Custom, Excise & Service Tax Tribunal
Vira Industries vs Cce, Ludhiana on 2 November, 2017
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
SCO 147-148, SECTOR 17-C, CHANDIGARH-160017
DIVISION BENCH
Court-I
Appeal No.E/1678-1680/2009-Ex (DB)
(Arising out of OIO No.38/Ldh/2008 dt.18.3.3009 passed by the CCE, Ludhiana)
Date of Hearing: 10.01.2017
Date of Decision: 02.11.2017
Vira Industries Appellant
Shri Amit Jain
Shri Rajneesh Jain
Vs.
CCE, Ludhiana Respondent
And Appeal No.E/2100/2009-Ex (DB) CCE, Ludhiana Appellant Vs. Vira Industries Respondent Present for the Appellant: S/Shri Rupender Sinhmar & Abhinav Kansal, Advocates and vice versa Present for the Respondent: Shri V.Gupta AR and vice versa Coram: Honble Mr.Ashok Jindal, Member (Judicial) Honble Mr.Devender Singh, Member (Technical) FINAL ORDER NO.62053-62056/2017 PER: ASHOK JINDAL The appellants, namely, M/s.Vira Industries, Shri Amit Jain and Shri Rajneesh Jain both sons of Shri Ravinder Jain, proprietor of M/s.Vira Industries are in appeal against the impugned order. The Revenue is also in appeal against the same impugned order.
2. The brief facts of the case are that M/s.Vira Industries is engaged in the manufacture various types of auto parts for two wheelers and three wheelers. Beside manufacture, M/s.Vira is also engaged in the export and domestic trading of the said auto parts. M/s. Vira is a proprietary concern of Shri Ravinder Jain since 1985 and prior to that it was a partnership firm started in 1969. M/s.Vira is using Vira brand under the name of its proprietor since 1973. Under a family settlement deed dated 25.3.2001, the said brand name is also used by another partnership firm established in the year 1980 named M/s.Shanu Auto Traders (Shanu). Shanu is a partnership firm of Shri Amit Jain, Smt.Gyani Devi and Shri Darshan Lal. Shanu is also engaged in the trading of auto parts, which are procured from the open market and are sold after being packed and affixed Vira brand. Shanu is also procuring (approx) 1% of its turnover of auto parts from M/s.Vira and 99% of auto parts procured from the open market and are sold under the brand name Vira which means that few clearance made by Shanu which were manufactured by M/s.Veera.
3. On 30.6.2005, the official of DGCEI visited the factory premises of M/s.Vira, residence of the proprietor, premises of various dealers across the country dealing with goods supplied by M/s.Vira and Shanu and few of the transporters transporting goods supplied by M/s.Vira and Shanu. They also visited and searched another premises in Ludhiana occupied by Shri Darshan Lal and his sons Shri Sanjay Sharma and Shri Naveen Sharma which is registered premises of M/s. Lakhnapal Auto under the proprietorship of Sh. Naveen Sharma, engaged in the trading of auto parts, similar to what are manufactured by the Appellant or traded by Shanu. The documents were recovered from Naveen Sharma in form of loose papers, kachaparchis and note pads. During the search Sh. Naveen Sharma categorically mentioned that said documents are prepared and maintained by his brother Sh. Sanjay Sharma, who is employee of Shanu. The documents recovered from Naveen Sharma were prepared by Shri Sanjay Sharma contained description such as date, party name, place, figures in two columns etc. and few documents have abbreviations such as VI and SAT. For the purpose of raising the demand, department has picked up invoices of given date and compared the same with the details for the same date given on the such loose papers, kachaparchis and note pads and alleged that Appellant has cleared goods clandestinely and have raised invoices for 1/3rd of the actual goods cleared. Thereafter, based on the statement of Sh. Sanjay Sharma and aforementioned document seized from the premises of M/s. Lakhan Pal Auto, a case was made out and it was alleged in the show cause notice dated 23.05.2007 that M/s.Vira have clandestinely manufactured and cleared auto parts in the following manner:
(a) Goods worth Rs.9.53 Crores on the basis of resumed documents having reference VI on the documents cleared clandestinely by M/s.Vira or Shanu
(b) Goods worth Rs.12.40 Crores on the basis of resumed documents having reference Shanu on the documents cleared clandestinely by M/s.Vira or Shanu
(c) Goods worth Rs.7.62 Crores on the basis of resumed documents having no reference either of M/s.Vira or Shanu and presumed to be clandestinely cleared by M/s.Vira.
4. The matter was contested by M/s.Vira and after detailed examination of arguments advanced by M/s.Vira, the adjudicating authority held that the goods worth Rs.9.53 crores on the basis of resumed documents having reference VI on the documents have been cleared clandestinely by M/s.Vira without payment of duty. Aggrieved with the order, M/s.Vira Industries, Shri Amit Jain and Shri Rajineesh Jain are in appeal and the Revenue is also in appeal for dropping demand on the basis of resumed documents having reference SAT on the documents cleared by M/s.Vira or without any reference. Hence these appeals are before us.
