Customs, Excise and Gold Tribunal - Delhi
Metal Fitting (P) Ltd. vs Collector Of Central Excise on 11 April, 1997
Equivalent citations: 1997(93)ELT747(TRI-DEL)
ORDER Jyoti Balasundaram, Member (J)
1. The above appeals arise out of the order of the Collector of Central Excise, New Delhi confirming a duty demand of Rs. 8,72,272.01 on 2275.957 Metric tonnes of steel ingots against M/s. Surendra Alloys (herein after referred to party I) on the ground that the steel ingots were manufactured and cleared during the period 1-10-1988 to 13-1-1989 without payment of duty, and imposing a penalty of Rs. 1 lakh each on M/s. Surendra Alloys and its two Directors, Shri S.K. Garg and Shri L.N. Garg and imposing a penalty of Rs. 50,000/- on Metal Fitting (P) Ltd. (hereinafter referred to party II) for knowingly acquiring/possessing/depositing/dealing in excisable goods which were liable to confiscation.
2. The brief facts of the case are that M/s. Surendra Alloys are engaged in the manufacture of steel ingots classifiable under Chapter Sub-heading 7206.90 of the CETA, 1985 along with runners and risers classifiable under sub-heading 7204.90. They had installed an electric induction furnace of 25 MTs capacity for remelting steel scrap for the purpose of manufacture of steel ingots, at B-25, Okhla Industrial Area, Phase-I, New Delhi which was owned by M/s. Metal Fittings, (P.) Ltd. who had rented out a part of this premises to the Party - I and in the remaining premises, Party - II was engaged in the manufacture and clearance of steel rolled products mainly angles, shapes and sections, excisable under Sub-heading 7228.71 which were exempted from payment of duty under Notification 90/88, dated 1-3-1988. Party-II had installed a rolling plant for manufacture of rolled products out of steel ingots purchased by them.
3. On 13-1-1989, Central Excise Officers visited the premises at B-25, Okhla Industrial Estate and conducted verification of stock of Party No. I which revealed a shortage of 19.735 MTs of steel ingots and 3.450 MTs of steel runners and risers as compared to the recorded balance in the RG 1 register. Further checking resulted in recovery of one black zipper pouch containing two pocket ledgers which were resumed. The statement of Shri S.K. Garg, Director of Party -1 was recorded in which he stated that 3.45 MTs of steel runners and risers were issued for remelting on the day of stock taking i.e. 13-1-1989 and he further admitted that the removal of steel ingots to Party-II was without cover of GP Is and without payment of Central Excise duty leviable thereon. He explained the contents of the recovered documents as under:
(i) Papers marked 96-101 appeared to have been prepared by the Gateman or office bearer and contains the receipt and despatches of material;
(ii) Paper marked 62 showed despatch of 282 pieces of ingots on 10-1-1989;
(iii) Two pocket ledgers contained the receipt of scrap and despatches of finished products of M/s. Surendra Alloys;
(iv) Loose paper Nos. 21 to 33,35,37 to 61,63 to 87 are weighment slips of Dharam Kanta and relate to either despatches or receipt of material from origin M/s. Surendra Alloys and Metal Fittings (P) Ltd.
The two pocket ledgers were reported to have been written by his brother, Shri L.N. Garg who deposed in his statement recorded on 15-2-1989 and 16-2-1986 that the pocket ledgers were maintained by him for the transactions of sale and purchase in which he acted as a Commission Agent and received commission. The Department was not satisfied with the explanation tendered by Shri S.K. Garg and Shri L.N. Garg and was of the view that the pocket ledgers contained particulars of purchase of scrap by party-I and a comparison of the same with From IV Register revealed that the scraps purchase reflected in the ledger, except for those reflected on certain pages thereof, had not been accounted for in the raw material account i.e. [Form] IV Register and this amounted to a quantity of 3187.370 MTs of scrap. The Department was also of the view that party - I was removing its final product i.e. steel ingots and remelting scrap (bonnes) without payment of duty. Therefore, a show cause notice was issued on 2-11-1989 proposing recovery of duty of Rs. 8,72,272.01, applying the extended time limit provided under the proviso to Section 11A of the CESA, 1944 as the appellants had suppressed the facts of manufacture and clearance of excisable goods and proposing imposition of penalty. The adjudicating authority rejected all the defence of the appellants and confirmed the demand and also imposed penalties as indicated earlier. Hence, these appeals.
