Customs, Excise and Gold Tribunal - Calcutta
J.K. Corporation Ltd. vs Commr. Of C. Ex. And Cus. on 28 January, 2003
Equivalent citations: 2002ECR490(TRI.KOLKATA), 2003(160)ELT253(TRI-KOLKATA)
ORDER Archana Wadhwa, Members (J) 1. These three bunches of appeals are being disposed of by a common Order inasmuch as the impugned Orders are against the same main appellant firm, M/s. J.K. Corporation Ltd. and its employees, and the issue involved in all the three sets of appeals is identical. 2. The details of the duties and penalties in each set of appeals are being given below ;- Appellants Duty Penalty Appeal Nos. E-604-607/2000: (1) M/s. J.K. Corporation Ltd. Rs. 56,68,991.00 Rs. 10,00,000.00 (2) G.D. Kabra ... Rs. 5,000.00 (3) V.S. Kansal ... Rs. 5,000.00 (4) Surendra Malhotra ... Rs. 10,000.00 Appeal Nos. E-612-615/2000: (1) M/s. J.K. Corporation Ltd. Rs. 41,75,460.00 Rs. 7,00,000.00 (2) G.D. Kabra ... Rs. 4,000.00 (3) V.S. Kansal ... Rs. 4,000.00 (4) Surendra Malhotra ... Rs. 8,000.00 Appeal Nos. E-17-18/2001: (1) M/s. J.K. Corporation Ltd. Rs. 57,60,563.00 Rs. 57,60,563.00 (2) G.D. Kabra ... Rs. 5,000.00 3. The appellants, M/s. J.K. Corporation Ltd. are engaged in the manufacture of Polyester Staple Fibre and Polyester Filament Yarn. The various raw materials used in the manufacture of the said final product are Purified Terephthalic Acid (PTA), Mono Ethylene Glycol (MEG) and P.P. Chips. The demands of duties have been confirmed against the main appellant firm on the ground that the input-materials on which the appellant firm is availing the Modvat Credit, have not been utilised in the manufacture of the said final product to the extent indicated in the impugned Orders, though the statutory records showed their consumption. Accordingly, demands were confirmed and penalties were imposed upon the main appellant firm along with the imposition of personal penalties on the various other persons under the provisions of Rule 209A of the said Rules. 4. In Appeal Nos. E-612 to 615/2000, demand of duty has been confirmed on the ground that 285.209 M.T. of P.T.A. shown to have been used in the manufacture of the final product and as reflected in the appellants' Modvat Accounts, have, in fact, not been utilised for the manufacture of the finished goods during the period from October, 1994 to September, 1995. As per the facts on record leading to passing of the impugned Order dated 25-9-2000, the appellants' factory was visited by the Preventive Officers of Central Excise on various dates and various checks and verifications were conducted. It was noticed that apart from maintaining the statutory Central Excise records, the appellants were also maintaining PTA Charging Register/PTA Log Books. The said records were being maintained by them operator shift-wise. The said Charging Register contains the basic data as regards the quantity of PTA fed into a hopper maintained shiftwise. Apart from the PTA Charging Register, another Register namely, "Shift Engineers Log Book" was also found to be maintained by the appellants. On interrogation, Shri R.H. Shukla, Senior Manager stated that the figures of consumption of PTA as mentioned in the said records, were the actual consumption figure. He also gave the details as regards feeding of various raw materials into hoppers and their conveyance for production and the system of receipt of the raw materials, their emptying into the hoppers and conveyance of the same for further production. Shri Shukla in his statement recorded before the Officers on 5-2-1996 also stated that PTA Charging Figure is based on PTA bags charged during the shift. The bags charged are mentioned in the PTA Log Book, which are maintained by a Shift Operator. He deposed that the Consumption Figures shown in the PTA Log Book are the actual Consumption Figures. The said PTA Log Book contained one column for recording PTA consumption. The figures of PTA consumption were being entered by a Senior Engineer called Shift Engineer. 5. During the course of further investigations, statements of various persons holding senior positions in the appellants' factory were recorded. As a result, it transpired that PTA Log Book and Shift Engineer Log Book were being maintained by the appellants for the purpose of ISO-9002 certification. On comparison of the figures of consumption of PTA as reflected in these two records and the entries made in RG-23A Part-I register and as reflected in RT-5 returns, it was found that the appellants have, in fact, consumed lesser quantity of PTA than what has been reflected in their Modvat Accounts. 6. Based upon the result of the above investigations, the appellants were served with a show cause notice dated 20-2-96 alleging that 492.708 MTs. of PTA on which the appellant firm has claimed the Modvat credit has, in fact, not been utilised by them in the manufacture of their final product. Thus the notice proposed confirmation of demand of duty of Rs. 72,13,259.60 under the provisions of Rule 57-I along with the imposition of personal penalty upon the main appellant firm, as also upon the other persons under the provisions of Rule 209A. The said show cause notice culminated into the impugned Order passed by the Commissioner of Central Excise and Customs, Bhubaneswar-I on 25-9-2000, wherein after taking into account the appellants' various pleas and submissions, he concluded that 285.209 MTs. of PTA was not shown to have been consumed by the appellant firm. Accordingly, he ordered for reversal of the Modvat credit of Rs. 41,75,460.00 under Rule 57-I and imposed a personal penalty of Rs. 7.00 lakh upon the main appellant firm. Penalties were also imposed on the other appellants involved in the present set of appeals. 