Custom, Excise & Service Tax Tribunal
Shri A. R. Shanmugasundaram vs Cce, Salem on 6 October, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH AT CHENNAI E/960-961/2005 (Arising out of Order-in-Original No. 30/2005 dated 03.08.2005, passed by the Commissioner of Central Excise, Salem). 1. Shri A. R. Shanmugasundaram : Appellants 2. M/s. Caress Industries Vs. CCE, Salem : Respondent
Appearance Shri Ms. L. Mythili, Adv., For the applicant Shri M. Rammohan Rao, JC (AR) For the respondent CORAM Honble Shri R. PERIASAMI, Technical Member Honble Shri P.K. CHOUDHARY, Judicial Member FINAL ORDER No. 41515-41516 / 2015 Date of Hearing/Decision: 06.10.2015 Per: R. Periasami, The present appeal is the second round of litigation before the Tribunal.
2. The brief facts of the case are that the officers of the department visited the appellants unit on 12.01.1993 and carried out investigation and also verified the stock of raw materials and recovered the documents pertaining to purchase of Linear Alkyl Benzene (LAB). On the basis of investigation and statements recorded from various persons, a SCN dated 19.04.1994 was issued to the appellants alleging that they had clandestinely manufactured and removed the final product Acid slurry, without payment of duty. The adjudicating authority in his OIO No. 146/96 dated 10.09.1996, confirmed the demand of Rs.3,14,65,370/- being the excise duty involved on the acid slurry for the period from 01.04.1989 to 15.10.1993 and also confirmed duty of Rs. 5,94,012/- on the goods cleared for home consumption by wrong availment of exemption. He also ordered for confiscation of 449 kgs. of acid slurry seized along with the lorry from M/s. Baby Star Soap Works and appropriated an amount of Rs.1,250/- and also confiscated the vehicle and imposed a penalty of Rs. 50,00,000/- on Shri A.R. Shanmugasundaram, partner of M/s. Caress Industries and also imposed penalties on the other co-noticees. Against the said order the appellants preferred appeal before the Tribunal. The Tribunal vide Final Order dated 09.08.2002 (reported in 2002 (147) ELT 1035 (Tri.)) remanded the matter for denovo adjudication. The relevant portion of the said order is reproduced as under:-
9.?On a careful consideration of the submissions and on perusal of the entire order and records of the case, we are satisfied that the ld. Commissioner has failed to take into consideration the most important criteria required for manufacture i.e. receipt of both the ingredients namely LAB and oleum (concentrated sulfuric acid) for the purpose of manufacture of the final product namely acid slurry in terms of the quantum of raw material required and final product required for manufacture. The main contention of the appellant is with regard to non-receipt of both the ingredients which has been brought out in great detail even as per the vehicles said to have been noted in the SCN. On verification of the vehicle number by the appellant, they have found it to be that of scooters, mopeds and autorickshaws and not of the alleged lorry said to have been used for transporting the LAB. It was also pleaded that for transportation of these items, special tankers are required and special storage facility is also required and it cannot be kept in drums. This valuable piece of defence and rebuttal evidence has not been taken into consideration thereby the impugned order is a not a speaking order. In so far as the allegation of the receipt of important item clandestinely and clandestine manufacture and removal of final product i.e. acid slurry, it is for the department to show that the appellants had received and clandestinely manufactured with all the raw material. It is not sufficient for the department to show the evidence of receipt of only one material and that too through various sources said to have been received without establishing the quantum said to have been removed by Tamil Nadu Petrochemicals, the main suppliers of the LAB. The main ingredient i.e. LAB was manufactured by Tamil Nadu Petrochemicals. It was for the department to establish that the entire quantum of raw material LAB was removed and supplied through SWC directly or indirectly. The evidence cannot be oral. It has to be shown through proper documentary evidence. The ld. Commissioner ought to have given detailed finding as to how appellants have received that much quantity of LAB and as to how appellants had made arrangements to purchase the raw material LAB to the extent of Rs. 8 crores, as according to appellants they neither had funds nor they had manufacturing facility nor manufacturing capacity. The technical aspect of manufacture has not been gone into by the ld. Commissioner at all except to hold that the defence taken by the appellants as an afterthought and that it is required to be rejected. The