Custom, Excise & Service Tax Tribunal
Rathi Tmt Saria Pvt Ltd vs Alwar on 15 July, 2019
Author: Dilip Gupta
Bench: Dilip Gupta
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH, COURT NO. I
Excise Appeal No. 52005 of 2018
[Arising out of the Order-in-Original No. ALW-EXCUS-000-COM-43-17-18
dated 28/03/2018 passed by The Commissioner, Central Goods and Service
Tax Commissionerate, Alwar.]
M/s Rathi TMT Saria (P) Ltd. Appellant
SP 71-72, RIICO Industrial Area Khuskhera,
Bhiwadi,
Distt. Alwar - 301019.
VERSUS
Commissioner, Central Goods Respondent
and Service Tax Commissionerate,
A Block, Surya Nagar
Alwar - 301 001.
WITH
Excise Appeal No. 52301 of 2018
[Arising out of the Order-in-Original No. ALW-EXCUS-000-COM-43-17-18
dated 28/03/2018 passed by The Commissioner, Central Goods and Service
Tax Commissionerate, Alwar.]
Shri Shrivats Rathi, Director Appellant
M/s Rathi TMT Saria (P) Ltd.
SP 71-72, RIICO Industrial Area Khuskhera,
Bhiwadi,
Distt. Alwar - 301019.
VERSUS
Commissioner, Central Goods Respondent
and Service Tax Commissionerate,
A Block, Surya Nagar
Alwar - 301 001.
APPEARANCE :
Shri Krishna Kant, Advocate - for the appellants.
Shri V.B. Jain, Authorized Representative (DR) - for the Respondent.
CORAM : HON'BLE SHRI JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE SHRI C.L. MAHAR, MEMBER (TECHNICAL)
FINAL ORDER NO. 50920/2019
2 EX/52005 & 52301 of 2018
DATE OF HEARING : 17/01/2019.
DATE OF DECISION: 15/07/2019.
C.L. MAHAR :-
The brief facts of the matter are that working on a specific
intelligence, the central excise officers visited the premises of the
appellant alongwith other related premises on 8 December 2008.
After detailed investigations, the department issued a show cause
notice No. C (H) ADJ/CE/72/76/10 dated 18 July 2011
whereunder following amounts of central excise duty have been
demanded from the appellant on various counts :-
(i) an amount of Rs.83,57,897/- has been demanded
under Section 11AC of the Central Excise Act, 1944
readwith Rule 25 of the Central Excise Rules on the
ground that on physical verification of the finished
goods namely MS bars a quantity of 1932.015 M.T.
was found short when compared to the stocks of
finished goods shown in the statutory books, such as,
RG - I register;
(ii) reversal of Cenvat credit amounting to Rs.
24,72,672/- in respect of the inputs namely MS
Ingots on which Cenvat credit had been availed by
the appellant and on physical verification under
Panchnama the quantity of raw material namely, MS
ingots weighing 714.480 M.T. was found short as
recorded under RG-23 registered by the appellant ;
(iii) central excise duty amounting to Rs. 4,24,70,378/-
under Section 11A on the ground that the appellant
suppressed the actual production by 10259.730 M.T.
of finished goods namely, M.S. bars/TMT saria by
showing excess burning loss of 12767.493 M.T.
instead of 2507.760 M.T. It has further been alleged
that by showing the excess burning losses, the
appellant had clandestinely cleared the finished goods
3 EX/52005 & 52301 of 2018
between July 2006 to March 2009 and thereby
evaded central excise duty amounting to Rs.
4,24,70,378/- ;
(iv) a demand of Rs. 35,72,980/- on the ground that the
finished goods were cleared/sold by appellant by
resorting to under valuation of the finished goods by
declaring the same as old rejects and pitted steel ;
and
(v) a further demand of Rs.5,92,419/- has also been
made on the ground that the appellant had made
clearances of the finished goods on the strength of
some parallel invoices and thereby indulged in
evasion of central excise duty.
2. The show cause notice dated 18 July 2010 was adjudicated
vide order-in-original No. 26/2013 dated 22 March 2013 readwith
addendum dated 07 June 2013. The appellant in the first round
of the litigation approached this Tribunal. The Tribunal vide final
order No. 50784-50785 of 2017 dated 8 February 2017, passed
the following order :-
"10. As discussed above, the following order is passed:
(a) a demand of Rs.5,92,419/- is confirmed along with interest
and equivalent penalty is also imposed against M/s. Rathi TMT Saria
Pvt. Ltd. and a penalty on Shri Shrivats Rathi is also confirmed
under Rule 26 of the Central Excise Rules, 2002.
11. The adjudicating authority shall determine the quantum of
penalty in remand proceeding on Shri Shrivats Rathi for the demand
confirmed in para (a) above.
12. For rest of the demands, the impugned order is set aside and
the matter is remanded back to the adjudicating authority to re-
adjudicate the matter after affording the cross examination of the
witnesses sought by the appellants. All the other issues are kept
open.
3. It can be seen that this Tribunal vide the above-mentioned
final order dated 8 February 2017 ordered the Adjudicating
Authority to re-adjudicate the matter after allowing cross
examination of the witnesses as sought by the appellant.
4 EX/52005 & 52301 of 2018
4. In pursuance to the above order of this Tribunal, the
learned Commissioner vide order No. V (H) Adj.-I/CE-72/76/
2010 dated 28 March 2018 re-adjudicated the matter and the
charges made under the show cause notice were again been
confirmed. Penalties under Section 11AC as well as under Rule 15
(2) of Cenvat Credit Rules, 2004 readwith Section 11AC of
Central Excise Act, 1944 have also been imposed on the
appellant firm, a penalty of Rs. 75 lakhs has also been imposed
on Shri Shrivats Rathi (appellant No. „2‟) under Rule 26 (1) of
Central Excise Rules, 2002. The penalty on various other counts
have also been imposed on the appellant firm.