5. Learned Counsel for M/s.Vira and co-appellants submitted that:
(i) No incriminating documents/ material was found from the premises of M/s.Vira
(ii) Almost all the documents were resumed/seized from the Sh. Naveen Sharma proprietor of M/s. Lakhanpal Auto. No statement of Sh. Naveen Sharma was recorded nor any investigation with respect to the conduct of M/s. Lakhanpal Auto carried out by the Department.
(iii) Show cause notice does not propose any clubbing of clearances of M/s.Vira and Shanu.
(iv) Not even a single live consignment was seized from any transporter or any dealer across the country under invoices related to M/s.Vira. All such goods were under the invoice of Shanu.
(v) All the dealers have retracted from their statements either through affidavit or during cross-examination.
(vi) Technical reports by two different authorities were not questioned by the department and stand affirmed.
(vi) Cash of Rs. 65.70 Lakh recovered from Mr. Rajneesh Jain was duly justified and same was duly acknowledged by the Adjudicating Authority.
(vii) No Investigation or show causes notice to allegedly key people/entities namely, Sh. Naveen Sharma proprietor of M/s. Lakhanpal Auto, transporter and dealers of the goods.
6. He further submitted that the allegation of clandestine removal is not proved. He also submitted that an unaccounted amount of Rs.62.40 lakh in cash was recovered from the residential premises of Sh. Ravinder Jain, which was alleged to be sale proceeds of clandestinely manufactured and sold auto parts. To counter this allegation, Appellant has explained cash of Rs. 47.40 Lakh belonged to M/s. R.C.Jain Charitable Trust. To that effect, he has submitted that the said amount was recorded and accounted for in the books of accounts and balance sheet of the said trust. The same has been accepted by the adjudicating authority, held Rs.15 lakh as advance against sale of plot to M/s. Deepa Tools Pvt. Ltd, Ludhiana. Therefore, the allegation that the said amount is sale proceeds of clandestinely removal and clearance of the goods is not sustainable.
7. He further submitted that investigating authority has not proved the basic things like procurement of raw materials and consumption of raw materials, consumption of consumables, the fact of recovery of sale proceeds. Therefore, the charge of clandestine removal is not sustainable in the light of the judgement of this Tribunal in the case of Arya Fibres Pvt. Ltd.-2014 (311) ELT 529 (Tri-Ahd.) He also relied on the decision of the Tribunal in the case of Davinder Sandhu Impex Ltd.-2016 (337) ELT 99 (Tri.Del.). He relied on the decision of the Tribunal in the case of M/s. R.A.Casting Pvt. Ltd. Vs. CCE, Meerut-I, 2009 (237) E.L.T. 674 (Tri. Del) which has affirmed by the Honble Allahabad High Court reported in 2011 (269) ELT 337 (All) which has been further affirmed by the Honble Apex Court reported in 2011 (269) ELT A108 (SC).
8. He further submits that no evidence with regard to the raw material, procurement, transportation, raw material, manufacturing capacity of excess final products, transportation of final products and packing materials has been provided by the department and in the absence of completion of chain, the allegations of clandestine of removal cannot be confirmed against the appellant. He further submits that the charge of clandestine removal cannot be based merely on assumption and presumption and the same has to be substantiated with complete chain of corroborative evidences. In the present case, department has failed miserably on this count. Few of the cases on this legal principle are as under:
a. Century Metal Recycling Pvt. Ltd. Vs. CCE, Delhi IV, 2016(333)E.L.T.483(Tri.DEL) b. M.Veerabadhran Vs. CCE, Chennai, 2005(182) E.L.T.389. Upheld by Honble Supreme Court in 2006 (197) E.L.T.A34(S.C.)
9. He further submits that that the whole case of the Revenue is based on the private records maintained by a third party and the department has failed to prove that the private records maintained by Sh. Sanjay Sharma wee supported with corroborative evidence. Therefore, it is a settle proposition of law that private records of third party cannot be relied to confirm the demand on the charge of clandestine manufacture in view of the Tribunal in the case of Bearing Manufacturing Company- 2000(123) ELT 1148 wherein it has been held that charges of clandestine removal based only private records of an employee made for his own purpose are not sustainable unless corroborative evidences are found. He also relied on the decision of the Tribunal in the case of Savitri Concast Vs. CCE, Jaipur, 2015 (329) ELTT2 13(Tri. DEL), Someshwara Cement & Chem Ltd. Vs. CCE, Hyderabad, 2005(191) E.L.T.1062 and Andhra Cement Ltd. Vs. CCE, Guntur, 2005(191) ELT 1046.
10. He further submits that the department has made no efforts to test and confirm the electricity consumption of M/s.Vira. On the contrary, M/s.Vira has produced two technical test reports to support their case, which were not doubted by the department. He also submitted that the Commissioner has rightly addressed the issues and held that lack of evidence and incomplete chain, the demand is not sustainable and interestingly he confirmed the demand on the basis of documents having reference VI solely on the basis of the statement of Sh. Sanjay Sharma. Although, the adjudicating authority has categorically held that department has conducted biased investigation and have shown partiality towards Shri Sanjay Sharma and his family. He further submits that the department has failed to prove that Shri Sanjay Sharma as authorized representative of the M/s.Vira. He submits that as no evidence has been produced by the department to allege clandestine removal by M/s.Vira, therefore, the demand cannot be sustainable against them.