7. Similarly, in Appeal Nos. E-604-607/2000, an amount of Rs. 56,68,991.00 has been confirmed against the main appellant firm, M/s. J.K. Corporation Ltd. on the finding that 858.938 MTs. of MEG, an input on which the appellants have availed the Modvat credit as input has not been utilised by them in the manufacture of the appellants' final product. The said findings are also primarily placed on comparison of the Consumption Figures of MEG as reflected in the Shift Engineer Log Book maintained by the appellants for controlling the process parameters and as a part of ISO-9002 records. 8. In Appeal Nos. E-17-18/2001, the Modvat credit denied is in respect of 256.025 MTs. of Polyester Chips, one of the raw materials. The said confirmation of demand of duty is again based on the Consumption Figures of Polyester Chips as recorded in Charging Register maintained by the appellant firm under ISO-9002 records. 9. Dr. Samir Chakraborty, learned Advocate appearing for the appellants submitted that the very basis of the impugned Orders passed by the Commissioner is assumptive inasmuch as he has wrongly relied upon the entries made in the records maintained by the appellants for the purposes of ISO-9002. He submitted that they were maintaining the statutory records which are more authentic and reliable than the records forming part of ISO-9002. He clarified that the various records relied upon by the Revenue are part of ISO-9002 which is meant for quality management and cannot be made the basis for arriving at a finding on the Consumption Figures. The various raw materials as reflected in their statutory records were correct. He also emphasised that the physical stock verification of the various inputs was also done by the Visiting Central Excise Officers on the day of their visit and no discrepancy was found. This fact also shows that the appellants were maintaining the correct records under the Central Excise Law. He submitted that apart from comparison of figures between the statutory and private records, there is no other evidence to show that the appellants had indulged into any clandestine removal of either the raw materials or the final products. Referring to various decisions, he submitted that the onus to prove that there was any clandestine activity going on at the appellants' end, heavily lies upon the Revenue and is required to be discharged by production of affirmative and tangible evidence. He further submitted that ISO-9002 is a Quality Management and Quality Assurance Standard prescribed by the Bureau of Indian Standards. The standard specifies quality system requirements for use where as supplier's capability to design and supply conforming to the product, needs to be demonstrated. In the premises, the consumption Figures of PTA obtained from the Shift Engineers' Log Book, cannot be the correct figures of consumption and the quantities as reflected in the RT-5 returns which were based on the figures contained in the statutory RG-23 Part-I register, are the correct quantities of PTA consumed. He also submitted that the scope and purpose of the ISO-9002 and the maintenance of registers as required under the said Law, are different. He advanced the same arguments in respect of all the three sets of appeals. 10. Dr. Chakraborty also submitted that the PTA Consumption Figures as involved in Appeal Nos. E-17 & 18/2001 are not correct inasmuch as it was contended before the adjudicating authority that some of the pages of the said registers were missing. He has accepted this fact but then shifted his basis for arriving at a finding against the appellants on Shift Engineers' Log Book. In respect of another input i.e. MEG involved in Appeal Nos. 604-607/2000, he submitted that the entries in the Log Book cannot be the conclusive evidence of the actual consumption of the said input inasmuch as they were based on assumption of four per cent plus/minus error. Explaining, he further submitted that Shiftwise MEG Consumption Figure is calculated on level drop indication of MEG feed tank or on the basis of exactometer reading which has a margin of error of ±4%. Daily MEG consumption is calculated from opening stock of MEG in new MEG tank and MEG feed tank plus new weight received minus closing stocks of MEG tank and MEG feed tank based on tank from level gauge reading. On the closing day of every month, physical stock of MEG is ascertained by dip tape reading and the cumulative consumption figure is adjusted in the RG-23 Part-I with the help of the passes issued by the Production Department. However, correction in Engineers' Log Book is correspondingly not done. Inasmuch as this adjustment was done in the said Log Book, the entries made in the Log Book differed from the entries reflected in the RT-5 returns. 11. Similarly, in respect of Polyester Chips involved in Appeal Nos. E-17 & 18/2001, he submitted that 1 Kg. of PP Chips is required to make 1 Kg. of the finished products including waste as per standard norms. He submitted that such input/output ratio was the basis of their agreement with their foreign collaborators. Further, referring to the discrepancy in the total quantity of PP Chips as reflected in the Charging Register and as reflected in the Shift Engineers' Log Book, he submitted that the said two records relied upon by the Revenue are not authentic records being maintained under ISO-9002 and the difference is to the extent of more than 260 M.T. This fact by itself shows that the said registers cannot be made the basis while arriving at a correct Consumption Figure of PP Chips by ignoring the statutory records. He further submitted that the findings of the Commissioner are imaginary. By giving the details of the Consumption Figure of PP Chips during the period from May, 1994 to January, 1995, he submits that there would not be any difference between the Consumption Figure and the final product because of a minor difference of 2,6922 