Customs, Excise and Gold Tribunal - Delhi
Chawla Enterprises Pvt. Ltd., Shri H.S. ... vs Cce And Cross Appeals on 16 January, 2004
Equivalent citations: 2004(92)ECC100, 2004(165)ELT100(TRI-DEL)
ORDER
K.K. Usha, J. (President)
1. Appeal Nos. E/3443-45/2000-NB(A) are at the instance of the assessee and Appeal No. E/1891/2001-NB(A) is by the Revenue, All these appeals are directed against the order passed by the Commissioner dated 15.9.2000 confirming a duty demand of Rs. 4,78,37,028 against M/s. Chawla Enterprises Ltd., appellant in appeal E/3443/2000-NB(A) for the period 1.1.93 to 31.3.97. The Commissioner under the impugned order imposed an equivalent amount of penalty under Section 11 AC and directed payment of interest at the rate of 20% under Section 11 AB. A penalty of Rs. 2000 under Rule 9(2) and Rs. 1,00,00,000 under Rule 52A(8) and Rs. 2000 under Rule 226 were also imposed. A penalty at the rate of Rs. 30,00,000 were imposed on appellants in appeals E/3444-45/2000-NB(A) under Rule 209A.
2. The appellants are engaged in manufacturing Quartz Movement for Clocks (QMCs), Table Clocks, Wall Clocks, etc. On 11.1.95, Officers of Directorate General of Anti-Evasion (DGAE) conducted search and seizure operations at various premises of Chawla Group of Companies and took over several documents under pachnama. Thereafter inquiries were conducted and statements were recorded from various persons. Show cause notice dated 4.2.98 was issued to the appellants alleging that the assessee had suppressed production and had clandestinely removed excisable goods by manipulating/fabricating the statutory records. It was alleged that on the day of search there was a shortage (and in certain cases excess) of goods in large number of products. It was also alleged that norms of wastage claimed in respect of manufacture of coils used in QMCs was inflated and the excess material was used for clandestine production and removal of finished goods. According to the show cause notice, only 2% wastage can be allowed and on that basis there is evasion of Central Excise duty to the extent of Rs. 4,78,37,028 on account of coils manufactured and removed without accounting in the statutory records. Show cause notice also alleged that at the time of scrutiny of the resumed documents, there appeared suppression of production and clandestine removal of excisable goods without maintaining proper accounts. Goods valued at Rs. 6,44,594.60 were seized. Show cause notice alleged that the assessee intentionally manipulated to show abnormally high wastage of plastic (ABS/HIP) and enameled copper wire (ECW) which were the main raw materials. The waste was claimed at the rate from 20% to 35%. Department had relied on information received on inquiries with M/s. Sakura Seimtsu India Ltd., Noida (SSIL) and M/s. Chawla Plastic Works Pvt. Ltd., Mayapuri (CPWPL) who were also using the same type of machinery as the assessee for manufacture of QMCs. In their case, wastage of enameled copper wire was only to the extent of 1.5% to 2%. It was further alleged that most of the buyers of the copper waste were found to be fictitious persons. In the case of plastic waste the allegation was that the assessee has exaggerated the generation of the quantity of plastic waste. According to the assessee, during the period from 1.1.93 to 31.3.97, percentage of generation of 1st hand plastic waste was over 28% to 36% in the manufacture of castings of QMCs, 16% to 31% in case of wall clocks and 19% to 22% in the manufacture of table clocks. On the basis of the inquiries conducted with Unico Products and Jain Polymers, who are buyers of the plastic waste from the assessee and also with their job worker Vigg Plastic Works, it is alleged that the assessee was exaggerating the generation of plastic waste, manipulating the sale price of 1st hand generated plastic scrap by keeping the prices as low as Rs. 8 to Rs. 9.50 per kg. as against Rs. 25 per kg.