5. The appellants have assailed the above-mentioned
impugned order-in-original. The learned Advocate appearing on
behalf of the appellant at the outset mentioned that the appellant
vide their letter dated 6 October 2017 has sought cross-
examination of certain persons of the company who had shown
lower burning losses in their factories and also the cross-
examination of the Panch witnesses. It has been mentioned by
the learned Advocate that the date of cross-examination was
fixed for 18 October 2017 when Shri V.K. Aggarwal, the Advocate
of the appellant cross-examined Shri Kewal Krishan, the driver
who had stated that they were engaged in transportation of
billets from Bihar and they were not engaged in transportation of
TMT bars/saria. The other persons namely, M/s Rathi Bars,
Khuskhera and Rathi Special Steel Ltd., Khuskhera did not
provide any information and declined to appear for cross-
examination. Shri V.K. Aggarwal, the learned Advocate for the
appellant did attend the personal hearing on 28 November 2017
and cross examined Shri Bhim Singh - Driver, Shri A.K. Malhotra
- Director of M/s Rathi Dakshin Steel Ltd., Khuskhera. Shri B.K.
Meena, Superintendent and Shri K.C. Meena, Superintendent
were also cross-examined on 22 January 2018. The learned
Advocate has contested that the material witnesses in respect of
burning losses have not been produced for cross-examination nor
5 EX/52005 & 52301 of 2018
any Panch witnesses were available for cross-examination. The
learned Advocate thus tried to substantiate that the Adjudicating
Authority did not follow the instructions of the Tribunal contained
in the order in letter and spirit.
6. The learned Advocate has vociferously contested that the
Panch witnesses in whose presence Panchnama was drawn at the
factory premises were not produced for cross-examination even
though the Tribunal had specifically observed that the cross-
examination of the Panch witnesses was necessary to ascertain
whether the stock of goods had been physically weighed or
verified properly. The learned Advocate has relied on Gahlout
and Choudury Steel Pvt. Ltd. vs. Commissioner of Central
Excise, Jamshedpur reported in 2001 (135) E.L.T. 223 (Tri.
- Kolkata) whereunder it has been held that the subordinate
authorities are bound to carry out the directions of the Tribunal
and cannot defy the order of the Tribunal.
7. The learned Advocate has also mentioned that the
provision of Section 9 (D) of the Central Excise Act provide that
all statement made by any person before a Gazetted officer
during the course of enquiry shall be relevant for deciding the
matter provided such person is examined as a witness by the
Adjudicating Authority. The Adjudicating Authority has to form an
opinion about the admissibility of the statement of such witness
and thereafter the witness needs to be cross-examined by the
affected party. The learned Advocate has vehemently contended
that since the key witnesses has not been produced for cross-
examination by the Adjudicating Authority the order-in-original is
legally not sustainable. The learned Advocate has relied on
Commissioner of Central Excise, Delhi - I vs. M/s Kuber
Tobacco India Ltd. reported in 2016 (338) E.L.T. 113 (Tri. -
Del.), wherein it has been held that :-
(a) There is no doubt about the legal position that the procedure
prescribed in sub-section (1) of Section 9D is required to be
6 EX/52005 & 52301 of 2018
scrupulously followed as much as in adjudication proceedings as in
criminal proceedings relating to prosecution.
(b) Section 9D(1) sets out the circumstances in which a
statement made and signed by a person before the Central Excise
Officer shall be relevant for the purpose of proving the truth of the
facts contained therein.
(c) If the circumstances Specified in Section 9D(1) are absent,
the statement, which has been made during the course of
inquiry/investigation, before a gazetted Central Excise Officer,
cannot be treated as relevant for the purpose of proving the facts
contained therein as observed by the Hon‟ble Delhi High Court in
the case of J.K. Cigarettes, 2009 (242) E.L.T. 189(Del).
(d) In other words, in the absence of the circumstances specified
in Section 9D (1), the truth of the facts contained in any statement,
recorded before a gazette Central Excise Officers, has to be proved
by evidence other than the statement itself.
(e) Therefore, two steps were required to be followed by the
Adjudicating Authority under Clause (b) of Section 9D (1):-
(i) The person who made the statement has to be first
examined as a witness in the case before the adjudicating
authority, and
(ii) The adjudicating authority has, thereafter, to form the
opinion that, having regard to the circumstances of the case,
the statement should be admitted in evidence in the interest
of justice. The Hon‟ble Tribunal has referred to the judgment
in Parmarth Iron Pvt. Ltd., 2006 (260) E.L.T. 514 (ALL)
wherein the Hon‟ble Allahabad High Court has held that "If
the Revenue Choose not to examine any witness in
adjudication, their statements cannot be considered as
evidence."
8. Contesting the shortage of finished goods as well as inputs
on which the Adjudicating Authority has confirmed the demand of
central excise duty as well as reversal of the Cenvat credits on
MS Ingots etc., the learned Advocate submitted that there was
no shortage of 1932.015 M.T. of MS bars and in the stock of raw
material namely MS Ingots which has allegedly been found short
by 714.48 M.T. it was contended that stock taking of finished as
well as raw materials was done in arbitrary manner and weight
was taken only on eye estimation basis and no scientific method
for weighment of finished goods as well as raw material was
adopted while drawing the Panchnama dated 11 December 2008.
The learned Advocate has mentioned that the cross-examination
of the concerned officer in the Panchnama, on 22 January 2018
establishes that MS bars in bundles were not weighed separately
7 EX/52005 & 52301 of 2018
and only weight of a particular size of MS bars bundle was taken
and same was multiplied with the number of total bundles
available to arrive at a approximate weight, presuming that each
bar was approximately of the same weight. The learned Advocate
has claimed that the quantity of shortage of finished goods as
well as raw material has been shown only on the basis of
approximation and, therefore, same cannot be taken for
demanding duty of central excise. It has further been submitted
that it is a settled law that :
stock verification done only on the basis of eye estimation
cannot be a basis for demanding duty. The learned Advocate has
relied on following decisions in this regard : (i) Shiva Steel
Rolling Mills vs. Commissioner of Central Excise, Kolkata -
II - 2005 (186) E.L.T. 326 (Tri. - Kolkata) ; (ii) Satpushp
Steels (P) Ltd. vs. Commissioner of Central Excise, Jaipur -
2006 (196) E.L.T. 105 (Tri. - Del.) ; (iii) Micro Forge (I)
Pvt. Ltd. vs. Commissioner of Central Excise, Rajkot - 2004
(169) E.L.T. 251 (Tri. - Mumbai).