4. We have heard Shri R. Swaminathan, learned Consultant and Shri Vimal Sethi, learned DR.
5. The appellants mainly stress the following points :
I. There was no shortage of 19.735 MTs of steel ingots and 3.450 MTs of steel runners and risers in their RG 1, since the quantity of shortage is not based upon physical verification but merely on an estimation.
II. The two packet ledger seized from the assessees on 13-1-1989 do not contain only the official accounts; but they are personal diaries of Shri L.N. Garg and contained entries of sale and purchase carried out by him on a commission basis privately, in addition to entries of some transactions of M/s. Surendra Alloys.
III. The loose papers seized on 13-1-1989 from the premises of the assessee's factory were actually personal papers of Shri L.N. Garg.
IV. There was no manufacture and clearance of the excisable goods as held by the adjudicating authority.
V. The demand is time barred as there was no suppression and hence the extended period of limitation would not apply.
6. The first point to be considered by us is whether there was a shortage of steel ingots and steel runners and risers. It is not in dispute that there was no physical verification to arrive at the shortage. Further, other material factors like the presence of different quantity of scrap and the deposition of the panch witness during their cross examination, to the effect that not even a random check was conducted in his presence lend support to the contention of the appellants that the shortage indicated was not supported by any material fact. Shri S.K. Garg has also retracted his admission of shortage at the earliest available opportunity and hence his statement cannot form the sole basis for arriving at the conclusion that the shortage of entries of runners and risers in the absence of any corroborative evidence. It is also pertinent to note that Shri S.K. Garg has stated in his statement recorded on 13-2-1989 that the "pocket ledgers recovered from the black pouch contained party's accounts and shows the receipt/despatch of some materials including our raw materials (emphasis supplied) i.e. scrap for finished products of Surendra Alloys. We are, therefore, of the view that the evidence on record is not sufficient to establish shortage and accordingly set aside the findings of the adjudicating authority on this point.
6.1 Regarding the second issue, the findings of the Collector are contained in paragraphs 30 to 36. The findings on the 3rd issue are contained in paragraphs 37 to 53 of the impugned orders. The allegation in the show cause notice is that one of the two diaries contains entries of purchase and sale for M/s. Surendra Alloys and that the loose papers seized on 13-1-1989 pertains to the transaction of M/s. Surendra Alloys and M/s. Metal Fittings. It is not the case of the appellants that the diary of Shri L.N. Garg does not contain any entries of transactions of Surendra Alloys; on the other hand, it is their contention that although the diary contains entries to the extent of 40% of the transactions entered in Form IV raw material account of M/s. Surendra Alloys, it is also contains entries of his personal transactions. Shri L.N. Garg has deposed that the pocket ledgers seized by the Department contains entries regarding sales and purchase done by him on commission basis in which he acted as a Commission Agent and received commission. The details of MS scrap purchased by Surendra Alloys but not accounted for in their Form IV register for the period 1-10-1988 to 13-1-1989 are contained in Annexure-XVI to the show cause notice (page 155 of the paper book). The annexure is reproduced below (at page No.11). At page 186 of the paper book is a list of purchases of MS scrap made by the notices and entered in Form-IV register for which there is no reference in the diaries of Shri L.N. Garg. This list is reproduced below (at page No. 12 and 13). The statement of purchase of scrap monthwise for the disputed period is set out at page 188 from which it will be seen that the details of scrap and transactions not covered by the diaries is to the extent of 55.5% to 60.6%. The statement is reproduced below (at page 14). The appellants submit that if the diary is taken to represent only the accounts of M/s. Surendra Alloys then the stock of scrap should have been around 1000 MTs i.e. alleged purchases (details of which are found at page 155) less production (details at page 156) i.e. 3187 MTs - 2276 MTs while only 100 tonnes of scrap was actually found. A reference to some of the entries indicates that the scrap was not purchased by M/s. Surendra Alloys for example the transaction relating to M/s. Kumar Steels at page 211 wherein the partner of M/s. Kumar Steels has certified that M/s. Kumar Steels had imported MS scrap from USA through Metal Scrap Trading Corporation Ltd., Calcutta and the scrap was shipped by the seller to Kandla Port from where it was transported by road to Jagadhri and owing to dispute with the Transport Company, intervention of Shri L.N. Garg of M/s. Metal Fittings was requested and the matter was settled. The lorry transport documents for the Kumar Steels transactions are contained from pages 212 to 219. The appellants have also filed a statement of account from M/s. Uma Shankar Khandewal & Co. from whom the Department alleged that M/s. Surendra Alloys purchased 8.810 MTs of M.S. scrap vide Sl. No. 1 of Annexure XVI at page 155). Even though during the investigation, M/s. Uma Shankar Khandelwal & Co. indicated 5 transactions with M/s. Surendra Alloys they later confirmed that they had entered into six transactions which were properly entered in the Form IV Register of M/s. Surendra Alloys. The certificate of M/s. Uma Shankar Khandelwal Company is available at page 189-190 of the paper book. The Department has not conducted any investigation with any other supplier or purchaser to corroborate the evidence of transactions between them and M/s. Surendra Alloys which transactions were not reflected in the accounts of M/s. Surendra Alloys. The appellants had furnished statements of purchase of scrap from M/s. Rama Industries and M/s. K.L. Rathi Steels Ltd. which (sic.) certain transactions presumed to be those of M/s. Surendra Alloys and M/s. Metal Fittings are not their transactions. But the Department has not made any enquiries to confirm the fact as to whether M/s. Surendra Alloys had purchased scrap from them as set out in Annexure XVI out of which they are alleged to have manufactured ingots and removed them clandestinely to purchasers listed in XVII.