11. He further submits that Shri Ravinder Jain has retracted his statement on the next day and the same was not given any credence by the adjudicating authority. Interestingly, retraction was rejected by the department immediately saying that the statement recorded was voluntary. He also submits that rejection of retraction letter was before the adjudicating authority which shows prejudice and biased mind of the adjudicating authority against M/s.Vira.
12. With regard to the appeal filed by the Revenue in which the grounds of appeal has stated that the reasons on which demand has been confirmed against the M/s.Vira were sufficient for confirming the balance demand, which was dropped. He submits that the department in their grounds of appeal has not mentioned or referred to single evidence which could confirm allegations of clandestine removal against the M/s.Vira and the statement of Shri Sanjay Sharma is of no consequence as the same has been discarded by the Adjudicating Authority.
13. He further submits that all live consignments under seizure of Vira brand goods from transporter and dealer have been cleared under the invoice of Shanu and no live consignment was recovered having invoice in the name of M/s.Vira. However, the goods cleared under the invoice of Shannu but there is no evidence to prove that the said goods were clandestinely manufactured by M/s.Vira. Moreover, all those dealers have retracted from their earlier statements, therefore, the demand is not sustainable. He also submitted that there is no proposal in the show cause notice to club clearances made M/s.Vira with Shanu. Moreover, it has been held that SHANU is a separate legal entity having its own trading business and as per the statutory records, it has 99% purchases from sources other than M/s.Vira. As Shanu is legally using the Vira brand, it cannot be alleged that all the goods under brand of Vira one manufactured by M/s.Vira. Therefore, the Revenues appeal is not sustainable.
14. He further submits that no specific role of Co-noticees has been explained in the show cause notice or in the impugned order, therefore, the penalty is not sustainable. Moreover, as the demand is not sustainable, the penalties are not imposable.
15. In these terms, he prayed the impugned order quo demanding duty on account of clandestine removal on the basis of resumed records having reference VI is to be set aside. Consequently, the penalties are also set aside. He also prayed that the appeal filed by the Revenue is to be dismissed.
16. On the other hand, learned AR submits that the adjudicating authority has examined the issue and on the basis of evidence on record confirmed the demand with reference of VI and without assigning the reason dropped the part of the demand as proposed in the show cause notice. As no specific reason assigned by the adjudicating authority , therefore, the impugned order quo dropping duty demand is to be set aside and proposal made in the show cause is required to be confirmed.
17. Heard the parties and considered the submissions.
18. On careful consideration of the made by both sides, we find that the investigation started from the premises of M/s.Lakhanpal whose proprietor Shri Naveen Sharma. The documents resumed from premises of Shri Naveen Sharma are the basis for confirming the charge of clandestine removal is prepared by Sanjay Sharma. Thereafter, Shri Sanjay Sharma investigated, he stated that he was authorized representative of M/s.Vira and the documents have been prepared by him on the instruction of Shri Ravinder Jain of M/s.Vira. On the basis of these documents, further investigation conducted with the transporters and the dealers and it was found in the case of live consignments seized during the investigation, the invoices are in the name of Shanu and corresponding goods were found with the invoices were of different dates and clearances of Shanu. It is also the fact that Shanu was entitled to use Vira brand and 99% purchase of Shanu were from open market other than M/s.Vira. M/s.Shanu is purchasing and selling the goods in open market under the brand name VIRA. It is also a fact that Shanu is not manufacturing any goods and is only trading the goods. All the above facts are not in dispute.
19. We find that the documents were recovered from the custody of Shri Naveen Sharma of M/s.Lakhanpal Auto who is also dealer of auto parts and no statement of Shri Naveen Sharma was recorded which shows that the department was having some interest in Shri Naveen Sharma. As he was not the party to the show cause notice. Further Shri Sanjay Sharma, authorized representative of M/s.Vira has admitted that he had prepared all the documents. Interestingly, Shri Sanjay Sharma was not the party to the show cause notice as he was involved in the activity of clandestine removal of the goods on the basis of investigation. Further, M/s.Shanu whose invoices were recovered for the live consignments was not made party to the show cause notice. The department was having lenient view towards M/s.Shanu which shows that the whole of the investigation was conducted by the Revenue was to drag M/s.Vira in litigation to allege clandestine removal of the goods.
20. In the impugned order, we have seen that the ld. Commissioner has examined the issue and observed as under:
3.15 First of all, the show cause notice has alleged that a sum of Rs. 62.40 lacs unaccounted cash (sale proceeds of clandestinely manufactured and sold auto parts) was recovered during search operations at the residential premises of Sh Ravinder Jain and the same was subsequently deposited as Central Excise Liability by the Noticee vide TR-6 challan No. 1/2005-06 dated 5.7.2005. In this regard the Noticee has pleaded that out of the said amount, Rs. 47.40 lacs belonged to M/s Dr R. C. Jain Charitable Trust with its office at 164-G, Bhai Randhir Singh, Nagar, Ludhiana. Late Dr R.C. Jain was father of Shri Ravinder Jain. The trust is duly registered under the Indian Trust Act, 1862 and Income Tax Act, 1961. The said cash Rs. 47.40 lacs had been collected through donation to undertake construction of a school. The cash was duly reflected in the income & expenditure account/ balance sheet of the trust for the year 2005-06. The Noticee produced copies of registration under the Indian Trust Act, 1862 (dated 26.02.2002) and Income Tax Act, 1961, cash-book, income & expenditure account and balance sheet for the year 2005-06. I observe that the registrations had been recorded much before the date of search at the residential premises of Sh. Ravinder Jain. Sh. Ravinder Jain being associated with the said trust as Trustee President was authorized to handle such cash on behalf of the trust. I have perused the documents and the documents confirm the explanation of the Noticee.
