Custom, Excise & Service Tax Tribunal
M/S. Sri Rama Machinery Corporation Ltd vs Cce, Chennai I on 5 July, 2016
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
E/1074 & 1075/2005
(Arising out of Order-in-Appeal No. 12/2005 (M-I) (D) dated 24.9.2005 passed by the Commissioner of Central Excise (Appeals), Chennai)
1. M/s. Sri Rama Machinery Corporation Ltd.
2. G. Sampath Raj Jain Appellants
Vs.
CCE, Chennai I Respondent
Appearance Shri M. Karthikeyan, Advocate for the Appellant Shri K. Veerabhadra Reddy, JC (AR) for the Respondent CORAM Honble Shri D.N. Panda, Judicial Member Honble Shri B. Ravichandran, Technical Member Heard on : 10.06.2016 Pronounced on : 05.07.2016 Final Order Nos. 41065-41066 / 2016 Per D.N. Panda The appellants being aggrieved by order dated 24.9.2005 passed by learned Commissioner (Appeals) came to Tribunal in second Round of litigation. In the first round, for violation of natural justice, appellants were directed by Tribunal to appear before adjudicating authority for fresh hearing following due process of law.
2.1 The allegations in the Show Cause Notice dated 3rd / 6th October 2000 gave rise to the adjudication. Appellant was manufacturer of CTD bars and it was alleged that it cleared 269.712 MTs of such goods clandestinely for a value of Rs.39,35,694/- resulting in evasion of excise duty of Rs.5,13,351/-. Such loss of duty was demanded in appeal by learned Commissioner (Appeals) while learned adjudicating authority dropped the proceedings initiated by the show cause notice on the ground of lack of evidence as to the clandestine clearance. This is evident from para 21 of his order. The duty demanded was followed by interest and penalty.
2.2 Learned Commissioner (Appeals) threadbare examined the allegations, evidence gathered by investigation and pleadings of the appellants. He held in page 13 and 14 of his order that the adjudicating authority failed in his duty to raise demand despite sufficient evidence, both oral and documentary were available on record demonstrating the premeditated design of the appellant-company and its Director colluding with a racket of perpetuators of offence including bill traders (false invoice issuing persons in the name of non-existing concerns) and brokers. They all had oblique motive followed questionable modus operandi to fulfill this mission. He examined the plea of the Director of the appellant-company as to receipt of unaccounted raw-material of 200 MTs of MS ingots by it from its sister concern viz., M/s. Triveni Alloys Limited (TAL) and use thereof in manufacture of 180 MTs of CTD bars which were ultimately cleared clandestinely without issuing excisable invoice. He recorded that the rest of the 89.712 MTs of CTD Bars manufactured (269.712-180 MTS) were also cleared clandestinely. However Learned Commissioner (Appeals) granted cum-duty price benefit to appellant while computing its liability without any evidence in that regard available on record.
3.1 Investigation made on 7.8.1996 noticed that H. Chandra Sekhar Sharma alias Chander Sharma, Sitaram Ojha, R. Murali, Pankaj Saha were involved in the clandestine clearance of the CTD bars manufactured by various manufacturers including the appellant. The material recovered and evidence gathered form bill traders and brokers revealed that the brokers were securing orders from different buyers for supply of CTD bars to them. Such orders were passed on to the manufacturers including the appellant, who cleared their un-accounted manufactured goods clandestinely. Sri G. Sampath Raj, director of the appellant Company in his statement admitted that there was receipt of 200 MTS of unaccounted raw material i.e. M.S. ingots from its sister concern TAL and nearly 180 MTs of CTD bars were manufactured out of that which were cleared without payment of excise duty.
3.2 Investigation discovered one writing pad (marked for identification as No. 8 to Annexure A of mahazar and a folder marked as No. II (2)) from the premises of one Pankaj Saha who was a buyer of the CTD bars from the appellant company. Also writing pad (marked for identification as No. o4 to Annexure A of Mahazar was recovered) from the residence of Chandar Sharma who had issued false invoices (second sales invoice) in connivance with R. Murali, a broker. The quantity and value of offending goods, dealt by them was revealed from the above seized documents as described in para 3, 4 and 5 of the show cause notice.