ld. Commissioner ought to have analysed the rebuttal evidence and given findings one way or the other instead of summarily rejected it as an afterthought. The evidence can be said to be afterthought will be only if the evidence has been brought out at a very belated stage and the very evidence appears to be flimsy, fictitious and concocted one. When the defence is put forth that they have not received all the inputs required to manufacture the final product as per their reply to SCN, then there is lot of force in their submission and deserves consideration. It cannot be said that reply was an afterthought. The ld. Commissioner in not having discussed the aspect of non-receipt of oleum (sulphuric acid), nor he has shown as to how the acid slurry was manufactured and to whom it was removed, therefore we have to uphold the submissions made by the appellant that the order is not a speaking order and the impugned order is required to be set aside for de novo consideration. Ld. Counsel was very fair in seeking remand of the matter and did not argue for setting aside the impugned order. A perusal of the impugned order and the evidence relied upon by revenue gives us an impression that department has not established their case of clandestine removal and manufacture of acid slurry. However, ld. Counsel has stated that appellants have succeeded in bringing rebuttal evidence on record and they will be able to establish that the allegation is totally unsustainable. It was brought to our notice that this Bench in the case of Jaya Soap Works, 1995 (79) E.L.T. 92 (T) in an identical allegation on similar and evidence had noticed that appellants therein had likewise stated that they had not received LAB from the very same dealers as alleged herein. The tribunal did not confirm the demands but remanded the matter for de novo consideration
10.?Although in the above finding the Honble Tribunal has clearly noted that the department cannot embark upon further investigation nor collect new evidence against the appellants, however taking into consideration the ratio of the judgment noted in other citations already extracted pertaining to manufacture and removal of Rubber, we are constrained to give directions to the department to take the electricity consumption figures and to see as to whether the allegation of suppression of receipt of inputs and clandestine manufacture can be established. However, appellants shall be given full opportunity to reply to the electricity consumption figures that would be obtained from the electricity department. We agree with the ld. Counsel that the Commissioner was justified in granting benefit of Modvat credit in respect of LAB used which is in tune with the Apex Court judgment rendered in Formica India Ltd. (supra). However, we notice that the duty calculation on the final product is required to be considered after taking the duty as cum-duty, in terms of the ratio as now laid down by the Larger Bench of the tribunal in the case of Sri Chakra Tyres (supra). Further contention that in case if the department establishes their case, appellants are entitled to argue and plead with regard to valuation aspect and that they had received raw materials at whole-sale price and that they are entitled for various deductions and is also required to be considered.
3. The adjudicating authority in his denovo proceedings, in order-in original No. 30/2005 dated 03.08.2005, had confirmed the revised demand of Rs.2,46,08,652/- involved on the acid slurry alleged to have been manufactured and cleared clandestinely by the appellants for the period 01.04.1989 to 15.10.1993 under the provisions of 11A(2) of the Central Excise and Salt Act, 1944 and 38A of the Central Excise Act, 1944 and also confirmed Rs. 5,94,012/- being the excise duty on the goods cleared for home consumption by wrong availment of exemption under Notification No. 1/93 dated 28.02.1993, for the period 16.10.1993 to Feb, 1995. He has also confiscated 449 kgs. of acid slurry seized along with the lorry under Rule 173Q of CER, 1944 and imposed a redemption fine of Rs. 5,000/- and appropriated an amount of Rs. 1,250/-. He has also ordered for confiscation of the vehicle and appropriated the an amount of Rs. 5,000/- towards the value of the vehicle. He imposed a penalty of Rs. 50,00,000/- on Shri A.R. Shanmugasundaram, partner f M/s. Caress Industries under Rules 9(2), 173Q and 226 of CER, 1944 read with Section 38A of CEA, 1944. He has also imposed a penalty of Rs. 10,000/- on Shri P. Ganeshan of M/s. Baby Star Soap Works, and Rs. 5,000/- on Shri P. Murugan, driver of the vehicle under Rule 209A of CER, 1944 read with Section 38A of CEA, 1944. Only M/s. Caress Industries and Shri A.R. Shanmugasundaram, parter of M/s. Caress Industries preferred appeals and others have not preferred any appeals.