3.16 Regarding the rest of Rs. 15 lacs, the Noticee has submitted that Sh Ravinder Jain had entered into an agreement to sell his plot situated at 252-G, B. R. S. Nagar, Ludhiana to M/s Deep Tools Pvt Ltd, 320-321 Industrial Area A, Ludhiana. And that he had received an advance sum of Rs. 15 lacs in terms of the agreement to sell the said plot. The Noticee submitted a copy of the agreement dated 29.06.2005 along with a certificate from M/s Deep Tools Pvt Ltd, 320-321 Industrial Area A, Ludhiana. The said buyer has certified that they had paid Rs. 15 lacs to Sh. Ravinder Jain as an advance payment for purchase of the said plot. The documentary proof appear to be in order under the prevalent acts governing such transactions. I have perused the documents and the documents substantiate the explanation of the Noticee. At the same time I observe that Sh. Ravinder Jain got so many opportunities but he never explained the sources of large amount of cash that was recovered from his house. The present explanation coming at a very late stage is nothing but an afterthought just to wriggle out of the adverse situation they have placed themselves . As such their plea is out rightly rejected.
3.17 An important issue involved in this show cause notice is use of VIRA brand by M/s Vira Industries and M/s Shanu Auto Traders. VIRA brand enjoying all India reputation is owned by Sh Ravinder Jain Prop of M/s Vira Industries and Sh. Vijay Jain now prop of M/s Vira Scooters, since 2.10.1973. After the separation Sh Vijay Jain now prop of M/s Vira Scooters has started using a slightly different brand as VIRA-S. And as per a family settlement document dated 25.3.2001 produced before me, Sh Ravinder Jain has allowed his son Sh Amit Jain (a partner of M/s Shanu Auto Traders) to use brand VIRA for his commercial operations including use in trading of auto parts. The packing of auto parts in brand owned by some other person did not amount to manufacture under Section 2(f) the Central Excise Act, 1944 during the relevant period. The applicability of deemed manufacture for purpose of leviability of excise duty on auto parts has become operative for the first time vide Notification No. 12/2006 w.e.f. 29.5.2006. As per these facts, I observe that M/s Shanu Auto Traders were using brand VIRA as per provisions of the prevalent Central Excise law and this during period prior to 29.5.2006 did not invite levy of Central Excise duty.
3.18 The next point to be examined is the provisions of Central Excise law applicable and authority to collect government duties. Collection of Central Excise duties is a tax levied on production and clearance. It implies that some product specified in the First Schedule of the CETA must be manufactured for enabling the tax enforcing authorities to levy and collect Central Excise duties. The basic five parameters of production are being examined & considered in succeeding paras in context of provisions of Central Excise Law.:
3.19 PROCUREMENT OF RAW MATERIAL : As per SCN, the basis of evidence of purchase of raw material has been taken as Statement of Sh Ravinder Jain that, the unaccounted goods were being manufactured out of un accounted quantity of raw materials, the purchase of which was being made in cash from the consideration received from their dealers against the supply of un accounted goods without covering of any invoice (page 101 of SCN refers). This has reference to typed statement dated 5.4.2007 of Sh Ravinder Jain. Sh Sanjay Sharma, who is alleged to have been formed as basis of evidence of purchase of raw material or any other person has neither been questioned about the procurement of raw material. The noticee in reply to this have contended that no unaccounted raw material was detected during the visits of the DGCEI officers to their factory premises. No enquiry was conducted in respect of procurement of raw materials. There is no evidence of procurement of unaccounted raw materials. I have perused the said statement. I reproduce the relevant lines for comparing their content and meaning : On being further asked as regards purchase of raw material for manufacture of various unaccounted auto spare parts supplied by my unit, I state that such goods were purchased from various dealers in cash for the goods supplied to them without bills. From the text of the statement, it emerges that unaccounted raw material was being purchased from the dealers to whom the goods were supplied without bills. The text quoted in the show cause notice and the actual wording used in the statement have different meaning. No where in the show cause notice or investigation, it has emerged that the dealers of the auto parts were supplying unaccounted raw material to the Noticee No. 1. Further, I observe that the said statement dated 5.4.2007 was also retracted on 6.4.2007 as typed, un voluntary, recorded under threat etc. The unit of the Noticee was searched on 30.6.2005. There is nothing on record to suggest that the stock taking of raw materials lying in the factory was undertaken. There is also nothing on record to suggest that any unaccounted raw material was detected during the search operations. There is also nothing on record to suggest that during investigation any evidence was collected regarding purchase of unaccounted raw material. The total evidence of procurement of raw material for the manufacture of alleged unaccounted goods is in the form of unsubstantiated part of the statement of Shri Ravinder Jain and which too had been retracted the very next day. The statement in these circumstances looses its evidenciary value because no other corroborative evidence has been placed on record to substantiated the charge of unaccounted purchase of raw materials. Sh.Sanjay Sharma, hwo claimed to have managed all the transactions of M/s.Vira Industries, did not threw any light on the operations connected with procurement of unaccounted raw material or the sources of supply of unaccounted raw materials. From the proceedings, it appears that Mr.Sanjay Sharma was fully co-operating with the investigating officer, then it is strange that the investigating officer never questioned him about the source of raw materials which VIRA used in the manufacture of unaccounted finished goods. If Mr.Sanjay Sharma was closely associated with the functioning