Custom, Excise & Service Tax Tribunal
Yes vs Represented By : Shri P M Dave (Adv.) on 6 February, 2014
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL, West Zonal Bench, Ahmedabad COURT Appeal No. : E/2172, 2317/99 Arising out of : OIO No. 06 of 1999 dated 26.02.1999 Passed by : The Commissioner (A), CE, Mumbai For approval and signature : Mr. M.V.Ravindran, Honble Member (Judicial) Mr. H.K. Thakur, Honble Member (Technical) 1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No 2 Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3 Whether their Lordships wish to see the fair copy of the Order? Seen 4 Whether Order is to be circulated to the Departmental authorities? Yes Appellant (s) : 1. M/s Mahesh Silk Mills, Surat 2. M/s Chandan Prints Represented by : Shri P M Dave (Adv.) Respondent (s) : CCE, Mumbai
Represented by : Shri J Nair (AR) CORAM :
Mr. M.V.Ravindran, Honble Member (Judicial) Mr. H.K. Thakur, Hon.ble Member (Technical) Date of Hearing : 6/2/2014 Decision : 31/3/2014 ORDER No. A/10467-10468/2014 dtd 31.3.2014 Per : Mr. H.K. Thakur;
Appeal No. E/ 2172/ 99-MUM, filed by M/s Mahesh Silk Mills, Surat, and Appeal No. E/ 2317/ 99 filed by M/s Chandan Prints, Surat are directed against the same Order in Original No. 06 of 1999 dated 26.02.1999, passed by the Commissioner (Adjudication), Central Excise, Mumbai. As the issues involved in both the appeals are interconnected and arise out of the same impugned Order, both these appeals are being disposed by this common order.
2. Briefly stated the facts of the case are that the appellant M/s Mahesh Silk Mills is engaged in the processing of man-made fabrics (belonging to various cloth merchants/ traders) on job work basis attracting Additional Duty under the Additional Duties of Excise (Goods of Special Importance) Act, 1957. The factory premises of the appellant M/s Mahesh Silk Mills and seven shop premises of cloth merchants/ traders were searched on 19.10.1995 by the officers of the Directorate General of Central Excise Intelligence, Zonal Unit, Mumbai, and the shop premises of M/s Chandan Silk Mills being one of the seven shops searched. During the course of search at M/s Mahesh Silk Mills on 19/20.10.1995, some short and some excess quantities of finished/ semi-finished/ grey man-made fabrics were detected by the officers, for which show cause notice was issued on 17.04.1996 by the Commissioner, Central Excise, Surat. The officers also seized one diary from the factory premise of Mahesh Silk Mills containing fabric details like Name, Date, No., Meterage, Name of Fabric etc. allegedly showing quantities of grey fabrics received from 47 cloth merchants / traders and corresponding processed fabrics sent back by M/s Mahesh Silk Mills after processing to the said merchants/ traders during the period September to October, 1994. On comparing the figures contained in the diary with the Lot Register maintained by M/s Mahesh Silk Mills, the officers suspected that M/s Mahesh Silk Mills processed 16,82,267.15 linear meters of man-made fabrics without proper accountable in central excise records and removed the same clandestinely without payment of Additional Duty of Rs. 30, 18,378/- during the period of September to October, 1994. During the search at the premises of M/s Chandan Prints, one of the seven cloth merchants whose shop premises were also searched on 19.10.1995, the officers recovered and seized one file containing grey fabric challans for the period 15.07.1992 to 13.10. 1995, under which Chandan Prints had sent grey fabrics for processing to various fabric processors including Mahesh Silk Mills, and found that Mahesh Silk Mills had received grey fabrics from Chandan Prints on 29.03.1994 and 05.08.1993 and sent the same back after processing without payment of Additional Duty amounting to Rs. 33,957/-. Another show cause notice dated 31.03.1998 was issued to Mahesh Silk Mills by invoking extended period of time limitation for recovery of duty of Rs. 30,18,378/- for the year 1994-95. After due process of adjudication, the Commissioner (Adjudication), Central Excise, Mumbai confirmed the demand of Rs. 30,18,378/- along with interest against Mahesh Silk Mills, imposed penalty of Rs. 30 lakhs on them under Rule 173 Q (1), and confiscated land, building, plant and machinery of Mahesh Silk Mills under Rule 173 (Q) (2) of the Central Excise Rules 1944 by giving an option to the appellant to redeem the same on payment of redemption fine of five lakh rupees within one month of receipt of the impugned Order in Original. A penalty of Rs. 30,000/- was also imposed on Chandan Prints under Rule 209A of the Central Excise Rules, 1944.
