Custom, Excise & Service Tax Tribunal
Dharampal Satyapal Limited vs Noida on 13 June, 2018
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL
REGIONAL BENCH : ALLAHABAD
COURT No. I
E/MISC/70041/2018 IN
APPEAL No.E/70382/2017-EX[DB]
(Arising out of Order-in-Original No. 45/Pr.Comm./Noida-I/2016-17 dated
28/02/2017 passed by Principal Commissioner of Central Excise, Noida-I)
M/s Dharampal Satyapal Ltd. Appellant
Vs.
Principal Commissioner of Central Excise, Noida-I Respondent
Appearance:
Shri Prabhat Kumar, Advocate for Appellant Shri Rajeev Ranjan, Joint Commissioner (AR), for Respondent CORAM:
Hon'ble Mr. Anil Choudhary, Member (Judicial) Hon'ble Mr. Anil G. Shakkarwar, Member (Technical) Date of Hearing : 12/04/2018 Date of Pronouncement : 13/06 /2018 FINAL ORDER NO-71103 / 2018 Per: Anil Choudhary The present appeal is arising out of Order-in-Original No. 45/Pr.Comm./Noida-I/2016-17 dated 28/02/2017 passed by Principal Commissioner of Central Excise, Noida-I.
2. The brief facts of the case are that the appellants (DSL for short) were engaged in manufacturing of various kind of Pan masala, Gutkha and Mouth Fresheners in their two units at Noida and 9 units at Guwahati in Assam. Officers of DGCEI conducted searches on belief that appellant had used 2 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] excess catechu (Kattha) purchased from various suppliers, the officers seized certain documents and also recovered a cash of Rs.47 lakh from the residence of Shri Subhash Chand Gupta uncle of Shri Ajay Kumar Gupta, Rs.9 lakhs from the residence of Shri Ajay Kumar Gupta, Director of the appellant Company, Rs.1.5 lakhs from the residence of Shri Puesh Kumar Gupta, Director of DSL and Rs.4 lakhs from the residence of Shri Vipul Kumar Gupta total amounting to Rs.61.5 lakh was detained vide panchnama dated 16.07.2008. The Officers of DGCEI recorded various statements, and on the basis of statements issued a show cause notice dated 15.07.2009 requiring them to show cause as to why a demand of Rs.245.67Crores Approx should not be demanded on account of receipt of excess quantity of 414473 Kg. of Kattha from their suppliers and utilized in the manufacture of finished goods. Appellant filed written reply dated 18.04.2011, 29.07.2011 and 28.07.2016 denying all the allegations and stating that there was complete absence of application of mind and appellant had reconciled all the figures; that there was no corroborative evidence of receipt of all the raw materials, manufacture of the finished goods in a clandestine manner and transportation of the same; no buyers of the said goods were identified and such a huge amount of cash generated in the process was never recovered. Besides, all the units at Guwahati were availing areas based exemption during the said period and Noida unit was engaged 3 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] only in export of the finished goods under refund mechanism. Therefore, question of any evasion did not arise at the threshold and entire show cause notice was based on assumption and presumption. Further, the appellant filed an application for settlement admitting an alleged excess quantity of 2000 Kg. of Kattha on the ground that a particular figure was not reconciled properly as the author of the document (Late S.N. Gupta), 106 pages recovered from whose residence had subsequently died. Settlement Commission settled the issue which was challenged before Hon'ble Delhi High Court which remanded the matter to the adjudicating Authority. In an appeal by appellant before Supreme Court, Hon'ble Supreme Court set aside the order of Settlement Commission and order passed by Delhi High Court and remanded the matter back to the Settlement Commission which through a subsequent motion, the order was further clarified that the matter was remanded to the Adjudicating Authority. Proceedings before the Learned Commissioner at Noida were accordingly held and cross examination of 18 suppliers was allowed, out of which 12 appeared for cross examination, one supplier sent his written submissions and the remaining 5 suppliers did not appear at all. During the cross examination all the suppliers properly clarified the discrepancy and the appellant also made Additional Written Submission before Commissioner, reconciling the entire figures of supplier. Further, as regards discrepancy of 4 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] 1,91,492 Kg between the catechu purchased and quantity consumed, appellant explained that there was a wastage to the tune of 9-10% and full records were maintained year wise. They also relied upon wastage allowed under various other laws in respect of tobacco product. However, ignoring the submissions made by the appellant, Learned Commissioner passed an order confirming the demand, as proposed in the said show cause notice. Aggrieved by the said order, appellant has filed present appeal before this Tribunal.