9. The learned Advocate has further submitted that the major
demand of the central excise duty, which has been confirmed by
the learned Adjudicating Authority in the impugned order, is on
the allegation of the appellant claiming excess burning losses of
the raw material in the manufacture of the finished goods namely
MS bars. Learned Advocate contended that burning losses was on
the higher side in the factory of the appellant due to defects in
the heating furnace of the factory and for the reason that re-
heating furnaces had some defects. According to the learned
Advocate these factors resulted in excessive burning losses. The
learned Advocate submitted that though the Department
produced Shri A.K. Malhotra, Director of M/s Rathi Dakshin Steel
Ltd. for cross-examination who submitted that the burning losses
were about 2% to 4% and the appellants claimed burning losses
of 10 to 12% on higher side but Shri Malhotra was not a
competent technical person to give any opinion about burning
8 EX/52005 & 52301 of 2018
losses and, that too about the factory of some other person. As
such, his evidence could not have been considered for proving
excessive burning losses.
10. The learned Advocate also submitted that :-
(i) It is submitted by the appellant, that the burning loss
of about 10% to 12% is based upon the actual percentage
of the burning loss caused during the manufacturing of the
final products. It is submitted that their re-heating furnace
is not working properly resulting in low production of
finished goods due to heavy burning loss. On 18 October
2008, Govind Engineering, Faridabad conducted physical
technical inspection of the re-heating furnace of their unit
and in their technical report dated 25 October 2008
mentioned that the burner location, oil pre-heat
temperature, furnace leakage, reduction of oxygen level
was not in proper condition and should be repaired or
replaced. It was also suggested by M/s Govind
Engineering that the surface quality of input material need
to be rectified as well. This report clearly shows that the
re-heating furnace was not working properly, resulting into
heavy burning losses.
(ii) The learned Advocate also submitted that the
appellant also sought the technical advice of M/s Super
Ceramics who in their Report dated 15 November 2008 has
mentioned that the re-heating furnace is not working
properly and is in very poor condition which had resulted in
heavy burning losses.
(iii) It has been pointed out by the learned Advocate that
they had requested National Institute of Secondary Steel
Technology, established by Ministry of Steel, Government
of India, to visit the factory premises of the noticee
company for inspecting the re-heating furnace to control
the heavy burning loss, under letter dated 02 November
2008 and 29 November 2008. The said Institute visited
their factory premises and gave its technical report dated
24 February 2009 suggesting measures to improve the
overall potential for energy conservation and to control
waste as indicated in their report.
(iv) We have been taken through the report of National
Institute of Secondary Steel Technology which mentioned
that overall yield and finish needed to be improved; scale
losses were very high and needed to be reduced by
controlling furnace atmosphere, rate of heating, output
temperature and enhanced output. The Report further
concluded that "Factors responsible for higher fuel and
9 EX/52005 & 52301 of 2018
energy consumption e.g. burner location, heat profile inside
the furnace, oil pre-heat temperature, furnace leakage,
reduction of oxygen level, etc. needed to be implemented
without delay." The Institute also mentioned that "the re-
heating furnace of the 12" structural mill was designed to
deliver - 30 MT per hour but as the Mill was not designed
to match it, hence, continuous high speed production was
not possible. It resulted lower output of 27.1 MT in 2 hours
and hence higher scale loss, more fuel and power
consumption levels."
(v) It has further been submitted that the appellant had
followed the instructions and suggestions made by the
NISST and as a result the burning losses has come down to
the level of 2%.
(vi) It has further been emphasized that all these steps
had been initiated by the appellant before the search of the
factory on 11 December 2008 as they were losing their
production. That is why, the Hon‟ble Tribunal has
observed in its Final Order dated 08 February 2017 that
"the Appellant was vigilant during the period with regard to
the burning loss occurring during the period and chartered
engineer report certifying that there was burning loss on
higher side." The Hon‟ble Tribunal has also observed that
the Reports produced by the appellants have not been
considered by the Department in positive perspective. It
is, therefore, requested that the Reports, already submitted
by the appellant may please be considered in the positive
perspective, as directed by the Hon‟ble Tribunal.
11. It has also been submitted by the learned Advocate that no
verification was conducted by the central excise officers to
examine adjudge the claim of the appellant regarding higher
burning losses occurring due to technical problems in the furnace
and rolling mill. The learned Advocate has contended that it is a
settled law that the claim of higher invisible burning losses may
lead to a doubt in the mind of the revenue officers but without
concrete evidence of clandestine manufacturing and clearance of
the goods, a demand of central excise duty cannot be made. The
learned Advocate has relied on case law of M/s Western Metal
Caps Ltd. vs. Commissioner of Central Excise, Ahmedabad
- 2004 (170) E.L.T. 451 (Tri. - Mumbai), whereunder it has
been held that it is well settled law that the onus to prove the
clandestine clearance lies heavily upon Revenue and it is required
10 EX/52005 & 52301 of 2018
to be discharged by production of sufficient, tangible and
affirmative evidence. Since, in this case there is nothing on
record to prove the clandestine clearances and demanding duty
on a bald claim of higher burning losses is certainly not
sustainable in eyes of law. He has further stressed that the
findings of the Adjudicating Authority that burning losses beyond
2% was not genuine and that the appellant cleared finished
goods in the garb of burning losses is not sustainable as held by
this Tribunal in the case of M/s Jakap Metind Pvt. Ltd. vs.