MTs. which would be to the extent of 0.073%. In view of the foregoing submissions, he prayed for setting aside the impugned Orders. The prayer for setting aside the personal penalties upon the various persons under the provisions of Rule 209A is based on the arguments that Rule 209A requires the condition precedent for imposition of penalty upon a finding that the person concerned was aware of the fact or had reason to believe that the goods in question were liable to confiscation. In the instant cases, from the impugned Orders, it would be evident that no finding has been given by the Commissioner that the goods were liable to confiscation. As such, he submitted that Rule 209A is not attracted and imposition of penalties upon the various persons under the said Rule was not justified. He relies upon the Tribunal's decision in the case of Anil Kumar Saxena v. Commissioner of Central Excise, Meerut reported in 2001 (129) E.L.T. 351 (T). 12. Countering the arguments, Shri A.K. Chattopadhyay, learned JDR for the Revenue submitted that the Commissioner has passed a detailed Order discussing each and every argument advanced by the appellants and has given a detailed reasoning for arriving at a conclusion. He submitted that the appellants are strictly following the standard of ISO-9002 for which they have obtained a certificate. He filed a written submission advancing his various contentions as follows :- (i) To maintain ISO-9002 standard, the Company has to maintain some correct records regarding utilisation of the raw materials, timing etc. etc. which can be verified at any time by the authority to approve the standard maintained under ISO-9002. In this case also, all the responsible officials of the company like Production Engineer, Director, DGM kept the correct account of the raw materials particularly by making entry in their PTA Log Book/Shift Engineers' log Books. The said entries reflect the actual consumption of the particular raw materials i.e. Purified Terephthalic Acid (PTA) MEG & other. (ii) That those senior officers at no stage have retracted their statements regarding the actual consumption of PTA as stated by them and as it is shown from the PTA Log Bcok/S.E.L.Bs. (iii) That the appellants in their arguments have stated that the PTA Consumption Records were found as per their statutory records i.e. RT-5 returns and the stock lying in the factory were also found as per their statutory records, but the appellants at no stage have disputed the statements of the Higher Dealing Officials who made entries of the actual Consumption Figures of PTA in terms of the norms of ISO-9002 in the Log Book/S.E.L.Bs. Under the present circumstances, either the records maintained in RT-5 reports will be correct or the records kept by the Engineers in the Log Book will be treated as wrong. If the records kept by the Engineers are taken as wrong, then the goods in question cannot be up to the standard of ISO-9002 for which the company has got a certificate. It is difficult to believe that the officials responsible for the manufacture of the products in question in terms of ISO-9002 will maintain wrong report as claimed by the appellants. (iv) That the appellant firm has admitted that some pages of the Log Books are found missing. These also raised doubt about the activity of the Company. (v) That it is a fact that statutory records when maintained correctly and when no other evidence contrary to that are found, should rely on the statutory report but when there is a clear evidence of lesser consumption endorsed by the responsible Officials directly connecting with the process of production and when they categorically stated that their records were correct and genuine, at that stage, the Department can dispute the statutory records by admitting the correct records maintained by the Higher Officials connected in the process of manufacture. (vi) That the Hon'ble Bench should appreciate that Standard ISO-9002 is a very sophisticated and highly technical in rature. To get the standard, the Company has to pass through strict technical test and norms and specified parameters. In this case also, the appellant company has got the Standard ISO-9002 and accordingly, they have to maintain the strict norms and parameters as specified in ISO Standard. The concerned engineers of the appellant company attached with the process of manufacture maintained the records correctly so that the Standard ISO-9002 is maintained. Under these circumstances, it is difficult to believe that the concerned Production Engineers were maintaining wrong figures. Moreover, in each and every stage, they have stated that their figures maintained in Log Book are correct. (vii) That in view of the above position, there can be two possibilities - (1) that the Company is maintaining correct figure in their statutory records, and (2) the Engineers are maintaining wrong figures in the Log Book resulting into violation of the norms and parameters of ISO-9002. The Hon'ble Bench will appreciate that the second possibility is out of question since in that case, they will not get the ISO-9002 Standard for which they have got certificate after modernisation of the appellant company, therefore it can be safely concluded that the figures maintained in the so-called statutory records are not correct. The Hon'ble Bench should also appreciate that no assessee will keep the excess quantity/unutilised quantity of inputs in their factory, when the question of huge amount of duty is involved. It is well-settled matter that offence by the Revenue cannot be established in terms of mathematical perfection. In most of the cases, offences are taken to be established on the basis of strong circumstantial evidences. In this case also, the offence has been established on the basis of strong circumstantial evicence which is more than enough to disbelieve the so-called statutory record. In view of the foregoing, he prays for rejection of the appeals. 