3. Detailed explanation was submitted by the assessee to the show cause notice. From paragraph 32.1 of the order it is seen that the explanations given to the alleged discrepancies which were found at the time of search were accepted and except 110 watches other raw material or finished products were found to be in excess out of the total items valued at Rs. 6,44,594.60.
4. The assessee also pointed out that the show cause notice 1.1.96 issued to its sister concern M/s. Prestige Poly Plast alleging clandestine manufacture and removal of wall clocks and table clock cabinets and demanding a duty of Rs. 15,95,402 was dropped subsequently. In the above case also the allegation was of excess claim of wastage of plastic used as raw material.
5. The assessee further submitted that its claim for wastage of raw material cannot be rejected on the basis of the statements obtained from SSIL and SPWPL. The percentage of wastage will vary not only on the basis of the machinery used but also on the skill of labour, erratic supply of electricity, the product design and the quality of the copper wire. The assessee pointed out that its unit was improving the methodology and for the period from 1.1.97 to 7.5.97 the wastage of copper wire came down to 5% which is physically verified by the department. According to the assessee, initially they were using longer bobbins which required 5000 turns thereby consuming more copper wire. By improving the technology and efficiency and experience a bobbin smaller in length and width was used subsequently resulting in lesser wastage. The assessee submitted that the entire wastage of copper wire had been accounted. The sale realization of the copper wire waste was also properly accounted. The sale was on cash and carry basis. As regards wastage of plastic the assessee submitted that there was wastage of 30% to 32% in moulding machine used for fabrication of plastic parts and their manufacture. According to the assessee the generation of scrap depended upon model of clock and the colour being used. It was further submitted that no reliance could be placed on the data obtained from Vigg Plastic Works, the job worker as small number of moulds were being manufactured by them and, therefore, wastage would be less, compared to the assessee's factory producing 250 moulds for various models of clocks. The assessee denied clandestine manufacture and removal of QMCs.
6. The Commissioner placed reliance on the data obtained from SSIL and CPWPL to hold that the percentage shown by the assessee is abnormally high. She also took the view that there was no proper accounting of ECW waste and plastic waste. According to the Commissioner, the transactions were mainly in cash even when the value exceeded Rs. 1 lakh and most of the sale of waste/scrap had been made to persons who could not subsequently be traced. According to her the plastic waste sold by the assessee was Ist hand generated scrap. She pointed out that even the certificate of the Chartered Accountant produced by the assessee would show that the wastage could come to only 2%. Taking into consideration all these aspects together, the Commissioner confirmed the duty demand.
7. It is contended on behalf of the appellant that the Revenue has failed to discharge its burden by adducing legal evidence to show that there was clandestine production and removal of QMCs by the appellant. Rejection of the claim of the appellant on wastage relying on statements made by SSIL and SPWPL two competitors of the appellant, without giving the appellant an opportunity to cross-examine them cannot be treated as legal evidence at all. Apart from the above, they submitted that even if same machinery is being used by the appellant and the other two units, quantity of wastage will depend on other factors such as the technology perfected by each unit, wastage due to breaking during power disruption, using defective coil etc. In order to match the PCB, 3850 turns of the enameled copper wire is required. If due to some reason when it reaches 3840 turns or even later, the wire breaks, the entire bobbin has to be discarded. There is no methodology available to join enameled copper wire at the place where it breaks and continue the turns. The learned counsel for the appellant pointed out (he himself submitted that this contention was not raised before the Commissioner) that for the purpose of granting advance licence it is assumed that 10 gms. of wire would be required for one bobbin. Going by the above ratio, the appellant had cleared much more than the quantity which could be manufactured out of the total quantity of enameled copper wire imported by it. The learned counsel further contended that the cost of production of one QMC would roughly come to about Rs. 25 and that all the raw materials are purchased by the assessee. He points out that most of such raw materials are imported including PCB which is the most expensive item costing Rs. 2.5. The department has not attempted correlation with the quantity of raw materials imported by the appellant during the relevant period. There was no attempt to correlate modvat taken on other items. No investigation was conducted by the authority in this direction at all. The learned counsel points out that if the allegation in the show cause notice regarding the number of items alleged to have been produced by the appellant is accepted, its value would come to Rs. 60 crores. No inquiry is seen conducted as to from where the assessee could get the finance for such large scale production. Relying on the decision of Kerala High Court in George Varghese v. CCE, 1992 (60) ELT 362 (Ker), it is contended that when all relevant materials are not considered, the decision is liable to be struck down as arbitrary.