of VIRA then he must have been aware of this vital aspect of manufacturing process. It also transpires that Mr.Sanjay Sharma was also willing to reveal all the details which investigating officers questioned him. But investigating officer did not make any efforts to unravel truth about procurement of raw materials. Not even a single source of inputs has been identified. For manufacturing such a large quantity of goods, there has to be a multiple number of units/persons brokers, transporters who might have been involved in supplying goods. The show cause notice does not throw light as to whether any effort was made in this regard or not. By not conducting any investigation on this aspect, the investigation has considerably weakened their case; as it is difficult to prove clandestine removal of the goods without proving the receipt of unaccounted raw material. In view of the foregoing facts, I observe that no documents suggesting/evidencing payments for purchase of unaccounted raw materials has been placed on record.
3.20 CONSUMPTION OF RAW MATERIAL: Connected with this, the second part of manufacturing process is the transporter of raw material to the manufacturing unit. There is nothing on record to suggest the mode of transportation of unaccounted raw material to the factory premises of M/s.Vira Industries. Regarding other inputs, the show cause notice mentions that private documents (ledger account) pertaining to the expenses borne by M/s.Vira Industries were recovered during search operations. The show cause notice alleges that he Noticee had spent huge amount. As an indication of scale of expenses incurred by the Noticee No.1 during the seven months period from 1.4.2004 to 31.10.2004, the expenses as per recovered documents were:
Head of expenditure Amount (Rs)
Tools 180647
Oils & dies 189387
Consumables stores 333657
Electric repairs 133090
Machine repairs 475359
Generator expenses 248079
Tools 519508
Wages 670789
Electricity expense 1408158
Total= 41,58,674
3.21 It has been projected that the recorded sale by M/s,Vira Industries during 2004-05 was to the tune of Rs.91,86,420/-. The proportional sale for 7 months came to Rs.53.58 and for a production of Rs.53.58 lacs, expenditure of Rs.41.58 lacks apparently unproportionate. The Noticee has pointed out that total production and sale during the year 2004-05 was Rs.91,86,420/- (domestic sale) and Rs.3,43,248/- (export sale). Surprisingly, the investigating agency has not taken into account the export sale while appointing the expenditure towards production. For a total production and sale of auto parts collectively valued at Rs.4,35,83,668/- the proportionate sale for seven months comes to Rs.41.58 lacs is not excessive but rational. Since procurement of unaccounted raw material is not established, consumption of alleged unaccounted raw material has not also been substantiated in the show cause notice. I observe that excess consumption of raw material or other inputs is not substantiated.
3.22 PACKING MATERIAL: The show cause notice has not alleged excess clandestine purchase of packing material by the Noticee No.1. It is admitted that the auto parts cannot be sold all over India without proper packing. The packing has to be quite elaborate. First of all the auto parts are wrapped and packed in corrugated boxes. Such boxes are further packed in wooden boxes for safety of auto parts. The Noticee No 1 has worked out details of volume of packing as per Cubic meters (CBM). A working of total CBM of corrugated boxes used for packing of number of auto parts sold by M/s.Vira Industries and total CBM of wooden cases and cartons purchased has been made. The Noticee has contended that they did not have enough packing material to clear the volume of sales alleged in the show cause notice. The volume of production/clearances alleged to have been done by the Noticee No.1 required a large number of packets. The exact number of persons specifically deployed in packing section are not available in the show cause notice. The show cause notice refers to the statement dated 30.6.2005 of Sh.Ashu Sharma, Packing Incharge of the Noticee No.1. I have perused the said statement. The details regarding number of persons exactly working in the packing section have not been sought from him. The details of unaccounted purchase of packing material, if any, have not been gathered by the investigating officer and are not reflected in the show cause notice. A very important fact that has emerged from his statement recorded on the spot is that they used to hand over packed goods to Sh.Sanjay Sharma at the factory gate after packing in boxes for dispatch through transporters. Throughout the investigations and recording of numerous/repeated statements, no one has given his version regarding clearance of unpacked auto parts from the manufacturing premises of the Noticee No.1. No evidence has been placed on record to prove that unpacked auto parts were cleared from the manufacturing unit of Noticee No.1 to M/s.Shanu Auto Traders. On the other hand, S/Sh.Manoj Rathi and Happy, a packer working for M/s. Shanu Auto Traders had informed on 30.6.2005 that all parts purchased by them were packed in VIRA packing and sold. It show that there is evidence regarding clearances of unpacked auto parts from M/s.Vira Industries but there is evidence of parts being purchased and packed by M/s.Shanu Auto Traders. To prove the allegation as detailed in the show cause notice, the proof regarding movement of unpacked auto parts from M/s.Vira Industries to M/s.Shanu Auto Traders would have been convincing. The other possibility could be that all packing was done in the factory premises of M/s.Vira Industries and goods were dispatched under the cover of invoices issued from different bill books. In that case, M/s.Vira Industries were expected to pack auto worth Rs.35.64 crores (alleged domestic sales and recorded exports) during the relevant period. From the descriptive details given in the show cause notice, I find that packing was an important step in dispatch and transportation of manufactured auto parts. To pack auto parts valued at Rs.35.64 crores, a large number of packers were required in M/s.Vira Industries. Evidence regarding sufficient number of packers working in M/s.Vira Industries is also not available.