6.2 We find that Shri L.N. Garg has confirmed during the personal hearing that the diaries and loose papers include his personal accounts and also show his commission and this is confirmed by M/s. Cege & Forging P. Ltd. and Shri S.N. Agarwal. Shri Garg also clarified that the entries in the diaries and loose papers are reflected in quintals and in kgs. and not in Metric Tonnes and consequently the entries at page 156 are to be construed as 18 quintals and 94 kgs. and 1.2 quintals and 1 kgs. One of the basic submission of the appellants before the adjudicating authority was that the consumption of electricity required for manufacturing the alleged disputed quantity was very high and that the consumption for the alleged quantity comes to only 200 Units per metric tonne whereas the minimum requirement under ideal condition is around 600 units per metric tonne and this ratio was corroborated by a certificate from an expert on Induction Furnace (Certificate dated 10-10-1990 from M/s. S.K. Consultants at page 194). This submission has been rejected by holding that there is mis-use of electricity by Induction Furnace owners which cannot be ignored. We agree with the appellants that this cannot be a ground for rejecting the appellant's submission on this point, particularly noting that during the relevant period, there is no such charge of electricity theft against the appellants by DESU and no demand therefrom. The adjudicating authority has taken into account whatever has been entered independently in the statutory records inspite of these transactions not being entered in the diaries in addition to the diary transactions. If the clearances are taken as reflected in the diaries then the diary entries should alone from the basis for duty and from the quantity so alleged on the basis of the diaries, the quantity reflected in the statutory records should first have been deducted before demanding duty on the balance. However, the Department has demanded on all the clearances reflected in the diary without deducting the quantity of clearances reflected in the statutory records. Further the demand has been confirmed on a quantity of 2276 MTs without allowing for the quantity of ingots and runners and risers already accounted and cleared (about 825 MTs) on payment of duty.
7. In light of the above discussion, we are of the view that it is not possible to conclude satisfactorily that the pocket ledgers and loose papers seized on 13-1-1989, pertain entirely to M/s. Surendra Alloys and do not contain any account of personal transactions of Shri L.N. Garg. We are, therefore, of the view that the Department has not discharged the burden cast upon it to establish the charge of shortages and the serious charge of clandestine removal. In such a situation we extend the benefit of doubt to the assessees and set aside the duty demand and penalty on M/s. Surendra Alloys and Metal Fittings. The penalty on Shri S.K. Garg and Shri L.N. Garg is required to be set aside, since no notice was issued to them calling upon them to show cause against imposition of penalty and it is well settled proposition of law that penal liability cannot be fastened without notice therefor.
8. In the result, the impugned order is set aside and the appeals are allowed with consequential relief, if any, due to the appellants in accordance with law.
Annexure-XVI Details of M.S. Scrap purchased by M/s. Surendra Alloys, B-25, O.I.A. Phase-I but not accounted for in their Form-IV register pertaining to the period of 1-10-1988 to 13-1-1989.