4. The Ld. Advocate representing for the both the appellants explained the investigation proceedings initiated against the appellants and drew attention of the Bench to para-9 of the Tribunals order dated 09.08.2002. She submits that the appellants are the manufacturers of acid slurry and Zinc sulphate and availed SSI exemption during the relevant period. The raw materials required for the manufacture of the final products are LAB and Oleum. She submits that the entire case has been made out by the department based on the alleged receipt of one raw material LAB from M/s. TN Petro Products Ltd. (TNPL) through and M/s. Southern Warehousing Corporation (SWC), who is the sole selling agent of TNPL for sale of LAB. She further submits that the entire demand was confirmed by the adjudicating authority purely on the assumption and presumption of clandestine manufacture and removal of acid slurry. No evidence of procurement and receipt of raw materials or clearance of final products produced by the department. She drew attention of the Bench to para-33 of OIO and countered the findings that there is no documentary evidence of purchase of LAB by the appellant from various fictitious firms. The department failed to submit any evidence of receipt of the quantity of LAB. The only evidence relied by the department is that payment of Rs. 11,00,000/- by M/s. Fintex Chemicals to TNPL through SWC. The department failed to establish any link to the above payment to the appellants transactions. She drew attention to the statement of Shri A.R. Shanmugasundaram and submits that he never admitted any clandestine removal except the payment made to three persons Shri Kuppusamy, Shri. Srinivasaragavan, Shri. Ramasamy, employees of SWC. She drew attention to para-46 of OIO and submits that the department has not come out with any evidence of purchase of second row material oleym. The adjudicating authority has not accepted their submission. She referred to para-47 and 49 of the OIO. She further submits that they dont have storage capacity of tanks to store such a huge quantity of LAB nor they have that much capacity to manufacture the final products, acid slurry.
5. She further submits that the Tribunal in their remand order dated 09.08.2002 had given clear-cut directions to the adjudicating authority to establish the allegations with clear evidences on the receipts, manufacture, clearance including the electricity consumption. Whereas, the adjudicating authority has not complied any of the direction of the Tribunal in his denovo order. She further submits that the original records of electricity consumption were already taken over by the department during investigation and in their custody and in spite of repeated requests, the same were not handed over to the appellants. Therefore, they are not in a position to work out the details of electricity consumption and the bills paid to the TNEB. Since the documents were already with the department the adjudicating authority had failed to examine the electricity consumption. She also submits that no evidence was adduced regarding clandestine removal of acid slurry without payment of duty. As per the capacity of the plant, the total quantity of final products of manufactured were duly accounted in their records.
6. Regarding payments made to the three persons of SWC, she submits that it was paid to them for meeting towards the expenses and not for procurement of LAB. She further submits that in the denovo proceedings, the adjudicating authority had allowed cum-tax benefit as well as benefit of modvat credit. She relied on the following case laws in support of her contentions:
