Delhi High Court
Natraj Plast Industries Ltd. vs Commissioner Of Central Excise on 10 April, 2012
Author: Sanjiv Khanna
Bench: Sanjiv Khanna, R.V.Easwar
$~7 to 9, 16 & 17
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision : 9th April, 2012.
7 CEAC 44/2011
SUNIL MITTAL ..... Petitioner
Through Ms.Seema Jain with Mr.Ajay K.Jain &
Ms.Savita Singh, Advs.
versus
COMMISSIONER OF CENTRAL EXCISE ..... Respondent
Through Mr.Kamal Nijhawan , Sr.Standing
Counsel with Mr.Sumit Gaur, Adv.
8
+ CEAC 45/2011
RAJESH MITTAL ..... Petitioner
Through Ms.Seema Jain with Mr.Ajay K.Jain &
Ms.Savita Singh, Advs.
versus
COMMISSIONER OF CENTRAL EXCISE ..... Respondent
Through Mr.Kamal Nijhawan , Sr.Standing
Counsel with Mr.Sumit Gaur, Adv.
9
+ CEAC 46/2011
TANISHQ WIRES & CONDUCTORS EXCISE ..... Petitioner
CEAC 41, 42, 44, 45 & 46/2011 Page 1 of 15
Through Ms.Seema Jain with Mr.Ajay K.Jain &
Ms.Savita Singh, Advs.
versus
COMMISSIONER OF CENTRAL EXCISE ..... Respondent
Through Mr.Kamal Nijhawan , Sr.Standing
Counsel with Mr.Sumit Gaur, Adv.
16
+ CEAC 41/2011
DINESH KUMAR GUPTA ..... Petitioner
Through Ms.Seema Jain with Mr.Ajay K.Jain &
Ms.Savita Singh, Advs.
versus
COMMISSIONER OF CENTRAL EXCISE ..... Respondent
Through Mr.Kamal Nijhawan , Sr.Standing
Counsel with Mr.Sumit Gaur, Adv.
17
+ CEAC 42/2011
NATRAJ PLAST INDUSTRIES LTD. ..... Petitioner
Through Ms.Seema Jain with Mr.Ajay K.Jain &
Ms.Savita Singh, Advs.
versus
COMMISSIONER OF CENTRAL EXCISE ..... Respondent
Through Mr.Kamal Nijhawan , Sr.Standing
Counsel with Mr.Sumit Gaur, Adv.
CEAC 41, 42, 44, 45 & 46/2011 Page 2 of 15
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE R.V.EASWAR
SANJIV KHANNA,J: (ORAL)
These appeals under Sections 35G of the Central Excise
Act, 1944 ( "Act" for short) arise out of a common order passed by
the Customs Excise and Service Tax Appellate Tribunal ("Tribunal"
in short) dated 4th July, 2011. As the facts are similar and the
issues raised are interconnected, we deem it appropriate to
examine the issues and contentions raised in this common order.
2. Appeal No.42/2011 filed by the Natraj Plast Industries Ltd.,
for the sake of convenience and with the consent of the counsel for
the parties, is treated as the lead case.
3. The contention of the appellant is that the impugned order
passed by the Tribunal holding that there was clandestine removal
of resin CP172SG by Natraj Plast Industries Ltd. to the extent of
768.03 Mt is perverse. The Tribunal has wrongly and erroneously
recorded that 768.03 Mt of resin was sold and transported to M/s
Aditya Plastics, sole proprietorship of Mr. Rajesh Mittal and M/s
Mukesh Industries, sole proprietorship of Mr. Sunil Mittal.
CEAC 41, 42, 44, 45 & 46/2011 Page 3 of 15
4. Learned counsel for the appellant accepts and admits that
there was clandestine removal and sale of resin CP172SG by
Natraj Plast Industries Ltd. to Aditya Plastics and Mukesh
Industries but it is submitted that the quantity computed by the
Tribunal is based upon surmises and conjectures and there is no
concrete evidence or material to hold that 768.03 Mt. or resin
CP172SG was clandestinely sold.