Commissioner of Customs and Central Excise - 2017 (356)
E.L.T. 279 (Tri. - Mumbai). The relevant extract is produced
here below :-
"Reliance is also placed on the decision in the case of Shree
Electromelts Ltd. vs. Commissioner of Central Excise, 2011
(272) E.L.T. 94(T) wherein the Tribunal has held that "The
confirmation of demand on the basis of assessment by taking into
account normal production as also the production which the
assessee might have procured by relying upon electricity
consumption, cannot be upheld. This is the mandate of law
declared by Hon‟ble Supreme Court in the case of Triveni Rubber
& Plastics vs. Commissioner of Central Excise, 1994 (73) E.L.T.
7 (SC).
"Learned Commissioner failed to notice that the Department
has not brought on record any material to show the transport and
sale of the alleged finished goods and the production capacity of the
machine. The charge of clandestine removal cannot be sustained
on suspicion and excessive burning loss by itself does not prove
the charge of clandestine manufacture and removal in absence of
other corroborative evidences such as goods actually manufactured
and packed etc. In this regard, reliance is placed in the case of Opel
Alloys (P) Ltd vs. Commissioner of Central Excise, Ghaziabad
2005 (182) E.L.T. 64 (Tri-Del)".
12. Regarding the allegation in the show cause notice that the
appellant cleared fresh goods by mis-declaring the same as old
and rejected instead pitted steel on which a demand of central
excise duty amounting to Rs. 35,72,980/- has been confirmed,
the learned Advocate submitted that due to stiff competition in
the steel market and due to the fact that the finished goods
remained lying in the open stock yard for long period and as a
result same got rusted and became inferior and, therefore, they
had no option but to clear the same on reduced value as rusted
11 EX/52005 & 52301 of 2018
and inferior goods cannot be sold in the open market at the
prevailing prices of fresh finished goods. The learned Advocate
contended that the Department has failed to produce any of the
buyers for cross-examination to prove the allegation of under
valuation of the finished goods at the time of the sale of same.
13. In the end the learned Advocate contended that there is no
case for imposition of penalty under Section 11AC of the Central
Excise Act, 1944 on the appellants as they have not indulged in
any of the activity like fraud, suppression, mis-declaration with
an intent to evade duty and, therefore, the imposition of the
penalty by the Adjudicating Authority under Section 11AC is
legally not sustainable. The second appellant namely, Shri
Shrivats Rathi has also not done anything to invite invocation of
provision of Rule 26 (1) of the Central Excise Rules.
14. We have also heard learned Departmental Representative
who has supported the findings as given in impugned order.
15. After hearing both the rival sides and after careful
consideration of the record of appeals, we find that so far as the
demand of central excise duty amounting to Rs. 4,24,70,378/- on
account of suppressed production and clandestine clearance of
10259.730 M.T. of the MS bars by claiming excess burning losses
is concerned, the same is primarily based on the comparison of
burning losses of the appellant factory vis-à-vis the other
factories manufacturing the same products. One Shri A.K.
Malhotra, Director of M/s Rathi Steel Dakshin Ltd. who had also
appeared for cross-examination on 22 January 2018 had stated
that the burning losses in his factory are in the range of about
4%. The Department has also recorded the statement of certain
employees in its attempt to prove that the burning losses as
claimed by the appellant between 10 to 12% are actually not
correct and actual burning losses are somewhere between 2% to
4%. The appellant, on the other hand, had taken a technical
advice from certain technical agencies and also from the National
12 EX/52005 & 52301 of 2018
Institute of Secondary Steel Technology established under
Ministry of Government Steel of India who after visit of the
factory of the appellant had given a technical report dated 24
February 2009 whereunder report contains measures to improve
the overall potential for energy conservation and to control waste
and losses. It has also been claimed by the appellant that their
re-heating furnace was not working properly resulting into heavy
and unusual burning losses and they have claimed that for
physical technical inspection of re-heating furnace of their plant,
certain technical inspecting firm of furnaces had visited their
factory and have suggested that burner location, oil pre-heat
temperature, furnace leakage, reduction of oxygen level was not
in proper condition and required repair or replacement. Thus, the
appellant tried to substantiate that manufacturing facilities were
not in the good condition and, therefore, the burning losses in
the manufacture of MS bars were on the higher side than the
normal burning losses.
16. We find that the Department does not have any evidence to
support its claim that the appellant claimed excess burning losses
in the manufacture of MS bars and thereby clandestinely
manufactured and cleared certain quantities of finished goods
without payment of central excise duty which resulted in duty
evasion amounting to Rs. 4,24,70,378/-. We take note of fact
that except the statement of three persons who are also in the
manufacture of MS bars whereunder they have stated that the
normal burning losses during manufacture of MS bars may vary
between 2% to 4%, no other evidence has been produced to
support the claim of the Department. The department failed to
discharge its responsibility to substantiate that the appellant had
claimed excessive burning losses. The Department could have
undertaken the exercise of actually establishing the actual
burning losses by organizing manufacture of a particular lot of MS
bars under Panchnama from the stage of feeding of raw materials
to emergence of finished product to establish or ascertain the
13 EX/52005 & 52301 of 2018
actual burning losses in the manufacture of MS bars. We find that
the appellant had produced certain reports from the technical
bodies and technical persons which in no uncertain terms indicate
that the manufacturing facilities such as re-heating furnace etc.
of the appellant was not working in the optimum conditions.
These reports certainly vindicate the appellant‟s claim of higher
burning losses. The Department, on the contrary, did not make
any sincere efforts to establish the allegation that the appellant
had claimed higher burning losses.