13. As per narration of facts in the preceding paragraphs, it is seen that the demands of duties have been confirmed against the main appellant firm, M/s. J.K. Corporation Ltd. on the ground that the figures of consumption of inputs as reflected by them in their statutory RT-5 quarterly returns are different from the figures of utilisation shown in the Log Books and the Shift Engineers' records. The RG-23A Part-I and Part-II are being maintained by the appellants as per the Central Excise Rules for the purposes of reflecting the quantum of inputs received by them and utilised in the manufacture of their final product and the quantum of Modvat credit availed on the same. RT-5 returns filed by the appellants declare such Consumption Figures based upon RG-23A Part-I records. The assessments are made by the Central Excise Authorities based upon such quarterly returns filed by the assessee. On the other hand, the Shift Engineers' Log Book which is being maintained by the appellants under ISO-9002 are the internal records of the appellant firm, which were never placed before the authorities. The said records show the different figures of consumption of the various raw materials. The comparison of the figures as given in the two records vary and show difference in the quantities and consumption of the raw materials resulting in allegations by the Revenue that the appellants have availed the Modvat credit on excess quantity of raw materials, which have not been, in fact, used by them in the manufacture of their final product. The appellants have not denied the fact that on comparison of figures between the two records, difference is there. However, they have challenged the findings on the ground that the statutory records were correct records, at the same time, not denying the fact that the records maintained under ISO-9002 reflect the correct position. As such, as rightly contended by the learned JDR, only one of the two sets of records can be said to be reflecting the correct position. 14. The Commissioner in his impugned Order involved in Appeal Nos. E-612-615/2000 has discussed in detail the statements of the various persons who are responsible for the production of the final product as also of the maintenance of the records. In almost all the statements, relative portion of which have been reproduced in the impugned Order, the deponents have admitted that the basis of obtaining the ISO-9002 Certificate is that the product manufactured by the appellants, was as per the standard certificate and standard process, well documented to ensure reliability of the quality and the consumption of raw materials as reflected in the registers under ISO-9002, were actual. Specific reference to the statement of Shri R.H. Shukla has been made by the adjudicating authority wherein in an answer to a question - "Has there been any chance, where more material than figuring in the PTA charging Log Book, CP Report, Chips charging register etc. has been used and the figures in the above registers, are actual consumption figures of consumption of raw materials or not?" - he has replied - "There are no chance and nor has it occurred. The figure shown in above registers are actual consumption." Further, in an answer to a question, Shri R.C. Periwal, Vice President (Marketing), in his statement recorded on 30-1-96, had deposed that ISO-9002 Scheme provides for periodic audits of records and if the recipient of ISO-9002 does not comply with the provisions of this Scheme, the certification could even be cancelled. 15. As such, we find that the PTA Log Book and Shift Engineers' Log Books maintained by the appellants under ISO-9002 are the most authentic records and the entries made therein for the purposes of ISO 9002 certification, cannot be disputed. Such records are continuously subjected to ISO-9002 Audit and Shri Periwal had admitted that no adverse remarks were given by such Audit Parties inasmuch as the appellant firm was complying with the provisions of the said Scheme. 16. Modvat is a beneficial piece of legislation. The assessee is required to maintain proper records under the Modvat Scheme showing receipt of the inputs and its utilisation in the manufacture of the final product. Quarterly returns showing such consumption are required to be filed by the assessee. Assessments of such returns are made by the Central Excise Officers based upon the declarations made by the assessee. In these circumstances, it is expected that a person who is enjoying the benefit of Modvat credit of Duty paid on the inputs, would maintain the proper records. The present dispute has surfaced on account of the investigations made by the Revenue. There is admittedly difference in the Consumption Figures as reflected in the statutory records and the internal records maintained by the appellants for different purposes. The appellants have not been able to satisfactorily explain the difference between the two. Once the difference was established by the Revenue, the onus to prove and fill the said gap lied heavily upon the appellants who are required to discharge the same by showing sufficient and affirmative material on record, which they have failed to do. Merely because the assessment of RT-12 returns was completed and no objection was raised by the Revenue during the relevant period in question will not come to the rescue of the appellants inasmuch as the present cases have been made out against the appellants on the basis of the incriminating internal documents unearthed in course of the Preventive Investigations against them. As rightly observed by the Commissioner, the Engineer being in the charge of the Shift, the consumption entries made by him have to be taken as final and authentic and in the absence of any explanation coming from the appellants as to why the said registers record different consumption than the one reflected in the statutory records, the allegations levelled by the Department about the lesser consumption of the raw materials than what has been shown, stand substantiated. 