3.23 In paara 35 (ii) (vi) of the show cause notice, it is also mentioned that M/s.Vira Industries employed 58 persons during the period and record of overtime payments, 58 employees handling 105 machines in the unit of Noticee No.1 appears quite reasonable. Out of these some were looking after office work, packing operations, loading/unloading, electrical operations and outside work of the factory. The Noticee No.1 has contended that they are registered with PF and ESI authorities and regularly filed returns of employees. There are period checks exercised by those departments. As per their records, they had not paid any overtime in their unit. The loose papers recovered from the residence of Sh.Sanjay Sharma show overtime payments. The notice No.1 has not entered those overtime payments in their records. It shows that workers were asked to do overtime and get additional payments. Asking the existing workers to put in more work hours is the easiest method of getting extra work done from them. I observe that there was definitely some practice of overtime payments in M/s.Vira Industries.
3.24 AVAILABILITY OF PRODUCITON CAPACITY: The next step of the manufacturing process is the availability of manufacturing capacity available with the manufacturing unit and its actual utilizaiton. With reference to the statement dated 5.6.06 of Sh.Ravinder Jain, it is mentioned in the show cause notice that the unit had 150 machines for different operations. Para 40 of the show cause notice has referred to the website www.viraindustries.com. In this para, details of machinery and other facilities available with the Noticee and its sister concerns have been incorporated. Based on this data, it has been alleged in the show cause notice that Noticee had adequate capacity and machinery to manufacature and clear goods as worked out in the show cause notice. In reply to this charge, Noticee has pointed that statement of Sh.Ravinder Jain has been misquoted. Sh.Ravinder Jain had stated that they had apex 105 machines and not 150 machines, as mentioned in the show cause notice. The Noticee has not further disputed the existence of 105 machines. The reference to the website of the Noticee also metions the types and variety of machines available with the Noticee. Other than this there is nothing on record to suggest that the investigating officer actually verified the machines, available and working, in the unit on 30.6.2005. The investigation has not taken up this aspect in detail.
3.25 The Noticee has contended that they had got two studies connected to assess their production capacity machines installed and working in their unit during the search operations as on 30.06.2005. The Noticee has placed on record two reports of assessment of their production capacity. The first report has been prepared by Technical Experts from Guru Nanak Dev Engineering College, Gill Road, Ludhiana. The team of experts conducted a study from 24.8.2007 to 31.12.2007 and obsersved the types of raw materials used, electricity consumed to manufacture different parts. The notice has produced their electricity consumptions figures which are as follows:
Year Electivity Bill amount (Rs.) 2002-03 16,75,571/-
2003-04 22,26,512/-
2004-05 24,26,792/-
3.26 They worked out of details of material used and electricity consumed for manufacture of each auto part. The electricity consumed per part in relation to total electricity consumed was used to work out total possible production in the unit. The conclusion drawn by the report is that the sales made by Vira Industries during the year 2004-05 can safely be taken as their actual production with expected variation ranging from 3 to 4%. The unit of the Noticee consumes electricity on regular basis, as all the machines are dependent upon electricity motors. The electricity consumption by the Noticee No.1 could have been an important indication of scale of production. I observe that this aspect has not been touched upon in the show cause notice except for the 7 months electricity expenses details of Rs.14,08,158/-. The evidence regarding capacity of generator installed in the factory premises of M/s.Vira Industries and the quantity of diesel consumed during the relevant period is not available, except for the seven months, in the show cause notice. The show cause notice has not even discussed the electricity load available and used by the unit.
3.27 The second report has been prepared by Dr.R.K.Garg (Professor) and Sh.Ajay Gupta (Lecturer-SS) both of Dr.B.R.Ambedhkar Institute of Technology, Jalandhar. For preparing their report they studied the time required for manufacturing each and every part and compare the same with actual machine hours available with M/s.Vira Industries during the relevant time. As per report, the Noticees unit is ajob-shop company and requires frequent changes of the setups and utilizes approx. 85% of the machinery installed which is considered to be satisfactory in such types of industries. The Noticee by relying upon the findings of this report has tried to prove that the installed capacity was sufficient only for the production of the actual sale which is recorded in the books of account.
