Custom, Excise & Service Tax Tribunal
Kalpana Industries Limited vs Daman on 26 June, 2024
Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench at Ahmedabad
REGIONAL BENCH-COURT NO. 3
EXCISE Appeal No. 12179 of 2019- DB
(Arising out of OIO-DMN-EXCUS-000-COM-033-18-19 dated 31/01/2019 passed
Commissioner (Appeals) Commissioner of Central Excise, Customs and Service Tax-
DAMAN)
Kalpana Industries Limited ........Appellant
Earlier Ms Kalpena Industries India Limited
Survey No 24/3 Village Demini Dadra
Silvassa, Dadra And Nagar Haveli
VERSUS
Commissioner of C.E. & S.T.-Daman ......Respondent
3rd Floor...Adarsh Dham Building, Vapi-Daman Road, Vapi
Opp.Vapi Town Police Station,
Vapi, Gujarat, 396191
WITH
(i) EXCISE Appeal No. 12181 of 2019- DB (Shri Manoj Jain)
(ii) EXCISE Appeal No. 12182 of 2019- DB (Shri Narendra Surana)
(iii) EXCISE Appeal No. 12183 of 2019- DB (Shri Prakash Sahoo)
(iv) EXCISE Appeal No. 11377 of 2019 - DB
[E/CROSS/10533/2019] (C.C.E. & S.T.-Daman)
APPEARANCE:
Shri Prakash D Shah, Shri Dinesh H Mehta, Shri Suyog Bhave, Advocate for the
Appellant-Assessee
Shri Mihir G Rayka, Addl. Commissioner for the Respondent- Revenue
CORAM: HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR
HON'BLE MEMBER (TECHNICAL), MR. RAJU
Final Order No. 11422-11426/2024
DATE OF HEARING: 02.04.2024
DATE OF DECISION: 26.06.2024
RAMESH NAIR
The present group of appeals are filed both by the Appellant-Kalpana
Industries Limited ("the Appellant") and its director and employees and the
department against the Order-in-Original dated 30.01.2019 passed by the
Commissioner of Central Excise, Daman. The Appellant is engaged in the
manufacture of PVC compounds/plastic compounds of various grades of
Chapter 39 of the First Schedule to the Central Excise Tariff Act, 1985.
1.1 The Appellant has filed the above appeal against the impugned order
to the extent of:-
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(i) denial of CENVAT Credit of Rs. 21,02,888/- for shortage of raw
materials;
(ii) denial of CENVAT Credit of Rs. 1,12,04,902 for diversion of
imported raw material weighing 1839 MTs, on which CENVAT Credit of
CVD was taken from Bhiwandi godown;
(iii) demand of duty of Rs. 1,01,81,000.00 on clandestine removal of
898 MTs of PVC compounds in the guise of fictitious sale of sole parts
of Hawai chappals;
(iv) duty demand of Rs. 1,01,670 on sale of waste and scrap, with
interest and imposition of penalties.
The department has filed the appeal against the impugned order in so far
as the learned Commissioner has dropped the proceedings for denial of
CENVAT Credit of Rs. 12,92,65,299/- on removal of inputs on which
CENVAT Credit was taken in the guise of fictitious sale of modified LLDPE to
the buyers located in Kolkata and consequential penalties on various
persons.
1.2. Brief facts of the case are that on the collection of intelligence that
the Appellant was indulging in evasion of central excise duty by way of
diverting indigenously procured as well as imported inputs in the local
market and clandestine removal of the finished goods, simultaneous
searches were conducted at the factory premises of the Appellant at Dadra
and Daman and godown at Dadra and residential premises of the
Commercial Manager and Authorized Signatories at Vapi and their Mumbai
head office on 03/04.02.2010.
1.3. During the search, variation in stock of raw material as well as
finished goods at various premises of the Appellant was noticed.
Subsequently, searches were conducted in other places also that were
related to transporters, buyers, warehouses, etc. Searches conducted at
the godown resulted in seizure of goods. The officers also found that
52,075 kg of various inputs valued at Rs. 30,71,202/- and involving Cenvat
Credit of Rs. 4,44,626/- were stored in a godown situated outside the
factory premises, without obtaining necessary permission under Rule 8 of
the CENVAT Credit Rules, 2004 and accordingly seized the material. The
above led to the issuance of a Show Cause Notice dated 02.08.2010 and
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confirmation of demand under Order-In-Appeal dated 25.08.2011 with
imposition of redemption fine of Rs. 6,67,800/-.
1.4. On preferring an appeal, this Tribunal, vide its Order as reported at
2015 (328) ELT 597 (Tri.- Ahmd.) remanded the matter back to the
adjudicating authority with the observations that the Appellant had indeed
applied for permission under Rule 8 of the CENVAT Credit Rules. Further,
the redemption fine was reduced to Rs. 1,00,000/-. The officers also
conducted an investigation with regard to clearance of 3,439 MT of pairs of
sole parts of Hawaii Chappal valued at Rs. 47.31 crores cleared during
January 2009 to 2010 as exempted under the belief that there was no
manufacturing infrastructure to manufacture the said exempted goods. The
investigation is summarized in paragraph 30 of the Show Cause Notice but
there is no demand for the same.Based on the above investigation the
department issued Show Cause Notice dated 07.05.2013 and proposed
various demands.
2. The Appellant filed a reply dated 15.11.2014 and a synopsis dated
27.11.2018, by which detailed submissions were made in support of their
case.
3. The Learned Commissioner passed the impugned Order-in-Original,
whereby she dropped the proposal to deny cenvat credit of Rs.
12,92,65,299/- and denied the cenvat credit and confirmed the demand
aggregating to Rs. 2,35,90,459/-. Therefore the present appeals are filed
by the revenue as well assessee and its director and employees.
4. We have heard Mr. Prakash Shah with Mr. Dinesh Mehta and Mr.
Suyog Bhave, Advocates for the Appellants and Mr. Mihir Rayka, the learned
AR appearing for the Commissioner.
5. Mr. Shah on behalf of the Appellant reiterated the following
submissions made in their written submissions dated 25.10.2023:
5.1 There was no shortage of raw material and proposed denial of
CENVAT credit of Rs. 4,59,156/- is wholly erroneous and untenable.
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5.2 That the shortage was only on account of posting errors in registers
as confirmed in the statement of Mr. Prakash Sahoo recorded on
26.04.2010.
5.3 That during 2009-10, the turnover of raw materials was of
approximately 25,375 MT and posting error of around 80MT is bound
to happen. The Appellant had submitted to the learned
Commissioner detailed working statement in reply to the show cause
notice. Factually, there is no shortage in the raw materials and the
correctly ascertained stock has been carried forward.
5.4 The learned Commissioner, in paragraph nos. 49, 50.1 and 50.2 has
merely relied upon the order dated 23.07.2015 passed by this
Hon'ble Tribunal in the Appellant's own case and has observed that
the other show cause notice dated 02.08.2010 issued by the
department for seizure was upheld by this Hon'ble Tribunal. This
observation is factually incorrect in view of the factual position that
by the said order the matter was merely remanded back to
department and department has already closed the case on the
Appellant having furnished complete accountability of the seized
material. Accordingly, this demand is not sustainable.
5.5 That the demand on account of denial of cenvat credit of Rs.
16,42,831.00 is on account of shortage of 2,81,452 kg. of raw
material noticed in Daman factory in stock records maintained in
computer for job work processing attended for Dadra unit.
5.6 That the above shortage was on account of processing loss (below
0.5%) (normal loss ranging from 0 to 2%). The detailed reasoning
for generation of visible loss in form of wastages and invisible loss of
raw material in the plant at various stages explained in paragraph
3.6.5 reply dated 15.11.2014.
5.7 That there was no shortage. The difference is on account following
invisible losses:
a. Non Recoverable loss:
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During suppression of the granules from water, some of the
granules passed through the separator and flows out with water
into the drainage systems
b. Loss of silane:
Silane is highly volatile liquid and during process some part of
the silane vaporizes out as permanent loss.
c. Burning of polymer:
During cleaning of the extruder, some part of the polymer burns
out at the surface of the screw and extruder barrel which is not
recoverable
d. Un-reacted Silane:
During extrusion reaction, some part of the silane remains un-
reacted and comes out from the extruder. It then vaporizes out
as a permanent loss.
e. Fines:
During transportation of the granules from the vibro to the
finished cylo, granules are rubbed against the surface of the
pipeline and generate fines, which finally flies out as a
permanent loss from the finished material.
f. Loss during Loading/unloading:
During loading of finish material into truck and lorries, some
bags accidentally falls and granules are thrown on the ground
which is not recoverable.
5.8 The shortage was on account of processing loss not accounted for
while returning the processed material from Daman unit to Dadra
unit. This was explained by way of illustration in paragraph 3.6.7 of
the reply as under:-
a. By Annexure-II job work Challan 2478 dated 31.12.2009,
10,000 KGs of raw material was sent from Dadra Unit to Daman
Unit
b. By Annexure-VI Challan No 1719 dated 04.01.2010, processed
quantity of 3803 Kgs was returned to Dadra Unit with balance
of 6,197 Kgs reported in the said Annexure-VI Challan
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c. By Annexure-VI Challan No 1720 dated 05.01.2010, processed
material of 6,000Kgs and scrap of 197 KGs (Total 6,197 KGs)
was returned to Dadra Unit
d. Thus 10,000 Kgs received from Dadra Unit was returned as
10,000 KGs.
e. This transaction was recorded accordingly on para no 331 of
Annexure-V Job Work Register.
5.9 Mr. Prakash Sahoo of the Appellant has also clarified in his
statement dated 26.04.2010 that the difference is on account on
non-booking of invisible loss of around 0.5% for the last two years.
5.10 Accordingly, the shortage of around 280 MT was within 0.5%
invisible loss and not booked in the computer records while
returning job work materials to Dadra factory. Thus, it is submitted
that there was no shortage of raw materials.
5.11 That the learned Commissioner has incorrectly observed in
paragraph 50.3 of the impugned order that the Daman unit returned
the actual material received and therefore there was no involvement
of visible loss or invisible loss.
5.12 That the learned Commissioner failed to appreciate the fact that if
the quantity received for job work appears to be identical to the
quantity returned in Annexure VI challan, that in itself is sufficient
proof in support of the Appellant's contention that the invisible loss
was not accounted for in computer records while returning the job
material.
5.13 It is pertinent to note that the learned Commissioner has not given
any negative findings in respect of the contention of the Appellant
about invisible loss occurring during manufacturing process.
Accordingly, it was submitted that demand is liable to be set aside.
5.14 That the demand of Rs. 1,01,670.00 is towards alleged shortage of
manufacturing waste booked in the excise record but not physically
available.
5.15 That normally, the waste generated during the process of
manufacturing is dumped in the corner of the manufacturing factory
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having no sale value and periodically excise duty is discharged.
Accordingly confirmation of demand is not disputed.
5.16 However, there is no involvement of any mala fide intention or
clandestine removal. This is evident from the fact that the
production of the said finished goods was duly booked in excise
records.
5.17 That the Cenvat credit of Rs. 1,12,04,902.00 was availed at Dadra
factory on 1,839 MT of imported raw materials cleared on payment
of duty during the period from June 2009 to December 2009. The
details of the imported raw materials (cleared both with and without
payment of duty) are as follows:
Bill of Duty RG 23A
Descri
Entry No. Paid Duty Pt-II
Sr p-tion Quantit
& Date Status Involved Entry
No of y (MT)
(Rs.) No. &
goods
Date
1 968354 dt. LDPE 495 34,81,011 2888/
30.06.200 18.10.09
9
2 982658 dt. LDPE 470.25 35,33,053 4101/
11.07.200 31.12.09
9
3 963690 dt. PVC 321.75 14,70,724 1858/
Duty
29.06.200 Resin 31.07.09
Paid
9
4 979058 dt. PVC 255 13,32,765 2360/
09.07.200 Resin 04.09.09
9
5 995666 dt. PVC 297 13,87,350 2537/
21.07.200 Resin 24.09.09
9
Total of Duty-Paid Imported RM 1,839 1,12,04,903
6 654631 dt. Duty PVC 504 -
29.08.200 Free Resin
9 import
against
7 714960 dt. PVC 198 -
AA
09.10.200 Resin
9
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Total of Duty-Free Imported RM 702 -
Total Imported RM allegedly 2,541 -
diverted in local market
5.18 The Appellant availed the services of the following transporters for
transporting the imported goods from JNPT to Bhiwandi godown:-
a. M/s. Vijay Shree Roadlines situated at C-3, 1st Floor, Neelkanth
Cornor, Sector-2, Sanpada, Navi Mumbai
b. M/s. Shri Krishna Transport Service situated at 2nd Floor, Room
No. 29, Shroff Bhavan, P'Demello Road, Carnac Bunder,
Mumbai
c. M/s. Cargo Transport Organisation situated at 109, Ambica
Terrace, Room No. 9, 4th Clive Cross Road, Masjid Binder
(East), Mumbai.
5.19 The department officers claim to have visited the premises of above
transporters on 18.03.2010 and recorded the statements of their
representatives.
5.20 For the transport of goods from the Bhiwandi godown to the Dadra
unit, the Appellant availed services of the following transporters:
a. M/s. Vijay Shree Roadlines situated at C-3, 1st Floor, Neelkanth
Cornor, Sector-2, Sanpada, Navi Mumbai
b. M/s Indian Freight Cargo Logistics situated Plot No. 397/397-B,
Silvassa Road, Near Padam Plastics, Opposite Line Park Gali,
GIDC, Vapi
5.21 The details of the vehicles used for the aforementioned transport of
raw materials are as follows:
Bill of Duty Descri Total Repea Singl Name of
Sr
Entry No. Paid p-tion Quantit Vehic t e Transpo
N
& Date Status of y (MT) -les Vehicl Vehic rter
o
goods -es l-es
1 968354 dt. LDPE 495 55 6 49 Vijayshri
Duty
30.06.200 Roadway
Paid
9 s
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Bill of Duty Descri Total Repea Singl Name of
Sr
Entry No. Paid p-tion Quantit Vehic t e Transpo
N
& Date Status of y (MT) -les Vehicl Vehic rter
o
goods -es l-es
2 982658 dt. LDPE 470.25 53 2 51 Vijayshri
11.07.200 Roadway
9 s
3 963690 dt. PVC 321.75 21 0 21 Indian
29.06.200 Resin Freight
9 Cargo
Logistics
4 979058 dt. PVC 255 16 0 16 Indian
09.07.200 Resin Freight
9 Cargo
Logistics
5 995666 dt. PVC 297 19 1 18 Indian
21.07.200 Resin Freight
9 Cargo
Logistics
Total of Duty-Paid Imported RM 1,839 164 9 155 -
6 654631 dt. Duty PVC 504 10 0 10 Indian
29.08.200 Free Resin (180MT Freight
9 import directly Cargo
against delivere Logistics
AA d from
34 0 34 Vijayshri
port)
Roadway
s
7 714960 dt. PVC 198 17 0 17 Indian
09.10.200 Resin Freight
9 Cargo
Logistics
Total of Duty-Free Imported RM 702 225 9 216
Total Imported RM allegedly 2,541
diverted
5.22 The case of the department is that the entirety of imported raw
materials of 2541 MTs was diverted by the Appellant from the
Bhiwandi godown and was never transported to the Dadra unit.