17. The appellants have also referred to a number of cases in support of their contention that the Revenue has not been able to prove the clandestine removal of the inputs by any independent evidence. They have referred to the Tribunal's decision in the case of Utkal Polyweave Industries (P) Ltd. & Others reported in 2001 (136) E.L.T. 520 (T) - 2001 (42) RLT-1004 (CEGAT). It is seen that the ratio of the said decision is not applicable to the facts of the present cases. In that case, the allegation was as regards the clandestine manufacture and clearance of the final product, which was based upon the internal issue notes. The Tribunal observed that the appellants have satisfactorily explained the difference between the issue notes and the invoices and there being no other evidence on record, there was failure on the part of the Revenue to establish the clandestine removal. Similarly, the Tribunal's decision in the case of Prabhavati Sahakari Soot Girni Ltd. v. Collector of Customs & Central Excise [1990 (48) E.L.T. 522 (T)] held that the allegations made by the Revenue based upon variation between private and statutory records were not sufficient so as to uphold the charge of clandestine removal of the final product. In another decision in the case of Hindustan Lever Ltd. v. Collector of Central Excise, Raipur reported in 1996 (87) E.L.T. 385 (Tribunal) relied upon by the appellants, difference between the RG-I and the Private Records was held as not sufficient material so as to sustain the charge of clandestine removal. It was held in that case that there was no difference between the production slips and the production as recorded in RG-I. It was, in these circumstances, that the charges of clandestine removal were dropped against the appellants. All these cases are distinguishable from the facts of the present cases where the appellants had not disputed the entries made in the Log Book or the Shift Engineers' Log Book and it is also not a case of clandestine removal of the final product without payment of duty. To expect the Revenue to prove its case on mathematical precision is expecting them to do the impossible. When admittedly the two sets of records maintained by the appellants, show the difference in the Consumption Figures of raw materials, the onus to explain such a difference shifts to the appellants, especially when such Consumption Figures in the records maintained under ISO-9002 have been admitted to be correct figures by the various Senior Officers of the appellant firm in their statements recorded during the investigations. In fact, we find that the Tribunal in the case of Shree Vallabh Glass Works Ltd. v. Collector of Central Excise, Ahmedabad reported in 2000 (126) E.L.T. 1117 (Tribunal) has held that Machine performance reports being prepared and signed by the Glass Technologist of the factory who confirmed that figures in the machine report are figures of actual production were correctly relied upon for computing production even if there are only private records. In the instant cases, the figures under ISO-9002 are being maintained by the Senior Engineers and have also not been disputed by the appellants to be not correct figures. As such, we are of the view that the findings of the Commissioner about the above utilisation of the raw materials on which the appellants have availed the Modvat credit, are correct. 18. Learned J.D.R. has also relied upon another decision of the Tribunal in the case of L.M.L. Ltd. v. Collector of Central Excise, Kanpur reported in 1997 (94) E.L.T. 519 (Tribunal). He submits though in that case, the charges of clandestine removal were held as having not been established, but the Tribunal in para 13 of the judgment observes that private records have evidentiary value only if the statements recorded are of the concerned persons i.e. either the authors or the recipients of the communications and if these persons had made admission as to their culpability. The recording of the figures in the Shift Engineers' Log Book, has not been disputed as being incorrect, by the appellants. To the same effect is the statements of other Senior Persons admitting the entries to be correct. 19. In view of the foregoing discussions, we do not find any merits in the appeals filed by M/s. J.K. Corporation Ltd. and reject the same. 20. As regards the personal penalties upon the various persons involved in the three sets of appeals under the provisions of Rule 209A, we are of the view that there is no specific evidence on record against the said persons so as to invoke the provisions of Rule 209A against them. Accordingly, we set aside the personal penalties imposed upon the other appellants under the said provisions. All the appeals are disposed of in the above manner. Sd/- (Archana Wadhwa) Member (Judicial) C.N.B. Nair, Member (T)
21. The dispute is about the utilization of two inputs, namely, Polyester Chips and Mono Ethylene Glycol (MEG) by the appellant in the manufacture of the specified final products, namely, Polyester stapple fiber and Polyester filament yarn. The impugned orders have reached the finding that the appellant actually did not use the disputed quantity of Polyester Chips and Mono Ethylene Glycol in respect of which Modvat credit had been taken in the manufacture of the final products, but clandestinely removed these quantities without payment of duty. The duty demands and imposition of penalties are a consequence of this finding.