3.3 Chander Sharma, the giver of false invoices revealed in his statement dated 8.8.1996 that he entered into such fraudulent activity in the year 1994 being supported by the re-rolling mill owners to do so. Second sales invoices were issued to the buyers as if the bill traders were traders of goods as second stage sellers buying such goods from manufacturers of excisable goods. Fraudulent activity of the appellant came to light from the versions of buyers of the offending goods from Tamilnadu and Kerala. Sri Sharma admitted that he had issued second sale invoices in the name of non-existing concerns. He further revealed that he came across the broker R. Murali who was procuring orders and instrumental for issue of false invoices. Under his advices he opened a bank account No. 351720 in the name of Tirupathi Enterprise at Mount Road in Tamilnadu Mercantile Bank (TMB) and the proceeds of the false bill were routed through that account. He also opened a bank account No.321528 in the name of S.S Enterprises at Mount Road, Tamilnadu Mercantile Bank (TMB). He further opened an account vide No. 325576 in the name of D.M. Agencies at T. Nagar, Tamilnadu Mercantile Bank (TMB). All these bank accounts were operated in the name of non-existing concern and a person called Ravikumar who has no identity was operating such accounts. Proceeds of clandestine removals were routed through these accounts.
3.4 Chander Sharma also stated in his statement that he came across one Shri Thangavelu who connived with him giving him two firm names namely RVS Traders and Krishna Traders for opening bank account in such names. Account of RVS Traders was opened in Tamilnadu Mercantile Bank (TMB), Mount Road Branch vide Account No. 321671. The account of Krishna Traders was opened at Tamilnadu Mercantile Bank (TMB) in Old Washermenpet vide No. 348395.
3.5 Chander Sharma also stated that in the year 1996, he came across with one Shri Mukesh A bank account in the name of Murugan Steels was opened by Mukesh in Tamilnadu Mercantile Bank (TMB), Mount Road Branch vide Account No. 320966. Accounts in the name of non-existing firms viz.,Eshwar Enterprises, Shri Durga Enterprises were also opened by Mukesh. Eshwar Enterprises and Shri Durga Enterprises were given to Rajesh Ojha and Babulal. Account was also opened in Tamilnadu Mercantile Bank (TMB) vide No.323633 and at Lord Krishna Bank, Teynampet.
3.6 All such accounts were maintained to route black mony colouring that to be sale proceeds of false transactions backed by false invoices. Shri Chander Sharma admitted that he had issued false invoices called second sales bill as if he had purchased the CTD bars and traded with the same. This modus operandi followed was to give shelter to the goods clandestinely cleared by the appellant company and sold to the buyers in Tamilnadu and Kerala. The proceeds thereof were routed through these accounts.
4.1 The brokers who secured orders were R. Murali, Rajasekar, Nachiappan and Bros, as well as Pankaj Saha. Chander Sharma explained his modus operandi as depicted by investigation in para 7 of the show cause notice. He admitted destruction of evidence which was done after completion of delivery of the goods. He categorically stated that the non-existing firms S.S. Enterprises, RVS Traders etc. were instrumentalities to give shelter to clandestinely cleared goods of the appellant.
4.2 The writing pad discovered from Chander Sharma in the course of investigation revealed clearance of the offending goods from 1.1.1996 to 31.5.1996 as well as for the period 1.6.1996 to 30.6.1996 in respect of different transactions. He further admitted that writings therein were made by him and the records pertaining to the earlier period were destroyed by him. He also admitted on 9.8.1996 that he dealt the transactions relating to clandestinely removed goods in the abbreviated names such as RVS, S.S, S.M.S, E.E indicating that RVS stood for RVS Traders, S.S for S.S Enterprises and S.M.S for Shri Murugan Steels and E.E for Eashwar Enterprises. He identified two second sale bills seized from Pankaj Saha, a broker which was available in Folder No. II under Annexure C1 3 to the mahazar.