5.23 The learned Commissioner erred in upholding the allegation of
diversion of the entire quantity of 2541 MTs without examining the
facts on record.
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5.24 The learned Commissioner has not taken into account the fact that,
out of the above quantity, raw materials weighing 180 MTs were
transported directly from JNPT to the Dadra factory. The said raw
materials were never brought to the Bhiwandi godown and thus, the
findings of the learned Commissioner that the same were diverted to
the local market from the Bhiwandi godown are factually incorrect.
5.25 A total of 213 vehicles were used to transport the remainder 2,361
MTs of the imported raw materials from Bhiwandi godown to Dadra
factory.
5.26 The case of the department is that the said imported raw materials
stored in Bhiwandi godown were never brought to the Dadra unit
and were instead diverted in the local market and credit of CVD and
SAD is not available to the Appellant.
5.27 It is further alleged that the diversion of the imported raw materials
in carried out under the guise of fictitious sale of finished goods,
being sole parts of Hawaii Chappals.
5.28 The Respondent / department has relied upon the following to allege
the above:
a. Statements of 11 vehicle owners (hired by M/s. Vijay Shree
Roadlines) as summarized below:
SCN Date of
Sr Name of the Vehicle
Para the Bill No
No person No
No. statement
Mr. Abdul MH-04- 992 dt.
1 33.13 08.08.2012
Kalim Khan DD-2613 27.11.2009
Mr.
Dhansukhbhai DD-03-E- 515 dt.
2 33.14 17.06.2011
Dayalbhai 9372 05.08.2009
Patel
Mr. Shivjor DN-09-
3 33.15 16.07.2012 1191
Jadhav 8783
Mr. Altaf MH-04- 992 dt.
4 33.16 06.08.2012
Ahmed Safat BG-7780 27.11.2009
654 dt.
Mr. Ijaj 07.07.2009
MH-04-F-
5 33.17 08.08.2012 Ahmed ;
9358
Mukhtar Khan 929 dt.
11.09.2009
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SCN Date of
Sr Name of the Vehicle
Para the Bill No
No person No
No. statement
;
835 dt.
17.10.2009
Mr.
MH-04-H- 863 dated
6 33.18 13.08.2012 Mohammed
4357 23.10.2009
Ali
Mr. Rohit MH-04- 29 dt.
7 33.19 15.10.2012
Suresh Malde DD-6780 15.10.2009
2812 dt.
28.07.2009
Mr. Manoj MH-04-
8 33.20 20.11.2012 ;
Madan Bhoir CU-1599
308 dt.
30.11.2009
Mr. Rajubhai MH-04- 992 dt.
9 33.21 05.11.2012
Yadav DD-6778 27.11.2009
Mr. Rajubhai MH-04- 834 dt.
10 33.22 23.11.2012
Jayantbhai DU-1696 17.10.2009
Mr. Nanubhai DN-09-E- 11168 dt.
11 33.23 05.03.2013
N Gorat 9862 05.12.2009
b. RTO reports pertaining to 5 vehicles (out of the 203 vehicles
used) stating that the said vehicles were incapable of
transportation of the goods, the details whereof are as follows:
Sr Vehicle No. Type of Vehicle as per RTO
No Report
1 MH 04 B 9358 Crane
2 MH 04 CC 1903 Motorcycle
3 MH 04 AF 6926 Bajaj Auto Rickshaw
4 MH 12 R 9726 Tanker
5 MH 04 AL 9564 LMV
c. Statement of Shri R. Y. Dhulla, Proprietor of M/s. Kalpesh
Roadways, in which he is claimed to have, inter alia, stated that
M/s Kalpesh Roadways did not provide any vehicle to M/s. Vijay
Shree Roadways for the purpose of transport of the Appellant's
raw materials.
d. Statements of certain transporters, in which it is claimed that
no vehicles were provided and no transport was undertaken on
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behalf of the Appellant to transport three Vertical Injection
Moulding Machines from the Appellant to Tara Holdings Pvt Ltd,
Kolkata.
e. Statements of Shri Harish Parikh and Shri Ranjeet Kumar
Bothra, in which it is claimed that no purchase or sale of sole
parts of Hawaii Chappals were made by the Appellant to Kanta
Devi Polymers.
5.29 At the outset, it is submitted that the Respondent has erred in
placing reliance on the above statements without following the
mandatory procedure prescribed under Section 9D of the Act.
5.30 Section 9D stipulates that a statement made by a person before a
Central Excise Office shall be relevant for the purpose of proving the
truth of the facts which it contains only when the person who made
the statement is examined as a witness and the statement is
admitted in evidence.
5.31 Further, Section 9D(2) states that the above procedure shall apply
to all proceedings under the Act.
5.32 In the present case, despite repeated submissions made by the
Appellant in this regard, the Respondent did not comply with Section
9D of the Act and wrongly relied upon the statements of truck
owners and Mr. Dhulla.
5.33 The department did not examine any of the above persons as a
witness and did not record any finding demonstrating as to why the
statements should be admitted in evidence, prior to placing reliance
on the statements.
5.34 The strict compliance of the procedure prescribed in Section 9D of
the Act to adjudication proceedings has also been judicially
recognised and no statements can be relied upon in case of failure
to comply with Section 9D. Some of the judicial precedents are
referred to hereinbelow:-
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(i) Ambika International v. Union of India, 2018 (361) ELT 90 (P&H)
(ii) Hi Tech Abrasives Ltd. v. Commissioner of C. Ex. & Cus., Raipur,
2018 (362) ELT 961 (Chattisgarh)
(iii) Meenakshi Food Products (P) Ltd. v. CCE & ST, Ahmedabad-II,
2019 (370) ELT 1330 (Tri.- Ahmd.)
(iv) Commissioner of Central Excise, Delhi-I v. Kuber Tobacco India
Ltd., 2016 (338) ELT 113 (Tri.- Del.)
5.35 In any event, it is submitted that the Respondent cannot rely upon
the any statement without providing to the Appellant an opportunity
to cross-examine the relevant person.
5.36 In Commissioner of Central Excise, Meerut-I v. Parmarth Iron Pvt.
Ltd. [2010 (260) ELT 514 (All.)], the Hon'ble Allahabad High Court
has held thus:-
"16. We, therefore, have no hesitation in holding, that there is no
requirement in the Act or Rules, nor do the principles of natural
justice and fair play require that the witnesses whose statements
were recorded and relied upon to issue the show cause notice, are
liable to be examined at that stage. If the Revenue choose not to
examine any witnesses in adjudication, their statements cannot be
considered as evidence. However, if the Revenue choose to rely
on the statements, then in that event, the persons whose
statements are relied upon have to be made available for
cross-examination for the evidence or statement to be
considered."
5.37 In the present case, the learned Commissioner has relied upon the
statements of various persons, including the 11 vehicle owners and
Shri R. Y. Dhulla.
5.38 However, despite repeated requests made by the Appellant, the
learned Commissioner granted opportunity to cross-examine only
three truck owners and rest of the persons were not offered for
cross examination.
5.39 In fact, cross examination was refused vide letter dated 17.02.2017.
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5.40 Thus, the learned Commissioner has erred in placing reliance on the
above statements without following the procedure prescribed under
Rule 9D of the Act and without providing the Appellant an adequate
opportunity of cross-examination.
5.41 In any event, it is pertinent to note that all the above vehicle owners
have retracted their statements by filing appropriate affidavits
stating that the statements were recorded under duress.
5.42 Further, Shri R. Y. Dhulla has also duly retracted his statement and
the said retraction was furnished by the Appellant along with the
Reply.
5.43 The learned Commissioner has wrongly ignored the retraction of the
statements.
5.44 The department further alleged that 5 vehicles (out of the 239
vehicles used) were incapable of transportation of goods as per the
RTO reports obtained.
5.45 It is submitted that the Respondent has erred in placing reliance on
the above RTO reports.
5.46 The Appellant had already informed that the vehicle numbers, in
respect of which the RTO reports were sought to be relied upon,
were mentioned erroneously in the vehicle-wise statement
submitted by the Appellant in respect of transport of raw materials
from Bhiwandi godown to Dadra factory.
5.47 In the Reply, the Appellant had given details of the correct vehicle
numbers along with the copies of Lorry Receipts ("LRs") reflecting
the correct vehicle numbers. The details of the correct vehicle
numbers are as follows:
Sr No Incorrect Vehicle No. Correct Vehicle No.
1 MH 04 B 9358 MH 04 F 9358
2 MH 04 CC 1903 MH 04 AH 1903
3 MH 04 AF 6926 MH 04 F 6926
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4 MH 12 R 9726 MH 12 R 9728
5 MH 04 AL 9564 MH 04 H 9564
5.48 The Respondent erred in not accepting the above contention of the
Appellant (along with the supporting LRs) on the sole ground that
there is a purported contradiction in the said contention.
5.49 It was observed that Shri Vijay Walunj had recorded in his
statement that the said RTO reports are wrong whereas the
Appellant has submitted that the vehicle numbers were incorrect.
5.50 It is submitted that the learned Commissioner erred in preferring
oral evidence against the documentary evidence submitted by the
Appellant in respect of the correct vehicle numbers.
5.51 It was incumbent upon the learned Commissioner to have verified
vehicle numbers mentioned in the LRs.
5.52 The learned Commissioner could not have come to the conclusion
that the vehicle numbers (different from mentioned in LR) were
incapable of transporting the goods.
5.53 It is further submitted that Shri Vijay Walunj, owner of M/s. Vijay
Shree Roadways has consistently stated in his statements recorded
on 23.5.2012/22.2.2013 that he himself had monitored the
preparation of LR and transportation of goods through vehicle
provided by M/s. Kalpesh Roadways.
5.54 The department has not disputed the aforesaid statement. The said
statement is recorded under Section 14 of the Act and Mr. Walunj
was the department witness, and no cogent reasons are to be found
not to rely upon the said statements.
5.55 Further, during the adjudication proceedings, the Appellant had
produced/relied upon 41 LRs of M/s Vijay Shree Roadways, which
confirmed the transportation of goods from Bhiwandi godown to
Dadra factory.
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5.56 It is submitted that the said LRs were duly stamped by the Bhilad
Check Post (i.e., the Gujarat Commercial Tax Post, Bhilad), thus,
evidencing the physical transportation of goods from Bhiwandi to
Dadra.
5.57 One of the LRs includes the vehicle number of one of the 11 vehicle
owners purportedly denying the giving their vehicles for
transportation.
5.58 It is submitted that the Respondent has conveniently ignored the
above 41 LRs.
5.59 Once, it is shown that at least 41 vehicles transported the raw
material from Bhiwandi to Dadra the case of the department that no
material was transported at all fails.
5.60 From the above, it is manifest that the learned Commissioner has
conveniently chosen to rely on statements as against the
documentary evidence produced by the Appellant proving the
contrary without any doubt.
5.61 In Godavari Khore Cane Transport Co. v. Commr. Of Central
Excise [(2013) 29 STR 31 (Bom.)], the Hon'ble Bombay High
Court has categorically held that it is open for the assessee to
demonstrate on the basis of documentary evidence that the
statements recorded are erroneous and it is incumbent on the
department to consider the said documentary evidence.
5.62 Further, no effective investigation was carried out with other
transporter, M/s. Indian Freight Cargo Logistics, except recording in
para 33.28 of SCN that the summons issued to them dated
12.2.2013 and 25.2.2013 were returned with postal remark "not
known".
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5.63 The details of said transporter were communicated to the
department through the Appellant's letter dated 21.03.2011, as
recorded in para 33.3 of SCN.
5.64 However, the department waited for almost 2 years to summon the
transporter.
5.65 However, the owner of said M/s. Indian Freight Cargo Logistics
stated on oath by way of affidavit confirming the transportation of
goods. The affidavit was produced by the Appellant in the
adjudication proceedings. The department did not issue any further
summon or examined him in the adjudication proceedings.
5.66 It is pertinent to note that there are no inculpatory statements of
any of the employees of the Appellant of either no transportation or
alleged diversion of goods in the DTA.
5.67 Further, Mr. Prakash Sahoo in his statement dated 26.4.2010, had
categorically stated that imported material was brought to Dadra
factory from Bhiwandi godown.
5.68 In any event, the Respondent has not recorded any findings
regarding the disposal of the imported goods alleged to have been
diverted by the Appellant.
5.69 No evidence whatsoever has been adduced by the department
regarding the disposal of imported goods which were valued at more
than Rs. 15 crores and needed more than 239 vehicles to dispose
the same.
5.70 The department has not made any allegations nor provided any
material or details regarding the purported buyers to whom the
imported raw materials were diverted. No investigation appears to
have been made regarding the transportation of the raw materials to
the alleged buyers or the proceeds received from the sale of such
diverted raw materials.
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5.71 Therefore, the demand is not sustainable as per relied upon
pronouncements referred in para 4.25.7 of reply.
5.72 Further, there is no evidence of substitution of 1839 MT of material
at Dadra factory and relied upon factory's reconciliation statement
for the year 2009-10.
5.73 As regards the alleged fictitious sale of sole parts of Hawaii Chappal,
it is submitted that the said allegations are merely based on
statements of transporters.
5.74 The learned Commissioner has erred in holding that the Appellant
did not have any manufacturing capability for the production of the
sole parts of Hawaii Chappals cleared by it.
5.75 Mr. Prakash Sahoo, in his statement dated 26.04.2010, categorically
stated that the Appellant possessed 3 Vertical Injection Moulding
Machines and was using the same for production of the finished
goods during the relevant period. However, the said machines were
sold before the search proceedings to Tara Holdings Pvt. Ltd.
5.76 The machines were purchased from M/s M B Engineering Works
under Invoice No. 122 dated 29.12.2006 and transported by Jaipur
Golden Transport Co. Pvt. Ltd.
