respondent (s) Represented by :
For Assessee (s) : Shri H.D. Dave, Advocate For Revenue (s) : Shri G.P. Thomas, Authorised Representative For approval and signature :
Mr. P.K. Das, Honble Member (Judicial) 1 Whether Press Reporter 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 CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? No 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 CORAM :
Mr. P.K. Das, Honble Member (Judicial) Date of Hearing : 19.02.2015 Date of Decision : 01.05.2015 ORDER No. A/10461-10463/2015 Dated 01.05.2015 Per : Mr. P.K. Das;
The relevant facts of the case, in brief, are that M/s. Kalpana Industries Limited, the assessee, engaged in the manufacture of PVC Compound and PVC waste and scrap and PVC Master Batches classifiable under Chapter 39 and 32 of the Schedule to the Central Excise Tariff Act, 1985. On 14.11.1997, the Central Excise officers visited the appellants factory and conducted the stock verification. It was detected shortage of finished goods involving Central Excise duty amounting to Rs. 3,62,346/- and also shortage of various cenvatable inputs involve CENVAT credit amounting to Rs. 4,44,068/-. The said officers, during the search of factory premises recovered a Daily Progress Report Register containing the details of production shown therein, different from the production recorded in the RG-1 register. A statement dated 15.11.1997 of Shri L.P. Choraria, Authorised Signatory of the assessee was recorded. Further, statements dated 05.01.1998 and 18.12.1998 of Shri N.K. Surana, Director were also recorded.
2. Show cause notice dated 18.01.1999 was issued proposing demand of duty on the shortage of finished goods and raw materials as well as differential duty on the basis of Daily Progress Report Register and RG-1, alongwith interest and to impose penalty of equal amount of duty. It has also proposed confiscation of land, building, plant and machinery under Rule 173(Q) of the erstwhile Central Excise Rules, 1944. It has proposed to impose penalty on Shri N.K. Surana, Director, Shri L.P. Choraria, Authorised Signatory of the assessee. The adjudicating authority confirmed the demand of duty alongwith interest and imposed penalty of equal amount of duty on the assessee and also imposed redemption fine in lieu of confiscation of plant and machinery. It has also imposed penalty on the other noticees. The Tribunal by final order No. A/1575 to 1576/WZB/06-C-III (EB) dated 24.7.2006, set-aside the adjudication order and remanded the matter to the adjudicating authority to pass an order after observing the principles of natural justice. In de-novo adjudication, the adjudicating authority confirmed the demand of Central Excise duty amounting to Rs. 14,04,884/- alongwith interest and imposed penalty of equal amount of duty on the assessee. It has also appropriated the amount of Rs. 75,000/- as deposited by the assessee. It has also confiscated the land and building, plant and machinery etc. and imposed redemption fine of Rs. Two lakh. It has also imposed penalties of Rs. 1,50,000/- and Rs. 50,000/- on Shri N.K. Surana, Director and Shri L.P. Choraria, Authorised Signatory, respectively. By the impugned order, Commissioner (Appeals) modified the adjudication order to the extent that demand of duty was reduced to Rs. 10,42,536/- and penalty of equal amount of duty and also reduced the penalty to Rs. One lakh on Shri N.K. Surana, Director. It has set-aside the demand of duty of Rs. 3,62,346/- and penalty on the shortage of finished goods. The assessee and its Director filed appeals before the Tribunal. Revenue also filed appeal against the impugned order to the extent of modification of the adjudication order.
3. Learned Advocate on behalf of the appellant submits that the Tribunal by remand order directed the adjudicating authority to allow cross-examination of the Panchas, which was denied and therefore, the impugned orders are liable to be set-aside on this ground alone. The demand of duty on the basis of Daily Progress Report Register cannot be sustained as the concerned employee was not examined. The demand was confirmed on the basis of statements of Director and Authorised Signatory, who had retracted their statements. In any event, after thorough search of the factory, the investigating officers did not found any evidence of procurement of raw materials and use of electricity, sell of goods to the buyers and collection of money etc. in respect of alleged clandestine removal of goods. It is submitted that there is no shortage of the raw materials and finished goods during the verification since stock in process was not taken into consideration. Further, the visiting officers have taken the stock on eye estimation basis, as there is no detail of stock taking mentioned in the Panchnama. In any event, the shortage of raw materials can not be sustained as it was used in the manufacturing finished goods, against which demand was confirmed by the adjudicating authority and Commissioner (Appeals) set-aside. Learned Advocate submits that the Commissioner (Appeals) has rightly set-aside the demand of duty on the alleged shortage of finished goods as the Central Excise officers during the subsequent visit on 24.6.1998 had not found any discrepancy in stock. It was submitted that the alleged shortage of finished goods as on 14.11.1997 was not deducted from the RG-1 balance, which was found during stock verification on 24.6.1998. It is further submitted that investigation was conducted on 14.11.1997 and the show cause notice was issued on 18.01.1999, which was barred by limitation, as held by the Hon'ble Supreme Court in the case of CCE, Mangalore vs. Pals Microsystems Limited 2011 (270) ELT 305 (SC).