3. Learned Counsel for the appellant submits as follows:-
3.1 The entire demand has been raised only on the ground of reconciliations of entries and that the appellant received alleged excess quantity of 4,14,473 kg of catechu from their suppliers and utilised the same in the manufacture of suppressed production of their final products, which were cleared clandestinely without payment of duty. Full explanation has been offered even on the merit of receipt of catechu in their various replies, clarifications during the hearing and cross examination, but the factual and legal submissions have been ignored completely, resulting mis-carriage of justice in passing the impugned order. 3.1.1 Duplication of demand:-Show cause Notice itself is contradictory as on the one side it assumes that purchase data of catechu as provided by the appellant 5 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] to the investigating officer during investigation as per its books of accounts is true and complete and on the other side it also assumes that purchase of catechu recorded in the seized 166 loose sheets, is true and complete and accordingly demand has been raised assuming both the records as true and complete. Further, assuming the purchase data provided by the appellant as true and , a quantity of 3,27,922 kg (1,36,430 kg in para 3.3 of SCN and 1,91,492 kg in para 7.7 of SCN) has been alleged as excess purchase and calculated a duty demand of Rs.
188,97,12,671.00 (as per data in para-7.7 of SCN). Similarly assuming the purchase data as shown in seized 166 loose sheets as true and complete, a quantity of 86,551 kg (48,700 kg in para 5.6 of SCN and 37,851 kg in para 6 of SCN) has been alleged as excess purchase and calculated a duty demand of Rs.56,70,31,839.00 (Rs. 29,99,61,722.00 as per data in para 5.6 of SCN and Rs. 26,70,70,117.00 as per data in para 6 of SCN). Infact data of catechu supply as provided by suppliers to the investigative officers has been compared with both the records of the appellant and wherever it appears excess, demand has been raised, whereas where it appears negative or short supply it has been totally ignored. Details of explanations supported with the related documents, 6 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] with regard to excess receipt of catechu was ignored while passing the impugned order, which is as follows- a. that DSL received unaccounted quantity of 1,36,430 kg of catechu from 18 catechu suppliers, the details of which are given in the table in para-3.3 of the SCN. The difference is allegedly based on comparision of the figures which have been supplied by DSL as per books of accounts and by the respective suppliers. b. Excess receipt of 48,700 kg of catechu, as per details given in the table in para-5.6 of the SCN, which is alleged to have been calculated on the basis of quantity shown in 166 papers recovered during search but not shown by 18 catechu suppliers.
c. Excess receipt of 37,851 kg of catechu, as per details given in the Table in para-6 of the SCN, which is alleged to have been calculated on the basis of lesser quantity shown in 166 papers recovered during search as compared to quantity shown by 18 suppliers. d. Excess receipt of 1,91,492 kg of catechu, as per details given in the table in para-7.7 of the SCN, which is alleged to have been calculated on the basis of figures of catechu purchased from all the 35 catechu suppliers, as furnished by DSL and the quantity of catechu consumed in the manufacture of accounted for production of pan masala, gutka and mouth freshener. The quantity of catechu consumed in the accounted for 7 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] manufacture of the said final products has been calculated on the basis of percentage of catechu required in each product as per formula. e. Full and cogent explanation in respect of the above quantities were submitted alongwith the documentary evidences and also re-verified by respective suppliers during cross examination, but Ld. Adjudicating Authority ignored the submissions.
3.2 That the impugned order-in-original has been passed mechanically without considering the submissions made and outcome of the cross examination. Even when evidence has come on record and documents have been tallied in respect of alleged shortages/excesses before the adjudicating authority himself, however, the adjudication authority has ignored the evidences. 3.3 The Order-in-Original is a non-speaking order in as much as the submissions and explanations made before the authority has not been considered, and order was passed with a biased mind with an intention to confirm the demand.
3.4 The impugned order relies only upon DGCEI investigation, and evidences produced have been ignored and hence the impugned order is liable to be set aside- That the order in original places huge reliance only on the investigation conducted by DGCEI, documents relied upon in the notice and cash 8 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] recovered. Such reliance placed on materials in the show cause notice is highly inadequate and the contra arguments in the replies filed has been ignored completely or has not been dealt with properly. It is evident from the SCN itself that there is duplicate demand against some entries as demand against some entries in a particular para of SCN has also been calculated in other paras.