5.77 It is pertinent to note that during the course of the investigation,
M/s M B Engineering Works has confirmed the sale of the machines
to the Appellant. In response to a summons, M B Engineering Works
produced the commercial invoice and LR.
5.78 It is submitted that the department has erred in alleging that the
said purchase transaction was a paper transaction merely because
further documents regarding the transportation could not be
recovered either from the transporter or the RTO owing to the lapse
of time.
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5.79 The said allegations are based on mere conjecture and without
disproving the documentary evidence produced by M/s M B
Engineering Works in respect of the purchase of the machines.
5.80 In support of the sale of the machines, the Appellant has submitted
the following documentary evidence:
(i) Commercial invoice dated 20.01.2010 for sale of the three
machines to Tara Holdings Pvt. Ltd.
(ii) Lorry Receipt No. 56375 dated 20.01.2010 under which M/s
Baba Roadlines transported the said machines to Kolkata
5.81 It is submitted that the Respondent has erred in placing reliance on
the statements of the transporter to brush aside the above
documentary evidence.
5.82 It is reiterated that the said reliance is in complete contravention of
the procedure under Section 9D of the Act.
5.83 In any event, even assuming without admitting that the sale of the
three machines cannot be confirmed, it is submitted that the
department has failed to negate the fact that the machines were
purchased by the Appellant.
5.84 Further, the Respondent has erred in placing reliance on the
statements of Shri Harish Parikh and Shri Rajesh Kumar Bothra,
without following the procedure laid down in Section 9D of the Act.
5.85 In any event, a bare perusal of the statement of Shri Harish Parikh,
in fact, confirms that Kanta Devi Polymers had negotiated for the
purchase of the sole parts from the Appellant and regularly made
payment via cheques. Further, Kanta Devi Polymers have disclosed
the purchases in their sales tax returns as well.
5.86 Without prejudice to the above, it is submitted that even assuming
without admitting that the sale of the sole parts is fictitious, the
department ought to have raised a demand for duty in respect of
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the same. However, no such demand is raised, except for the
remainder quantity of 898 MT.
5.87 From the above, it is manifest that the learned Commissioner has
failed to prove the existence of any clandestine removal of goods
beyond doubt.
5.88 The entire case is based on conjectures and uncorroborated
statements.
5.89 It is a settled position in law that the onus to prove the existence of
clandestine removal lies on the department and the same must be
discharged on the basis of clinching evidence. In this regard,
reliance is placed on the following case law:-
(i) Commissioner of Central Excise, Nagpur v. Shree Sidhbali
Ispat Ltd., 2021 (376) ELT 229 (Bom.)
(ii) Commissioner of C. Ex. & ST, Chandigarh-II v. Kewal Garg,
2019 (369) ELT 315 (P&H)
(iii) Jai Balaji Industries Ltd. v. Commr. Of Cus., C. Ex & ST,
Durgapur, 2021 (378) ELT 674 (Tri.- Kolkatta)
5.90 Further, from the above, it is amply clear that the learned
Commissioner has confirmed the entire demand only on the basis of
extrapolation.
5.91 Even assuming without admitting that the denial by the transporters
/vehicle owners made in their statements can be relied upon, it is
submitted that the Respondent has erred in holding that the entire
quantity of raw materials has been diverted.
5.92 It is submitted that the incriminating document / statement can at
the most be evidence of removal of goods referred in them but there
cannot be an extrapolation for the entire quantity under dispute.
5.93 The learned Commissioner wrongly observed that no permission for
storage of imported raw material was taken by the Appellant from
the department.
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5.94 This is factually incorrect as permission was required under Rule 8 of
the CENVAT Rules only when Cenvat credit is availed on inputs and
thereafter stored outside the factory premises. In any case the
investigation of the department and as recorded in para 33.9, 33.10
and 33.11 of SCN itself proves that the imported material was duly
received in Bhiwandi godown from JNPT port.
5.95 The Respondent also failed to give findings on various relied upon
pronouncements relied upon by the Appellant in support of the
contention that in absence of any corroborative evidence regarding
disposal of imported raw materials the demand cannot be confirmed
on assumption and presumption.
5.96 Accordingly the confirmation of demand is not maintainable.
Submission against demand of Rs.1,01,81,000/- (demand on
alleged removal of finished goods based on arithmetic calculation)
5.97 The demand of Rs. 1,01,81,000 on the removal of final products is
merely based on arithmetic calculation as per following details:
Sr. Particulars Quantity
No.
1 As per investigation carried out and 3,439 MT
summarized in para 30/31/32, the company
never manufactured / sold / delivered sole
parts of hawai chappals to concerned parties
located in Delhi / Daman (no demand on this
count in SCN)
2 Less imported material alleged to be disposed 2,541 MT
of clandestinely from Bhiwandi godown (1839
MT as duty paid plus 702 MT as duty free -
Total 2541 MT)
3 Balance quantity presumed to be delivery of 898 MT
finished goods clandestinely
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5.98 It is alleged that the Appellant never manufactured and sold 3439
MT of sole parts of Hawaii Chappal and against the said sale
company diverted 2541 MT of imported raw materials (1839 MT of
duly paid and 702 MT of duty free raw materials) from Bhiwandi
godown and therefore the leftover quantity 898 MT (3439MT less
2541MT) of finished goods were clandestinely removed from the
factory.
5.99 The demand is not tenable on the ground that there was no
investigation carried out for alleged clandestine sale of 898 MT of
finished goods and same is based on assumption and presumptions
and without adducing any corroborative evidences and not tenable
in light of relied upon pronouncements referred in 4.26.7 of Reply
Letter.
5.100 The allegation of the department that the Appellant was not having
any manufacturing infrastructure to manufacture sole parts of
Hawaii chappal is also not correct as the Appellant was in possession
of 3 vertical injection moulding machines which were purchased
under Invoice dated 29.12.2006 and subsequently sold on
29.01.2020 under tax invoice. The department themselves carried
out investigation to prove purchase and sale of machine and found
the same to be correct. This is summarized in paragraphs 7.6 to 7.8
of the Grounds of Appeal (Pg. No. 69 to 71 of appeal) with Annex-
22/23 (P.No.481 to 501 of appeal).
5.101 The learned Commissioner in paragraph 53 confirmed the demand
simply by reiterating the allegations and by observing that there was
sufficient evidence to hold that the Appellant has shown fictitious
sale of sole parts of Hawaii Chappal.
5.102 The learned Commissioner failed to appreciate that the investigation
carried out by the department itself has proved that the Appellant
was having manufacturing infrastructure to manufacture Hawaii
Chappal.
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5.103 Demand is on 18,678 MT of finished goods cleared on payment of
duty to following four parties located in Kolkata as per Annex. A-09,
A-10, A-11, A-12 of SCN including 1029 MT cleared to EOU as duty
free against CT-3 certificates.
Name of Type of Qty in Kgs Value Duty
the buyers/ clearance (in Rs) demanded
Consignors shown (Rs.)
M/s TARA Duty Free 10,29,675 8,16,49,200 1,12,29,233
HOLDING P (CT-3)
LTD, (100%
'Modified
EOU), 24
LLDPE'
PARGANAS
etc.
M/s TARA Duty Paid 48,38,350 29,25,00,675 2,92,43,885
HOLDING P 'Modified
LTD, (100% LLDPE', PE
EOU), 24 Compound
PARGANAS s etc.
M/s TARA Duty Paid 60,75,000 43,87,83,600 3,72,82,492
HOLDING P PVC
LTD, Compound
HOWRAH , PE
and M/s Compound
SARLA GEMS s Modified
LIMITED, LLDPE.
HOWRAH
(W.B.)
M/s Maurya Duty Paid 67,35,200 44,27,53,000 5,15,09,689
Commercial PVC
Company, 1 Compound
/ 4, K.C , PE
Road, Compound
Cossipore s
HO, Kolkata
(W.B)
186,78,22 12,92,65,29
Total 125,56,86,475
5 9
5.104 The allegation of the department is that the Appellant did not clear
the finished goods to Kolkata and diverted raw materials under the
guise of fictitious sale of finished goods.
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5.105 There were a total of 1,194 consignments, for which the details
about the corresponding transporters is as under:
Sr Name of the No of Remarks
. transporter consign
ments
1. M/s. Baba Roadlines 1008 Claimed to be not
transported based on
statement in other
proceedings (delivery of
three vertical injection
molding machines from
Dadra factory to Kolkata)
2. M/s. Inland Road 81 Transporter has given
Transport Pvt. Ltd. statement that the material
was delivered to Kolkata
3. M/s. Mahalaxmi 101 Claimed to be non-existent
Transport Carrier or handled by Shri Baba
Roadlines
4. M/s. Super Sonic 2 No investigation carried out
Carriers Pvt. Ltd.,
5. M/s. Premier Road 2 No investigation carried out
Carrier
Total 1194
5.106 The department mainly relied upon the statement dated 18.03.2013
of Shri Jatin Jain and Shri Sumer Singh of M/s. Baba Roadlines
whereunder it was stated that they are transporting the goods of
M/s. Kalpana to Gujarat/Rajasthan only and never transported to
Kolkata.
5.107 As per paragraph 34.2 of the SCN, both the statements were
recorded in connection with investigation regarding transportation of
3 vertical injection molding machines from Dadra factory to M/s.
Tara Holding Pvt. Ltd (EOU), Kolkata.
5.108 Subsequently, the above statements were proved to be false as per
department's own investigation carried out for transportation of
machines which is summarized in para 10.4 of cross objection.
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5.109 Further, both the above representatives of Shri. Baba Roadlines
executed affidavit on 27.9.2014 and retracted the statement dated
18.3.2013 and the Appellants submitted copy thereof along with the
reply letter dated 15.11.2014.
5.110 Subsequently Shri. Sumer Singh of Baba Roadlines also appeared
for cross examination before Principal Commissioner and retracted
the statement on 26.08.2018, confirming the transport of goods by
Shri. Baba Roadlines to Kolkata.
5.111 In support of the transportation of goods the Appellant has relied on
the following documentary evidence:
(i) Revised statement of Annex-A-9/10/11/12 with reference of
Waybill No. and date and also submitted separate paper book of
Waybill as per para 6.12 of RL (Also Pg. No. 89 of CO).
(ii) EOU warehousing records of 1029 MT delivered to M/s. Tara
Holding Pvt. Ltd. (EOU) (Ex-T of RL, Pg. No. 295-467)
(iii) Ledger accounts of all transporters (Ex-V/W/X/Y/Z of RL -
Pg. No. 475 to 588).
(iv) Endorsement of the Superintendent of Central Excise on receipt
of the re-warehousing certificate from jurisdictional excise
authority of EOU
5.112 All the above documentary evidence including way bills/warehousing
records of goods at EOU proves beyond doubt that the Appellant
supplied the material to all parties located at Kolkata on payment of
excise duty.
5.113 It is submitted that the department could not disprove the
documentary evidence produced by the Appellant.
5.114 Thus, the Respondent rightly dropped the demand by observing in
paragraph 54 of impugned order that there is no existence of any
single evidence proving alleged illicit clearance of raw material.
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5.115 The Adjudicating Authority also rightly observed that the contention
of the department regarding non transportation of goods is not
sustainable in view of the EOU warehousing records.
5.116 It is pertinent to note that the total duty paid on clearance of the
finished goods is Rs. 12.08 crores as against the demand of
Rs.11.80 crores made in the show cause notice in respect of the raw
material alleged to be diverted.
5.117 Thus, even assuming without admitting that the Appellant did not
clear finished goods and instead diverted the raw materials, it is
submitted that the Appellant would not be liable for any additional
payment of duty since the duty paid on finished goods is more than
the duty demanded in respect of the raw materials.
5.118 It is a settled position in law that no demand can be made in such
revenue neutral situations. In this regard, reliance is placed on the
following judgments:-
(i) M/s Ajinkya Enterprises v. CCE, Pune-III, 2013 (288) ELT 247
(Tri.- Mum) affirmed by the Hon'ble Bombay High Court in 2013
(294) ELT 203 (Bom.)
(ii) J K Files and Tools Raymond Ltd. v. Commr of C. Ex. & Cus.,
Mumbai-III, 2011 (273) ELT 280 (Tri.- Mumbai)
(iii) Vickers System International Ltd. v. Commissioner of C. Ex.,
Pune-I, 2008 (10) STR 378 (Tri.- Mumbai)
5.119 It is submitted that the appeal of the department is merely on the
ground that Adjudicating Authority has not properly examined the
confessional statements and other corroborative evidence. Factually,
the ground of the appeal of the department is misleading and totally
baseless. The Adjudicating Authority dropped the demand with
detailed observations and with reliance placed on certain
pronouncements in addition to reliance placed on various
pronouncements in appellants reply letter.
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5.120 Accordingly the impugned Order passed by the Adjudicating
Authority is required to be held legal and proper to the extent of
dropping of demand of Rs.12,92,65,299.
6. The main case of the department is that the Appellant in the guise of
manufacture and sale of exempted sole parts of Hawaii chappals, weighing
3,439 MT, diverted the imported raw materials weighing 2,541 MTs. Out of
2541 MTs of imported raw material, 1839 MTs were duty paid and
remaining 898 MTs was duty free.
6.1 It is the case of the department that the Appellant diverted 1839 MTs
of imported raw material from Bhiwandi godown without bringing in the
factory and on which the Appellant had taken CENVAT Credit of CVD paid
thereon. The impugned order has demanded the CENVAT Credit of
1,12,04,902 with interest and penalties are imposed. The impugned order
has further confirmed the demand of duty of Rs. 1,01,81,000 with interest
on the removal of PVC compounds without payment of duty and penalties
are imposed on the Appellant.
6.2 As regards the diversion of imported raw materials from Bhiwandi
without brining into the factory, it is held by the Learned Commissioner that
11 vehicle owners in their respective statements have denied the
transportation of imported raw material from Bhiwandi to the factory of the
Appellant at Silvassa and five vehicles were incapable of transporting the
imported raw materials.
6.3 It is argued by the learned Counsel for the Appellants that the
CENVAT Credit of Rs. 1,12,04,902, is denied on the allegation that the
Appellant diverted the imported raw materials is primarily based on
statement of 11 vehicle owners and the statement of Shri Rajesh Dhulla of
M/s Kalpesh Roadways, who have denied transportation of goods from
Bhiwandi to Dadra for Appellant. Further, the Learned Commissioner has
relied on RTO reports of five vehicles which allegedly claim that they were
incapable of transportation of goods.
6.4 Based on the above, it is held by the Learned Commissioner that the
imported raw materials were never transported from Bhiwandi to Dadra but
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were instead illicitly diverted from Bhiwandi itself and denied the Cenvat
Credit on the premise that the imported raw material were not used in the
manufacture of final product in the factory, the Appellant is not entitled to
CENVAT credit.