3.1. Learned Advocate Shri Paresh M. Dave arguing on behalf of the appellants made the following submissions:
(a) that the demand of duty had been worked out only on the basis of a diary containing rough jottings, but no one from the appellants side had admitted that the diary belonged to them, nor the contents of the diary were admitted by any one from the appellants side. It is also not proved who maintained the diary and under whose directions the same was maintained.
(b) that statement of only one of the parties, out of many detailed in the diary, was relied upon and this statement of Shri Ramesh Chhipa of Chandan Prints was only for 24,555 linear meters against demand raisewd on a total quantity of 16.82 lakh meters in these proceedings. That, panchnamas were drawn at the premises of various other traders/ cloth merchants also but those evidences are not relied upon by the Revenue for the reasons best known to them.
(c) that huge quantity of 16.82 lakh meters of fabrics is alleged to have been processed during two months of September and October, 1994, but no corroborative evidence of excess consumption of electricity, colours, dyes, chemicals etc is adduced by Revenue. That even the production capacity of the factory is also not considered by the investigation.
(d) that penalty on only one trader Chandan Prints, who allegedly received a small quantity of 24,255 L. Meters of processed fabrics, has been imposed. However, there were no proceedings against any of the other 46 traders, who allegedly got their grey fabrics processed from Mahesh Silk Mills, and whose identity is also not established by the Department.
(e) that in view of the above circumstances, a serious charge of clandestine production and illicit removal of goods cannot be held to have been proved beyond a reasonable doubt.
3.2 The learned advocate cited the following citations in support of his arguments:
(i) Rajasthan Foils Pvt. Ltd. Vs. Commissioner o Central Excise, Jaipur [2005 (183) ELT 101 (Tri. Delhi)];
(ii) Ashwin Vanaspati Industries Pvt. Ltd. Vs. Collector of Central Excise [1992 (59) ELT 175 ( Tribunal)];
(iii) Abenzer Rubbers Limited Vs. Collector of Central Excise, Ahmedabad [1986 (26) ELT 997 (Tribunal)];
(iv) Shakti Chemical Industries Vs. Collector of Central Excise, Baroda [1995 (76) ELT 410 (Tribunal);
(v) Kashmir Vanaspati (P) Ltd. Vs. Collector of Central Excise [1989 (39) ELT 655 (Tribunal)]; and
(vi) Vishwa Traders Pvt. Ltd. Vs. Commissioner of Central Excise, Vadodara [2012 (278) 362 (Tri. Ahd.)]
(vii) Nova Petrochemicals Ltd. Vs. CCE, Ahmedabad-II [Final Order No. A/ 11207-11219/ 2013 dated 29.09.2013 (Tri. Ahd.)] 3.3 The learned Advocate Shri Dave further argued that the only evidence in support of the Revenues case was statement of co-accused Shri Ramesh Chhipa of Chandan Prints, which has been retracted during the adjudication proceedings before the Commissioner (Adjudication). It is a settled legal position that no reliance could be placed on the statement of a co-accused. He referred to the following case laws in this regard:
(a) Abdul Kadar Gulam Mohd. Mulla Vs. Commissioner of Customs, Ahmedabad [2008 (230) ELT 439 (Tri. Ahmd.)];
(b) Hasan Ali Vs. Commissioner of Customs, Patna [2001 (138) ELT 197 (Tri. Kolkata)];
(c) Rajendra Prasad Vs. Commissioner of Customs, Patna. [2001 (136) ELT 925 (Tri. Kolkata)]; and
(d) Om Parkash Kulthia Vs. Commissioner of Customs (Prev.), W. B. [1997 (91) ELT 684 (Tribunal)] 3.4 Shri Dave also argued that the appellants request for cross examination was rejected while passing the impugned Order in Original, and thus there was a violation of the principles of natural justice inasmuch as the appellants could have filed affidavits or any other proof of the concerned persons if the Commissioner had informed the appellants before passing the order that request for cross examination was denied. When statement of a third party is relied upon against an assessee, the assessee has a right to cross examine such witness. Otherwise, statement of the concerned person, and in any case, statement of a co-accused, could not have been relied upon for holding anything against the appellant. He cited the case law of Mahek Glazes Private Limited Vs. Union of India, reported as [2014 (300) ELT 25 (Guj.)] 3.5. The learned advocate also argued that penalties under Rules 173Q and 209A imposed on the appellants were without jurisdiction in view of the judgment of Honble Supreme Court in the matter of Collector of Central Excise Vs. Orient Fabrics Pvt. Ltd., [2003 (158) ELT 545 (SC) = (2004) 1 SCC 517].