1. Caress Industries Vs. CCE, Chennai 2002 (147) ELT 1035
2. Jaya Soap Works Vs. CCE, Madras 1995 (79) ELTY 92 (T)
3. Oudh Sugar Mills Vs UOI 1978 (20) ELT J172 (S.C.)
4. Sanket Food Products Pvt. Ltd. Vs. CCE, Surangabad 2005 (188) ELT 107 (T)
5. CCE, Bhopal Vs. Ramani Ice Cream Co. Pvt. Ltd.
2014-TIOL-906-CESTAT-DEL
6. Sarin and Sarin Sh. Deepak Mehra Vs. CCE, Kanpur 2014-TIOL-1398-CESTAT-DEL
7. Indo Green Textile Pvt. Ltd. Vs. CCE, Mumbai 2007 (212) ELT 343 (Tri.-Mum.)
8. Mahesh Silk Mills, Surat Vs. CCE, Mumbai 2014-TIOL-1032-CESTAT-AHM
9. Kalyan Glaze Tiles Vs. CCE, Rajkot 2008 (222) ELT 417 (Tri.-Ahmd.)
7. The Ld. AR on behalf of the Revenue submitted detailed written synopsis on each issues and evidences and reiterated the same. He explained in the sequence of evidences, raw material procurement, transportation of raw materials etc. He submits that the main allegation of the department is that the raw material LAB has been procured by the appellant in various fictitious names and the same was used for clandestine manufacture and removal of final products. The adjudicating authority has confirmed the demand based on the clear findings in the form of statements, records and seizure of acid slurry, which was clandestinely removed and unaccounted.
8. On the procurement of LAB and payments made by the appellants, he submits that the appellants made payments both in cash and in cheques and DDs to SWC. They made payments for procurement of LAB through different agencies M/s. Prakash Traders, M/s. Fintex Chemicals, M/s. Thiru Vengadam Agencies, and M/s. Gomes Agency. All these firms were floated by the appellants. He further submits that SWC records relied by the department for supply of LAB through various fictitious names is not rebutted by the appellants. Statement of Shri Suresh, Accountant of SWC confirming supply of LAB in fictitious names. The appellant also not rebutted the payment of Rs. 11.00 lakhs to SWC. He further submits that the statement of Shri Ravindra, Branch Manager of SWC in his letter dated 15.03.94 admitted that R. M. Arumugam, was the sole representative for collection of sale proceeds of the appellant and he was also the proprietor of M/s. Prakash Traders. It was also established that the payments made through cheques to the three persons of SWC on different occasions and they in turn encashed the cheques and remitted the same in the SWC account towards receipt of LAB from TNPL. He further submits that the role of Fintex Chemicals and Prakash Traders, where the appellants used to accommodate sale proceeds and make payment to TNPL. Documents recovered from SWC merely show sale of LAB to non existing firms. He further submits that the appellants used their own transport for transportation of LAB and the they used their own tanker for this purpose. The invoices shown supply of LAB to non-existing firms. It is also confirmed that independent transporter M/s. Tulsi Transport, delivered LAB to the appellant under the TNPL invoices raised in the name of non-existing firms.
9. Regarding use of other raw materials, statements were recorded from the supplier of sulphuric acid and submits that the sulphuric acid is easily available in the open market and there was no requirement of storage of sulphuric acid. He drew attention to the OIO, where the adjudicating authority dealt on the storage and capacity of production.
10. Regarding electricity consumption, the adjudicating authority took all steps to obtain the power consumption from TNEB, since the TNEB expressed its inability to provide the details for 10 years. The same was not taken into consideration. He also submits that the electricity consumption is not the sole criteria for determining the manufacture of the final products. In this regard, he relied on the decision of the Honble High Court of Madras in the case of P.K. Ravindran Vs. CCE, Cochin reported in 2003 (156) ELT 182 (Mad.). Regarding clearance of final products, he submits that the goods were transported in barrels and delivered to different parties and different places without payment of duty. Seizure of acid slurry in transit clearly confirms clandestine removal. He submits that the place of clandestine removal, the preponderance of probability has to be taken into account, as the appellants have not kept the records and also used factitious names for procurement of LAB. He relied on the following case laws in support of his submissions.
1. Rukmini Industries Vs. CCE, Hyderabad 2004 (175) ELT 600 (Tri. Bang.)
2. Ureka Polymers Vs. CCE, New Delhi 2001 (127) ELT 618 (Tri.-Del.)
3. Mukesh Dye Works Vs. CCE, Mumbai 2006 (196) ELT 237 (Tri.-Mum.)
4. Bute Cosmetics Vs. CCE, Trichy 2001 (135) ELT 886 (Tri.-Chen.)
5. CCE, Madras Vs. Madras Chemicals 1986 (24) ELT 308 (Tri.)
6. Roxy Enterprises Pvt. Ltd. Vs. CCE, Delhi 1992 (6)) ELT 279 (Tri.)
11. The adjudicating authority calculated the usage of LAB and Sulphuric acid and arrive the ratio of 1:1.2 for manufacture of 1.430 MTs of acid slurry and 0.770 MTs of spent acid. Accordingly, the adjudicating authority worked out the total quantity of the final products based on the LAB received from SWC.