6.5 The learned counsel further submitted that the learned Commissioner
has held that the Appellant showed fictitious manufacture and sale of
exempted sole parts of Hawaii Chappals as on the date of search no
machinery to manufacture sole parts of Hawai Chappals was found at the
Appellant's factory at Dadra. Further, the learned Commissioner has held
that the relevant transporters have denied transporting the machinery from
Appellant's factory to the buyer. Further, it is alleged that out of the three
buyers of finished goods, two buyers, namely, M/s Kalpana Udhyog and M/s
Shri Balaji Enterprises, existed only on paper, whereas the third buyer,
Kanta Devi Polymers Pvt. Ltd. has denied physical receipt of the finished
goods in their statement. It was further submitted that during the course of
the adjudication proceedings, vide its letters dated 15.01.2016 and
19.01.2016, the Appellant had requested the Learned Commissioner to
permit cross-examination of the persons, including the transporters, on
whose statement reliance was placed in the show cause notice.
6.6 Vide letter dated 14.09.2016, the Learned Commissioner denied the
said request for cross-examination by stating that it is not obligatory for
the Commissioner to grant such requests. In the Writ Petition No. 12915 of
2016 filed by the Appellant, the Hon'ble Bombay High Court, by its order
dated 01.03.2018, directed the Ld. Commissioner to offer an opportunity of
cross-examination of the transporters and truck owners to the Appellant.
However, the Ld. Commissioner granted cross-examination of two persons,
namely, Shri Lal Bahadur, authorized person of M/s Perfect Transport Co.,
Shri Sumer Singh, Traffic Incharge, M/s Baba Roadlines, on 09.10.2018. It
is claimed by the Appellant that the Ld. Commissioner permitted the said
cross-examination in the most restrictive manner, refusing to allow several
questions which were put to the two persons by the authorized
representatives of the Appellant.
6.7 Subsequently, on 14.11.2018, two vehicle owners, namely, Shri
Shivjor Yadav and Shri Dhansukh Patel, were offered for cross-examination
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by the Ld. Commissioner. In respect of the said cross-examination, the
Appellant had sought an adjournment due to unavailability of its advocates.
However, it appears that instead of granting the requested adjournment,
the Ld. Commissioner has herself cross-examined the two persons, who
merely confirmed their statements.
6.8 Based on the above diversion of imported raw materials and non-
manufacture and sale of sole parts of Hawaii chappals, it is alleged by the
revenue that the Appellant illicitly cleared finished goods of PVC compounds
weighing 898 MT under the guise of clearance of sole parts of Hawaii
chappals.
6.9 Apart from the above, the revenue alleges that the Appellant diverted
raw materials, weighing 18,678 MT, under the guise of manufacture and
sale of finished goods such as Modified LLDPE, etc. to three buyers in
Kolkata. For alleging the same, the revenue has mainly relied on
statements of the transporter and some of the vehicle owners, who have
denied transportation of goods from Dadra to Kolkata on behalf of the
Appellant.
7. Shri Mihir Rayka, Additional Commissioner made detailed submissions
on behalf of the Revenue. As regards the assessee's appeals, he placed
reliance on the detailed observations and findings made by the Ld.
Commissioner in the impugned order-in-original. Further, he reiterated the
grounds taken in the revenue's appeal and placed reliance on the
judgments cited therein.
8. Heard both the sides. We have carefully gone through the case
records, the written and as well as the oral submission made on behalf of
the Appellants as well as the Revenue and the evidence placed on record.
We find that there are five issues/demands involved in the present appeals
arising out of the impugned order-in-original dated 30.01.2019. The said
issues with their corresponding demands are summarized below:-
Sr. Issue Amount Appeal
No. (Rs.)
1. Denial of CENVAT credit towards 4,59,156 Assessee
shortage of raw materials at the Silvassa Appeal
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Sr. Issue Amount Appeal
No. (Rs.)
unit
2. Denial of CENVAT credit towards 16,42,831
shortage of raw materials at the Daman
unit
3. Demand of excise duty on shortage of 1,01,670
manufacturing waste at Silvassa unit
4. Denial of CENVAT credit in respect of 1,12,04,902
duty-paid raw materials, weighing 1,839
MT, imported and diverted from Bhiwandi
godown, under the guise of fictitious sale
of sole parts of Hawaii Chappals
5. Demand of excise duty on clandestine 1,01,81,000
removal of finished goods, namely, PVC
compounds, weighing 898 MT without
payment of duty, under the guise of
fictitious sale of sole parts of Hawaii
Chappals
6. Denial of CENVAT credit on diversion of 12,92,65,299 Revenue
raw materials under the guise of Appeal
clearance of finished goods, weighing
18,678 MT
8.1 Considering that more than one issues are involved, we shall take up
each of the issues separately and record our findings. We shall first take up
the demand at sr. nos. 1 and 2 relating denial of CENVAT credit on the
shortages of raw material found both the factories of the Appellant. The
issue is common.
8.2 We find that at the time of search at the Silvassa unit, the
investigating officers observed a shortage of raw materials, namely, LDPE,
LLDPE, Chlorinated Paraffin and Plasticizer, cumulatively weighing 86,045
kgs and valued at Rs. 55,83,195. Further, a similar shortage of raw
materials cumulatively weighing 2,81,452 kgs and valued at Rs.
1,99,37,276, was also observed at the Daman factory. The case of the
revenue is that the said shortage is on account of clandestine clearance of
the said raw materials by the Appellant without preparing any invoices and
without payment of duty.
8.3 However, from a perusal of the record and the impugned order, we
find that apart from the said shortage discovered due to physical stock
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taking, at both the units, no other evidence is adduced by the revenue in
support of its allegation that the said raw materials have been cleared
clandestinely by Appellant. The revenue has not produced any evidence
regarding the transportation of inputs found short, details of the buyers to
whom raw material found short, flow of consideration, etc. pertaining to the
alleged illicit clearance of raw materials found short. There is no
investigation by the department and the demand is confirmed on sole basis
viz. shortage of raw material.
8.4 In Commissioner of C. Ex. & ST, Chandigarh-II v. Kewal Garg, 2019
(369) ELT 315 (P&H), it is held that:-
"6. After examining the entire evidence on record, it has been
categorically recorded by the Tribunal that demand of duty has been
confirmed on account of shortage of raw material/finished goods in the
factory premises of all the three manufacturers, on account of clandestine
removal of goods by M/s. SSCL; absolute confiscation of the currency of `
47 lacs recovered from the residential premises of Sunny Garg and Kewal
Garg and for imposition of penalty on all the respondent units. Further,
during the course of investigation, except shortage of goods, no
incriminating document was found in the premises of the respondent and no
corroborative evidence had been produced except some statements only. In
the case of SSCL, demand of duty has been confirmed on account of
shortage of raw material and finished goods to the tune of ` 4,42,243/-. It
has been further recorded by the Tribunal that duty has been demanded on
shortage of melting scrap of 50.140 MT. It has not been alleged that this
raw material had been used in manufacturing of final product which had
been cleared without payment of duty. The demand of duty on shortage of
raw material was not sustainable as duty could be demanded only on
manufactured goods. Admittedly, raw material was not manufactured goods
of the respondent. Further, weighment done on average basis to alleged
shortage of finished goods was not sustainable in the absence of any
corroborative evidence of clearance of finished goods without payment of
duty. No corroborative evidence had been produced by the revenue in
support of its claim. Similarly, the demand of duty against M/s. SSSM on
account of shortage of raw material was also not sustained in the absence
of evidence. It was alleged that they were using cenvatable inputs as well
as non cenvatable inputs but in the impugned order, the authority had not
given credence to the fact that the respondent was using cenvatable as well
as non-cenvatable inputs which had been found short during the course of
investigation. Further, in the case of SSIL, the duty had been demanded on
both inputs as well as finished goods. With regard to shortage of inputs, it
was not held by the Commissioner that the inputs found short had been
used in manufacturing of final product by the respondent. Therefore, the
duty could not be demanded on the raw material found short during the
course of investigation as the same was not manufactured goods by the
respondent. The adjudicating authority also failed to prove that the cash
recovered was the sale proceeds of clandestine removed goods. Thus, it
32 | P a g e E/12179,12181-12183/2019-DB&
E/11377/2019-DB[E/CROSS/10533/2019]
was held that the seized currency during the course of investigation could
not be confiscated without any evidence that the same was the sale
proceeds of excisable goods cleared clandestinely. Consequently, the
impugned order passed by the Commissioner was set aside and the appeals
were allowed. The relevant findings recorded by the Tribunal read thus:-
***
7. Learned Counsel for the appellant-revenue has not been able to point out any error or illegality in the findings recorded by the Tribunal warranting interference by this Court. No substantial question of law arises. Consequently, all the appeals stand dismissed."
8.5 In Jai Balaji Industries Ltd. v. Commissioner of Customs, C. Ex & ST, Durgapur, 2021 (378) ELT 674 (Tri.- Kolkata) "9. We find that the charge of clandestine clearance cannot stand as the department has not been able to provide clinching evidence in support of the same. Clandestine clearance is a serious charge and has to be proved with positive evidence which is lacking in this case. The judgments cited by the appellants on this issue, in their favour, support their case. It may be noted that not even one buyer of the clandestinely cleared goods has been identified by the department.
10. At best, therefore, this is simply a case of shortages detected during stock-taking. The next issue to be determined is whether the shortages detected were real or only notional. The appellants have doubted the manner of stock taking itself as it was not done in the presence of any panchas and no panchnama was drawn. There is no mention as to how the weighments of the products were done, individually or by loading on trucks, etc.
11. The appellants have been saying right from the investigation stage itself that the shortages were because of minor weighment errors which had accumulated over the years since no stocktaking had been done right from the date of production of those items. The shortage, when compared to the total production over the years, comes to a very nominal percentage as indicated in para 6.3 above. This has not been contested by the department. Such nominal percentage differences are to be expected while weighing, keeping the nature of the products in mind which are not amenable to precise weighment. We are, therefore, of the view that the shortages noticed are not actual but only notional and, hence, no differential duty is payable.
12. As regards DI pipes, the appellant's consistent stand has been that the shortages were because of damaged pipes which were re-issued for re- melting in the factory itself but inadvertently not reduced from the recorded stock of DI Pipes. These damaged pipes were all recorded in the Daily Stock Account of Scrap and also reflected in the ER-1 returns. Further, since these were captively consumed they were exempt from duty under Notification No. 67/95-C.E., dated 16-3-1995. The Commissioner's finding that the exemption does not apply to 'finished goods' is legally not sustainable 33 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] because of the specific definition of 'inputs' in the said notification which covers virtually all excisable goods including the goods manufactured by the appellants."
8.6 In Sunrise Food Products v. Commissioner of Central Excise, Delhi-I, 2017 (357) ELT 599 (Tri.- Del.):-
"14. The demand of Excise duty has been made on the basis of allegation that the appellant has manufactured and cleared Gutkha clandestinely. Such an allegation can be sustained only on the basis of documentary and oral evidence which establishes such clandestine manufacture and clearance. For this purpose, the investigation should have brought evidence to prove procurement of additional raw materials and establish that such additional manufacture has happened. Further, it will be necessary to probe from whom such raw materials have been procured and to whom the alleged clandestinely cleared goods have been sent. We find that no such detailed investigation have been carried out in this case. The Railway Receipts, which are the basis for quantification, indicates some names of consignor and consignee. However, consignor is not shown as the appellant factory or anyone connected with it. No investigation has been undertaken to probe further who was the actual consignor whose name is indicated in the Railway Receipts. The ultimate recipients of the alleged clandestinely cleared Gutkha have also not been investigated.
15. Demand for such huge amount of Excise duty cannot be sustained without tangible evidence. It has been held by the Apex Court time and again that demand for tax cannot be sustained on the basis of incomplete investigation. Further, the Hon'ble Allahabad High Court has also held in the case of Continental Cement Company v. Union of India - 2014 (309) E.L.T. 411 (All.) that clinching evidence is required of purchase of raw material, use of extra electricity, sale of final products, clandestine removal transportation, payment, realization of sale proceeds, mode and flow back of funds. Further, the Court has held that clandestine clearance is a serious charge and demand cannot be confirmed based on presumptions and assumptions. We are of view that Hon'ble Allahabad High Court's case will be applicable here. In the absence of any suitable evidence, we find that the demand of excise duty cannot be sustained.
16. In view of the above the impugned order is set aside and appeal allowed."
8.7 It is clear that no demand can be sustained only on the factum of raw material found short during verification.
8.8 We, however, find that the Appellants have contended in the adjudication proceedings that the shortages observed at both the factories are on account of posting errors and processing losses not accounted for in the books. It was further submitted that the shortages, when compared to 34 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] the overall purchase of raw material and manufacture of the final products, is negligible as indicated above and such a negligible differences can be attributed to human errors of posting and processing losses. We further find that there is no other material or evidence on record of diversion of these inputs. We are of the view that the said shortages are properly explained. The denial of CENVAT credit is liable to be set aside and we accordingly set aside the same.
8.9 We shall now take up the demand of excise duty of Rs. 1,01,670 on shortage of manufacturing waste at Silvassa unit, which is at sr. no. 3 above. We find that the Appellants have accepted the same and have agreed to deposit the same considering the small quantum of the duty involved. The Appellants have, however, contested the imposition of penalty imposed by the learned Commissioner on the ground that there is no involvement of any mala fide intention or clandestine removal, which is evident from the fact that the production of the said finished goods was duly booked in excise records. The Appellant further submitted that the waste generated during the process of manufacturing is dumped in the corner of the manufacturing factory having no sale value and periodically excise duty is discharged. Considering the submissions made by the Appellant, we are inclined to accept the contention of the Appellant that there was no intention to evade duty as no evidence of removal of scrap is found. We therefore set aside the penalty in the facts of the present case. Further, we find that duty is already deposited by the Appellant.
8.10 We shall now deal with the issue pertaining to denial of CENVAT credit on imported raw materials weighing 1,839 MT claimed to have been diverted by the Appellant and demand of excise duty on clandestine removal of PVC compounds weighing 898 MT. These two issues and demands are interlinked and are dealt with together.
8.11 The Appellants have contended that they imported certain raw materials weighing 2,541 MTs. Out of 2,541 MTs, part quantity of 180 MTs was directly brought to the Dadra factory of the Appellants. The balance quantity of 2,361 MTs were stored in a godown at Bhiwandi. The balance quantity of raw materials was then transported from Bhiwandi godown to its factory in Dadra. At the Dadra factory, the raw materials were utilized to 35 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] manufacture of finished goods. It is the case of the revenue that the said raw materials, weighing 2,541 MT, were diverted by the Appellant directly from the Bhiwandi godown and were never brought to the factory and used in the manufacture of any finished goods at Dadra factory.