22. The main evidence for reaching the finding regarding clandestine removal is that certain internal records maintained by the factory personnel showed the utilization of the inputs less by the quantities on which duty demands have been made, even though statutory Central Excise records showed issue of these quantities also for the manufacture of the final products. The private records in question were the Charging Register, and Shift Engineers Log Book maintained in connection with the ISO 9002 Certification. The impugned orders have held that ISO 9002 records were authentic record about the actual consumption of inputs inasmuch as they are maintained in terms of the high standards imposed under ISO 9002. Reliance has also been based on the statements of the officials of the Company that in terms of ISO 9002, these records are required to be kept and that their records had been correctly kept. Thus, the demands have been confirmed by preferring one set of records of the appellants to another set of records.
23. The submission of the appellant is that the difference in quantities as noticed between the two sets of records is no ground for presuming that the differential quantity has been clandestinely removed. The main plank of the appellant's defence is that since the inputs consumption shown in the statutory records corresponded to the standard input output ratios, those figures should be treated as reflecting the correct and actual consumption of inputs and the differences with the figures in the private records attributed to errors while recording quantities.
The appellants have strongly contended that the variation between the private records and statutory records can be attributed only to errors and mistakes inasmuch as quantities of final products manufactured from the inputs in question were in accordance with the input output ratio of the machinery in use. With regard to Mono Ethylene Glycol it has been pointed out that, during the relevant period, actual consumption was better than the norm, i.e. 0.342 as against the standard norm of 0.348 of the manufacture of the machinery. In respect of polyester chips also, consumption as per the statutory records was in accordance with the standard input output norm, the appellants have also pointed out that during the years in question, a very large quantity of both the inputs got consumed in their factory and the differences found between the two records was indeed negligible. Essentially, the submission of the appellant is that there is no reasonable basis for holding that part of the raw materials had been clandestinely removed since the production of final goods from the raw materials corresponded with the input output norm. The difference in quantity is also negligible when compared to the large quantity consumed. The differences should reasonably be held as on account of errors in entering the quantities in the various books. They have also submitted that it is normal that such different occur when accounts are kept at difference stages and such unreconciled differences are only written off according to normal accounting and management practices.
24. In support of their explanation they have also submitted that differences in quantities are noticed between the private records themselves i.e. between the charge register kept by the workers and the Log Book of Shift Engineer, thus, showing that differences can be the result of human error in recording quantities charged. Yet another ground taken by the appellants is that unit was under physical control of Central Excise Officers during part of the period covered in these proceedings and no diversion of the inputs had been noticed or raised by the officers, even though they were aware of the entire accounting procedure followed by the appellants. The appellants have raised this ground for treating the demands as time barred also.
25. Thus, the issue for determination in these appeals is whether the materials on record justify a finding of clandestine removal of the alleged quantities of inputs. The very first thing to be noted in this regard is that there is no material whatsoever relating to removal, sale, purchase, transport etc. of the alleged material, by way of records or statements of parties. Finding of clandestine removal has been reached solely on the basis of lesser quantities shown as charged into the production machinery. The differences are very small when compared to the over all consumption of materials during the relevant years. The consumption of the inputs as shown in the Statutory Records corresponded to standard input output norms. Input output norm is a reliable guide in assessing consumption of materials and resultant production. If the output and the consumption of the inputs corresponded to the standard norm, it is to be accepted that the inputs have been used for the production of the output in question. A contrary view would need, evidence to justify it. It is also normal that when accounts are kept at several stages some human or other errors creep in. It is normal to over look such inconsequential differences caused by errors. All systems have to give allowance for invisible losses or gains on account of such errors. In the present case, it is not in dispute that the production accounted for (and on which duty was paid) corresponded to the machine norm of consumption of Modvat inputs. There is no evidence whatsoever that statutory records were in any way tutored or that materials accounted as used in production of Statutory Records were disposed of in any way other than for the production of final products. In these circumstances, the gap between the quantities shown in the Statutory Records and quantities entered in the Private Records of the factory could be treated only as invisible losses, on account of human or other errors. A different view would be contrary to standard practice in management and accounting. A presumption that the difference is on account of clandestine removal of the materials would not be justified merely because this case related to a beneficial scheme to the assessee, namely, Modvat Scheme.
26. In these facts and circumstance, I am of the view that there are no materials on record to support a finding of clandestine removal. The differences between quantities of consumption entered in Statutory records and private records have been satisfactorily explained by the assessees. Accordingly, I am of the opinion that all the appeals are required to be allowed and the impugned orders are required to be set aside.