12. On a rejoinder, the Ld. Counsel advanced her arguments and submits that regarding payment of Rs. 11.00 lakhs by Fintex Chemicals to TNPL for procurement of LAB, the department not established any clear link with the appellants. She relied on the letter dated 03.04.1995 at page-86 of Volume-I, where they sought the details of invoices from TNPL for the LAB supplied to the appellants. The department failed to produce any evidence to the said letter. The department failed to bring out evidences from TNPL for delivery of LAB in respect of invoices to the appellants and also to others. He further submits that mere receipt of LAB does not lead to manufacture of acid slurry. She also submits that the statement of Shri Natarajan, at page-63 in Volume-2 where nowhere he has stated or indicated the appellants name. She also submits that reply to the SCN dated 11.09.95 at page95 in Volume-I and also the cross examination of TNPL at page71 in Volume-II and reply to SCN at page97 sub-paras e,f,g & h. In their reply at para-IX a & b, they have clearly explained that the fictitious firms were created by SWC to show the sale of LAB, which is not done by the appellants. She submits that the Department conveniently omitted TNPL and there were not made the noticee to the SCN only. SWC was made a noticee in the SCN only for penalty and the adjudicating authority dropped the proceedings against SWC. She drew the attention of the Bench to the reply at page 84 of volume-II, where the statement of Shri K.R. Ramamoorthy of SWC has clearly admitted that the fictitious names were created by the managing partner of SWC for their own purpose. The statement of Suresh Kumar confirmed that they have shown fictitious tanker for supply of LAB. Regarding, manufacturing capacity and storage facility, she submits that quantity alleged by the department is beyond the storage capacity. If every ton of acid slurry is manufactured, 0.770 of spent Acid (by-product) emerges and it requires huge capacity to store inside LAB, which is highly corrosive acid. She also submits that similar investigations and adjudication proceedings initiated against other manufacturers on the identical issue of receipt of LAB and in the case of Kavitha Chemicals the adjudicating authority had dropped the proceedings in his denovo order.
13. We have carefully considered the submissions of both sides and the records submitted in the form of annexure to the appeal. In the first round of litigation, this appeal came up before this Tribunal, and the Tribunal in the Final Order dated 9.8.2002, remanded the case to the adjudicating authority. As seen from the Tribunal order which is reproduced at para (2) of this order we findl this Tribunal while remanding the case gave clear direction to the adjudicating authority to establish with evidences that for manufacture of acid slurry two important raw materials are required ie., sulphuric acid (oleum) and LAB, and the procurement of sulphuric acid from other units, and also clear evidences on removal of Acid slurry ie., final product which is very essential to establish for clandestine removal. Further the adjudicating authority was also directed to examine and to give clear findings on the electricity consumption for the alleged manufacture of finished goods and also to consider the cum-tax benefit. Whereas on perusal of the denovo order, we find that the adjudicating authority has discussed and reiterated only the statements of persons with regard to supply of LAB through SWC and failed to address the issue on the procurement of sulphuric acid/oleum, which is another raw material required for manufacture of acid slurry and electricity consumption. On perusal of various statements and records, it is seen that these are mainly recovered from SWC who manipulated and used various fictitious names for sale of LAB received from TNPL to various customers including the appellants.