5. Resin CP1725Sg is manufactured by one company in India,
namely M/s Chemiplast Sanmar Ltd. There is no dispute that the
appellant, Natraj Plast Industries Ltd., has purchased 1102.715 MT
of the aforesaid resin from M/s Chemiplast Sanmar Ltd. during the
period 1/11/2001 to 14/2/2006. On 14/2/2006, a search was
conducted in the premises of Natraj Plast Industries Ltd. and
statement of Dinesh Kumar Gupta, one of the Directors, was
recorded. He admitted to clandestine removal and sale of resin
CP172SG. Mr.Dinesh Kumar Gupta in his statement had also
stated that he had partly used and consumed the resin in the
manufacture of Filler Cords. In a subsequent statement, he
claimed that Resin CP172SG was also used in the manufacture of
PVC Tapes. In the statements made on different dates, Mr.Dinesh
Gupta had never claimed or stated that resin CP172SG was also
used for manufacture of PVC compound. The said
contention/stand was raised for the first time during the course of
CEAC 41, 42, 44, 45 & 46/2011 Page 4 of 15
the assessment proceedings. The Tribunal while dealing with the
said aspect has rejected the contention that resin CP172SG was
used in the manufacture of PVC compound giving the following
reasoning:-
"Statement dated 14.02.2006, 14.03.2006, 28.04.2006,
15.06.2006, 23.06.2006, 3.8.2006, 28.08.2006,
22.09.2006, 3.10.2006, 7.11.2006, 8.11.2006 and
10.11.2006 of Shri Dinesh Gupta, Director of M/s.
Natraj, recorded under Section 14 of the Central Excise
Act, 1944, none of which have been retracted. While in
his statement dated 14.02.2006, Shri Dinesh Gupta
stated that they were manufacturing only a Single Type
PVC Compound in which they were changing the
flexibility of the compound by changing the quantity of
stabilizer etc. and that in the manufacture of PVC
Compound they were using Resins of 6701 grade
manufactured by M/s. Reliance, Shri Ram Industries
and M/s. Finolex to the extent of 56%, that the Resin
CP 172 SG procured by them from M/s. Camplast was
being used in the manufacture of PVC Filler Cord where
it was being added to the extent of 25% and that
surplus quantity of CP 172 SG resin left after
manufacture of the PVC Filler Cord was being sold to
the manufacturers of battery separators without any
invoice or bills and that he was doing so as his financial
condition was not good, in the subsequent statements
dated 28.08.2006 and 22.09.2006, he however, claimed
that in addition to manufacturer of PVC Filler Cord, CP
172 SG Resin was also being used in the manufacture
of PVC Tapes to the extent of 56%. However, the
quantity of PVC Tapes using CP172SG Resin Claimed
to have been manufactured is only 411.31 MTs in which
CEAC 41, 42, 44, 45 & 46/2011 Page 5 of 15
the use of CP 172 SG Resin would be to the tune of
230.80 MT only and total use of CP 172 SG Resin
including its use in the manufacture of Filler Cord would
be to the tune of 334.8 MT only as against the quantity
of 1112.705 MT of Resin purchased by them, which
indicates that the bulk of the quantity has been illicitly
diverted."
6. Apart from the fact that Mr.Dinesh Gupta in his statements
had never claimed that he has used resin CP172SG for
manufacture of PVC compound, the Tribunal has noticed that resin
6701 was used in the manufacture of PVC compound. The said
resin was purchased by the Natraj Plast Industries Ltd. from three
companies. Moreover, it was for Natraj Plast Industries Ltd. to
show and establish that the resin 6701, procured and purchased by
them, was not sufficient for manufacture PVC compound as
recorded and, therefore, resin CP172SG was used in the said
manufacture. The Tribunal has referred to PVC compound as
single type and as per the findings recorded by the Tribunal, resin
6701 was used for manufacture of the said compound. We do not
find any error in the findings by the Tribunal on the said aspect or
any reason to hold that the finding is perverse or not justified.