Sd/-
(C.N.B. Nair) Member (Technical) DIFFERENCE OF OPINION "Whether the appeals of M/s. J.K. Corporation Ltd, are required to be rejected and the appeals of the other appellants are required to be allowed, as held by the Member (Judicial) or all the appeals are required to be allowed, as held by the Member (Technical)."
In view of the above difference of opinion between the Order passed by Member (Judicial) and the Order passed by Member (Technical), the matter is placed before the Honourable President for referring the same to a Third Member.
Sd/- Sd/-
(C.N.B. Nair) (Archana Wadhwa)
Member (Technical) Member (Judicial)
V.K. Agrawal, Member (T)
27. I heard Dr. Samir Chakraborty, learned Advocate for the Appellants along with Shri Abhijit Biswas, learned Advocate and Shri A.K. Pandit, learned DR for the Revenue, on the question referred as to whether the appeals filed by M/s. J.K. Corporation Ltd. are required to be rejected as held by the Hon'ble Member (Judicial) or are required to be allowed as held by the Hon'ble Member (Tech.).
28. Dr. Samir Chakraborty submitted that ISO-9002 specifies quality system requirements for use where a supplier's capability to supply conforming product to an established design needs to be demonstrated; that the requirements specified are primarily at achieving customer satisfaction by presenting non conformity at all stages from production through to servicing; that according to ISO-9002 the supplier's management shall define and document its policy for quality, including objectives for quality and its commitment to quality; that the supplier shall establish, document and maintain a quality system as a means of ensuring that product conforms to specified requirements; that the supplier shall prepare a quality manual covering the requirements of the standard; that the supplier shall prepare documented procedures consistent with the requirements of ISO-9002 and the supplier's stated quality policy and effectively implements the quality system and its documented procedures. He mentioned that accordingly the Appellants have developed a system to provide a method such that all processes which directly affect quality are carried out under controlled conditions; that as per Para 5.1.11 of the said System, quantitative figures relating to material in process and waste in all the quality records are estimated approximates only required for monitoring the process but in no way affect the quality assurance system as such. The learned Counsel thus contended that the figures of raw material consumed are approximates only and no duty demand can be made on that basis.
29.1 He, further submitted that duty has seen demanded in respect of 492.709 M.T of P.T.A. on the ground that the said quantity had not been used in the manufacturing of finished goods as per PTA Log Book; that the figures in PTA Log Book were not correct as many pages of the log books were missing for a particular shift/day; that if the entries made in respect of those missing pages were taken from the Shift Engineer's Log Book [SELB], it would show that the quantity of PTA charged to process on those missing dates aggregated to 498 MT; that the total PTA charged on 16-11-1994 was 24 M.T and not 22 M.T as stated by them and thus there would have been a difference of about 7.3 M.T. which is only 0.0481 of total consumption of PTA; that such difference is bound to occur in manufacturing process. He also emphasized that the figures of PTA obtained from the SELB cannot be the correct figures of consumption of PTA and the quantities shown in RT-5 Returns which were based on the figures contained in the statutory RG 23 Part-I are the correct figures; that moreover the clandestine removal is a positive act and has to be established; that no PTA was seized at any time as being removal from the factory; that there is no evidence that any person had purchased the so called missing quantity of material; that there is no evidence that any sale proceeds had been received by them; that, further, input-output ratio of PTA to polymer tallies with the consumption of PTA as shown in RG 23A register.
29.2 He also mentioned that duty has been demanded in respect of 858.938 MT of MEG on the ground that the consumption figure of MEG shown in SELB is the correct figure and more authentic; that shift wise MEG consumption figure is calculated on approximate basis; that on the closing day of every month physical stock of MEG is ascertained by dip tape reading and the cumulative consumption figures is adjusted in RG 23 Part-I with the help of issue passes issued by the Production Department; that correlation in SELB was correspondingly not done and this accounts for the difference between RT 5 figures and the Log Book figures which in any case are based on approximation; that this is not an afterthought as the practice of adjustment of last date consumption was being followed since its starting of commercial product.
29.3 Regarding duty demand confirmed in respect of Polyester Chips, the learned Advocate mentioned that the consumption of PP Chips was 2607.535 MT as per the Charging Register and 2871.920 MT as per SELB whereas the consumption recorded in RG 23A Part-I Register and RT 5 Returns, the consumption figure was 2863.560 MT; that there was apparent discrepancy between the two so called authentic records both maintained under ISO-9002 and the difference was to the extent of more than 260 MT; that this makes it clear and apparent that no duty can be demanded on the basis of such figures as contained in the Charging Register and by ignoring the statutory records which have been duly audited and verified from time to time. He also mentioned that Charging Register is maintained by the Operators who comprise both experienced and inexperienced personnel; that it is possible that they have committed mistake in maintaining the Register; that on several dates the imported Chips charged to product were not entered in the Charging Register and was directly charged to the main hopper but was entered in SELB Register.