3.5 The Ld. Commissioner has gone tangentially on factors like delaying tactics, which is factually improper. Appellant always filed their replies etc in time. They requested for cross examination which is a statutory right under the provisions of the Act and which the Adjudicating Authority had granted. After cross examination, replies have been filed in time and there is no delay on the part of the appellant. Rather, the appellant itself got the case file prepared in the office of the adjudicating authority by re-submitting its earlier replies, additional replies and other documents as the adjudicating authority was not having any record of the case. Even the adjudicating authority took 11 months to inform the appellant regarding his appointment as a common adjudicating authority in the present case. 3.6 The Order-In-Original is based on a wrong premise that raw catechu is used as such in the manufacture of final products, whereas processed catechu is used in 9 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] production of finished goods. - The impugned Order proceeds on a wrong premise that raw catechu purchased by DSL from its catechu suppliers is used as such in the manufacture of final products, namely, pan masala, gutkha and mouth freshener. However, catechu (Kattha) purchased by DSL from all suppliers is in raw form and cannot be used as such in the manufacture of final products directly. Raw catechu is required to be processed into ‗powder from' first, before being used in the manufacture of final products.
3.7 In processing of raw Catechu, there is a moisture loss, even this vital fact has been ignored in the order- In processing of raw Catechu, there is a natural moisture loss. BIS standards and various other Acts specify the % loss of moisture. Appellant's own record of each lot of catechu records the exact quantities of catechu received, Catechu obtained after processing, and the difference being the moisture loss. But appellant's entire submissions have been completely ignored. 3.8 Certain vital facts ignored by Commissioner, while passing the impugned order- Preliminary objections to the charges alleged in the notice as confirmed in the order-in-original are as follows:
i. That the SCN is based only on a single raw material, which comprises only 8 to 9% of the final products.
10 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] ii. That reliance has been placed on both the records of the appellant i.e. the seized records are not true and complete.
iii. That certain papers recovered from the residence of their director Late Shri. S.N. Gupta was written by him, which only he was aware of in the matter of his own writings. But he was not questioned at all about the loose sheets by the investigating officer, whereas he was alive for some time (many days) during the investigation. However, appellant through their own efforts in absence of benefit of knowledge from Late S N Gupta, has been able to fully explain the matter, but erroneously ignored by Commissioner. iv. That show cause notice is based on presumptions and assumptions. It is full of inaccuracies and consequently resulting in erroneous demand. v. That while calculating the alleged excess quantity of catechu certain mistakes on the part of investigation officer are apparent from the SCN itself such as artithmatical error in comparison of data, not considering sales return as shown by suppliers in their statement of supplies, which were provided to the DGCEI by them, goods in transit as on 31 march on closing of the financial year, opening and closing stock of raw catechu at the end and opening of the financial year etc., all such vital facts of the case 11 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] have totally been ignored by the adjudicating authority.
vi. The Show cause notice has been issued on the sale basis of purchase and consumption of catechu, without any investigation whatsoever in to other ingredients of the different final products, manufactured by DSL.
vii. That there is moisture loss, (ranging from 9-11%) in conversion of catechu/kattha in powder form. viii. That while working out the receipt of catechu/kattha, reliance has been placed on documents without accounting for the full details. For example, return of certain quantities of raw materials (Catechu/Kattha) becomes inevitable on account of the fact that such goods are not in conformity with the quality of goods required and/or used in manufacture of final products.
ix. It is an admitted position that each of the manufacturers of Pan Masala or Gutkah or Mouth freshener, has their own speciality (quality, taste)of the final branded products, which is distinguishable from the products made by other manufacturers, on account of differences in fragrances and taste etc. Therefore, wherever raw catechu/Kattha is not up to the mark, the same is returned to the suppliers. This 12 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] happens in a few cases and even on date, there are cases of returned goods.
x. That raw catechu/kattha supplied by the suppliers was not-excisable during the impugned period. xi. Investigating officers never visited the factory premises of the appellant to determine other relevant factors.
xii. Entire demand in the SCN is based on certain statement of various persons recorded u/s 14 which have been relied upon and also annexed with SCN, reveals the contrary pictures as recorded in SCN. xiii. Statement of Shri S.N. Gupta, (subsequently died), the person who looked after purchase of catechu of the appellant, had never been recorded whereas he was alive for some time during investigation. xiv. The appellant submitted supplier wise and yearwise detail of catechu purchased from all the 35 catechu suppliers along with invoices of each supplier as per it books of accounts and a substantial demand of Rs. 108,67,75,435 .00 in para 7.7 of SCN has also been raised relying on such purchases data of all the 35 catechu suppliers.