17. The Department has also made an allegation that by
claiming the higher percentage of burning losses, the appellant
clandestinely manufactured and cleared quantity of 10259.730
M.T. of MS bars without payment of duty. However, the
department did not make any effort to prove and establish the
clearance of such clandestinely manufactured and cleared
quantities from the factory premises and its further
transportation to the buyers premises etc. The Department did
not produce any evidence in this regard. Such a big quantity of
10259 M.T. of MS bar would have certainly left some trail of
evidence. However, we do not find any mention of such evidence
either in the show cause notice or in the order. Therefore, it is
evident that no effort was made to collect any evidence in this
regard.
18. In view of above, the charge of clandestine manufacture
and clearance of quantity of 10259.730 M.T. of MS bars by
claiming excess burning losses by the appellant has not been
established by the Department and, therefore, the demand of
duty on such quantities is legally not sustainable. While taking
the above view, we rely on the Apex Court decision in the case of
Oudh Sugar Mills Ltd. vs. Union of India - 1978 (2) E.L.T.
J172 (S.C.). The relevant extract is as under :-
"7. Now, these calculations certainly involve some
assumptions. The first is that the difference of 56 maunds noticed
by the Assistant Chemical Examiner during the two and quarter
14 EX/52005 & 52301 of 2018
hours test conducted by him on May 7, 1957 was uniform for every
2-1/4 hours working throughout the working hours of the crushing
season which began on November 4, 1956 upto May 7, 1957 when
the test was conducted.
8. The second assumption is that the persons in-charge of the
operation of letting in mixed juice fill the tanks uniformly upto a
level beyond the fixed mark and never below that level or at that
level.
9. The third assumption is that the average of 10.11% of
sugar recovery from the mixed juice is a safe basis for calculating
the quantity of sugar not accounted for.
10. The fourth is that the milling performance of the factory
has been uniformly efficient throughout the entire period from
November 4, 1956 to May 7, 1957.
11. If any one of these assumptions breaks down, then the
ultimate conclusion will have to be rejected as incorrect. It has to
be borne in mind that human element is involved at certain stages
of the operation such as time of commencement of the day‟s
working, the rapidity or slowness in feeding cut sugarcane into the
crusher and mills, accurately adding the same quantity of water in
the crusher and mills, stopping the inflow of mixed juice into the
tanks at a uniformly higher level than that indicated by the mixed
mark, allowing a uniform time lag between the emptying of the
tanks and starting inflow into them again and so on. It is also
unsafe to rely on the average of 10.11% of sugar recovery for the
entire period because it involves the assumption that even during
the periods when the gross weight of the tanks was 7.5 tons or less
sugar content of the sugarcane crushed in the factory was such as
could not have been yielded anything less than 10.11%. For, it is
well-known that the sugar content of sugarcane even grown in the
same area is not constant but is variable according to the time of
the year. Again it has to be borne in mind that the recovery of
sugar must necessarily depend upon the milling performance. It
cannot be assumed that even in an ordinarily well run factory the
performance would be uniformly good or uniformly the same".
19. We also hold that the entire case of the Department is
based on statements of the third parties wherein they have
claimed that the burning losses are in the range of 2% to 4%. In
this regard, sole reliance on third party evidence for establishing
a case of higher claim of the burning losses and resultant
clandestine manufacture and clearance is legally not sustainable
as has been held by this Tribunal in the case of Shree Sidhbali
Ispat Ltd. vs. Commissioner of Central Excise, Nagpur
reported under 2017 (357) E.L.T. 724 (Tri. - Mumbai),
wherein it has been held that the demand primarily on the
15 EX/52005 & 52301 of 2018
statement of the third party cannot form a basis for demanding a
duty of central excise.
20. We also take note of this Tribunal‟s decision in the case of
M/s R.A. Castings Pvt. Ltd. vs. Commissioner of Central
Excise, Meerut - I reported under 2009 (237) E.L.T. 674
(Tri. - Del.). The relevant extract is as under :-
"22. The clandestine manufacture and removal of excisable goods is
to be proved by tangible, 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 manufacture
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 materials 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 L.Rs,
statements of lorry drivers, entries at different check posts, forms
of the Commercial Tax Department and the receipt by the
consignees;
(v) Amount received from the consignees, statement of the
consignees, receipts of sale proceeds by the consignor and its
disposal.
In the instant case, no such evidences to the above effect have
been brought on record".
21. It can be seen that in the present case except the
statements of certain persons, no other evidence regarding
manufacture, clearance, transportation, purchases etc. have been
produced to establish the case of evasion of central excise duty
and, as such, the demand, as mentioned above, is legally not
sustainable.
22. Coming to the demand of central excise duty amounting to
Rs.83,57,897/- on account of shortage of the finished goods
namely MS bars and shortage of raw material namely MS Ingots
16 EX/52005 & 52301 of 2018
at the time of the visit of the factory on which the Cenvat credit
amounting to Rs. 24,72,672/- has been availed by the appellant,
it needs to be noticed that the Panchnama was drawn at the
appellant‟s premises by the visiting officers whereunder the
employees and responsible persons of the appellant have also
participated alongwith Panch witnesses. It is a matter of record
that at the time of drawing of the Panchnama, the methodology
adopted by the visiting officers for weighing the stock was that
they had taken weight of a particular size of MS bars bundle and
after physically counting of the total number of bundles of every
size of MS bar, the weighment of the finished goods stock
available in the factory premises was ascertained and arrived by
the visiting officers under a Panchnama. This can be seen from
the table that was prepared
Table - 1 (for MS BAR)
S. No. Size of M.S. Qty. Weight as per
Bar weighment
1. 8 MM One Bundle 110 kgs
2. 10 MM One Bundle 110 kgs
3. 12 MM One Bundle 120 kgs
4. 16 MM One Bundle 120 kgs
5. 20 MM One Bundle 120 kgs
6. 25 MM One Bundle 60 kgs
4.2 Therefore, allegedly all bundles of each size of M.S.
Bar found available in the factory premises were counted
and multiplied with the respective weight of each bundle.
Chart was prepared and marked as Annexure „B‟ (R-JD-5)
to the Panchnama dated 11.12.2008). The total weight of
finished goods i.e. M.S Bar was found as under:-
S. Size of Total Number Weight as each Total weight
No. M.S. Bar of Bundles Bundle (Kgs.) (Kgs.)