30. The learned Advocate for the Appellants relied upon the decision in the case of Prabhavati Sahkari Soot Girni Ltd. v. CCE - 1990 (48) E.L.T. 522 (T) wherein it was held that variation in daily production register and RG-1 register alone was not sufficient substantial proof for clandestine removal in absence of corroborative evidence in the form of sale records/receipt or consumption of excess material. Reliance has also been placed on the following decisions.
(i) Utkal Polyware Industries (P) Ltd. v. CCE & C, BBSR - [2001 (136) E.L.T. 520 (T) = 2001 (42) RLT 1004].
(ii) Shingar Lamps Pvt. Ltd. v. CCE - 2002 (150) E.L.T. 290 (T) = 2002 (50) RLT 544 (iii) Hindustan Lever Ltd. v. CCE, Raipur - 1996 (87) E.L.T. 385 (T)
31. Countering the arguments, Shri A.K Pandit, learned DR submitted that the Appellants are following the standard of ISO-9002 for maintaining which they have to maintain correct records regarding utilization of raw materials which can be verified at any time by the competent authority to approve the standard; that all the senior officials of the Appellant Co. such as Production Engineer, Director, Dy. General Manager have admitted to have maintained correct account of the raw materials in Log Book/SELB; that these officials never retracted their statements; that for instance Shri R.H. Shukla, Senior Manager, continuous polymerization was put a question as to whether there had been any chance where more material than figuring in the PTA charging Log Book, CP Report. Chips Charging Register had been used and whether figures were not the actual consumption figures; that Shri Shukla replied "there are no chance and nor had it occurred. The figure shown in above registers are actual consumption." The learned DR also emphasized that obtaining ISO-9002 Certificate is not one time affair as unit is required to carry out continuous internal quality audit to verify whether quality activities comply with plan arrangement and to determine effectiveness of the quality system; that accordingly the records maintained for ISO-9002 cannot be ignored.
32. I have considered the submissions of both the sides. The demand of duty has been confirmed on the ground that the figures of consumption of raw material is more in Statutory Records vis-a-vis the records maintained for the purpose of ISO-9002, I observe from ISO-9002 that the requirements specified have been aimed primarily at achieving customer satisfaction by preventing non conformity at all stages from production through to service. According to the standard the supplier shall prepare a quality manual covering the requirements of the International Standard. Under the Quality System Procedure the supplier shall prepare documented procedures consistent with the requirements of this International Standard and the supplier's stated quality policy and effectively implement the quality system and its documented procedure. As per Para 4.5 of ISO-9002 the supplier shall establish and maintain documented procedures to control all documents and data that relates to the requirement of this standard. Para 4.9 of the standard dealing with "Process Control" provides that the supplier shall identify and plan the production, installation and servicing processes which directly affect quality and shall ensure that these processes are carried out under controlled conditions. Controlled conditions include documented procedures defining the manner of production, monitoring and control of suitable process parameters and product characteristics. As per para 4.10.1, the supplier shall establish and maintain documented procedures for inspection and testing activities in order to verify that the specified requirements for the products are met. It is thus evident that the records maintained in compliance with the requirements of ISO-9002 can not be disregarded and it can not be claimed by the Appellants that statutory records are correct records and the ISO-9002 records do not reflect the correct position. These records are subject to periodical audit and the risk of cancellation of certificate that the unit is a 9002 unit is there. I am, therefore, in agreement with the findings of the learned Member (Judicial) that the PTA Log Book and Shift Engineers' Log Book maintained under ISO-9002 are the most authentic documents. The learned Member (Judicial) has already dealt with the decisions relied upon by the Learned Advocate in para 17 of the order and has distinguished them from the facts of the present matter. In view of this, the input output ratio of the machinery in use can not be accepted as a defence from the appellants. The fact remains that there is difference in the figures of consumption of material as shown in Records maintained for the Excise purposes and Records maintained for ISO-9002 purposes. Shri Shukla has affirmed that the figures shown in ISO-9002 Records are actual consumption figures. I, therefore, hold that the Appellants have not satisfactorily explained the difference in the two sets of accounts and as such the appeal filed by M/s. J.K. Corporation Limited is rejected.
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(V.K. Agrawal) Member (Technical) FINAL ORDER
33. In view of the majority order, the appeals filed by M/s. J.K. Corporation Ltd., are rejected and the appeals filed by the other appellants are allowed.
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(C.N.B. Nair) (Archana Wadhwa)
Member (T) Member (J)