8.12 Out of the said 2,541 MTs imported by the Appellants, raw materials weighing 1,839 MT were duty paid and the CENVAT Credit of the countervailing duty paid thereon was taken by the Appellants. The said CENVAT credit is denied to them by the learned Commissioner under the impugned order. It is further case of the department that the Appellant showed fictious sale of 3,439 MTs of sole parts of Hawaii Chappals to three buyers, namely, M/s Kalpana Udyog, M/s Shri Balaji Enterprises and Kanta Devi Polymers Pvt. Ltd. to adjust the diversion of imported raw material of 2,541 MTs.
8.13 Further, it is the case of the revenue that under the Appellants have cleared 898 PVC compounds in the guise of the sole parts of Hawaii chappals. The department has arrived at illicit removal of PVC compounds weighing 898 MT by deducting from the fictious sale of 3,439 MT, illicit removal of 2,541 of imported material. The allegation of department of diversion of the imported raw materials is primarily based on statement of 11 vehicle owners and the statement of Shri Rajesh Dhulla of M/s Kalpesh Roadways, whose services were used by M/s Vijay Roadlines, the transporter hired by the Appellants, who have denied the transportation of material from Bhiwandi to Dadra factory of the Appellants and the RTO reports of five vehicles stating that they were incapable of transporting the material.
8.14 It was the contention of the Appellants that the statements of truck owners and Mr. Dhulla did not undergo the test of relevancy prescribed under Section 9D of the Act.
8.15 We find that except three vehicle owners and one transporter, no other persons were produced before the learned Commissioner and were examined by the department. The learned Commissioner has not recorded any opinion as required under Section 9D of the Act for other persons, whose statements have been relied upon by the learned Commissioner and 36 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] not produced before her and examined by the department. We further find that none of the four persons produced before the learned Commissioner were examined by the department but were first cross examined by the learned Commissioner. We further find the Appellants have contended that the cross examination of said four person was allowed in most restricted manner. Section 9D of the Act reads thus:-
"SECTION 9D. Relevancy of statements under certain circumstances. --
(1) A statement made and signed by a person before any Central Excise Officer of a gazetted rank during the course of any inquiry or proceeding under this Act shall be relevant, for the purpose of proving, in any prosecution for an offence under this Act, the truth of the facts which it contains, -
(a) when the person who made the statement is dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by the adverse party, or whose presence cannot be obtained without an amount of delay or expense which, under the circumstances of the case, the Court considers unreasonable; or
(b) when the person who made the statement is examined as a witness in the case before the Court and the Court is of opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice.
(2) The provisions of sub-section (1) shall, so far as may be, apply in relation to any proceeding under this Act, other than a proceeding before a Court, as they apply in relation to a proceeding before a Court."
From a plain reading of Section 9D of the Central Excise Act and the decisions cited by the Appellant, it is clear that in the adjudication process, prior to relying upon the statement of any person, the said person had to be examined by the department before the adjudicating authority and had to be offered for cross-examination to the assessee. Without following the above process, the test of relevancy is not satisfied and the statement does not become relevant in adjudication and cannot be relied upon by the learned adjudicating authority.
8.16 The Hon'ble Allahabad High Court in Parmarth Iron Private Limited- 2010 (260) E.L.T. 514 (All.) has held that:
"16. We, therefore, have no hesitation in holding, that there is no requirement in the Act or Rules, nor do the principles of natural justice and fair play require that the witnesses whose statements were recorded and relied upon to issue the show cause notice, are liable to be examined at that 37 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] stage. If the Revenue choose not to examine any witnesses in adjudication, their statements cannot be considered as evidence. However, if the Revenue choose to rely on the statements, then in that event, the persons whose statements are relied upon have to be made available for cross- examination for the evidence or statement to be considered."
8.17 In Hi Tech Abrasives Ltd. v. Commissioner of C. Ex. & Cus., Raipur, 2018 (362) ELT 961, the Hon'ble Chhattisgarh High Court has held that:-
"9.3 A conjoint reading of the provisions therefore reveals that a statement made and signed by a person before the Investigation Officer during the course of any inquiry or proceedings under the Act shall be relevant for the purposes of proving the truth of the facts which it contains in case other than those covered in clause (a), only when the person who made the statement is examined as witness in the case before the court (in the present case, Adjudicating Authority) and the court (Adjudicating Authority) forms an opinion that having regard to the circumstances of the case, the statement should be admitted in the evidence, in the interest of justice.
9.4 The legislative scheme, therefore, is to ensure that the statement of any person which has been recorded during search and seizure operations would become relevant only when such person is examined by the adjudicating authority followed by the opinion of the adjudicating authority then the statement should be admitted. The said provision in the statute book seems to have been made to serve the statutory purpose of ensuring that the assessee are not subjected to demand, penalty interest on the basis of certain admissions recorded during investigation which may have been obtained under the police power of the Investigating authorities by coercion or undue influence.
9.5 Undoubtedly, the proceedings are quasi criminal in nature because it results in imposition of not only of duty but also of penalty and in many cases, it may also lead to prosecution. The provisions contained in Section 9D, therefore, has to be construed strictly and held as mandatory and not mere directory. Therefore, unless the substantive provisions contained in Section 9D are complied with, the statement recorded during search and seizure operation by the Investigation Officers cannot be treated to be relevant piece of evidence on which a finding could be based by the adjudicating authority. A rational, logical and fair interpretation of procedure clearly spells out that before the statement is treated relevant and admissible under the law, the person is not only required to be present in the proceedings before the adjudicating authority but the adjudicating authority is obliged under the law to examine him and form an opinion that having regard to the circumstances of the case, the statement should be admitted in evidence in the interest of justice. Therefore, we would say that even mere recording of statement is not enough but it has to be fully conscious application of mind by the adjudicating authority that the statement is required to be admitted in the interest of justice. The rigor of this provision, therefore, could not be done away with by the adjudicating authority, if at all, it was inclined to take into consideration the statement 38 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] recorded earlier during investigation by the Investigation officers. Indeed, without examination of the person as required under Section 9D and opinion formed as mandated under the law, the statement recorded by the Investigation Officer would not constitute the relevant and admissible evidence/material at all and has to be ignored. We have no hesitation to hold that the adjudicating officer as well as Customs, Excise and Service Tax Appellate Tribunal committed illegality in placing reliance upon the statement of Director Narayan Prasad Tekriwal which was recorded during investigation when his examination before the adjudicating authority in the proceedings instituted upon show cause notice was not recorded nor formation of an opinion that it requires to be admitted in the interest of justice. In taking this view, we find support from the decision in the case of Ambica International v. UOI rendered by the High Court of Punjab and Haryana."
8.18 We find that the Hon'ble High Court of Chhattisgarh has clearly held that the provisions contained in Section 9D are to be construed strictly and held as mandatory and not mere directory. Therefore, unless the substantive provisions contained in Section 9D are complied with, the statements recorded by the Investigation Officers cannot be treated to be relevant piece of evidence on which a finding could be based by the learned adjudicating authority. In Meenakshi Food Products (P) Ltd. v. CCE & ST, Ahmedabad-II, 2019 (370) ELT 1330 (Tri.- Ahmd.), and Commissioner of Central Excise, Delhi-I v. Kuber Tobacco India Ltd., 2016 (338) ELT 113 (Tri.- Del.) this Tribunal has taken the similar view.
8.19 We also find that the right and importance of an opportunity of cross- examination has been recognized by the Hon'ble Supreme Court in the case of Andaman Timber Industries [2015 (324) ELT 641 (SC)] by observing as follows:-
"6. According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to 39 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them."
8.20 We find merits in the contention of the Appellants that, out of the said four persons, who were produced before the learned Commissioner, two persons were produced on 09.10.2018, were not examined by the department but were first cross examined by the learned Commissioner and thereafter cross examination was allowed to the Appellant in a restricted manner. This was recorded by the Advocates for the Appellant in their letter dated 10.10.2018. On perusal of the impugned order, we find that the Learned Commissioner has neither denied nor disputed the contents of the said letter. Therefore, we find that the procedure followed by the learned Commissioner was not in consonance with the prescription of Section 9D of the Act.
8.21 In respect of the remaining two persons, produced before the learned Commissioner on 14.11.2018, we find that the Learned Commissioner has herself cross-examined the said persons, without being examined by the department, in complete violation of Section 9D of the Act. Further, no reasons are forth coming from the records for non-examination of the remaining 7 vehicle owners.
8.22 We find that, apart from the 11 vehicle owners, the department has also relied heavily on the statement of Shri Rajesh Dhulla of M/s Kalpesh Roadways, who had denied providing any transportation services in respect of the said raw materials of the Appellant. However, Mr. Rajesh Dhulla was never produced before the Learned Commissioner and was not examined and offered for cross-examination to the Appellants. This is in violation of the mandatory procedure under the provisions of Section 9D of the Act and settled law referred to above.
8.23 Further, we note that contrary to the denial of Mr. Dhulla and the vehicle owners, Shri Vijay Walunj of M/s Vijay Shree Roadways, whom the Appellants had contracted and who, in turn, had contracted M/s Kalpesh Roadways, has emphatically confirmed having transported the raw materials from Bhiwandi to Dadra. In light of the said contradictory statements, it was all the more imperative for the department to have 40 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] produced Mr. Dhulla before the Learned Commissioner and examined him and offered for cross-examination to the Appellants. The statement of Mr. Dhulla has not been tested in cross examination.
8.24 We find that the statements recorded during investigation in the present matter, whose makers are not examined in chief before the learned Commissioner, would have to be eschewed from evidence, and it will not be permissible for the learned Commissioner to rely on the said evidence. Therefore, we hold that none of the said statements were admissible evidence in the present case.
8.25 Further, we find that the Appellants had submitted the affidavit of Shri Mohammad Asrasali Tayab, proprietor of M/s Indian Freight Cargo Logistics, wherein he stated on oath that he was engaged for transporting raw materials from Bhiwandi to Dadra on behalf of the Appellant. However, the Learned Commissioner rejected the said affidavit holding the same as an afterthought. We find that during the course of investigation, the Appellant had provided the department with the details of the said transporter. Nearly after two years, the department issued two summons dated 12.02.2013 and 25.02.2013 by post which were returned as "NOT KNOWN".
8.26 We find that apart from the above, no efforts were made by the investigating officer to locate the said transporter and record his statement. The department had issued two summons after waiting for almost two years. The sole basis to hold that the said transporter is non-existent is return of the said summons. We find that even after receiving the affidavit, the department has not taken any steps to locate and record the statement of the said transporter. In our view, failure to make any inquiries with the said transporter and rejecting his affidavit as an afterthought is not correct in law. No contrary evidence is produced to disprove the transportation of material by the said transporter. We cannot accept the findings of the learned Commissioner that the transporter was non-existent and did not transport the material to the factory of the Appellant.
8.27 We find that the revenue has also relied upon RTO reports in respect of 5 vehicles, which according to revenue were incapable of transportation 41 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] of goods. However, we observe that the Appellant had contended before the learned Commissioner that during the investigation, incorrect vehicle numbers were invertedly given for 5 vehicles. The Appellants provided details of 225 vehicles used for transportation in the statement submitted to the department. We find that from 225 vehicles used for transportation, the department raised the dispute for 5 vehicles. The Appellants had submitted, during investigation, correct numbers along with the corresponding lorry receipts to substantiate their contention that there was inadvertent error in giving vehicle numbers during investigation. The statement so submitted is reproduced below:-
Sr No Incorrect Vehicle Correct Vehicle No.
No.
1 MH 04 B 9358 MH 04 F 9358
2 MH 04 CC 1903 MH 04 AH 1903
3 MH 04 AF 6926 MH 04 F 6926
4 MH 12 R 9726 MH 12 R 9728
5 MH 04 AL 9564 MH 04 H 9564
8.28 The learned Commissioner, without examining the above, proceeded to hold that the vehicles were reported to be incapable for transportation of any goods. The Learned Commissioner has brushed aside the contentions of the Appellant by holding the same to be contradictory to the statement given by Shri Vijay Walunj, who had stated that the said reports were wrong.
8.29 The Ld. Counsel for the Appellants had shown the relevant lorry receipts to us during the course of argument. We found on examination of the relevant consignment notes produced by the Appellants in the paper book that there was an error in giving vehicle numbers during investigation. The correct numbers can be seen from the lorry receipts and the RTO reports of the said vehicle numbers show that the vehicles were capable of transportation of material. In view of the documentary evidence on record, we cannot sustain these findings of the learned Commissioner that the said vehicles were incapable of transportation.
8.30 Further, we find that the Appellant had produced before the Ld. Commissioner and before us 41 lorry receipts of M/s Vijay Shri Roadlines bearing the endorsement of Bhilad check post authorities. From and out of 42 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] the said specimen lorry receipts, we find that the lorry receipt no. 1129 dated 22.10.2019 is in respect of the vehicle owned by one of the vehicle owners who had denied transportation in his statement recorded during investigation. Further, the vehicle number in the said lorry receipt is also one of the five vehicles, in respect of which the Learned Commissioner had placed reliance on RTO reports based on incorrect vehicle numbers. We find that the lorry receipts carrying the endorsement of the Bhilad check post authorities prove the truck was used for transportation of the raw materials for the Appellant. The statements of the truck owners are not inspiring confidence.
8.31 We have not found any investigation of the diversion of raw material from Bhiwandi. Except the statements of the 11 vehicle owners and Mr. Dhulla and RTO reports of so called five vehicles incapable of transportation, no other material is produced by the department to show diversion of the raw material from Bhiwandi and non-receipt in the factory of the Appellant. We have examined each of the above pieces of evidence and were unable to find any merit in them. In our view, department has failed to prove its case of diversion of raw material by only reason of non- transportation of goods from Bhiwandi to the factory of the Appellant. We have not found any investigation by the department to locate the buyers to whom goods were sold or the transportation of the diverted raw materials to a place other than the factory of the Appellant.
8.32 We shall now deal with the finding of the learned Commissioner on fictitious sale of sole parts of Hawaii Chappals to adjust the diversion of imported raw material. In this regard, the case of the revenue is that the Appellants had no manufacturing facility to manufacture the said sole parts since during the search, no machinery to manufacture sole parts was found at the Dadra unit.