1. 8 MM 614 110 kgs 67540
2. 10 MM 559 110 kgs 61490
3. 12 MM 352 120 kgs 42240
4. 16 MM 2191 120 kgs 262920
5. 20 MM 2616 120 kgs 313920
6. 25 MM 4143 60 kgs 248580
17 EX/52005 & 52301 of 2018
Total weight 996690
23. Shri Pramod Gupta who was present at the time
Panchnama was drawn has not objected to the methodology
adopted for weighment of the stock of finished goods as well as
the raw material available at the time of the drawing of the
Panchnama. The appellant questioned the veracity of the
Panchnama claiming that weight of such a large quantity of the
finished goods namely MS Bar and raw materials (MS Ingots)
cannot be conducted in such a short time of eight hours and,
therefore, the entire proceedings under Panchnama are not
based on correct facts.
24. We have perused in detail the proceedings of the visiting
officers on 11/12/2008. The methodology adopted by the visiting
officers for weighment of the finished goods that is MS Bars and
the raw material namely, MS Ingots was mutually agreed
between the visiting officers and the representative of the
appellant Shri Pramod Gupta. We feel that it was the most logical
and practical method of weighment of finished goods namely MS
bars and raw material namely, MS Ingots. We find that weight of
one bundle of each size of MS bars have been taken from the
weigh bridge installed in the factory premises of the appellant
and the print out of the weighment slip has also been taken and
the quantity of the bundles of each size of MS bar was counted in
the presence of Panchas as well as authorized representative of
the appellant and thereafter the stock of available finished goods
namely MS bars and raw material namely MS Ingots was arrived
at by the officers as well as Panchas and the authorized
representative of the appellant. The veracity of the Panchnama
and the availability of the finished goods as well as the raw
material on the date of visit cannot be challenged as an
afterthought by the appellant only because each and every MS
bar and each and every ingots of raw material was not
individually weighed by the visiting officers. The entire
proceedings were conducted in a mutually agreed way which was
18 EX/52005 & 52301 of 2018
the best possible practical and logical way of weighment. The
appellant has failed to contradict the findings of the Panchnama
except advancing an argument that since each and every MS bar
or each and every MS ingots was not been weighed the shortage
of finished goods and raw material by the officers through
Panchnama dated 11/12/2008 cannot be relied upon. These
arguments of the appellant are not legally tenable. It is a settled
trade practice that length of TMT bar of a particular size remains
uniform and number of pieces of each bundle will also remain in
uniform. This is an accepted trade practice and at the time of the
sale of the finished goods in the market the same practice is
generally followed. Thus the methodology adopted by the officers
in the Panchnama dated 11/12/2008 for ascertainment of the
available quantity of the finished goods namely MS bars and that
of raw material namely MS ingots was practical and scientific. It
is, therefore, hold that at the time of the visit of the officers,
there was a shortage of 1932.015 M.T. of MS Bars and 714.48
M.T. of MS ingots. While taking this view, we also take into
account the following factors;
(i) That during the entire proceedings the representative
of the appellant had participated in the Panchnama
and agreed to the methodology of weighment
adopted by the Panchas & officers;
(ii) The various statements recorded during the course of
investigations have also endorsed the findings of the
Panchnama;
(iii) The appellant has not adduced any evidence to
controvert the outcome of the Panchnama;
(iv) The Hon‟ble Supreme Court in case of GTC
Industries Ltd. V/s Commissioner of Customs,
New Delhi reported under 2011 (264) E.L.T. 433
(Tri. - Del.) held :
"20. Following the ratio laid down in the case Veera
Ibrahim v. State of Maharashtra, AIR 1976 SC 1167 = 1983
(13) E.L.T. 1590 (S.C.), the statements of the witnesses
recorded who were not formally accused of any offence were
not being hit by Constitutional guarantee, were admissible in
evidence when those were recorded under Section 14 of
Central Excise Act, 1944 in the course of judicial proceeding.
That unambiguously explained modus operandi of appellants
19 EX/52005 & 52301 of 2018
without ruling out their association with the deposition. The
versions in the statements directly related to the governance
of the business of the appellants and such nexus proved by
chain of evidence gathered by Revenue. If any person
associated with a trade or goods explains about the same
unambiguously, his statement is reliable being creditworthy.
That was based on cogent evidence but not on any
assumption or suspicion. Revenue has successfully
contradicted pleading of appellants. Involvement of appellant
in evasion of duty adopting premeditated design realizing
higher sale price than the price embossed on the cigarette
packets was established. In extricable links of versions in the
recorded statement failed to dissociate the appellants from
the grave of offence. Accordingly the materials recovered in
the course of search and statements recorded by Revenue
lead to irresistible conclusion that unfair practice was
adopted by the appellants for their unjust enrichment at the
cost of Revenue. The concepts of probability, and the
degrees of it, cannot obviously be expressed in terms of units
to be mathematically enumerated as to how many of such
units constitute proof beyond reasonable doubt. There is an
unmistakable subjective element in the evaluation of the
degrees of probability and the quantum of proof. In view of
the above the statements used in adjudication does not
appear to have made the same arbitrary or capricious nor
vitiates the same.