3.28 On the basis of the assessment/verification of the installed production capacity of the Noticee unit, the sale figures reported by the Noticee (as per their books sf account) and the investigating officer (calculated on the basis of recovered kacha parchcies etc.) are appended below:
Period Domestic sale/clearances (in Rs.) Exports (in Rs.) Total (In Rs.) 2002-03 8461497 5452057 13913554 2003-04 9520355 34397248 43583668 Upto 30.06.05 3977156 7652437 11629593 TOTAL 31145428 60814282 91959710 3.29 Sale figures as per investigating team:
(a) Value worked out on the basis of kacha parchies =Rs.9,53,51,933 on which the code VI is mentioned
(b) Value worked on the basis of kach parchies = Rs.12,40,46,200 on which the code SAT is mentioned
(c) Value worked out on the basis of kacha parchies =Rs.7,62,77,614 on wilch no code is mentioned.
3.30 In this regard the contention of the Noticee has been that the show cause notice has alleged a total production and sale of domestic clearances worth Rs.29,56,75,747 during the period 1.4.2002 to 30.6.2005. In addition to this if their recorded production and sale figures of exports Rs.6,08,14,282/- are added then the total production and clearances during the ;period come to Rs.35,64,90,029/-. Keeping in view the conclusion of the studies conducted to determine the production capacity of the manufacturing unit, the alleged total production and sale of goods worth Rs.35.64 crores is not feasible. The alleged production and sales of auto parts worth Rs.35.64 crores during the relevant period required purchase of raw materials, adequate installed machinery, manpower, proof of electricity consumption or generator expenses, other consumables and packing materials. The Noticee pleaded that these factors have not been taken into consideration before creating tax liability against them.
3.31 No production records (pacca or kacha), slips, pads, register etc. were resumed/recovered during search operations. I observe that the investigation has not even got the production capacity of the unit assessed through some technical agency/prsn. It is a matter of common knowledge that production process of auto parts normally consists of more than one operation. In some cases the number of operations can stretch to handling at all the machines functioning in the unit. In the absence of recovery of production records, the actual assessed production capacity could have thrown authentic light on the extent upto which that unit could have produced the auto parts.
21. We find that there is positive observations of the adjudicating authority in favour of the appellants have not been controverted by the Revenue have not been challenged the same in the appeal before us. But the appellant have heavily relied on the observations made by the adjudicating authority in the impugned order and controvered the observations of the adjudicating authority in para 3.16 in the impugned order that the appellants were given many opportunities but never explained the sources of large amount of cash that was recovered in the house. The explanation is coming at a late stage, therefore the same is afterthought.
22. We find that the adjudicating authority has made observations on the basis of documentary evidence, the documentary evidence cannot be denied by merely saying that it is an afterthought. Therefore, the said finding of the adjudicating authority is not tenable.
23. Further, we find that the adjudicating authority has held in the impugned order where VI is mentioned is clandestine removal is made by the appellant is not sustainable without controverting his observations recorded in the proceedings paragraphs.
24. Further, we find that in the case of R.A.Castings (supra), this Tribunal has observed as under:
The clandestine manufacture and removal of excisable goods is to be proved by tangible act, direct, affirmative and incontrovertible evidences relating to:
(i) Receipt of raw material inside the factory premises, and non-accountal thereof in the statutory records;
(ii) Utilization of such raw material for clandestine manufacturer of finished goods;
(iii) Manufacture of finished goods with reference to installed capacity, consumption of electricity, labour employed and payment made to them, packing material used, records of security officers, discrepancy in the stock of raw material and final products;
(iv) Clandestine removal of goods with reference to entry of vehicle/truck in the factory premises, loading of goods therein, security gate records, transporters documents, such as LR, statements of lorry drivers, entries at different check posts, forms of Commercial Tax Department and the receipt by the consignees;
(v) Amount received form the consignees, statement of the consignees, receipt of sale proceeds by the consignor and its disposal.