8.33 It is the case of the Appellants that they had purchased the 3 vertical injection mould machine from Messrs. M. B. Engineering. They have produced the purchase invoices along with documents regarding the transport of machines to the factory of the suppliers to the factory of the Appellant. Mr. Prakash Sahoo of the Appellant, in his statement, confirmed the manufacture and sale of the sole parts. The Appellants further 43 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] contended that the said 3 machines were sold to Tara Holdings Private Limited under an invoice dated 20.01.2010. The Appellants have produced the sale invoices and lorry receipts under which the said machines were transported to Tara Holdings. The Appellants contended that they had sold the machines to Tara Holdings Pvt. Ltd., Kolkata, prior to the date on which search was conducted at the Dadra unit and for this reason the machinery was not found in the factory on the date of search.
8.34 We find that the Ld. Commissioner has disbelieved the case of the Appellants of having machinery and production of sole parts of Hawaii chappals by placing reliance on the statement of transporters, namely, Mr. Sumer Singh of M/s Shree Baba Roadlines and Mr. Kashiram Chaudhary, Manager of Jaipur Golden Transport Co. Pvt. Ltd., in addition to the non- availability of machinery at the time of search at the factory of the Appellant.
8.35 We find that the services of Jaipur Golden Transport Co. Pvt. Ltd. were used for transport of the machines from the supplier's premises to the Appellant's factory. We further find that the services of M/s Shree Baba Roadlines were used for transport of the machines from the Appellant's factory to Tara Holdings Pvt. Ltd. Mr. Kashiram Chaudhary, in his statement, stated that no records could be found at the head office regarding the lorry receipt and the vehicle mentioned by the Appellant.
8.36 We find that M/s M B Engineering, through their letter dated 30.09.2010 have submitted a copy of the purchase excise invoice / LR / party's ledger account showing the payment of Rs. 4,24,320 and have confirmed having sold three injection mould machines to the Appellant. We find no reason to disbelieve the documents submitted by M/s M B Engineering, more so when the department made no attempts to record the statement of any of its authorized person. The department has relied upon the statement made by Mr. Kashiram Chaudhary, which was contradictory to the LR issued by them. Further, Mr. Kashiram Chaudhary was not examined by the department and the mandate of Section 9D of the Act was not followed. Having failed to do so, no reliance can be placed on the statement of Mr. Kashiram Chaudhary. We find there is no other 44 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] evidence on record to disprove the purchase of the said machinery by the Appellants.
8.37 Further, Mr. Sumer Singh of M/s Shree Baba Roadlines, in his statement, stated that they had transported the goods of the Appellant only to locations in the states of Maharashtra and Rajasthan. We find that M/s Shree Baba Roadlines, whose services were used for the transport of the machines from the Dadra factory of the Appellant to Tara Holdings Pvt. Ltd., Kolkata, had used the vehicle owned by Shri Ankit Bajaj, who had by his letter dated 24.03.2011, confirmed to the department that his vehicle was used for transport of the machines from Dadra to Kolkata. Further, during the course of his cross-examination, Shri Sumer Singh of M/s Shree Baba Roadlines, whose services were used for the said transportation, confirmed that they had transported the goods of the Appellant all over India. The learned Commissioner rejected the cross examination of Mr. Sumer Singh by holding them to be an afterthought. The cross examination of Mr. Sumer Singh is reproduced at para 46.3 of the impugned order. We cannot agree with the learned Commissioner that the answers given in cross examination are afterthought.
8.38 Placing reliance on the above statements of the transporters, the learned Commissioner has held that sale and purchase of injection moulding machine had never taken place at the time of its purchase and sale as shown by the Appellants and these machines were never received and never cleared by the Appellant and were only paper transactions. We are unable to agree with the findings of the learned Commissioner that there was no purchase and sale of the three vertical moulding machines and that they were only paper transactions. We find that the Appellant had purchased the three machines from M/s M B Engineering on 29.12.2006, used them in the manufacture of sole parts of Hawaii Chappals and sold them to Tara Holdings Pvt. Ltd. on 20.01.2010, i.e., prior to the conduct of search proceedings at the Appellant's factory in the month of February 2010.
8.39 Apart from the above, investigation was also carried out in respect of the buyers of the said sole parts, namely, M/s Kalpana Udhyog, M/s Shri Balaji Enterprises and Kanta Devi Polymers Pvt. Ltd as well as the 45 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] transporters used for transport of the sole parts to such buyers. It is the case of the revenue that the said sale transactions were only paper transactions without actual transport and receipt of goods by the buyers. The Appellants have produced the sale invoices along with transport documents to prove that the finished goods, i.e., sole parts of Hawaii chappals were indeed sold and transported to the three buyers.
8.40 We find that the Learned Commissioner accepted the case of the department and held that two out of the three buyers, namely, M/s Kalpana Udhyog and M/s Shri Balaji Enterprises existed on papers only and were floated for the purpose of adjusting the bogus sales. Further, the Learned Commissioner has placed reliance on the statement of Shri Harish Pareek of Kanta Devi Polymers Pvt. Ltd. to hold that the sales made by the Appellant were only paper transactions. We find that M/s Kalpana Udhyog has confirmed the receipt of the sole parts. Further, in his statement, Mr. Manoj Jain, authorized signatory of M/s Kalpana Udhyog, has confirmed the receipt of the sole parts. We find that the learned Commissioner has held the firm M/s Kalpana Udhyog as having existed only on paper merely due to the fact that the concerned persons of the said firm had close relations with the Appellant. We find that merely because the concerned persons of M/s Kalpana Udhyog were also involved in the Appellant-Company in some way does not by itself render the firm to be a paper entity, more particularly when the documents show sale and transportation of sole parts by the Appellants.
8.41 Further, Shri Harish Pareek, Director of Kanta Devi Polymers Pvt. Ltd., in his statement had stated that they had not actually received any goods from the Appellant and that the said transactions were only based on invoices. On the other hand, the Appellant had submitted all the invoices along with the transport documents proving that the goods were sold and delivered to Kanta Devi Polymers Pvt. Ltd. However, even in respect of the statement of Shri Harish Pareek, the department had not produced him and examined him in terms of Section 9D of the Act nor granted any opportunity for cross-examination. Thus, we find that the said statement has not passed the test of relevancy and cannot be relied upon. In light of the above, we find it difficult to sustain the findings of the Learned 46 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] Commissioner that the sole parts were not sold and delivered to the three buyers and that the said sale transactions were only on paper.
8.42 We find that in the impugned order, the Learned Commissioner has also referred to the investigation carried out regarding the money channel created by the Appellant through the fictitious sales. We find that the Appellant had submitted the extracts of the bank statements to show the payments received from the three buyers in lieu of the sales made to them. During the course of the investigation, the department had requisitioned the bank statements of the three buyers and found that they had sufficient balances in their banks to make the aforementioned payments to the Appellants and had received the moneys in their accounts through various parties. We find that department did not carry the investigation to its logical end citing lack of response. The Learned Commissioner has concluded that the money channel employed by the Appellant was also discovered during the investigation. However, we find that apart from the issuance of the summons, no further steps were taken by the department to investigate into the customers of the three buyers. No search proceedings or visits were made to any of the said persons who deposited the amounts in the bank accounts of the three buyers. No reasons are forthcoming from the record preventing the department from carrying out the necessary investigation.
8.43 The Appellants contended that the case of the department that sale of sole parts of Hawaii Chappals was to adjust the sale price of diverted raw material is illogical and cannot be believed. It was contended that value of 2,541 MTs of imported goods claimed to have been diverted was Rs. 12,41,44,019, whereas the sale price of sole parts of Hawaii chappals was Rs. 47,31,73,360. The Appellants contended that the department has not explained the difference between the value of imported raw material and sale price of sole parts. We find merits in the contention of the Appellant. The difference between the two amounts is quite huge and there appears to be no co-relation between the two. The department found no evidence of return of the money paid by the buyers for purchase of sole parts. If there was no sale of sole parts, the Appellants had to return the money back to the buyers. However, no such evidence is to be found on record. Similarly, the transporters are also paid by the Appellants and none of them have 47 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] been shown to have returned the amounts paid either to Appellants or any other persons.
8.44 We find that the allegation of clandestine removal cannot be sustained in absence of clinching evidence in support of the same. As regards the allegation of diversion of imported raw material, we find that apart from the above investigation seeking to disprove the transport of goods from Bhiwandi to Dadra, the revenue has not produced any evidence or document regarding the disposal of the raw materials. No evidence is produced regarding the transportation of the raw materials for disposal thereof or details of buyers of such diverted raw materials. In the absence of any such evidence to show even probability of diversion of material from Bhiwandi, the demand towards denial of CENVAT credit on such raw materials cannot be sustained. The case of the department that fictitious sale of sole part was shown to adjust the price of diverted raw material is not convincing as the difference is one third and two thirds. We now take up the issue pertaining to illicit clearance of PVC resin weighing 898 MT without payment of duty. We find that the case of the revenue is primarily based on the fictitious sale of sole parts of Hawaii chappals without manufacture and sale by Appellants. As discussed above, the case the department of fictitious sale of sole parts of Hawaii chappals is not proved and not accepted by us.
8.45 We find that the Appellants contended that the allegation of illicit clearance of PVC resin weighing 898 MT is based merely on the basis of arithmetic calculations of the weight of finished goods manufactured and raw materials imported by the Appellants. It was further contended that when it is the case of the department that there was no receipt of raw material in the factory of the Appellant and there was no sale of sole parts of Hawaii Chappals, on what basis the department claims that the Appellants manufactured and sold 898 MT of PVC resin without payment of duty.
8.46 On perusal of the records and examination thereof, we find that the Learned Commissioner held that the Appellant illicitly cleared PVC resin weighing 898 MT without payment of duty. We find that the department has arrived at the figure of 898 MT merely by reducing the quantity of imported 48 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] raw materials, i.e., 2,541 MT, from the quantity of finished sole parts of Hawaii Chappals cleared by the Appellants, i.e., 3,439 MT. We find that the said demand is based on arithmetic calculation without anything more. We find no evidence of illicit purchase of raw material to manufacture PVC resins claimed to have been cleared without payment of duty. No details of transportation or the buyers of illicitly removed PVC resins are to be found in the impugned order.
8.47 We further find that the case of the department is self-contradictory. It is the case of the department that what is illicitly cleared is PVC resins and sale of sole parts of Hawaii chappals is fake. However, for computing the duty payable on the 898 MTs of PVC Compound, the department has taken sale price of sole parts of Hawaii chappals of Rs. 137.59 per kg, whereas the average sale price of PVC compound was Rs. 55 per kg. This shows that the department is not even clear of its case and demand is worked out on assumption and presumption. The Appellants have relied upon some of the case law and in particular the judgment of the Hon'ble Bombay High Court in Commissioner of Central Excise, Nagpur v. Shree Sidhbali Ispat Limited [2021 (376) ELT 229 (Bom)] holding that demand cannot be sustained merely based on theoretical calculations.
8.48 We find that the case of department is based on the assumption and presumption. We find that it is now well settled that no demand can be raised on assumption and presumption. More specifically, the allegation of clandestine removal must be based on some clinching evidence. We will refer to some decisions holding that the demand cannot be sustained on assumption and presumption:
(i) Continental Cement Company v. Union of India [2014 (309) ELT 411 (All.)] "12. Further, unless there is clinching evidence of the nature of purchase of raw materials, use of electricity, sale of final products, clandestine removals, the mode and flow back of funds, demands cannot be confirmed solely on the basis of presumptions and assumptions. Clandestine removal is a serious charge against the manufacturer, which is required to be discharged by the Revenue by production of sufficient and tangible evidence. On careful examination, it is found that with regard to alleged removals, the department has not investigated the following aspects :
(i) To find out the excess production details.
49 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019]
(ii) To find out whether the excess raw materials have been purchased.
(iii) To find out the dispatch particulars from the regular transporters.
(iv) To find out the realization of sale proceeds.
(v) To find out finished product receipt details from regular dealers/buyers.
(vi) To find out the excess power consumptions.
13. Thus, to prove the allegation of clandestine sale, further corroborative evidence is also required. For this purpose no investigation was conducted by the Department.
14. In the instant case, no investigation was made by the Department, even the consumption of electricity was not examined by the Department who adopted the short cut method by raising the demand and levied the penalties. The statement of so called buyers, namely M/s. Singhal Cement Agency, M/s. Praveen Cement Agency; and M/s. Taj Traders are based on memory alone and their statements were not supported by any documentary evidence/proof. The mischievous role of Shri Anil Kumar erstwhile Director with the assistance of Accountant Sri Vasts cannot be ruled out.
15. In view of the above, we are of the opinion that when there is no extra consumption of electricity, purchase of raw materials and transportation payment, then manufacturing of extra goods is not possible. No purchase of raw material outside the books have been proved."
(ii) Jai Balaji Industries Ltd. v. Commr. Of Cus., C. Ex & ST, Durgapur, 2021 (378) ELT 674 (Tri.- Kolkata) "9. We find that the charge of clandestine clearance cannot stand as the department has not been able to provide clinching evidence in support of the same. Clandestine clearance is a serious charge and has to be proved with positive evidence which is lacking in this case. The judgments cited by the appellants on this issue, in their favour, support their case. It may be noted that not even one buyer of the clandestinely cleared goods has been identified by the department.
10. At best, therefore, this is simply a case of shortages detected during stock-taking. The next issue to be determined is whether the shortages detected were real or only notional. The appellants have doubted the manner of stock taking itself as it was not done in the presence of any panchas and no panchnama was drawn. There is no mention as to how the weighments of the products were done, individually or by loading on trucks, etc."
(iii) Sunrise Food Products v. Commissioner of Central Excise, Delhi-I, 2017 (357) ELT 599 (Tri.- Del.) 50 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] "15. Demand for such huge amount of Excise duty cannot be sustained without tangible evidence. It has been held by the Apex Court time and again that demand for tax cannot be sustained on the basis of incomplete investigation. Further, the Hon'ble Allahabad High Court has also held in the case of Continental Cement Company v. Union of India - 2014 (309) E.L.T. 411 (All.) that clinching evidence is required of purchase of raw material, use of extra electricity, sale of final products, clandestine removal transportation, payment, realization of sale proceeds, mode and flow back of funds. Further, the Court has held that clandestine clearance is a serious charge and demand cannot be confirmed based on presumptions and assumptions. We are of view that Hon'ble Allahabad High Court's case will be applicable here. In the absence of any suitable evidence, we find that the demand of excise duty cannot be sustained.
8.49 We, therefore, hold that the demand for excise duty for illicit clearance of PVC compounds as well as the demand for denial of CENVAT credit in respect of the imported raw materials, is not sustainable and accordingly set aside. We shall now take up the appeal filed by the department against the dropping of demand for CENVAT credit of Rs. 12,92,65,299 by the Learned Commissioner.