7. The aforesaid quantum, i.e. 768.03 Mt., has been calculated
by the Tribunal on the basis of the quantity purchased, less the
consumption for production of PVC compound as recorded in the
records/books. The Tribunal has given benefit of doubt to the
CEAC 41, 42, 44, 45 & 46/2011 Page 6 of 15
Appellant Natraj Plast Industries Ltd. and other appellants on use
of resin CP172SG in the manufacture of PVC Tapes to the extent
of 230 Mt. The reasons given by the Tribunal in this regard are
reproduced:-
"5.1 During the period from 1.11.2001 to 14.2.2006 M/s
Natraj had purchased 1102.715 MT of CP- 1725G resin
from M/s Chemplast Sammar and had availed the cenvat
credit in respect of this quantity. Out of this quantity use
of 104.01 MT in the manufacture of PVC Filler Cord has
been accepted by the department and according to
department the balance of 98.705 MT of CP - 1725G
resin has been illicitly diverted. The use of this resin is
the manufacture of PVC compound has not even been
claimed by Shri Dinesh Gupta and he has claimed its
use only in the manufacture of PVC filler cord and PVC
tape. But total PVC tape manufactured by M/s Natraj
during the period of dispute is 412.149MT (1.314 MT
during 2003-04 + 210.127 MT during 2004-05 +200.708
MT during 2005-06), in the manufacture of which at the
rate of 56%, only 230.72MT of CP 172 SG resin could
be used, which leaves 768.03 MT of resin still
unaccounted. The department‟s allegation based on test
report of CIPET, Lucknow in respect of sample of PVC
tape manufactured by M/s Natraj in presence of
investigating officers by using CP1725G resin to the
extent of 56% is that CP172 SG resin has not been used
in the manufacture of PVC tape supplied to M/s
Motherson Sumo Systems and other buyers, as the
elongation, tensile strength, tear strength and shrinkage
of the sample of the PVC tape supplied to M/s
Motherson Somu, which are claimed to have been
manufactured by using CP172 SG resin are different.
CEAC 41, 42, 44, 45 & 46/2011 Page 7 of 15
But on this point we agree with the appellants Plea that
this difference in elongation, shrinkage, tensile strength
and tear strength of the PVC tape manufactured in
presence of the officers and the PVC tape supplied to M/s
Motherson Sumo may be due to :-
(a) Difference in thickness 0.4mm the case of PVC tape
manufactured in the presence of officer and 0.3mm in
case of PVC tape supplied to M/s Motherson Sumo;
(b) Minor change in ratio of CP 1725G resin, plasticizer,
filler, stabilize and master batch and difference in the
temperature at which the product has been extruded;
and
(c) Difference in the method of testing while CIPET has
tested the tensile strength, tear strength and elongation
by ASTMD882, ASTMD 1004 and ASTMD882 method
respectively, the method adopted by Inhouse Laboratory
of M/s Motherson Somu is not known.
In view of the above, so far as the claim of M/s Natraj
regarding use of 230.72MT of CP1725G resin in the use
of PVC tape is concerned, they have to be given the
benefit of doubt. However, with regard to 768.03 MT of
CP1725G resin, the department‟s allegation that the
same had been illicitly diverted is on strong footing and
the same is upheld. M/s Natraj will therefore, have to
pay along with interest the amount of cenvat credit taken
on 768.03 Mt of CP1725G resin. Since this quantity of
resin has been illicitly diverted by fraudulent means
without reversing the cenvat credit, for recovery of
cenvat credit on this quantity, longer limitation period
under proviso to Section 11 A (1) Central Excise Act,
1994 would be available to the department and for the
same reason penalty under Rule 15(2) of Cenvat Credit
CEAC 41, 42, 44, 45 & 46/2011 Page 8 of 15
Rules, 2004 read with Section 11AC of Central Excise
Act, would be imposable on M/s Natraj."
8. Under Rule 15(1) of Cenvat Credit Rules, 2004, any input or
capital goods, in respect of which cenvat credit has been taken
wrongly, are liable for confiscation. In this case, the illicitly diverted
CP1725Sg resin was liable for confiscation under this Rule, as in
respect of this illicitly diverted resin, cenvat credit had been wrongly
taken. Since Natrj Plast Industries Ltd., Tanishq Wires &
conductors Pvt. Ltd. and Sh. Sunil Mittal and Rajesh Mittal had
dealt with the illicitly diverted resin knowing very well that the same
was liable for confiscation, they were liable for penalty under Rule
26 of Central Excise Rules, 2002. Tribunal, after recording the said
findings, has upheld imposition of penalty on them under Rule 26 of
Central Excise Rules, 2002.