14. In spite of specific directions of this Tribunal, to establish clear evidences on the receipt of LAB by the appellants, no evidence has been brought out in the denovo order except relying the statements of persons of SWC. The period involved in the present case relates to April,89 to February,95. It is pertinent to see that the appellants are registered with central excise and being a chemical industry the adjudicating authority ought to give a clear cut findings on the manufacture of final products and clandestine clearance. Further it is vital that both the inputs LAB and sulphuric A6cid and the final product that is Acid slurry are highly corrosive chemical requires safety for transportation and storage and use. The Revenue tried to make out the entire case based on the SWC records for supply of LAB, various fictitious firms etc. The onus is on the department to establish the supply of LAB by SWC in various fictitious names pertaining to the appellants. Further, we find that mere single seizure of 449 kgs. of acid slurry valued Rs.16000/- during the transit cannot be a proof for the Revenue to arrive conclusion that the huge quantity of Acid slurry was manufactured and cleared clandestinely. The, seizure of acid slurry found at M/s. Baby Star Soap Works, cannot be expanded to the total quantity of 1366.686 M.Ts alleged to have been manufactured by the appellants Clandestinely.
15. Further, we find that the adjudicating authority has computed the quantity and value purely on mathematical formula and worked out the total quantity of acid slurry by adopting the ratio of raw materials LAB and sulphuric acid purely based on the alleged quantity of LAB received by the appellants from SWC and not supported with any evidence. As regards the payments made to three employees of SWC, the appellants claimed that this was paid for the expenses. Regarding payment of Rs. 11 lakhs made by Fintex Chemicals to TNPL, we find that there is no finding to link the said payments to supply of LAB to the appellants and mere statements that they are related and controlled by the appellants, is not an evidence to hold that appellants revived LAB.
16. It is pertinent to state that in order to manufacture acid slurry, use of second raw material ie., sulphuric acid oleum is equally important to establish illicit manufacture of finished goods of such a huge quantity, as alleged in the findings. As rightly contented by the appellants if they have to manufacture such a huge quantity of acid slurry definitely it requires huge storage capacity for LAB, finished product and spent acid, which is a by-product as the same cannot be thrown out without clearing. In this regard, the Tribunals coordinate Bench in the case of Mahesh Silk Mills Vs. CCE, Mumbai reported in 2014 (304) E.L.T. 703 (Tri. - Ahmd.) clearly held that merely based on the statements and private records, the demand of excise duty on clandestine removal cannot be sustainable without corroborative evidence. The relevant portion of the said decision is reproduced as under:-
6.?It is observed from the records that the total demand of duty of Rs. 30,18,378/- in the case has been raised mainly on the basis of figures taken from the diary recovered from the factory premises of Mahesh Silk Mills on 19/20-10-1955. While recovery of the impugned from the factory premises of Mahesh Silk Mills is not disputed by the appellant but no one from appellants side has admitted that the diary belonged to the appellant. Nor the contents of the diary were admitted by any one from the appellants side. The scribe of the said diary has not been identified by the Revenue for ascertaining the ground realities. Only one trader - Chandan Prints, who is one of the 47 traders mentioned in the said diary, initially admitted to have received 24,555 L. Meters of processed man-made fabrics, involving excise duty of Rs. 33,957/- from Mahesh Silk Mills against 24,555 L. Meters of grey Man-Made Fabrics sent to Mahesh Silk Mills on 29-3-1994 and 5-8-1993.However, M/s. Chandan Prints had retracted its statement during the course of adjudication. The statements of the remaining 46 traders have not been placed on record by the Revenue to prove that the remaining entries recorded in the diary also related to clandestine manufacture and removal of processed man-made fabric. There is no corroborative evidence of excess consumption of electricity, colours, dyes, chemicals, etc., by the appellant. There is also no evidence of transportation of processed man-made fabrics from the appellants factory or any instance where clandestinely removed goods were seized by the revenue. Cross-examination of the third party witness was also not provided to the appellants.