25. Further, we find that in the case of Arya Fibres Pvt.Ltd. time and again, the Tribunal has observed as under:
40.?After having very carefully considered the law laid down by this Tribunal in the matter of clandestine manufacture and clearance, and the submissions made before us, it is clear that the law is well-settled that, in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenue which mainly are the following :
(i) There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions;
(ii) Evidence in support thereof should be of :
(a) raw materials, in excess of that contained as per the statutory records;
(b) instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty;
(c) discovery of such finished goods outside the factory;
(d) instances of sale of such goods to identified parties;
(e) receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons authorized by him;
(f) use of electricity far in excess of what is necessary for manufacture of goods otherwise manufactured and validly cleared on payment of duty;
(g) statements of buyers with some details of illicit manufacture and clearance;
(h) proof of actual transportation of goods, cleared without payment of duty;
(i) links between the documents recovered during the search and activities being carried on in the factory of production; etc. Needless to say, a precise enumeration of all situations in which one could hold with activity that there have been clandestine manufacture and clearances, would not be possible. As held by this Tribunal and Superior Courts, it would depend on the facts of each case. What one could, however, say with some certainty is that inferences cannot be drawn about such clearances merely on the basis of note books or diaries privately maintained or on mere statements of some persons, may even be responsible officials of the manufacturer or even of its Directors/partners who are not even permitted to be cross-examined, as in the present case, without one or more of the evidences referred to above being present. In fact, this Bench has considered some of the case-law on the subject in Centurian Laboratories v. CCE, Vadodara [2013 (293) E.L.T. 689]. It would appear that the decision, though rendered on 3-5-2013, was reported in the issue of the E.L.T., dated 29-7-2013, when the present case was being argued before us, perhaps, not available to the parties. However, we have, in that decision, applied the law, as laid down in the earlier cases, some of which now have been placed before us. The crux of the decision is that reliance on private/internal records maintained for internal control cannot be the sole basis for demand. There should be corroborative evidence by way of statements of purchasers, distributors or dealers, record of unaccounted raw material purchased or consumed and not merely the recording of confessional statements. A co-ordinate Bench of this Tribunal has, in another decision, reported in the E.L.T. issue of 5-8-2013 (after hearings in the present appeals were concluded), once again reiterated the same principles, after considering the entire case-law on the subject [Hindustan Machines v. CCE [2013 (294) E.L.T. 43]. Members of Bench having hearing initially differed, the matter was referred to a third Member, who held that clandestine manufacture and clearances were not established by the Revenue. We are not going into it in detail, since the learned Counsels on either side may not have had the opportunity of examining the decision in the light of the facts of the present case. Suffice it to say that the said decision has also tabulated the entire case-law, including most of the decisions cited before us now, considered them, and come to the above conclusion. In yet another decision of a co-ordinate Bench of the Tribunal [Pan Parag India v. CCE, 2013 (291) E.L.T. 81], it has been held that the theory of preponderance of probability would be applicable only when there are strong evidences heading only to one and only one conclusion of clandestine activities. The said theory, cannot be adopted in cases of weak evidences of a doubtful nature. Where to manufacture huge quantities of final products the assessee require all the raw materials, there should be some evidence of huge quantities of raw materials being purchased. The demand was set aside in that case by this Tribunal.
26. Although the adjudicating authority has touched certain points for consideration of charge of clandestine removal and held that the Revenue has failed to prove the sources of procurement of raw materials, consumption of raw material, consumption of consumables, production capacity and transportation of the goods, etc. Therefore, the charge of clandestine removal of the goods is not sustainable against M/s.Vira and co-noticees.
27. We also find from the above investigation, the following questions remained unanswered:
(a) Why the statement of Shri Naveen Sharma was not recorded when the document recovered from his custody?
(b) Why Shri Naveen Sharma was not made party to the show cause notice?
(c) Why Shanu was not made party to the show cause notice when there was conrresonding invoice of the seized goods?
(d) Why the transporters were not made party to the show cause notice?
(e) Why the dealers were not made party to the show cause notice?
28. As the investigation also not conducted properly (as discussed in the preceding paragraph). In that circumstance, the Revenue has failed to prove the excess manufacturing of goods by M/s.Vira and clearance thereof. In the absence of positive evidence, the demands are not sustainable against M/s.Vira.
29. We further find that in the case of Davinder Sandhu Impex Ltd (supra), the main thrust of the Revenue that during the course of investigation some inculpataroy statement has been given by Shri Davinder Sandhu on the basis of that case has been made. In the case of Davinder Sandhu Impex Ltd., this Tribunal has held as under:
11.?In this case also, we find that the case has been made out only on the basis of the statement of Shri Baldev Singh, Managing Director of the appellant and no other evidence in the form of to manufacture of such huge quantity, the consumption of electricity, additional packing material, payment for purchase of additional packing material, payment received for clandestine removal of goods, how the goods were transported has been brought on record by the Adjudicating Authority or the inspecting team, therefore, relying on the said decision cited hereinabove, we hold that charge of clandestine removal is not sustainable in the absence of any corroborative evidence to the statement of Shri Baldev Singh, Managing Director.
30. Admittedly in this case, no documents have been recovered from M/s.Vira and a case has been made out on the basis of the statement of Shri Sanjay Sharma and the documents recovered from him and there is inculpatory statement of Shri Ravinder Jain, in the absence of any positive evidence, the charge clandestine removal is not sustainable on the basis of the third party evidence.
31. Further, we find in the case of Bearing Manufacturing Co. (supra), this Tribunal has already held that the charge of clandestine removal based only on private records maintained by their worker for his own purpose is not sustainable when the consumption of raw material to allege clandestine removal not actually proved and fact of clandestine removal is not otherwise established. Admittedly, the case is based on the documents recovered from Shri Sanjay Sharma and on the basis of his statement but there is no evidence of excess consumption of raw material, and manufacturing of excess goods therefore, the charge of clandestine removal is not sustainable.
32. As discussed above, no demand is sustainable against M/s.Vira, therefore, the impugned order quo confirming the demand of duty alongwith interest against M/s.Vira and imposing penalties on all the appellants is set aside. Consequently, the appeal filed by M/s.Vira and co-noticees are allowed and the appeal filed by the Revenue is dismissed.
(Pronounced in the open court on 02.11.2017)
(DEVENDER SINGH) (ASHOK JINDAL)
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
mk
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