4.3 Apart from noticing S. Chander was one of the key players in the racket of clandestine removal and issued false invoices, investigation also noticed that R. Murali, a broker was also a conduit for which search to his premises was made and his statement recorded. In his statement dated 7.8.1996, he admitted that he was a broker procuring orders of goods for the manufacturers of iron and steel. So also he vividly explained role of Chander Sharma who was issuing false invoices to accommodate clandestinely removed goods of the appellant. He stated that sale proceeds were routed through bank accounts opened in the name of non-existing concerns and members of the racket were beneficiary of the ill gain from such trade.
4.4 Murali identified Chander Sharma and admitted that he was assisting Sri Sharma to issue false invoices. He also stated that members of the racket colluded to give shelter to the clandestinely removed goods of the appellant and other manufacturers issuing false second sales invoices as if Chander Sharma was the buyer of the offending excisable goods from the appellant and others and selling that as second stage dealer.
5.1 Pankaj Saha, the Manager of Jai Hind Traders in Chennai, stated on 7.8.1996 and 10.8.1996 that he was engaged in the buying and selling of re-rolled CTD bars and MS rods from the appellant. He also admitted that the goods were procured under the false invoices issued by non-existing concern such as RVS Traders, Sri Murugan Steels, Priyank International etc. He further admitted that Chander Sharma was issuing such false invoices in the name of RVS Traders and Sitaram Ojha was issuing false invoices in the name of M/s. Priyank International. The materials seized from Pankaj Saha were not disowned by him. He explained the details contained therein which related to clandestinely removed goods of various mills including the appellants re-rolling mill.
5.2 One Shri Sanjay Kumar Ojha who was looking after the accounts of the non-existing firm M/s. Priyank International, in his statement dated 7.8.1996 admitted that the transactions were made through false invoices issued by Priyank International. Ojha had also issued false invoices in the name of M/s. Hira Traders.
6. Investigation noticed that in the name of Hira Traders false invoices were issued to one PMA Steels of Chennai. This was stated by A. Md. Saleem, Managing Director of that firm. He revealed that false invoices were issued in respect of certain quantities of the goods clandestinely cleared by the appellant. This comes out from para 7 of the show cause notice. Similarly para 18 of the show cause notice deals with other buyers namely Gold Star and Shams Steel Traders. They also stated that unaccounted goods were received by them from complex iron and steel company, Santhosh Metal, Priyank International, Shri Murugan Steels. These were all non-existing concerns.
7. In para 19 of the show cause notice, investigation brought out the result of enquiry with M/s. Eshwar Traders of Chennai. They came across two names viz., M/s. Iqbal Traders and Asik Steel. A. Mohammed Iqbal connected with these concerns stated that the re-rolled CTD bars without excisable invoices were procured from the appellant company. The non-existing concern Sri Murugan & Co., Venu Steel and M.H. Steel, Abu Steel and Others had issued false invoices as second sales dealer. This comes out from para 19 of the show cause notice.
8. The broker Shri Nikhul Kumar Jain, proprietor of Priyank International stated on 23.8.1996 that Priyank International was a non-existing concern and had lent his sale book with firm XX to Sitaram Ojha for issuing false invoices. Sitaram Ojha had opened bank account in the name of Priyank International and transacted the clandestinely removed goods of the appellant therein. He also identified the buyers M/s. Gold Star, Shams Steels, PMA Steel who were all beneficiary of the false invoices.
9. Search to Triveni Alloys Ltd. (TAL), the sister concern of the appellant at Gumudipoondi revealed that 209.075MT of unaccounted raw materials were supplied to the appellant without payment of duty. Sampath Raj Jain, director of TAL as well as the appellant-company admitted such fact in his statement on 30.4.1997 and 20.12.1998. He also admitted that the above quantity of the ingots cleared by TAL were utilized by appellant company for manufacture of re-rolled products and cleared the same unaccounted. This comes out from paragraphs 22, 23, 24 of the show cause notice. He further admitted that TAL received about 245.970 MTs of shredded scrap through a scrap broker namely Shri Bankat lal Indoria from M/s. Sujana Steels Ltd./Sujana Industries Ltd. Chennai. He further stated that 200 MTs of MS ingots were manufactured by TAL out of such scrap which were procured earlier unaccounted and the ingots produced out of such scrap were cleared to the appellant without bills. Using such unaccounted goods the appellant manufactured 180 MTs of CTD bars and cleared the same evading excise duty.