3.9 No other corroborative material evidence adduced by the Revenue, hence impugned order is against the principles of law laid down by Hon'ble Supreme Court, various High Courts and CESTAT in various 13 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] judgements. Quantity of catechu received by appellant having been fully explained but was ignored in the order. That it is well settled principle of law that the authorities must prove its case of alleged clandestine removal by adducing proper evidence by way of procurement of raw material and manufacture of finished goods and the cash generated in the process, in clearance of clandestinely produced material. No such evidence has been led or discussed in the order. There is no evidence of procurement in excess of other raw materials required in alleged clandestine manufacture and clearance of the final products. Huge quantities of other raw materials and packing materials would be required in addition. Matching capacity of plants for production of final products in alleged quantities. No evidence has been adduced in the instant case with regard to any transaction, monetary or otherwise, in alleged clandestinely removed goods. Similarly, there is no evidence of transportation, sale of finished goods, buyers of such goods, cash generated in such sales of huge quantity of finished goods, and any other corroborative material.
3.10 Onus of proving the alleged facts and presumptions have been erroneously shifted to the appellant. The tenor of the entire order runs with the presumption that everything has to be proved by the appellant, whereas it 14 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] is a settled law that for proving a case of clandestine removal, department must prove its case beyond doubt. 3.11 Order-in-Original is bad in law as it holds that there is no need to go into merits of the case. Ld. Commissioner have observed in Order-In-Original, that as the present case has already been investigated by DGCEI, hence there is no need to go into the merits of the case, is unreasonable and beyond the legal procedure and juris prudence.
3.12 Contemporaneous record produced by the appellant has been completely ignored without any basis or contra evidence on record.- That during the entire investigation, officers of DGCEI did not visit the factory/factories of the appellant even once to ascertain the facts. When the appellant produced material evidences from contemporaneous statutory records, like statement of accounts, record/ registers maintained, Balance Sheets, even these evidences have been ignored by learned Commissioner, while passing the order, thus vitiating the order.
3.13 Entire demand is primarily based on statements of one Shri Ajay Kumar Gupta, whereas he was not associated with the appellant company before 01.01.2006, as he was appointed Director of Dharampal Satyapal Ltd. only on 01.01.2006.
15 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] 3.14 Order passed on different grounds - Adjudication has been beyond the scope of SCN as certain new grounds which are not there in the SCN have also been framed such as, excess material purchased in cash without bill and such material has been stored in unknown and undeclared godowns etc.while passing the order. 3.14.1Order-In-Original travels beyond the jurisdiction of adjudication upon material evidence- That the show cause notice should have been adjudicated only to the limited extent of the alleged excess raw material noted in the records, whereas it goes tangentially to non production of witness in the notice, and no allegation can be made, if the authorities did not conduct investigation properly. Department had full liberty to investigate in the matter which they have failed to carry out. In fact the department did not even make a visit to the factory nor did the Commissioner or Principal Commissioner directed any officers to verify the relevant facts by making a visit to the factory, even after repeated requests of the appellant to verify the process loss of raw catechu in the factory premises of the appellant.
3.15 That the entire demand is based on single raw material i.e. catechu which comprises only 8 to 9% ratio in the appellant's final products; Pan Masala, Gutkha and Mouth Freshner. The SCN was issued on the basis of 16 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] purchases and consumption of catechu only without any investigation of other ingredients required in the different final products manufactured by DSL.
The Final products of the appellant cannot be manufactured by one raw material i.e. catechu and in support of alleged demand, there was no other evidence /support relied in the show cause notice.
Besides procurement of Raw Materials, there must be matching evidence of labour employed, electricity consumed, plant capacity and other evidence in order to establish charge of clandestine manufacture and removal.
3.16 Ld. Adjudicating Authority failed to appreciate that the allegation of clandestine manufacture and removal is not sustainable in view of the following facts:-
(i) That there is no allegation in the SCN that the appellant had received and used extra quantities of inputs, other than catechu.
(ii) That no excess or shortage was found in the stocks of any of the raw materials during physical verification.
(iii) That the allegation is not supported by any statement either of production or of dispatch staff of the appellant.
(iv) That no extra consumption of electricity and other raw materials was noted by the officers during their investigation.
17 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB]
(v) That during investigation no evidence was found from the transporters or the drivers hinting towards any clandestine removal.
(vi) That the seized documents too, do not give any indication of clandestine manufacture. Legal requirement of evidence of procurement of raw materials, labour employed, electricity consumed, transport of such goods to their dealers/buyers and collection of payments and flow of funds relating to such transactions not met and hence allegation of clandestine manufacture and sale of goods is unsustainable.- Ld. Adjudicating Authority failed to appreciate the clear principle of law laid down by different Courts in the matter of proof for clandestine manufacture and removal. Therefore all the allegations contained in the show cause notice, relating to clandestine manufacture and sale of final products are based on mere presumptions and assumptions, are totally unsustainable in law.