8. Pursuant to a direction issued by this Tribunal on 12th August, 2003 the appellant has filed an affidavit dated 21.8.2003 along with a statement showing details of sale to the 10 parties to whom the appellant had sold copper wire scrap during the relevant period. The learned counsel points out that from the above statement it can be seen that 55.29% of the copper wire scrap was sold to M/s. Manu Plastic, C-118, Naraina Industrial Area, Phase-I, New Delhi. Shri Annu Jain, Manager of Manu Plastics had given a statement before the departmental authorities on 16.5.97. The learned counsel points out that from the above statement it is clear that he had made payment only by cheque. He gives all the details regarding negotiation which he had with the assessee and how the price was arrived at. M/s. Manu Plastic are engaged in the manufacture of non-ferrous bushes which fall under Chapters 87.08 and 84.83. He has spoken to the transaction with the appellant with reference to invoices. He also filed affidavit dated 16th November, 2000 before this Tribunal. In the above affidavit he refers to the transactions he had with the appellant during the period 1994-96. He is an income tax assessee and he has taken modvat credit on the scrap purchased from the appellant for the purpose of discharging duty of his finished goods. The copper recovered from the scrap is being utilized for manufacture of his products. He further states that officers of DGAE/CE had visited their unit in connection with investigation with regard to M/s. Chawla Enterprises Pvt. Ltd. During the course of investigation the departmental authorities had summoned him and he had given deposition which was not retracted. He has denied the allegation that they are non-existing unit or a unit existing on paper. The learned counsel further contended that the entire duty demand is barred by limitation. The search and seizure took place on 11.1.95. The classification/price lists and RT 12 Returns based on these price lists for the period 1.1.93 to 31.3.97 were approved by the officers of the department from time to time without any objection. There is no allegation that any particular material fact was not disclosed or suppressed from the officers. It was open to the Assessing Officers to verify the records of consumption or wastage, if they had any doubt about the claim made by the appellant of wastage.
9. Learned DR brought to our notice remarks from postal authorities regarding the name and address of the authorities to whom the appellant had sold copper wire and who were treated as fictitious units. As against Manju Plastics, C-18, Narain Gaon, New Delhi the remark is that there is no such No. as 18 Naraina Gaon. The communications addressed to the other buyers are either ''Returned. No such firm is in that flat number" or "Incomplete address" or "wrong address" etc. On the basis of the remarks the learned DR would submit that the findings of the Commissioner that the buyers are fictitious persons, are to be accepted. He further submits that the statement of M/s, Shantal Metal Stores would show that he has denied the dealings with the appellant. M/s. Shantal Metal Stores is No. (2) in the list of buyers given by the appellant. He also points out that the statement of the Production Manager of the appellant would show that wastage of copper wire varies from 20 to 35%. According to him when same type of machinery is used by the appellant and M/s. SSIL and CPWPL the Revenue is fully justified in accepting the percentage of wastage claimed by M/s. SSIL and CPWPL. He further contended that the appellant has no case on limitation as it had suppressed the correct quantum of wastage and inflated the same.