Cross-examination :
21. No doubt reliance and testimony of a witness calls for
cross-examination. The evidence in adjudication proceeding
need not be like the one in criminal cases. Findings should be
on the basis of preponderance of probability. The
Adjudicating Authority in para 4.45 of Order-in-Original at
pages 51 to 56 stated reasons why cross-examination plea
was found to be dilatory tactics. The witnesses were not
innocent, but were found to be well conversant with
appellants‟ trade who established their close association with
the appellants and goods traded. They were also found to be
uninfluenced by Revenue and statements were recorded in all
fairness. Reference may be made to the decision in the case
of Rup Chand Jain v. Collector of Customs (Preventive),
Calcutta, reported in 1996 (88) E.L.T. 335 (Cal.) and
Santhanam v. Collector of C. Excise & Customs, Madurai-2,
reported in 1995 (79) E.L.T. 564 (Mad.). The appellants
without filing reply to Show Cause Notice, merely raising
flimsy pleas asked for cross-examination of deponents. That
was premature. Challenge to the impugned order was made
on the ground that the same was based on the statements of
witnesses which were not been subjected to test by way of
cross-examination of the deponent. A statement recorded by
Customs Officers under Section 108 of the Customs Act being
admissible in evidence as held in CCE v. Duncan Agro
Industries, reported in 2000 (120) E.L.T. 280 (S.C.), the
court has to test whether the inculpating portions were made
voluntarily or whether it is vitiated on account of any of the
premises envisaged in Section 24 of the Evidence Act.
Nothing could be demonstrated to impeach the statements
recorded.
20 EX/52005 & 52301 of 2018
21.1 Though it cannot be denied that the right of cross-
examination in any quasi-judicial proceeding is a valuable
right given to the noticee as these proceedings may have
adverse consequences, at the same time under certain
circumstances, this right of cross-examination can be taken
away. Hon‟ble High Court of Bombay while dealing with the
similar issue in the case of Gyan Chand Sant Lal Jain v. UOI,
reported in 2001 (136) E.L.T. 9 (Bom.) and taking into
consideration the applicability of concept of principles of
natural justice in that regard quoted para 76 of Halsbury‟s
Law of England, Vol. I (4th Edition) which reads thus :-
"Natural justice does not impose on administrative and
domestic tribunals a duty to observe all the technical rules of
evidence applicable to proceedings before courts of law.
Members of tribunals may be entitled to draw on their
specialized or local knowledge of the type of, issue before
them in order to supplement as well as evaluate evidence to
find facts by inquisitorial methods, and inspections and to
obtain information from other persons; but it will generally
be a denial of justice to fail to disclose to a party specific
material relevant to the decision if he is thereby deprived of
any opportunity of comment on it."
[Emphasis supplied]
The Hon‟ble High Court observed thus :-
"In other words, it seems to be a fairly settled position in law
that it is not necessary that persons whose statements have
been previously recorded must be examined in the presence
of the party against whom such previous statements are
intended to be used. The rules of natural justice do require
that their previous statements must be made available to the
party against whom they were intended to be used and such
party must be given a fair opportunity to explain the same or
comment on them. What would amount to fair opportunity
would depend upon the facts and circumstances of each
case...."
[Emphasis supplied]
21.2 The Apex Court in Surjeet Singh Chhabra v. UOI,
reported in 1997 (89) E.L.T. 646 (S.C.) held that Customs
officials are not police officers and admission made before
them though retracted binds the deponent. In view of
voluntary statements recorded and such statements not
retracted did not warrant cross-examination when other
circumstantial provided reliable basis corroborating the
statements. When nothing surfaced that the witnesses had
any enmity with appellants, those were not liable to be
discarded nor required to be put to cross-examination.
Relying upon the decision of the Apex Court in Surjeet Singh
Chhabra case (supra) this Tribunal in Jagdish Shanker Trivedi
v. Commissioner of Customs, Kanpur - 2006 (194) E.L.T. 290
(Tri.-Del.) held that admission made by an assessee binds
him and, therefore, failure to give him the opportunity to
cross-examine the witnesses was not violative of principles of
natural justice. It was specifically held that "principles of
21 EX/52005 & 52301 of 2018
natural justice do not require that in matters like this,
persons who had given information should be allowed to be
cross-examined by the co-noticees on the statements made
before the customs authorities. If cross-examination is to be
allowed as a matter of right then in all cases of conspiracy
and joint dealings between the co-noticees in the commission
of the offences in connection with the contraband goods,
they can bring about a situation of failure of natural justice
by a joint strategic efforts such co-noticees by each one
refusing to be cross-examined by resorting to Article 20(3) of
the Constitution and simultaneously claiming cross-
examination of the other co-noticees." It is not a matter of
right for any assessee to contend that the statements of
witnesses should be discarded.
21.3 Bearing in mind the law laid down by the Apex Court
and prayer for cross-examination being premature without
filing reply to SCN, there was no substance in the contention
of the appellants about violation of principles of natural
justice. Appellant‟s prayer for cross-examination was devoid
of merit when ample evidence on record demonstrated
dubious practice adopted by them causing loss of Revenue.
The deponents by their versions corroborated deals of
realisation of higher sales price. It is well-settled that the
effect of an alleged admission depends upon the
circumstances in which it was made. An admission is the best
evidence that an opposing party can rely upon, and though
not conclusive, is decisive of the matter, unless successfully
withdrawn or proved erroneous. This is so because an
admission by a party is substantive evidence of the fact
admitted, and admissions duly proved are admissible
evidence irrespective whether the party making them
appeared in the witness box or not and whether that party
when appearing as witness was confronted with those
statements in case it made a statement contrary to those
admissions. An admission, if clearly and unequivocally made,
is the best evidence against the party making it and though
not conclusive, shifts the onus on to the maker on the
principle that "what a party himself admits to be true may
reasonably be presumed to be so and until the presumption
was rebutted the fact admitted must be taken to be
established.
........
26.2 Materials on record showed that there was no breach of natural justice. The SCN clearly depicted all the materials on which Excise authorities had relied to call for reply of appellants. When opportunity was given to reply on the specific charges levelled by the SCN, without filing a reply to that, the appellants have no right to insist for cross- examination since the adjudicating authority was all along deprived to come to a conclusion whether cross-examination was warranted. To say so, we rely on para-12 of judgment of Apex Court in Kanungo & Co. We are satisfied that the declaration filed before the authorities were full proof of suppression of fact, when all connected evidence proved realisation of higher MRP. Accordingly, the Excise authorities having discharged their burden of proof, the appellants had no right to call for cross-examination on flimsy plea".