10. In the course of hearing by Tribunal, the appellant submitted that investigation made out a case without any basis. Learned adjudicating authority dropped the proceeding initiated by SCN dated 3rd/6th October 2000 considering no evidence against the appellants. But learned Commissioner (Appeals) superficially determined the liability and demanded duty to the extent of Rs.5,13,351/- followed by interest and penalty baselessly; there was no evidence available to show alleged clandestine removal of goods made by appellant company as well as its Director, Sri Sampath Raj Jain. The Director was not involved in the alleged act. Where the goods have gone was not evidenced. So also who were the buyers of the alleged goods did not come to record. In absence of any positive evidence of clandestine removal, the charges against the appellant failed to sustain. Accordingly order of learned Commissioner (Appeals) is liable to be set aside.
11. Revenue on the other hand says that when the adjudicating authority failed to take cognizance of the cogent and credible evidence recovered in the course of investigation demonstrating the questionable modus operandi of the racket and loss of public Revenue, as well as failed to appreciate value of the statements recorded from different persons who were actively and consciously involved in the evasion, Revenue went in appeal before learned Commissioner (Appeals) and succeeded. Commitment of offence by the members of the racket was clearly admitted and the director of the appellant Sampath Raj Jain also confessed evasion. He neatly described procurement of unaccounted raw material from its sister concern TAL and use thereof by appellant-company in manufacture of unaccounted finished good which were clandestinely removed through the conduits issuing false invoices. Such unaccounted raw materials produced 180 MTs of CTD Bars. When such cogent evidence were on record, learned adjudicating authority did not apply his mind to appreciate. That caused prejudice to Revenue. Learned Commissioner (Appeals) rightly allowed appeal of Revenue on good grounds. Demand was raised on 180 MTS of clandestinely removed goods. The appellate authority further held that 89.712 MTs (269.712 MTs - 180 MTs) of CTD Bars were also clandestinely removed by the appellant. It was liable to duty and penalty as well as interest. Learned appellate authority has also rightly levied appropriate penalty on both the appellants upholding the allegations made by investigation through echoing evidence surfaced during search.
12. Heard both sides and perused the records.
13. Appellant neither led any cogent evidence to controvert allegations of clandestine clearance of 269.712 MTs of CTD bars valued at Rs.34,22,342/- involving duty evasion of Rs.5,13,351/- alleged in the para 34 of SCN in respect of the periods involved in 1995-96 and 1996-97 nor discarded the evidence gathered by investigation against it. Nothing could be demonstrated by the appellant company to establish that it had no unaccounted clearances. The only prayer of the appellant was to take a lenient view when the appellant disclosed unaccounted finished goods of 180 MTs cleared clandestinely, manufacturing that out of the unaccounted raw materials received from its sister concern M/s. TAL as well as reducing this quantity from the alleged quantity of 269.172MTs to determine duty liability. So also the appellants prayer was to exonerate it from penal consequences of section 11AC of the Central Excise Act, 1944, Rule 9(2) and Rule 173Q(1) of the Central Excise Rules, 1944. So far as personal penalty on the Director is concerned, appellants prayer was that the Director not being personally involved in the alleged clandestine removal, may not be penalised.
14. Investigation brought out its story of clandestine removal of goods made by appellant in clear terms recording evidence from bill trades and purchasers of such goods as well as recovering certain incriminating materials from them during search. Their oral evidence remained intact without being assailed by appellant. The documentary evidence discovered from the custody of such witness also remained unchallenged by the appellant. Their involvement in the bill trading racket causing evasion could not be ruled out. The appellant-company admitted that the unaccounted raw materials came from its sister concern M/s. TAL were used by the former to manufacture 180 MTs of finished goods and such goods were cleared clandestinely evading excise duty. Modus operandi of the racket established the premeditated design of all of them bringing out their nexus, collusion and abetment as well as malafide intent of the appellant to cause evasion by an organized bid. Collusion with brokers and bill traders could not be ruled out by both appellants leading any cogent and credible evidence.