4.50 We find that the case of the department for denial of CENVAT credit of Rs. 12,92,65,299, was that the Appellants in the guise of manufacture and sale of Modified LLDPE to buyers in Kolkata, diverted the raw materials weighing 18,768 MT. During the relevant period, the Appellants claimed to have made the following clearances of finished goods either on payment of duty or to an EOU by following procedure of CT-3, which are relevant to the issue at hand:-
Name of the Type of Qty in Value
buyers/ clearance Kgs (in Rs)
Consignors shown
M/s TARA Duty Free 10,29,675 8,16,49,200
HOLDING P LTD, (CT-3)
(100% EOU), 24
'Modified
PARGANAS
LLDPE' etc.
M/s TARA Duty Paid 48,38,350 29,25,00,675
HOLDING P LTD, 'Modified
(100% EOU), 24 LLDPE', PE
PARGANAS Compounds
etc.
M/s TARA Duty Paid PVC 60,75,000 43,87,83,600
HOLDING P LTD, Compound, PE
HOWRAH and Compounds
51 | P a g e E/12179,12181-12183/2019-DB&
E/11377/2019-DB[E/CROSS/10533/2019]
Name of the Type of Qty in Value
buyers/ clearance Kgs (in Rs)
Consignors shown
M/s SARLA GEMS Modified
LIMITED, LLDPE.
HOWRAH (W.B.)
M/s Maurya Duty Paid PVC 67,35,200 44,27,53,000
Commercial Compound, PE
Company, 1 / 4, Compounds
K.C Road,
Cossipore HO,
Kolkata (W.B)
186,78, 125,56,86,
Total
225 475
8.51 The Appellants have used following transporters to transport the material to above buyers at Kolkata in 1194 consignments:-
Sr Name of the transporter No of
consignment
s
1. M/s. Baba Roadlines 1008
2. Inland Road Transport Pvt. Ltd. 81
3. M/s. Mahalaxmi Transport Carrier 101
4. Super Sonic Carriers Pvt. Ltd. 2
5. M/s. Premier Road Carrier 2
Total 1194
8.52 The department has relied upon the statement of Shri Sumer Singh of M/s Shree Baba Roadlines, one of the transporters, who transported some of the above consignments. The department has also relied upon the statement of Shri Hitesh Dattani, owner of Mumbai Kolkata Road Carriers who denied providing vehicles to Inland Road Transport Pvt. Ltd. for transport of goods of the Appellants to Kolkata. The Appellants contended that the finished goods were indeed manufactured and delivered to three buyers in Kolkata. In support of their contentions, the Appellants furnished copies of invoices along with transport documents as well as confirmation certificates from the buyers and transporters' ledger accounts along with details of payment. The Appellants pointed out that out of 1194 consignments, 1008 consignments were transported by M/s Shree Baba Roadlines and Mr. Sumer Singh, during his cross-examination, has 52 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] confirmed transporting the goods of the Appellants to Kolkata. The Appellants further submitted that the other major transporters, namely, M/s. Inland Road Transport Pvt. Ltd. and M/s. Mahalaxmi Transport Carrier, have confirmed the transport of goods of the Appellants.
8.53 More importantly, the Appellant submitted that finished goods weighing 1,029.675 MTs were delivered to the 100% Export Oriented Unit ("EOU") of Tara Holdings Pvt. Ltd. and re-warehousing certificate was issued by the officers having jurisdiction over the EOU and thereby acknowledging receipt of the material by the said EOU. The said re- warehousing certificates were duly received by the proper officer having jurisdiction over Dadra factory of the Appellants. The genuineness of the said certificates is not doubted. It was further submitted that the department had failed to bring on record any evidence proving that the raw materials were diverted by the Appellants. The Appellants also contended that they had paid the entire duty liability on the finished goods, which was in excess of CENVAT credit attributable the raw materials cleared in the guise of finished goods. This fact is not denied or disputed by the department. Therefore, the Appellants had effectively reversed the entire credit which was sought to be denied even if the case of the department is to believed.
8.54 We find that the Learned Commissioner has held that the finished goods were not delivered by the Appellants to the buyers in Kolkata by placing reliance on the statement of the transporter, namely, Shri Sumer Singh of M/s Baba Roadlines and certain vehicle owners, who according to the Learned Commissioner, denied transportation of the finished goods to Kolkata for the Appellants. As discussed above, we find that during his statement, Mr. Sumer Singh of M/s Baba Roadlines had stated that they had transported goods for the Appellants only to the states of Maharashtra and Rajasthan. However, in the cross-examination, reproduced at paragraph 46.3 of the impugned order, Mr. Sumer Singh clarified that they had transported the goods of the Appellant all over India. The Learned Commissioner, however, has brushed aside the said cross-examination holding the same to be a mere afterthought.
53 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] 8.55 Further, we find that the Learned Commissioner has placed reliance on the statements of Mr. Hitesh Dattani, who has denied that his vehicles were used for the transportation of goods of the Appellant to Kolkata. We find that contrary to the same, Mr. Harpal Singh, Sales Executive of Inland Road Transporters Pvt. Ltd., in his statement dated 28.03.2013, confirmed transportation of the Appellant's goods to Kolkata. In our view, owing to the contrary statements on record, it was incumbent on the Learned Commissioner to follow the mandate of Section 9D of the Act and produce the said vehicle owner for examination and cross-examination. However, having failed to do so, in our view the said statements of the vehicle owner cannot be relied upon.
8.56 We find it pertinent to note that a portion of the finished goods were sold and delivered by the Appellant to the 100% EOU of Tara Holdings Pvt. Ltd. without payment of duty against CT-3 and the Appellants have produced copies of the re-warehousing certificates along with endorsed invoices issued by the Learned Superintendent, Central Excise, Range-I, Joka Div, Kolkata-V having jurisdiction over the 100% EOU. We find that the Learned Superintendent has not raised any objection regarding delivery of the said goods at the 100% EOU. We find that at paragraph 54.3.2 of the impugned order, the Learned Commissioner has also concluded that the department's contention regarding non-transportation and non-delivery of the goods to the 100% EOU is not sustainable. In this regard, we concur with the findings of the Ld. Commissioner at paragraph 54.3.2 of the impugned order-in-original upholding the factum of receipt of finished goods by the 100% EOU.
8.57 Further, we find that the Appellants contended that the transport of the finished goods and crossing the border of state of West Bengal is evidenced by Waybills and produced specimen copies of the Waybills before us. We find that the Appellants had also submitted all the waybills along with a statement before the Learned Commissioner. However, the Learned Commissioner has not recorded any findings thereon. On a detailed examination of the said waybills, we find that the waybills indeed prove that the finished goods of the Appellants had crossed the borders of the state of West Bengal and were transported to Kolkata. In light of the above documentary evidence, in our view, the statements relied upon by the 54 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] Learned Commissioner do not inspire confidence. However, despite recording the above in the impugned order, we find that the Learned Commissioner has completely ignored the same and has instead disbelieved the transportation of the finished goods based merely on unverified statements. We are therefore unable to sustain the findings of the Learned Commissioner that the finished goods were not transported from the Appellant's factory to the buyers in Kolkata. In our view, in light of the documentary evidence produced by the Appellant and the confirmation of transport given by Mr. Sumer Singh in his cross-examination, it can be fairly concluded that the finished goods were indeed sold and delivered by the Appellant to the buyers in Kolkata.
8.58 We observe that in its appeal before us, the revenue has sought to controvert the above finding at paragraph 54.3.2 of the impugned order by contending that in an earlier paragraph 54.2.2 the Learned Commissioner has recorded that the buyers and transporters may have connived with the Appellant in issuance of the invoices and lorry receipts without physical movement of goods. However, we find that the said finding was given by the Learned Commissioner while examining the invoices and lorry receipts in isolation without referring the re-warehousing certificates and other evidence produced by the Appellant proving physical receipt of the finished goods by the buyers in Kolkata.
8.59 The revenue has further contended before us that the Learned Commissioner has not examined in detail or recorded any findings as to the nature of the goods which were in fact delivered to the buyers at Kolkata. As discussed above, the Learned Superintendent, Central Excise, Range-I, Joka Div, Kolkata-V having jurisdiction over the 100% EOU has after examining the goods issued the re-warehousing certificates and put endorsement on the invoices. We further find that the said Learned Superintendent has not raised any objection regarding the nature of the goods delivered. We, therefore, do not find any merit in the contentions of the revenue challenging the findings of the Learned Commissioner regarding delivery of the finished goods to the 100% EOU. Further, we find that the Learned Commissioner has observed that the entire case of the department that duty paid raw materials were diverted under the guise of sale of finished goods is based merely on the statement of the transporters 55 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] and vehicle owners denying transportation of the finished goods to Kolkata. The Learned Commissioner has held that apart from the above, the department has not produced a single evidence in support of the demand on the alleged illicit clearance of raw materials. Having recorded the said failure on the part of the department, the Learned Commissioner has held that the demand regarding the illicit clearance of raw materials cannot be sustained on merely assumption and presumption basis. The findings of the Ld. Commissioner in this regard are as follows:-
"54.9.5. Having analyzed the facts on record and defence submissions made by the noticee, I find that the entire case of demand of cenvat credit on the raw materials allegedly cleared in guise of clearance of finished goods i.e. Modified LLDPE Compound, PVC Compound and Polyethylene Compound) to four buyers situated at around Kolkata is based only on the statements of transporters & vehicle owners stating not to have transported such finished goods. As per annexure-A-9 to A-12 to the show cause notice, it is observed that over a period of 2 years, a huge quantity of 18678.225 MT of finished goods were alleged to be not accompanied with the sales invoices issued by the noticee and in guise of these goods, duty paid raw materials were diverted by the noticee in local market. The noticee viz. M/s Kalpena, Dadra has strongly opposed the allegation made in the show cause notice.
54.9.6. In this regard, I find that the department has not a single evidence in support of the demand of Cenvat Credit on alleged illicit clearance of raw material detailed in the annexures-A-9 to A-12 to the show cause notice. During the investigation, no such evidence has been taken on record suggesting illicit clearance of such raw material. It is well settled law that no demand can be made applying general practice adopted by any assessee, without any evidences of illicit clearance of raw material. Therefore, I find that the demand made in the instant SCN regarding illicit clearance of raw material allegedly cleared in guise of finished goods to the four buyers situated at Kolkata cannot sustain on merely assumption and presumption basis.
54.9.7 The SCN does not bring out on record the statements of the Transporters who allegedly have transported the inputs, alleged to be cleared illicitly in guise of sale of finished goods nor the statements of the Buyers of such goods nor have such transporters been identified and has not been further investigated and confirmed as there is no material pertaining to this aspect in the SCN. However, suspicion cannot be evidence in itself. An act of quasi-criminality, as in this case, also has to be established for all acts alleged. I find and hold that mere suspicion cannot be a substitute for hard evidential facts, which should have been brought out in investigation. As regards illicit clearance of raw materials, it cannot be accepted as general statement as they were engaged in diversion of raw material so that they would also engaged in illicit clearance of raw material in guise of sale of finished goods."
56 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] 8.60 We concur with the above findings of the Learned Commissioner. In our view, in cases of clandestine removal, the department must produce clinching evidence suggesting such removal. In the present case, the department has concentrated all its efforts on disproving the transportation of the finished goods from the Appellant's factory to its buyers in Kolkata. However, no evidence whatsoever is adduced in support of the actual allegation of illicit clearance of the corresponding raw material and the consequent denial of CENVAT credit in respect of the said raw material. The department has failed to produce any evidence in respect of the illicit clearance of raw material, transport of raw material, details of buyers of such diverted raw materials and flow of consideration for such diversion. In view of the above failure on the part of the revenue, we find that the case laws relied upon by the revenue in the case of Deputy Director of Enforcement v. A M Ceaser [1999 (113) ELT 804 (Mad)], K I Pavunny v. Asstt. Collr. (HQ) [1997 (90) ELT 241 (SC)] and CC v. D. Bhoormull [1983 (13) ELT 1546 (SC)], where there was clear evidence to establish clandestine removal have no application in the facts of the present case.
8.61 Further, we find that the Learned Commissioner, placing reliance on several judgments of this Tribunal, some of which have also been affirmed by the courts of law, has observed that it is well settled that input credit when reversed for payment towards final duty liability would be reversal of credit originally taken and no further reversal would be called for. Following the said decisions, the Learned Commissioner has held that since the Appellants have paid the higher duty liability on the finished goods, the impugned demand of CENVAT credit is not sustainable and the same cannot be recovered. From the facts of the present case, we find that Appellant had availed CENVAT credit in respect of plastic granules either procured locally or imported by them and the said goods were sold after manufacturing modified LLPE. As per the submissions of the Ld. Counsel, the Appellants have discharged the excise duty at the time of removal of such imported goods. In our view if the excise duty was paid on such goods at the time of clearance no demand exist.
8.62 As regards the availment of CENVAT credit, we refer to Rule 16 of Central Excise Rules, 2002 which reads as under:-
57 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] "Rule 16 of Central Excise Rules, 2002 (1) Where any goods on which duty had been paid at the time of removal thereof are brought to any factory for being re-made, refined, re-
conditioned or for any other reason, the assessee shall state the particulars of such receipt in his records and shall be entitled to take Cenvat credit of the duty paid as if such goods are received as inputs under the Cenvat Credit Rules, 2002 and utilise this credit according to the said rules.
(2) If the process to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the Cenvat credit taken under sub-rule (1) and in any other case the manufacturer shall pay duty on goods received under sub-rule (1) at the rate applicable on the date of removal and on the value determined under sub-section (2) of Section 3 or Section 4 or Section 4A of the Act, as the case may be.
Explanation. - The amount paid under this sub-rule shall be allowed as Cenvat credit as if it was a duty paid by the manufacturer who removes the goods.
(3) If there is any difficulty in following the provisions of sub-rule (1) and sub-rule (2), the assessee may receive the goods for being re-made, refined, re-conditioned or for any other reason and may remove the goods subsequently subject to such conditions as may be specified by the Commissioner."