22 EX/52005 & 52301 of 2018
25. The demand of duty amounting to Rs. 83,57,897/- on finished goods namely MS bars and an amount of Rs.24,72,672/- on MS ingots found short, has rightly been confirmed by the impugned order-in-original. Therefore, we refrain from interfering with the impugned order.
26. Coming to the demand of central excise duty amounting to Rs. 35,72,980/- on account of fake cash sale by adopting lower assessable value, it is a matter of record that the appellant has not shown or declared any quantity of old, rejected and pitted steel in their statutory record. It has been pointed out in the show cause notice that ER-1 return for the months of September, October, November and December 2008 of the assessee only indicate manufacturing and clearance of three items namely MS Bar, miss roll and end cutting. However, no record of production and clearance of old, rejected and pitted steel has been mentioned and no clearance of old, rejected and pitted steel have been shown by the appellant in their books of accounts as well as in the ER-1 return. The enquiries made by the Department from the trucks and owners of the transport vehicles have also indicated that no such transportation had taken place against the invoices which have been shown in the appellant‟s own record. Shri Pramod Gupta, Authorized Signatory of the unit in his statement dated 11 December 2008 also admitted that cash sale invoices indicating sale of old, rejected and pitted steel were to adjust the stock of the finished goods in their stock and in fact no clearances of old, rejected and pitted steel had been affected by them and it was only for covering up the shortage of finished goods which had arisen due to clandestine removal of MS bars consignment after manufacturing.
27. We find that apart from Shri Pramod Gupta, the drivers of trucks or owners of transport vehicles have admitted that no transportation of old, rejected and pitted steel have taken place. Further the appellant did not advance any explanation for 23 EX/52005 & 52301 of 2018 clearance of old, rejected and pitted steel at the time of adjudication. The appellants claim that due to closure of the factory certain goods got deteriorated and they have to be cleared on lower price is without any evidence and the claim made by the appellant is devoid of any merit. The statement recorded of the concerned employees of the appellant also endorse the findings and the stand taken by the Department that fresh finished goods were cleared by the appellant by declaring the same as old, reject and pitted steel. The appellants have not produced any cogent explanation to contradict the findings given in the impugned order whereunder the Adjudicating Authority has confirmed the duty of central excise amounting to Rs.35,72,980/- on this count.
28. While taking this view, are supported by the decision of Hon‟ble Supreme Court in GTC Industries Ltd. vs. Commissioner of Customs, New Delhi reported in 2011 (264) E.L.T. 433 (Tri. - Del.).
29. The demand of Rs. 5,92,419/- confirmed by the impugned order has been confirmed by this Tribunal‟s in the previous final order No. 50784-50785 of 2017 dated 08 February 2017. Therefore it is not necessary to deal with this issue.
30. So far as the penalty on appellant Shri Shrivats Rathi is concerned, in view of the discussions made in the preceding paragraphs it is a proven fact that certain quantities of the finished goods as well as raw materials were cleared clandestinely from the appellant premises without discharging central excise duty liability. From the statements of the various employees and Shri Shrivats Rathi himself, it comes out that for all the omission and commission, the employees of the appellant were taking directions from Shri Shrivats Rathi (appellant No. 2). We also find from a perusal of the record of the appeals as well as various statements recorded during the course of investigation that the ultimate beneficiary of the pecuniary benefits arising out 24 EX/52005 & 52301 of 2018 of the central excise duty evasion, follow to Shri Shrivats Rathi. Thus the provisions of Rule 26 (1) of the Central Excise Rules, 2002 have rightly been invoked and confirmed in the impugned order against Shri Shrivats Rathi. Still after considering all the facts, we take a lenient view and reduce the personal penalty imposed on Shri Shrivats Rathi from Rs. 75 lakhs under Rule 26 (1) of Central Excise Rules, 2002 to Rs. 50 lakhs.
31. In view of above discussions, we hold as follows :-
(i) We confirm the demand of central excise duty amounting to Rs. 83,57,897/- in respect of MS bars weighing 1932.015 M.T. found short at the time of drawing of the Panchnama dated 11/12/2008 under Section 11A of the Central Excise Act, 1944.
(ii) We also confirm central excise duty amounting to Rs.35,72,980/- in respect of fake sale shown in the name of sale of old, rejected and pitted steel under Section 11A of Central Excise Act, 1944.
(iii) We also endorse the finding of the order-in-original in respect of reversal of Cenvat credit amounting to Rs.
24,72,672/- on the raw material found short by 714.480 M.T. under the provisions of Section 11A readwith Rule 14 of Cenvat Credit Rules, 2004;
(iv) We also endorse the levy of interest as per the provisions of Section 11AB on the amount mentioned in the preceding para given (i), (ii), (iii) ;
(v) The findings given in the order-in-original with regard to demand of central excise duty amounting to Rs. 4,24,70,378/- and clandestine removal of finished goods on purported claim of excess burning losses are not sustainable. Accordingly, the demand on this count is dropped.
(vi) The penalty of Rs. 5,44,01,255/- as confirmed under the impugned order-in-original under Section 11AC of the Central Excise Act, 1944 is reduced to Rs. 1,19,30,877/- in view of the aforesaid discussions.
(vii) We also confirm the imposition of penalty of Rs.24,72,672/- under the provisions of Rule 15 (2) of the Cenvat Credit Rules, 2004 readwith Section 11AC of the Central Excise Act, 1944 for the raw material 25 EX/52005 & 52301 of 2018 found short at the appellants premises during the visit of the officers.
(viii) The amount of penalty on Shri Shrivats Rathi is reduced to Rs. 50 lakhs as per provisions of Rule 26 (1) of Central Excise Rules, 2002.
32. The appeals are, accordingly, allowed to the extent indicated above.
(Order pronounced in open court on 15/07/2019.) (JUSTICE DILIP GUPTA) PRESIDENT (C.L. MAHAR) MEMBER (TECHNICAL) PK