15. Bill traders engineered false invoices and document holding out that they were buyers of duty paid goods cleared by the appellant which were sold by them as second stage dealer. But that was not so. The conduits i.e. brokers and bill traders were agents of the appellant and engineered false documents to deceive Revenue. Version of bill traders and brokers unearthed oblique motive of the racket including the appellant who were all beneficiary of the ill gain made from clandestine removal. Brokers procuring order for supply of finished goods, transmitted the same to appellant for supply. Appellant supplied all duty evaded goods to them making clandestine clearance. This material fact came out from buyers of such goods. The Bill traders issued false invoices in support of such clearances as if they were traders of goods of the appellant. This was revealed by them in their statement and incriminating materials seized revealed such material fact.
16. All unaccounted transactions were routed through various bank accounts opened by the bill traders in collusion with brokers in the name of non-existing concerns. This was revealed by the bill traders and substantiated from the respective bank accounts. Such facts are elaborated at the outset in the preceding paragraphs of this order. Discovery of such bank accounts by the investigation remained uncontroverted by appellants for no contrary evidence led by them. Revenue discharged its burden of proof making allegation based on credible evidence gathered in the course of investigation. In the course of search, incriminating note books and documents recovered from different premises as has been depicted at the outset brought the truth of subterfuge done to Revenue. Appellant utterly failed to discard any of the evidence gathered by investigation.
18. The Director Sri Sampath Raj Jain admitted that 180MTs of finished goods were cleared clandestinely. Such clearance was apart from the clearance of 269.712 MTs of unaccounted goods appearing in para 28 of the show cause notice. It is surprising why investigation, adjudicating authority as well as appellate authority had misplaced sympathy on the evaders to confine the evasion to 269.712 MTs ignoring 180MTs of finished admitted by the Director of the appellant to have been clandestinely removed causing evasion of duty over and above the quantity of 269.712 MTs as stated above when Show Cause Notice provided foundation for proper levy of duty. There is no set off of one offence against the other permitted under law since each offence is cognizable independently for its trial and sentence awarded except the sentence awarded against different offences concurrently undergone. Therefore on the facts and circumstances of the case, confining evasion made the appellant company to 269.712 MTS, shall be a bonus to appellants for the deliberate breach of law when they clandestinely removed 449.712 MTs (180 MTs + 269.712 MTs) of finished goods evading duty.
18. The appellant when failed to maintain proper accounts it is not entitled to plea of set off of 180MTs clandestinely removed against unaccounted clearance of 269.712 MTs found by investigation in para 28 of the show cause notice. It is therefore required that without any hesitation the adjudicating authority has to re-compute the duty liability of the appellant in respect of 449.712 MTs which is aggregate of 180MTs of goods as well as 269.712 MTS of goods clandestinely removed as established from evidence gathered and recovered in the course of search and show cause notice provided basis. There was misplaced sympathy on the evaders. This can be said following the principle laid down by Honble High Court of Himachal Pradesh in the case of Commissioner of Central Excise Vs. International Cylinders Pvt. Ltd. 2010 (255) ELT 68 (HP). The Honble Court held that no law can be interpreted in a manner so as to give premium to illegal and criminal activities. It is basic commonsense that no person will maintain authentic records of the illegal activities or unaccounted manufacturing done by it. Therefore in absence of authentic record to show above clearances, preponderance of probability comes to rescue of Revenue and the plea of set off of offence fails. The echoing evidence on record established that investigation discharged its burden of proof bringing out proof of ill design of the appellant aided and abetted by the brokers and bill traders. Therefore there shall be no concession at all be granted to 180 MTs setting off the same against 269.712 MTS of goods clandestinely removed.