4. He also relied upon the various decisions as under:-
(a) Sisco Industries Limited vs. Commissioner of Central Excise, Allahabad - 2013 (297) E.L.T. 457 (Tri.-Del.)
(b) Commissioner of Central Excise Indore vs. Power Electrical & Electronics - 2013 (293) E.L.T. 305 (Tri. Del.)
(c) Commissioner of Central Excise, Lucknow vs. Sigma Castings Limited - 2012 (282) E.L.T. 414 (Tri.-Del.)
(d) Commissioner of Central Excise Lucknow vs.. Roll Tubes Limited - 2011 (265) E.L.T. 414 (Tri. Del.)
(e) Alladi Drilling Equipment Pvt. Limited vs. Commissioner of Central Excise, Hyderabad - 2011 (263) E.L.T. 438 (Tri. Del.)
(f) Fact Paper Mills Limited vs. Commissioner of Central Excise, Bhavnagar - 2014 (314) ELT 449 (Ahmd.) -
5. On the other hand, the learned Authorised Representative for the Revenue reiterates the findings of the Commissioner (Appeals). He submits that Shri L.P. Choraria, Authorised Signatory in his statement dated 15.11.1997 confirmed the contents of the Panchnama dated 14.11.1997, and clandestine removal of goods and shortage of raw materials and finished goods. Shri N.K. Surana, Director of the assessee in his statement dated 05.01.1998 confirmed the contents of the statement of Shri L.P. Choraria and Panchnama. Even after one year, on 18.12.1998 Shri N.K. Surana reconfirmed his earlier statement as well as the statement of Shri L.P. Choraria. Retraction of their statements in reply to the show cause notice dated 25.3.1999 cannot be accepted. It is also submitted that Shri N.K. Surana prepared an affidavit dated 11.1.1998 which was not disclosed to the Department and on the contrary, he has confirmed his earlier statement even after one year on 18.12.1998. In these circumstances, there is no requirement of cross-examination of the Panchas, Director and Authorised Signatory. He relied upon the decision of the Honble Supreme Court in the case of Surjeet Singh Chhabra vs. Union of India - 1997 (89) ELT 646 (S.C.) and the decision of the Honble Kerala High Court, in the case of K.P. Abdul Majeed vs. Commissioner of Customs, Cochin - 2014 (309) ELT 671 (Ker.) which was followed in the case of R. Sreekumar vs. CESTAT, Bangalore - 2014 (306) E.L.T. 531 (Ker.) and upheld by the Honble Supreme Court as reported in - 2014 (307) ELT A78 (SC).
6. The Learned Authorised Representative also submits that Commissioner (Appeals) erroneously set-aside the demand of duty on the shortage of finished goods. It is submitted that the shortage was detected on 14.11.1997, which has no relation with the stock verification after six months as on26.4.1998. It may possible that the assessee had manufactured the goods and kept in their stock. It is also contended that the demand of duty on the basis of Daily Progress Report Register is corroborated with the statement of the Authorised Signatory and the Director of the assessee, who admitted the clearances of the goods on the basis of Daily Progress Report Register and therefore, there is no need of cross-examination of the writer of the said record. It is submitted that demand was raised, not merely on the basis of stock verification records but it was raised after thorough investigation during the material period and on the basis of various statements recorded therein and extended period of limitation would be invokable.