3.6. Ld Advocate further argued that the first show cause notice dated 17.04.1996 was issued after investigations were over, and no new evidence was found by the Revenue to justify delay of almost two years in issuing the second show cause notice on 31.03.1998. The second show cause notice dated 31.03.1998 is, therefore, time barred. He cited the following case laws in this regard:
(a) Nizam Sugar Factory Vs. Union of India [2006 (197) ELT 465 (SC)],
(b) Riva Textile Industries Ltd. [2006 (197) ELT 555 (Tri. Mum)],
(c) Lovely Food Industries [2006 (195) ELT 90 (Tri. Bang)], and
(d) Neminath Fabrics [Order No. A/ 1676-1677/ WZB/ AHD/ 2008 (Tri. Ahd.) dated 20/ 26.08.2008].
3.7 The Ld. Advocate, therefore, contended that the demand of Additional Duty of Excise is not sustainable in view of the above arguments.
4.1. On the other hand Shri J. Nair(AR), re-iterating the findings of the Adjudicating authority, argued that demand of Additional Duty of Excise is sustainable on the basis of the diary recovered from the factory premises of the appellant on 19/20.10.1995 and the statement of Shri Ramesh Chhipa of Chandan Prints. The recovery of the diary from the premises of Mahesh Silk Mills during the course of search on 19/20.10.1995 is not disputed. He drew our attention to the provisions of Section 36A of the Central Excise Act, 1944 relating to presumption as to documents seized from the custody or control of a person. He cited the following case laws in support of his arguments:
(a) Motorol Technologies Ltd. Vs. Commissioner of Central Excise, Vadodara [2009 (245) ELT 352 (Tri. Mumbai)]; and
(c) Ramachandra Raxines Private Limited Vs. Commissioner of Central Excise, Bangalore-I 2013 (295) ELT 116 (Tri. Bang.)] 4.2. He further argued that statement of co-accused Ramesh Chhipa of Chandan Prints can be used against Mahesh Silk Mills in view of the judgment of the Honble Supreme Court in the matter of Naresh J. Sukhawani Vs. Union of India [1996 (83) ELT 258 (SC)].
4.3. On the point of limitation, the Ld. AR argued that the extended period of time under proviso to Section 11A (1) of the Central Excise Act 1944 has been rightly invoked in the case. It was his case that the first show cause notice dated 17.04.1996 was issued in respect of excess quantities of processed/ semi-finished man-made fabrics detected & seized from the factory of Mahesh Silk Mills as well as shortages of processed/ semi-finished/ grey man-made fabrics detected in the appellants factory on 19/20.10.1995 keeping in view the fact that show cause notice in respect of seized goods had to be issued within six months from the date of seizure of goods in terms of sub section (2) of section 110 of the Customs Act, 1962, as made applicable to central excise cases. The second show cause notice was issued on 31.03.1998 on the grounds of non-accountal of man-made fabrics and suppression of production of processed man-made fabrics during the year 1994-95 by invoking the proviso to sub-section 1 of section 11A, as the period of demand of duty was within a period of five years from 31.03.1998. He cited the following case laws in support of his arguments:
(a) Hi-Tech Needles (P) Ltd. Vs. Commissioner of Customs, Allahabad - [2012 (279) 461 (Tri. Del.)];
(b) Commissioner of Central Excise, Daman Vs. Caprihans India Limited [2010 (261) ELT 357 (Tri. Ahmd.)];
(c) Commissioner of Central Excise, Visakhapatnam Vs. Mehta & Co. [2011 (264) ELT 481 (SC)]; and
(d) Commissioner of Central Excise, SUrat-I Vs. Neminath Fabrics Pvt. Ltd. [2010 (256) ELT 369 (Guj.)] 4.4. The learned AR, thus, contended that the demand of Additional Duty of Excise along with interest is maintainable and consequently penalties were correctly imposed upon the appellants apart from confiscation of land, plant and machinery of Mahesh Silk Mills.
5. We have heard both sides and perused the case records. The issue involved is alleged clandestine and manufacture of manmade fabrics by the appellant M/s Mahesh Silk Mills.
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 diary from the factory prewmises 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 29.03.1994 and 05.08.1993.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. Vs. Commissioner of Central Excise, Jaipur [2005 (183) ELT 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 Vs. CCE, Ahmedabad-II, this Tribunal in its Final Order No. A/ 11207-11219/ 2013 dated 26.09.2013 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)ELT 689. It would appear that the decision though rendered on 3.5.2013 was reported in the issue of the ELT 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 ELT 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)ELT 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 Indiia v CCE, 20132(201)ELT 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 aide 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 173 Q of the Central Excise Rules, 1944. Appeals filed by the appellants are allowed by setting aside the Order in Original dtd 5/3/1999.
(Pronounced in the open Court on 31.3.2014)
(M.V.Ravindran) (H.K. Thakur)
Member (Technical) Member (Technical)
swami
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