19. Honble High Court of Madras in the case of Alagappa Cement Pvt. Ltd. Vs. CEGAT 2010 (260) ELT 511 (Mad.) laid down the law that plea of absence of positive proof of commitment of offence is not a defence for the author thereof. It is settled principle of law that law does not insist upon an impossible threshold of proof to establish allegations, but if on probabilities the statutory authorities can establish evasion, the legal standards are adequately met with. The appellants were implicated for their complicity not on the basis of solitary evidence only, but cumulative evidence like actual manufacture not brought to accounts, clandestine removals were patent, conduct of parties questionable, false bank accounts opened to route sale proceeds of clandestine removals, destruction of evidence, false invoices issued in the name of non-existing concerns which are determinative factors and sufficient to justify the levy under the charge of clandestine removal for the settled principle of law that no one should be enriched at the cost of the State as well as no court should allow any body any benefit not due to it following the ratio laid down in Chengalvaraya Naidu (1994) 1 SCC 1: AIR 1994 SC 853. Accordingly the appellant company is not only liable to duty on 180 MTs but also on 269.712 MTs clandestinely removed. Thus duty on 449.712 MT (180MT + 269.712MT) is accordingly imposable by adjudicating authority. It is also settled principle of law that negative equality cannot be pleaded as a defence to any action which is not in accord with law and justified Rajiv Kumar Sharma Vs. Commissioner of Central Excise (Del.) 2012 (276) ELT 321 (Del.). When investigation has discovered the truth and the bill traders as well as the purchasers of clandestinely removed goods demonstrated the questionable modus operandi of the appellant proving that goods of the appellant were dealt by them resulting in evasion of duty and their evidence remained uncontroverted, the appellant is answerable to law for the evasion of duty it has caused.
20. Beginning from the show cause notice all the authorities have erroneously held that the appellant is entitled to cum-duty benefit. It is shocking to know that how such a concession can be given to an evader who did not maintain authentic record recognized by law to demonstrate cum duty clearness. Appellant resorted to clandestine removal and no records were maintained in respect of such clearance. Therefore the duty evaded transactions which have never seen the light of the day deserve no concession of cum duty benefit at all. The tainted deals should be banned by coercive measures of law to prevent recurrence thereof as were as to discourage evasion. If such benefit is granted, that shall legalise illegalities. The very false documentation by the bill traders and spurious bank accounts maintained in the name of non-existing concerns establishes malafides of the appellant-company which does not permit it to any concession in law including the cum-duty benefit. Therefore, this benefit should not be allowed by learned Adjudicating Authority while re-computing the liability of the appellant.
21. So far as imposition of penalty under section 11AC, Rule 9(2) and Rule 173Q(1) of Central Excise Rules 1944 are concerned, it may be stated that section 11AC was not in force at the relevant point of time. That section having been enacted in the statute book with effect from 28/09/1996, that is not invocable.
22. So far as application of Rule 173Q(1) is concerned, there arises penal consequence for the intention of the appellant causing evasion which came to record with full proof. The evidence came to light demonstrated the systematic manner of evasion. Appellant was consciously and actively concerned as well as involved in the said illegal act. Deliberate breach of law by appellant could not be ruled act. Therefore penalty under Rule 173Q(1) of Central Excise Rules 1944 which is equal to the amount of duty evaded is to be imposed by Adjudicating authority upon recomputation of revised duty liability following the direction made as aforesaid. Similarly penalty of Rs.2,000/- is also imposed under Rule 9(2) of Central Excise Rules, 1994. Interest on duty demand shall follow.
23. So far as the involvement of the Director Shri Sampath Raj Jain is concerned, his involvement in clandestine removal has surfaced when investigation brought out his confessional statement which remained unretracted at any point of time. He disclosed that the sister concern of the appellant-company had cleared unaccounted raw material to the appellant company and such goods were used to manufacture 180 MTs of unaccounted finished goods by appellant which were cleared clandestinely. His conscious knowledge and involvement in evasion came to record without any doubt. Having perpetuated illegality and resorted to evasion deliberately, he is not immune from penalty imposed on him for which his appeal is dismissed.
24. In the result, both appeals are dismissed with the direction to the adjudicating authority to re-compute the liability as directed by this order without granting cum-duty benefit and levy penalties as indicated above.
(Pronounced in open court on 5.7.2016) (B. RAVICHANDRAN) (D.N. PANDA) Technical Member Judicial Member Rex 9 22