10. After hearing both sides and perusing the records produced before us we find merit in the contentions raised by the appellant. It is inherent in the nature of the raw material, namely, thin enameled copper wire (sample of which was shown to us at the time of hearing) it is likely to be broken when it is turned around the bobbin. If the appellant had not perfected this technology during the earlier period as is alleged, breaking could be more frequent. It has come out from the statement of the Production Manager of the appellant that if quality of the imported enameled copper wire is not good breakage will be more. Since 3850 turns are required around the bobbin, if the copper wire breaks at the end of the turn, the entire quantity already gone into the bobbin will be a waste. We are of the view that the department should have directed its enquiry into the quantum of other raw materials purchased by the appellant (most of which are imported) and which had gone into the production of QMCs. PCB which is the most expensive partis directly imported. Correlation with respect to that item should have been made. In George Varghese v. CCE the Kerala High Court had occasion to consider a similar issue. The relevant portion reads as follows:
"The authority came to the conclusion that 2,18,833 kgs. of tread rubber have been manufactured and clandestinely removed without payment of duty. This finding was arrived at on the assumption that 6,500 kgs. of sulphur found short with the assessee was utilized for the manufacture of tread rubber which was disposed of illicitly in contravention of the provisions of Rules 9(1), 52A, 53 and 173G of the Central Excise Rules, 1944. It is found that with the said 6,500 kgs. of sulphur a quantity of 2,18,833 kilograms of tread rubber, at the rate of 3 kilograms sulphur for manufacture of 101 kgs. of tread rubber can be manufactured. In that case it was held that the said quantity viz. 2,18,833 kgs. of tread rubber was removed illicitly during the year 1981-82. The quantity was arrived at only from the shortfall of the sulphur. The assessee had explanation that the quantity of sulphur had damaged in rain and, therefore, not used. The contention of the assessee was that under Rule 173E, the normal quantum of production has to be determined with reference to various factors and some of those factors were available with the department, but the same has not been adverted to or considered. If those factors have been adverted to or considered. If those factors have been adverted to it was the contention of the assessee that the quantum of production could not be what the Collector determined and the Appellate Tribunal confirmed...................... The rule requires adverting to several factors for determining the normal production such as installed capacity of the factory, labour employed, power consumed and other relevant factors apart from raw material utilization. If inference has been drawn without adverting to relevant fact, the resulting order will be vitiated."
11. So also the authorities could have correlated the modvat taken on certain other items by the assessee. Merely on the basis of the statements made by representatives of SSIL and CPWPL the Revenue could not have proceeded to hold that the assessee had inflated its waste. It is also relevant to note that these persons were not offered for cross-examination by the assessee. There is also an allegation by the assessee that against SSIL there was investigation by DGAE and no data supplied by them could be adopted.
12. In order to substantiate the allegation of exaggerated wastage shown by the appellant, the Commissioner has accepted the department's contention that the records kept by the assessee regarding sale of waste/scrap were also manipulated and that the buyers were fictitious. The Commissioner found fault with the assessee's case also for the reason that large amounts in excess of Rs. 1 lakh were being received in cash. From the statement which has been filed before us by the appellant it is seen that 55.29% of the sale during the relevant period was to M/s. Manu Plastic. The department's contention that most of the buyers are fictitious is misleading in the light of the above fact. Representative of M/s. Manu Plastics had given statements before the departmental officers detailing how they started the transactions with the appellant, the nature of the transaction and also the fact that entire payments were made by cheque. Even if in the case of some or all other buyers' payments were in cash, it cannot in any manner justify a finding that the entire records kept by the assessee in respect of the sale of copper scrap are manipulated. Apart from the above, we find merit in the contention raised by the appellant that in the case of odd buyers who come to purchase scrap, it is not possible or safe to get a cheque from them. We do not find much consequence on the remarks given by the postal authorities in the year 2003. All these transactions happened much earlier and we have to take into consideration the nature of the goods purchased by them. It may not be that all these buyers were having a regular business premises or a permanent address. No verification is seen made on the statement made by the appellant regarding the duty paid in respect of each bill with reference to date. The reliance placed by the learned DR on the statement of Shantlal is also of no consequence. It is true that he says that he had no dealings with the appellant. But in the very same statement he asserts that he does not keep any account of his transactions. No reliance could be placed on the statement of a person who admits that he does not keep any record of his transaction. We, therefore, find that the Commissioner has wrongly taken the view that most of the buyers of the assessee were fictitious and, therefore, no reliance could be placed on the records kept by the assessee regarding the quantum of waste/scrap sold.