9. Learned counsel for the appellant next submitted that Natraj
Plast Industries Ltd. and Tanishq Wires& Conductors Pvt. Ltd. are
limited companies incorporated under Companies Act, 1956 and,
therefore, no penalty can be imposed on them under Rule 26 of the
Central Excise Rule 2002. It is submitted that the said companies
cannot be attributed with requisite mensrea and the requirement of
the Rule is that the person should have knowledge or attributed
with reason to believe, that the goods are liable for confiscation
under the Act or these Rules. We do not find any merit in the said
CEAC 41, 42, 44, 45 & 46/2011 Page 9 of 15
contention and the same has been rightly rejected in view of the
decision of the Supreme Court in Agarwal Trading Corporation
and Ors v. Assistant Collector of Customs, Calcutta ( 1983
E.L.T. 1467 SC) in which it has been held:-
"The second contention that because the firm is not a
legal entity, it cannot be a person within the meaning of
Section 167(3), (8) and (37) of the Sea Customs Act, is
equally untenable. There is of course, no definition of
„person‟ in either of these Acts but the definition in section
2 (42) of the General Clauses Act 1897, or section 2 (3) of
the Act of 1868 would be applicable to the said Acts in
both of which „person‟ has been defined as including any
company or association or body of individual, whether
incorporated or not. It is of course contended that this
definition does not apply to a firm which is not a natural
person and has no legal existence, as such clauses (3),
(8) and (37) of section 167 of the Sea Customs Act are
inapplicable to the appellant firm. In our view, the
explanation to section 23C clearly negatives this
contention. In that a company for the purposes of that
section is defined to mean any body corporate and
includes a firm or other association of individuals and a
Director in relation to a firm means a partner in the firm.
The High Court was clearly right in holding that once it is
found that there has been a contravention of any of the
provisions of the foreign Exchange Regulation Act read
with Sea Customs Act by A firm, the partners of it who are
in-charge of its business or are responsible for the
conduct of the same, cannot escape liability, unless it is
proved by them that the contravention took place without
CEAC 41, 42, 44, 45 & 46/2011 Page 10 of 15
their knowledge or the exercised all due diligence to
prevent such contravention."
10. We may also note that a similar contention was raised before
Supreme Court in Standard Chartered bank and Ors. V
Directorate of Enforcement and Ors. (2005) 275 ITR 81. The
majority view elucidated that a company can be prosecuted and
punished for an offence under Section 56(1) (i) of the Foreign
Exchange Regulation Act, 1973, even though imprisonment for a
term of not less than six months was compulsory. It was also held
that legislative intent to prosecute corporate bodies for the offence
committed by them is clear and explicit and the statute never
intended to exonerate them from being prosecuted. The
Legislature never intended to give immunity from prosecution or
penalty for grave economic crimes. In such cases it is not possible
to impose penalty of imprisonment because the company is a
corporate body and not a natural person but fine or cash penalty
can be imposed.
11. In view of the aforesaid legal position, we do not think any
substantial question of law arises on the said aspect.
12. The third contention raised by the appellant is with regard to
fine Rs. 5 lacs each which has been imposed under Rule 26 on
Sunil Mittal and Rajesh Mittal. It is submitted that the aforesaid fine
CEAC 41, 42, 44, 45 & 46/2011 Page 11 of 15
imposed under Rule 26 is not justified as the Tribunal was not able
to quantify the exact quantity of resin CP172SG clandestinely dealt
with or transported/sold etc. to them. We do not find any merit in
the said contention. In such cases of clandestine removal, there is
always an element of estimation. At the time of search in the
premises of Sunil Mittal and Rajesh Mittal, resin CP172SG
procured and purchased by Natraj Plast Industries Ltd. was found.
It is appropriate to reproduce the findings recorded by the
Tribunal:-
"Shri Dinesh Gupta in his statements, while claiming
the use of certain quantity of CP172 SG Resin
purchased by him for manufacture of PVC Filler Cord,
PVC Tapes admitted that substantial quantity had been
sold as such without reversing the Cenvat credit and
that some of the parties to whom CP 172 SG resin had
been sold were Shri Rajesh Mittal of M/s. Aditya
plastics, Shri Sunil Mittal of M/s. Mukesh Industries and
Shri Rajesh Bansal, Proprietor of M/s. Micro Sec
Industries. On inquiry with Shri Rajesh Mittal of M/s.