7. After hearing both the sides and on perusal of the records, I find that the Central Excise officers during the visit of the appellants factory on 14.11.1997 detected the shortage of raw materials and finished goods and duly prepared Panchnama. Shri L.P. Choraria, Authorised Signatory of the assessee in his statement dated 15.11.1997 admitted the shortage of the finished goods as well as raw materials as mentioned in the Panchnama and fully admitted that they have removed the finished goods illicitly without preparing the Central Excise invoices and without payment of Central Excise duty. Regarding the shortage of raw materials, it is submitted that they have removed the finished goods illicitly without following the Central Excise procedure. As against the Central Excise duty of Rs. 4,44,068/-, on the shortage of various raw materials, they debited duty amounting to Rs. 75,000/- vide Entry No. 855 dated 15.11.1997 from RG-23A Part-II and stated that balance amount would be debited in 2 or 3 days. He also admitted that the figures shown in Daily Progress Report Register were entered by their factory staff and fully agreed with the figures to be true and correct.
8. Shri N.K. Surana, one of the Directors of the assessee Company in his statement dated 05.01.1998 accepted the contents of the statement of Shri L.P. Choraria and the Panchnama dated 14/15.11.1997. He also admitted shortage of the goods and agreed to pay the duty leviable thereon. He also accepted that there is difference in recording of production in two registers, in RG-1 and Daily Progress Report Register. He stated that he was not aware of the Daily Progress Report Register maintained in the factory. Shri N.K. Surana, in his further statement dated 18.12.1998 confirmed the earlier statements and the Panchnama and the statement of Shri L.P. Choraria as true and correct. The appellant in their reply to show cause notice retracted the statements. I find that after the visit of the officers, the appellant had accepted the Panchnama in their various statements recorded on various occasions. It is seen that the Panchnama was signed by the Authorised Signatory of the assessee Company who had not disputed preparation and authenticity of the Panchnama at any point of time. Retractions of statement in reply to the show cause notice is not corroborated with any evidence and therefore, such a retraction can not be accepted. So I agree with the findings of the lower authorities that there is no requirement of cross-examination.
9. Regarding the shortage of raw materials, the appellant stated that the said raw materials were used in the finished goods, cleared clandestinely as alleged and the demand of duty on finished goods was set-aside by the Commissioner (Appeals) and therefore, demand of duty on the shortage of raw materials is not sustainable. The Commissioner (Appeals) had examined this issue. It is observed that the final products manufactured by the appellant are different varieties of PVC compounds. The main raw material for this is PVC resin. No shortage of PVC resin was found on 14.11.1997. The shortages noticed were in respect of other raw materials which are added to PVC resins to produce different varieties of PVC compounds. Hence these shortages could not have been used in manufacture the finished goods (PVC compounds) found short. It is further observed that these raw materials found short were clandestinely removed from their factory without payment of duty.
10. I am unable to agree with the finding of the Commissioner (Appeals). I find that Shri N.K. Surana in his statement admitted the shortage of the raw materials. It is noted that shortage of raw material for various resins. There is no material available on record that the raw materials were clandestinely removed. The appellant contended that the shortage of raw material was consumed in the finished goods, removed clandestinely and the demand of duty was confirmed. There is no requirement of one-to-one co-relation of input and finished goods in the CENVAT scheme. Hence the demand of duty on the shortage of raw materials used in the manufacture of final product, against which demand of duty raised, is not justified.
11. Regarding the demand of duty on the shortage of finished goods, the Commissioner (Appeals) observed as under:-
22. However, the appellants have raised a relevant point that though some physical shortages were noticed as per recorded balances on 14.11.1997, the appellants had not reduced the RG-1 recorded balance by the alleged shortage and had carried forward the recorded balance subsequently. It is also true that when the stock taking was done in their factory, subsequently, on 26.04.1998 by the department officers no discrepancy was noticed between the physical stock and recorded balance. This can lead to only two conclusions. The first conclusion is that the physical stock had been wrongly weighed on 14.11.1997 and there was actually no difference between the physical stock and recorded balance. The other conclusion is that there was some shortage noticed on 14.11.1997 and the appellants have, over a period of time, paid duty on the same and adjusted the difference in subsequent duty paid invoices issued by them. Thus, in either case, duty cannot be demanded on this score. In other words, the demand on this account amounting to Rs. 3.62 Lakhs cannot be sustained. I find that this point was raised by the appellants before the adjudicating authority also [14 (e) of the OIO refers] but he has not bothered to even discuss this point. The Revenue in their grounds of appeal stated that the Authorised Signatory admitted the shortage of finished goods in his statement and therefore, there is no need to prove the shortage. Commissioner (Appeals) proceeded on the basis of stock verification report dated 26.4.1998 and observed that the said material was available in the stock as on 26.4.1998. I am unable to accept the finding of the Commissioner (Appeals), as the Authorised Signatory and the Director of the assessee accepted the clearance of finished goods clandestinely. So, the demand of duty on shortage of finished goods alongwith interest and penalty would liable to be upheld.