13. We have gone through the certificate of Chartered Accountant produced by the assessee. We find that in this certificate there is no specific consideration of the wastage of copper wire. Wastage shown at 2% is in the entire manufacturing process. Therefore, this certificate cannot in any way support the Revenue's case.
14. We are also not accepting the view taken by the Commissioner that the appellant had exaggerated the generation of plastic waste, manipulating the sale price of 1st hand generated plastic scrap by keeping the prices low. The statement of Om Prakash Vig who is doing the job work would show that in his factory during the process of manufacturing finished cabinet of wall clock the wastage of plastic would be from 7 to 27%. He has also stated that when there are of (sic, a) number of different moulds, the wastage will be on the higher side. The above statement is in support of the explanation offered by the assessee. We, therefore, find no reason to come to the conclusion that the assessee had deliberately manipulated the percentage of waste of plastic.
15. In the impugned order the Commissioner has referred to an incident happened on 13.1.94 when seizure was affected by officers of the Gurgaon Division, Central Excise Commissionerate from Maruti car on the Delhi-Jaipur highway. It is stated that 3500 watch movements found hidden in boot of the said car without any duty paying documents. Pursuant to the above, a verification of the stock was conducted at the premises of M/s. Chawla Enterprises Pvt. Ltd. The Commissioner further states that the above referred recovery and subsequent confiscation of 336 pcs. of Qartz clocks and 1050 kg. of copper wire, found in excess, are positive evidence of malpractice indulged in by Chawla Enterprises Pvt. Ltd. A copy of the order passed by the Commissioner (Appeals) in the above proceedings is placed before us by the learned counsel for the appellant. The assessee contended that the subject goods were received back from other dealers for repair and rectification. Their only lapse is non-maintenance of proper records under Rule 173H. Shortage of 366 pcs. of clocks was only accounting mistake. 1050 kgs. of copper wire found surplus was received from SSI units working under exemption. Hence, they were not entered in RG. 23A Pt. I. The Commissioner (Appeals) took the view that even if those goods had been received, for repairs and were being cleared without payment of duty after repair, the appellant was bound to follow the procedure under Rule 173H and the clearance had to be under the cover of a gate pass issued under Rule 52A of the Central Excise Rules at the material time. Since the appellant had made available invoices dated 29.12.93 and 4.1.94 under which they had purchased 1000 kgs. of copper wire 44 SWG and had taken the contention that these units were exempt units, the matter was sent back to the jurisdictional Assistant Commissioner to examine the assessee's claim. In the light of the large quantities of watch movements produced by the appellant we are not able to accept the view taken by the Commissioner that the above incident by itself would show that the appellant had been indulging in malpractice regularly.
16. As far as proceedings initiated against Prestige Poly Plast, the sister concern of the appellant are concerned on going through the Order-in-Original dated 13.4.98 it is seen that the allegation of clandestine manufacture and under-valuation of the goods were found not proved. The adjudicating authority also found no material in support of the case of Revenue regarding percentage of wastage.
17. In the light of the above discussion, we find no reason to agree with the findings entered by the learned Commissioner in the impugned order that the appellant had manipulated percentage of wastage and that they had cleared goods clandestinely. We, therefore, set aside the order and allow the appeals filed by the assessee. As a result, the appeals filed by the Revenue are dismissed. The assessee-appellant will be entitled to refund of the amount of Rs. 50 lakhs (Fifty lakhs only) paid as pre-deposit forthwith.