7.?Appellants have relied upon several case laws on the issue of establishing case of clandestine manufacturing and clearance of excisable goods. We find that in the matter of Rajasthan Foils Pvt. Ltd. v. Commissioner of Central Excise, Jaipur [2005 (183) E.L.T. 101 (Tri.-Del.)], relied upon by the appellant, CESTAT held as under :
6.?From the record, we find that the company is engaged in the manufacture of aluminium foils/sheets. The factory premises of the company was inspected by the Central Excise officers on 19-2-2000 and certain notebooks detailed at Sl. Nos. 1 to 5 of the resumption memo prepared on the date, at the spot, were seized. The entries contained in these notebooks had been tabulated in chart marked Annexure A, to the show cause notice which according to the Revenue, depicted details of clearances in condensed manner during the period in dispute to various buyers and also of the material sent for weighment and the raw material received for the manufacture of the goods during that period by the company. All the entries detailed in Annexure A, had also been shown in Annexure B. The details of the raw material received by the company had been given in Annexure C prepared from the notebook mentioned at Sl. No. 4 of the resumption memo. But it is quite evident even from the impugned order itself that certain entries made in all the five seized notebooks tallied with the invoices issued under Rule 52A, by the company at the time of clearances of the goods. The entries in the notebooks mentioned at Sl. Nos. 4 and 5 of the resumption memo, pertains to goods sent for weighment by the company to the Dharamkanta and from these entries, it could not be inferred that these goods were cleared to the buyers without payment of duty specially when there is no evidence/statement of any buyer of having received the goods without cover of invoice or payment of duty from the company. In the entries of notebook mentioned at Sl. No. 4 of the resumption memo, at pages 20 to 40, only the names of the customers in short, quantity of the aluminium foils and figures showing certain amount in rupees equal to the quantity in kg., had been detailed and these had been tabulated in Annexure B, but no evidence has been collected whatsoever to connect these entries with a particular customer/buyer to whom the goods were allegedly cleared by the company during the period in dispute. No material/evidence has been collected from the transporter M/s. Baba Transport Company through whom the goods were allegedly booked on the basis of GRs in question. Only statement of Shri Vijaypal Singh, Proprietor of that transport company was recorded on 2-5-2001 who simply stated that he used to arrange the trucks from outside as and when required by the company for transportation of the goods and had been getting Rs. 25/- as commission from the driver of the vehicle. He had nowhere admitted that the goods booked did not accompany the invoices. No statement of any driver of the vehicle had been recorded who transported the goods. Shri Vijaypal Singh himself had no knowledge about the destination at which the goods were sent by the company.
8.?Similarly, in the matter of Nova Petrochemicals v. CCE, Ahmedabad-II, this Tribunal in its Final Order Nos. A/11207-11219/2013, dated 26-9-2013 this bench has held as under in Para 40 :
After having very carefully considered the law laid down by this Tribunal in the matter of clandestine manufacture and clearance, and the submissions made before us, it is clear that the law is well settled that, in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenues which mainly are the following :
(i) There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions;
(ii) Evidence in support thereof should be of :
(a) raw materials, in excess of that contained as per the statutory records;
(b) Instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty.
(c) Discovery of such finished goods outside the factory
(d) Instances of sales of such goods to identified parties.
(e) receipt of sale proceeds, whether by cheque o by cash, of such goods by the manufacturers or persons authorized by him;
(f) use of electricity for in excess of what is necessary for manufacture of goods otherwise manufactured and validity cleared on payment of duty
(g) statements of buyers with some details of illicit manufacture and clearance;
(h) proof of actual transportation of goods, cleared without payment of duty
(i) links between the document recovered during the search and activities being carried on in the factory of production; etc. Needless to say, a precise enumeration of all situations in which one could hold with activity that there have been clandestine manufacture and clearances, would not be possible. As held by this Tribunal and Superior Courts, it would depend on the facts of each case. What once could, however, say with some certainty is that inferences cannot be drawn about such clearances merely on the basis of note books or diaries privately maintained or on mere statements of some persons may even be responsible official of the manufacture or even of its Directors/partners who are not even permitted to be cross-examined, as in the present case, without one or more of the evidence referred to above being present. In fact, this Bench has considered some of the case law on the subject in Centurion Laboratories v. CCE, Vadodara, 2013 (293) E.L.T. 689. It would appear that