12. Commissioner (Appeals), upheld the demand of duty of Rs. 5,98,470/- on the basis of Daily Progress Report Register. The main argument of the appellant is that the employee, who maintained this register was not examined. I find that the Director and the Authorised Signatory of the assessee had admitted the authenticity of the register in various statements. They have not disowned this register at any point of time, before filing of the reply to show cause notice. It is already observed stated that retraction of statement in reply to the show cause notice is not corroborated with any evidence and therefore, it can not be accepted in the eye of law. Hence I agree with the findings of the lower authorities in respect of demand of duty in the Daily Progress Report Register.
13. The case laws relied upon by the learned Advocate are discussed below:-
(a) In the case of Sisco Industries Limited (supra), the Tribunal held that there should be circumstantial evidence and precision in the enquiry demonstrating real criteria adopted while determining shortage. It should not be concluded on mere surmises or assumption or presumption. In the present case, there was enquiry by the Central Excise officers by recording statements and therefore, the said case law will not be applicable here.
(b) In the case of Power Electrical & Electronics (supra), the assessee is alleging that Revenue officers had not taken into account the quantity available in factory and used in the manufacture of finished goods. In the present case, the assessee had not taken a stand in their various statements during investigation that the shortage of the materials were available in the factory. (c) In the case of Sigma Castings Limited (supra), the assessees Authorised Representative has nowhere accepted that such shortage of finished goods are on account of clandestine removal. In the present case, the assessees Authorised Representative accepted clandestine removal of the finished goods.
(d) In the case of Roll Tubes Limited (supra), the stock verification done wrongly as the pipes segregated into three categories of Light, Medium and Heavy and weight per meter length of each category assumed and total weight of all pipes are arrived at. In the present case, the assessee in their statements had never pointed out that the stock verification was done on eye estimation basis and therefore, the said case law will not be applicable in the present case.
(e) In the case of Fact Paper Mills Limited (supra), the Director retracted the statement filed before the adjudicating authority. There was an evidence of Chartered Accountant certificate showing that production was 20MTPD on the basis of installed capacity. In the present case, retraction of statement in reply to show cause notice is not corroborating with any evidence.
(f) In the case of Alladi Drilling Equipment Pvt. Limited (supra), Revenue claimed that miscellaneous outward register was maintained by the security and had contained the details of material cleared and investigating officers had not recorded statement of any of the security persons. In the present case, a register was found in the office premises of the assessee and the Authorised Signatory had admitted the said document.
(g) It is evident from the record that in present case, the enquiry was conducted on various dates to corroborate clandestine removal of goods, and , the extended period of limitation would be invoked.
14. Regarding the imposition of penalty on the Director of the Company, I find that he has stated in his statement that he was not aware of the maintenance of Daily Progress Report Register in their factory. The findings of the lower authorities that the Director was aware of clandestine removal of the goods, is without any basis. Hence, imposition of penalty on the Director of the assessee is not proper. Having considered the peculiar facts and circumstances of the case, I find that it is not a fit case for confiscation of plant and machinery and raw materials, and imposition of redemption fine is not warranted.
15. In view of the above discussion, the impugned order is modified in so far as demand of duty of Rs. 4,44,066.00, alongwith interest and penalty on the shortage of raw materials is set-aside and the demand of duty on finished goods of Rs. 3,62,346.00 and Rs. 5,98,470.00 alongwith interest and penalty under Section 11AC of the Central Excise Act, 1944 are upheld. As the adjudicating authority has not allowed option to pay penalty 25% of duty within the specified period, the option is given to the assessee to pay penalty 25% of duty, subject to the entire duty as determined, alongwith interest and penalty of 25% of duty are paid within 30days from the communication of this order. The penalty imposed on the Director of the assessee and redemption fine are set-aside. The appeals filed by the assessee and the Revenue are disposed of in above terms. The appeal filed by Shri N.K. Surana, Director is allowed.
(Order pronounced in the open Court on : 01.05.2015) (P.K. Das) Member (Judicial) .KL 2