Aditya Plastics, it was found that they were purchasing
CP 172 SG Resin directly from M/s. Chemplast and
that the quantity was being sold mostly under invoices,
but for supply of this resin to the manufactures of
battery separators, who wanted the same without
invoices, they were procuring this resin from M/s. Natraj
who was supplying the same without any invoices. Shri
Sunil Mittal of M/s. Mukesh in his statement dated
7.7.2006 admitted that he was purchasing the CP 172
Sg Resin directly from M/s. Chemplast and also from
M/s Natraj Shri Rajesh Bansal, Proprietor of M/s. Micro
CEAC 41, 42, 44, 45 & 46/2011 Page 12 of 15
Sec in his statement dated 3.7.2006 admitted that he
was engaged in the manufacture of Battery Separators
for which principal raw material is CP 172 SG Resin
and that while same had been purchased directly from
M/s. Chemplast under invoices, substantial quantity had
been purchased without any invoices from M/s. Natraj.
1.6 It was also found that while in course of search of
the premises of M/s. Aditya Plastics on 14.02.2006, 100
bags of CP 172 SG Resin of Batch No. 369 had been
recovered, 148 bags of CP 172 SG Resin of the same
batch had been supplied by M/s. Chemplast to M/s
Natraj under invoice date 30.12.2005, which indicated
that 100 bags of CP 172 SG Resin seized from the
premises of M/s. Aditya Plastics had come from M/s.
Natraj, as there was no purchase of CP172 SG resin of
Batch No.369 by M/s. Aditya from M/s. Chemplast. In
case of M/s. Mukesh Industries, in course of search of
their premises on 14.02.2006, 520 bags of CP 172 SG
Resin of Batch No.408,409,410,411 and 414 had been
found. On inquiry with M/s. Chemplast, it was found
that these batches had been manufactured in their
manufacturing unit at Salem, Tamil nadu, from where
the same had been transferred to their depot at Delhi
on 13.01.2006, 15.01.2006, 18.01.2006 and
17.01.2006. However, the last purchase of CP 172 SG
Resin by M/s. Mukesh Industries from M/s. Chemplast
was under invoice dated 30.12.2005. Since other than
M/s. Chemplast, there is no other manufacture of CP
172 SG Resin, it appeared that the stock of 172 SG
Resin with M/s. Mukesh Industries was unaccounted.
Further, inquiry revealed that the above mentioned CP
172 SG Resin of batch No. 408,409,410,411 and 414
manufactured at Salem, Tamil Nadu and stock
transferred to Delhi had been purchased by M/s. Natraj,
CEAC 41, 42, 44, 45 & 46/2011 Page 13 of 15
which clearly showed that the stock of CP 172 Sg Resin
found in the premises of M/s. Mukesh Industries had
come from M/s. Natraj."
13. We may note that the finding of the Tribunal is that the entire
quantity of 768.03 MT of resin CP172SG was procured and sold to
either Rajesh Mittal or Sunil Mittal. Keeping in view the facts and
circumstances as recorded/ found and the quantum of penalty/fine
of Rs. 5 lacs each which has been imposed, we do not find any
reason or ground ot entertain the present appeal on the said
ground. No substantial question of law arises.
14. The last contention raised by the learned counsel for the
appellant is regarding fine of Rs. 15 lacs which has been imposed
on Mr. Dinesh Gupta. It is submitted that the said fine has been
imposed on Mr. Dinesh Gupta as he was a Director of Tanishq
Wires & Conductors Pvt. Ltd. We do not find any merit in the said
contention. We may notice that the Tribunal gave benefit of doubt
to Mr. Gaurav Gupta, son of Mr. Dinesh Gupta and the fine
imposed on Mr. Dinesh Gupta under Rule 26 has been reduced
from Rs. 50 lacs to Rs. 15 lacs. Mr Dinesh Gupta was a Director
both in Natraj Plast Industries Ltd. and in Tanishq Wires &
Conductors Pvt. Ltd.
15. In view of the aforesaid discussion, we do not find any merit
CEAC 41, 42, 44, 45 & 46/2011 Page 14 of 15
in the present appeal. No substantial question of law arises. The
appeals are dismissed. No costs.
SANJIV KHANNA, J.
R.V.EASWAR, J. April 09, 2012 Bisht CEAC 41, 42, 44, 45 & 46/2011 Page 15 of 15