the decision though rendered on 3-5-2013 was reported in the issue of the E.L.T. dated 29-7-2013, when the present case being argued before us, perhaps, not available to the parties. However, we have in that decision, applied the law, as laid down in the cases, some of which now have been placed before us. The crux of the decision is that reliance on private/internal records maintained for internal control cannot be the sole basis for demand. There should be corroborative evidence by way of statements of purchases, distributor or dealers. Record of unaccounted raw material purchased or consumed and not merely the recording of confessional statements. A co-ordinate Bench of this Tribunal has, in another decision, reported in the E.L.T. issue of 5-8-2013 (after hearings in the present appeals were concluded), once again reiterated the same principles, after considering the entice case law on the subject [Hindustan Machines v. CCE, 2013 (294) E.L.T. 43]. Members of Bench having hearing initially differed, the matter was referred to a Third Member, who held that clandestine manufacturing and clearances were not established by the Revenue. We are not going into it in details, since the learned Counsels on either side may not have had the opportunity of examining the decision in the light of the facts of the present case. Suffice it to say that the said decision has also tabulated the entire case law, including most of the decisions cite before us now, considered them and come to the above conclusion. In yet another decision of a co-ordinate Bench of the Tribunal [Pan Parag India v. CCE, 2013 (291) E.L.T. 81] it has been held that the theory of preponderance of probability would be applicable only when there were strong evidence heading only to one and only one conclusion of clandestine activities. The said theory, cannot be adopted in case of weak evidences of a doubtful nature. Where to manufacture huge quantities of final products the assessee require all the art materials, there should be some evidence of huge quantities of raw materials being purchased. The demand was set aside in that case by this Tribunal.
9.?In view of the above legal position and facts available on record, we are constrained to reiterate that evidence of only one diary cannot be made the basis of establishing clandestine manufacture and removal of the fabrics. It has been repeatedly held by the Courts that clandestine manufacture and clearance cannot be readily inferred from few documents and statements unless the allegations are also corroborated and established on evidences, relatable to or linked with actual manufacturing operations. As far as the present demand is concerned, there is no such evidence forthcoming in the records before us to suggest clandestine manufacture and clearance by the appellants. Mere reliance on note books/diaries or statements cannot be considered as enough evidence for clandestine manufacture and clearances. Accordingly, duty demand Rs. 30,18,378/- is not sustainable against the appellant Mahesh Silk Mills, and the same is set aside. Consequently, neither any penalty is imposable upon Mahesh Silk Mills nor their land, plant nor machinery are liable to confiscation under Rule 173Q of the Central Excise Rules, 1944. Appeals filed by the appellants are allowed by setting aside the Order-in-Original dated 5-3-1999.
The Tribunal in the above order relied various Apex Courts and High Courts decisions, where the Courts are repeatedly held that mere statements and private records cannot be relied for establishing the clandestine removal without material evidence corroborating the statements.
17. In the present case, in spite of clear directions by the Tribunal by giving an opportuinity to the adjudicating authority to bring out all the evidences including the electricity consumption, adjudicating authority failed to bring out any material evidence in support of supply of LAB by SWC to the appellants, no evidence for such a huge amount of manufacturing activity, or no evidence of any payments for sale of finished goods clandestinely removed and no evidence on removal of spent acid. We also find that no attempt has been made to obtain the documents and records from TNPL, which is crucial for sale of LAB instead the LA had only relied on the statements and records of SWC who is a sole selling agent of TNPL.
18. In view of the fore-going discussions, we are of the considered view that the entire demand of clandestine removal of acid slurry has been made based on assumption and theoretical calculations by arriving taking notional quantity of LAB. Accordingly, we hold that the demand is not sustainable and entire demand is liable to be set aside. The confiscation of the seized goods of 449 kgs of Acid slurry and imposition of fine ordered by the adjudicating authority is upheld. The excise duty demanded in the impugned order is set aside and the appeal is allowed to that extent.
19. As regards the imposition of penalty on the second appellant Shri A. R. Shanmugasundaram, taking into overall circumstances of the case, and also considering the demand of duty on the main appellant is set aside, we reduce the penalty from Rs.50,00,000 to Rs.2,00,000/-. Both the appeals are disposed of in the above terms.
(Order dictated and pronounced in the Open Court)
(P.K. CHOUDHARY) (R. PERIASAMI)
JUDICIAL MEMBER TECHNICAL MEMBER
BB
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