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S.No. Name of Supplier Quantity in M.T. Relevant document
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1. Uma Shankar 8.810 Page 6 of green Khandelwal & Co. cover pock-
et ledger
2. Reva 5.965 Page 6 -do-
3. Ahuja 93.085 Page 9 -do-
4. Sagir 83.640 Page 11 -do-
5. S.K. Sharma 12.670 Page 12 -do-
6. Janardhan 111.135 Page 13 -do-
7. S.R. 23.520 Page 14 -do-
8. Jiyalal 235.200 Page 19 -do-
9. Jiyalal 32.830 Page 20 -do-
10. Chand 129.970 Page 23 -do-
11. Rattan 95.030 Page 25 -do-
12. Ramesh 177.605 Page 26 -do-
13. Subash 75.825 Page 27 -do-
14. Anil Gupta 49.805 Page 28 -do-
15. Prem Gupta 56.335 Page 29 -do-
16. Kumar 98.795 Page 30 -do-
17. Bajaj 8.670 Page 31 -do-
18. B.D. 20.725 Page 32 -do-
19. R.P. Dewan 76.800 Page 33 -do-
20. Vikas 14.605 Page 34 -do-
21. Ramesh 140.090 Page 36 -do-
22. Rajinder Goel 18.580 Page 37 -do-
23. Jagarnath Aggarwal 54.910 Page 38 -do-
24. Logwalk Forge Ltd. 9.610 Page 42 -do-
25. Manoj 4.110 Page 44 -do-
26. Jagadhari (J & D) 410.150 Page 3 -do-
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Total 3187.370
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APPENDIX - A. List of Purchases of M. S. Scrap made by Noticee entered in Form-IV for which no reference exists in diaries of Shri L.N. Garg.
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S. P.B. Date Quantity Form- Diary Party Name IV No. Folio
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1. 15 1-10-1988 7-450 Yes No Orient Trading Co.
2. " 3-10-1988 15-080 " " S.K. Industries
3. " 4-10-1988 13-330 " " Uma Shankar Khandelwal & Sons.
4. " " 10-055 " " - Do -
5. " 7-10-1988 9-800 " " Orient Trading Company
6. " " 8-930 " " Jyoti Enterprises
7. " 8-10-1988 11-450 Shankar Puja Enterprises
8. " 13-10-1988 7-750 " " Orient Trading Co.
9. " 19-10-1988 9-360 " " Shankar Puja Enterprises
10. " 22-10-1988 4-640 " " Orient Trading Co.
11. 16 2-11-1988 4-745 Do
12. " 4-11-1988 11-820 " " Nagpal Iron Syndicate
13. " 16-11-1988 1-932 " " Orient Trading Co.
14. " 19-11-1988 12-100 " " Agarwal Bros.
15. " " 13-700 " " Do
16. " 22-11-1988 11-220 " " Do
17. " " 13-420 " " Do
18. " 23-11-1988 11-800 " " Do
19. " " 10-840 " " Do
20. " " 11-050 " " Do
21. " 26-11-1988 20-150 " " Geetanjali Steels
22. " 30-11-1988 5-530 " " Orient Trading Co.
23. 17 " 10-005 " " Do
24. " " 15-660 " " Do
25. 18 18-12-1988 2-330 " " Do
26. " 23-12-1988 10-340 " " Alliance Enterprises
27. " 27-12-1988 11-090 " " Geetanjali Steels
28. " " 10-950 " " Do
29. " 28-12-1988 11-950 " " Do
30. " 30-12-1988 15-255 " " Orient Trading Co.
31. " 19 1-1-1989 5-860 " " Aliance Enterprises
32. " 3-1-1989 9-510 " " J.M.C. Industries
33. " 5-1-1989 10-230 " " Orient Trading Co.
34. " 11-1-1989 9-740 " " Jaipur Metals & Electronics Ltd.
35. " 13-1-1989 8-730 " " Do
36. " " 13-860 " " Do
37. " " 2-160 " " R.K. Traders
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Appendix A-I Statement of Purchase of Scrap Monthwise.
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Period Qnty. in Tonnes No. of Purchase transactions of
scrap
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October, 1988 180.415 16 November, 1988 224.197 19 December, 1988 148.360 13 1-1-1989 to 13-1-1989 119.715 13--------------------------------------------------------------
672.687 61--------------------------------------------------------------------------------
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As Per Appendix-A (Entries not found in the Green Cover Diary)
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October, 1988 97.815 10 November, 1988 153.972 14 December, 1988 61.915 6 1-1-1989 to 13-1-1989 60.090 7--------------------------------------------------------------------------------
373.792 37--------------------------------------------------------------------------------
% age of Material & 55.5% 60.6% transactions missing in Green Cover Diary.