8.63 From the plain reading of the above rule, it is clear that though the CENVAT Credit Rules, 2004 provided for eligibility of CENVAT credit in respect of input used in or in relation to the manufacture of final product but Rule 16 also provides Cenvat credit even in respect of duty paid finished goods subject to condition that the said finished goods on which Cenvat credit was availed should be cleared on payment of excise duty, i.e., in case of the said finished goods undergone manufacturing process in terms of Section 2(f) of Central Excise Act, assessee is required to pay duty on the transaction value, and in other case where the goods does not undergo process which amounts to manufacture, then excise duty equal to Cenvat credit availed on such goods should be paid. In terms of Rule 16, if the condition of payment as discussed above is complied with the duty paid finished goods shall be treated as deemed input and Cenvat credit is admissible. In the present case the Appellant claims to have paid the excise duty at the time of sale of the consequent finished goods. It is found that since the Appellants have paid duty equivalent to the Cenvat credit availed or more, no further demand would exist.
8.64 In any event, we find that the said issue is considered in various judgments, as cited by the Appellant and in the impugned order:-
58 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019]
(i) Ajinkya Enterprises v. CCE, Pune-III [2013 (288) ELT 247 (Tri.-
Mum)], affirmed by the Hon'ble Bombay High Court [2013 (294) ELT 203 (Bom.)]:-
"9. We have seen from the facts of this case where as per Circular dated 7-9-2001, the activity of slitting of HR/CR coils into strip was amounted to manufacture. It is admitted fact that the said Circular was withdrawn on 2- 3-2005. Thereafter, the appellants sought clarification through various letters to the department to clarify whether the composite activity of de- coiling of HR/CR coils, cutting and slitting into specific sizes and thereafter pickling and oiling amounting to manufacture or not. That was clarified only on 24-6-2010. In the case of Resistance Alloys (supra) and P.V. Sanghvi (supra), wherein it was held that process of pickling and oiling would not amount to manufacture, but in the case in hand before us, the appellants were undertaking composite activity of de-coiling of HR/CR coils thereafter cutting and slitting into specific sizes and after that pickling and oiling taken place, which was clarified by the department only on 24-6-2010 saying that the said activity does not amount to manufacture. Therefore, following instructions issued through Circular No. 911/1/2010-CX., dated 14-1-2010, the appellants approached to the Commissioner for issuance of appropriate rectification for regularization of the CENVAT credit availed as their activity does not amount to manufacture and they have paid duty on clearance of the goods more than the credit availed. The Commissioner has also considered the representation of the appellant and forwarded to the Board for issuance of the required notification. The Board has neither rejected the proposal of the Commissioner, nor issued the notification for regularization of credit availed. In that situation, we are of the view that the benefit of the Circular No. 911/1/2010-CX., dated 14-1-2010 is available to the appellants.
10. Further, it is the admitted fact that the appellants are the manufacturer of excisable goods also. Therefore, as per Rule 3(5) of the Cenvat Credit Rules, 2004, if the activity in question of the appellants does not amount to manufacture, the appellants are required to pay duty equal to credit taken on clearance of such inputs under cover of Central Excise invoices. As in this case, the activity of the appellants does not amount to manufacture, therefore, these inputs are cleared as such. In that event, as per Rule 3(5) of Cenvat Credit Rules, 2004 the appellants are required to pay duty equal to the credit taken thereon and the appellants have paid duty more than the credit availed.
11. The learned Advocate also relied on several case laws, wherein it was held that when duty paid at the time of clearance equal to or higher than the credit availed, the same is to be treated as reversal of credit. Therefore, no further reversal of credit is required as held by this Tribunal in the case of Repro India Ltd. (supra), Punjab Stainless Steel Industries (supra), Drish Shoes Ltd. (supra), SAIL (supra). In this case, it is admitted fact that the department has accepted duty paid by the appellants on their clearances and as per judicial pronouncement in the case of Ashok Enterprises (supra), Super Forgings (supra), SAIL (supra), M.P. Telelinks Ltd. (supra), Creative Enterprises (supra) which was upheld by the Hon'ble Apex Court that once duty on final products has been accepted by the department in the case, 59 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] CENVAT credit cannot be denied even if the activity does not amount to manufacture.
12. Therefore in view of the above discussion, we find that the duty paid by the appellants has been accepted by the department which is admittedly more than the CENVAT credit availed by the appellants. Therefore, following the various judicial pronouncements as discussed herein above, we hold that the appellants are not required to reverse the credit. Accordingly, the appeals are allowed with consequential relief."
(ii) Commissioner of Central Ex. & Cus., Surat-III v. Creative Enterprises [2009 (235) ELT 785 (Guj.)] as affirmed by the Hon'ble Apex Court in 2009 (243) ELT A120 (Supreme Court):-
6. When one goes through the order of the first appellate authority, it is apparent that the respondent has been held to be a manufacturer as defined in Section 2(f) of the Central Excise Act, 1944. The appellate authority has taken into consideration the activities carried on by the respondent-assessee. The Tribunal is justified in holding that if the activity of the respondent-assessee does not amount to manufacture there can be no question of levy of duty, and if duty is levied, Modvat credit cannot be denied by holding that there is no manufacture.
7. In the aforesaid set of facts and circumstances of the case in light of concurrent findings of fact recorded after appreciating the evidence on record by both Commissioner (Appeals) and the Tribunal, no question of law, much less a substantial question of law, arises out of impugned order of Tribunal. The appeal is accordingly dismissed."
(iii) J K Files and Tools Raymond Ltd. v. Commr of C. Ex. & Cus., Mumbai-
III [2011 (273) ELT 280 (Tri.- Mumbai)]:-
"8. We do agree with the submissions of the learned DR that appellant are not entitled to take such credit as held by the judicial pronouncements of this Tribunal as well as the Hon'ble High Courts and the Hon'ble Supreme Court in the case of Narmada Chematur Pharmaceuticals Ltd. (supra). In this case the appellant have taken inadmissible credit, therefore, they were issued show-cause notices to reverse the same. From the facts of this case it is very much clear that the appellant have taken inadmissible credit but they have paid the same at the time of clearance with value addition. In that scenario, as held by the Hon'ble Apex Court in the case of Narmada Chematur Pharmaceuticals Ltd., cited supra, where the assessee has wrongly availed modvat credit and was liable to reverse such amount and it was stated that the duty paid and modvat credit availed were identical and therefore consequences of payment of excise duty after availing the credit was revenue neutral. In that case the appeal filed by the Revenue was dismissed by the Hon'ble Apex Court holding that in view of the fact that, admittedly there was no revenue implication and, therefore, the appeal was dismissed. In the case of Vickers Systems International Ltd. (supra) this 60 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] Tribunal has held that the entire credit availed on inputs to be considered as utilised towards payment of duty on sale of such imported goods, credit reversal is not required. In that situation we hold that payment of duty on value addition on the inputs received by the appellant amounts to reversal of the CENVAT credit as demanded by the department in the show-cause notices."
(iv) Vickers System International Ltd. v. Commissioner of C. Ex., Pune-I [2008 (10) STR 378 (Tri.- Mumbai)]:-
"12. In the present case, the Department seeks to deny and recover the CVD amount availed as credit amounting to Rs. 6,49,78,829/- by the appellants or the imported inputs sold as such in India.
13. The appellants had cleared such imported goods on the payment of duty, wherein the assessable value was based on the sale price. The sale price used to have a general mark-up of 30% on the landed cost. Hence, the sale price was always higher than the (value plus customs duty) at the time of import. Reversal of credit now demanded by the impugned order has already been reversed by the appellants. Duty paid at the time of clearance should be treated as reversal of the alleged ineligible credit. Hence, the demand is not maintainable. The entire credit availed on imported inputs has to be considered as utilized towards the payment of duty on the sale of such imported goods only. Therefore, the Department cannot once again demand the reversal, which has already been done.
14. If no duty was payable on the sale of the imported goods, then the duty paid by the appellants on the imported goods should be treated as reversal of the Cenvat credit availed on such imported goods.
15. This view is fully supported by the decision of Tribunal in the case of Deioners Speciality Chemicals (P) Ltd. v. CCE-1997 (96) E.L.T. 659 (T). In that case, the assessee took, the Modvat credit on the inputs and utilized the same for payment of duty on the final product. The Department contended that the final product was wholly exempt from payment of duty in terms of Notification No. 1/93 and, therefore, no Modvat credit is available in terms of Rule 57C. The Department accordingly proceeded to deny and recover the Modvat credit taken on the inputs. The Tribunal after considering the issue held that the utilization of the Modvat credit for the payment of duty on the final product, which is treated by the Department as exempt from payment of duty, has to be treated as reversal of the Modvat credit. The relevant portion of this decision is as under :
"4. ......I, however, find that the disputed Modvat credit amount has been utilized only for payment of duty on the very goods, which are held to be eligible for exemption. Disallowing of wrongly taken Modvat credit can be effectuated either by reversing the credit if available in the RG 23A Part II account or by recovery of the sum separately if the same is not available in the account, having already been utilized for payment of duty. In the present case, since the amount of credit was in fact utilized for payment of duty of goods, which are admitted by the Department to be eligible for exemption 61 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] and hence not liable for duty, utilization of such credit for payment of duty thereon would serve the purpose of disallowance of credit as required under Rule 57C. There would be a case for confirming the demand by bringing into play Rule 57C if credit had been taken but kept intact due to the inputs being used for the manufacture of the exempted goods, which were cleared without payment of duty availing of such exemption and such credit was being utilized for other goods not relatable to the inputs in question. That would be the only way Rule 57C will, come into reckoning. Such a situation does not present itself in the present case as the credit was not left unutilized vis-a-vis the final product made from the inputs in question."
16. The assessee in the case of CCE v. Piramal Spinning & Weaving Mills Ltd. - 2002 (145) E.L.T. 322 (T) = 2002 (49) RLT 741 (T) took the credit of the duty paid on the processed fabric. The processed fabric was then subjected to the processes such as cutting, folding and packing. The credit taken on the processed fabric was utilized for the payment of duty on the packed fabric cleared by the assessee. The Department denied the credit taken on the processed fabric on the ground that the processes undertaken by the assessee did not amount to manufacture. The Tribunal dismissed the Department's appeal on the ground that the duty paid by way of the debit in the Modvat account should be treated as the reversal of the inadmissible credit taken and, therefore, no demand would lie.
17. The following case laws lay down that when the process is held to be not manufacture, then the duty paid on the final product should be treated as reversal of the ineligible credit on the inputs and the assessee cannot be called upon to pay the credit :-
(i) Singh Scrap Processors Ltd. v. CCE - 2002 (143) E.L.T. 619 (T)
(ii) PSL Holdings Ltd. v. CCE - 2003 (156) E.L.T. 602 (T)
(iii) Vinayak Industries v. CCE - 2003 (159) E.L.T. 456 (T)
(iv) Silvassa Wooden Drums v. CCE - 2005 (184) E.L.T. 392 (T)
(v) Stumpp Scheule & Somaopa v. CCE - 2005 (191) E.L.T. 1085 (T)
(vi) Shivali Udyog v. CCE - 2006 (204) E.L.T. 94 (T)
(vii) CCE v. M.P. Telelinks Ltd. -2004 (178) E.L.T. 167 (T)
(viii) Ajay Metachem v. CCE - 2006-TIOL-667-CESTAT-MUM
(ix) Heat Shrink Technologies Ltd. v. CCE - 2007 (220) E.L.T. 437 (Tri. - Mumbai) = 2007-TIOL-463-CESTAT-MUM
(x) Creative Enterprises v. CCE - 2004 (60) RLT 342 (T)
(xi) Orion Ropes (P) Ltd. v. CCE - 2006-TIOL-391-CESTAT-MUM
(xii) Systematic Steel Industries Ltd. v. CCE - 2005 (191) E.L.T. 663 (T) 62 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019]
(xiii) Orbit Bearing (I) Pvt. Ltd. v. CCE - 2006-TIOL-1637-CESTAT-
Mum.
18. In view of the settled legal position, there cannot be any further demand of duty from the appellants. Hence, the demand of Rs. 6,49,78,829/- is not maintainable. The same is set aside."
In view of the above judgments, we find that the issue is no longer res integra. We find that in the present case as well, even assuming that the Appellant have availed inadmissible CENVAT credit, they have paid the same at the time of clearance of the finished goods. Therefore, we concur with the findings of the Learned Commissioner that the demand for CENVAT credit in respect of the alleged illicit clearance of the raw materials cannot be sustained.
8.65 We find that the department has challenged the above conclusion drawn by the Learned Commissioner primarily on the ground that in the earlier paragraphs of the impugned order, the Learned Commissioner held that there are sufficient evidences substantiating the claim of the department and proving non-transportation of the finished goods cleared by them on payment of duty. As discussed above, we do not agree with the said findings of the Learned Commissioner and find them unsustainable. We find that despite the documentary evidence on record (such as the rewarehousing certificates), the Learned Commissioner has relied on statements of vehicle owners, without following the mandate of Section 9D of the Act. Further, we find that the revenue has argued that the aforementioned judgments, referred in the impugned order, are clearly distinguishable on facts. In this regard, we find that the case laws relied upon by the revenue in the case of CCE v. Srikumar Agencies [2008 (232) ELT 577 (SC)] and Haryana Financial Corporation ltd. v. Jagadamba Oils Ltd. [(2002) 3 SCC 496] are not relevant inasmuch as the said judgments echo the principle that circumstantial flexibility and factual differences are to be considered before applying any case law. However, in the present case, the revenue has failed to controvert the fundamental fact that the Appellant has discharged a higher duty liability as compared to the CENVAT credit sought to be denied on the corresponding raw materials 8.66 In view of the above discussion, we do not find any fault with the dropping of demand by the Ld. Commissioner in regard to the issue of 63 | P a g e E/12179,12181-12183/2019-DB& E/11377/2019-DB[E/CROSS/10533/2019] alleged diversion of raw materials under the guise of fictitious sale of Modified LLDPE to buyers in Kolkata.
9. We now take up the appeals filed by Mr. Narendra Surana, Managing Director, Mr. Prakash Sahoo, Assistant Manager, and Mr. Manoj Jain, Commercial Head challenging the impugned order to the extent the same imposes penalty on the said individuals under Rule 26 of the Central Excise Rules, 2002. We find that the Learned Commissioner imposed penalties on the said individuals for their roles in the alleged illicit clearance of raw materials and finished goods without payment of duty. However, in light of our above discussions, the demand for CENVAT credit and excise duty confirmed by the Learned Commissioner is not sustainable. We, therefore, find that no penalties can be imposed on the individual Appellants in absence of any violation of the provisions of the Act.
10. For all the above reasons, the appeals filed by the Appellants (i.e., Kalpana Industries Limited and its directors/employees) are allowed with consequential relief and the appeal filed by the Revenue is rejected. CO is also disposed of.
(Pronounced in the open court on 26.06.2024) (RAMESH NAIR) MEMBER (JUDICIAL) (RAJU) MEMBER (TECHNICAL) Raksha