Appellant has placed reliance on plethora of decisions;
(i) 2003(153)ELT 586- CCE HYDERABAD V/S ANNAPURNA INDUSTRIES
(ii) 2004(163) ELT 472- CCE COIMBATORE V/S SANGHMITRA COTTON MILLS (P) LTD
(iii) 2014 (309) E.L.T. 411 (AII.)--CONTINENTAL CEMENT COMPANY Versus UNION OF INDIA 18 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] 2016 (333) E.L.T. 483 (Tri. - Del.) - CENTURY METAL RECYCLING PVT. LTD VERSUS COMMISSIONER OF C.EX., DELHI-IV 2016 (332) E.L.T. 416 (Del.)--FLEVEL INTERNATIONAL VERSUS COMMISSIONER OF CENTRAL EXCISE 2016(322) E.L.T 793 (Del) - COMMISSIONER OF CENTRAL EXCISE, DELHI-I VERSUS VISHNU AND CO. PVT.LD.
AIR 1981 SC 746 in the case of rakman and bairoliya and 1978 (2) ELT (J-172, sc) in the case of Oudh Sugar Mills.
2003 (152) ELT 131-KALVERT FOODS INDIA PVT LTD V/S CCE MUMBAI 2000 (126) ELT 1079-DEEPAK TANDON V/S CCE BHUBANESHWAR 2000 (121) ELT 650- BECO INDUSTRIES V/S CCE JAMSHEDPUR 2001 (130) ELT 228- CCE PATNA V/S UNIVERSAL POLYTHELENE INDUSTRIES That the impugned order in original number 45/Pr. Comm./Noida-1/2016-17 dated 28.-2.2017 passed by the principal commissioner, central excise Commissionerate Noida-1, deserves to be set aside and the appeal deserves to be allowed in full with consequential relief.
19 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] 3.17 During the course of hearing the learned Counsel has submitted that the allegations in the show cause notice were that the appellant had manufactured 5922902.880Kg of Pan Masala, Pan Masala containing Tobacco, Mouth freshener and Meethy Mazz, out of the said alleged unaccounted quantity of catechu which in the opinion of revenue was not reconciled as compare to the data of purchase of Catechu. Revenue did not account for the processing loss on account of lose of moisture and other things, resulting in reduced quantity of catechu available for use in the manufacture of final product. Revenue presumed that the entire quantity of catechu was used as such without any processing. Learned Counsel further submitted that following raw materials were required for manufacture of additional 5922902.880Kg of Pan masala, pan masala containing tobacco, mouth freshener and meethy mazza.
S. No. Description of Raw Material Quantity (kg)
1. Betel nut 42,54,295.910
2. Cardamom 60,868.960
3. Lime 2,41,476.110
4. Perfume 1,07,443.210
5. Menthol 381.800
6. Tobacco 2,58,296.730
7. Quiwam 11,611.540
8. Ghan NES 00 1,41,097.590
9. Ghan 00 1,31,701.920 20 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB]
10. Ghan zarda 000 royal 1,555.160
11. Ghan betel nut royal gold 2,768.090
12. Baba zarda 276.810
13. Sugar 24,794.370
14. Fennel 49,035.450
15. Dry dates 1,02,277.750
16. Melan seed 3,032.700
17. Herbal extract 19,712.530
18. Packaging material 11,59,000/-
Total (Kg.) 65,69,626.630 He submitted that revenue has not undertaken any investigation to establish procurement of above stated quantities of other raw materials required for manufacture of quantity of final products which were alleged to have been manufactured and cleared clandestinely. He has further submitted that Central Excise Duty is not on procurement of raw material but Central Excise duty is on manufacture and manufacture cannot take place with the help of only on raw material in the absence of other raw materials. The absence of any evidence to establish procurement of other raw materials required for manufacture of alleged quantity of final products does not establish manufacture of alleged quantity of final product. Therefore, the demand of duty as such quantity of final product which were not proved to have come into existence is not sustainable. He has relied on ruling of 21 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] Hon'ble Allahabad High Court in the case of M/s Continental Cement Company Vs Union of India reported at 2014 (309) ELT 411 (All) and submitted that the Hon'ble Allahabad High Court has held in para-12 & 13 of its ruling, as follows:-
"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.
(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." He has further submitted that Hon'ble Allahabad High Court has ruled in the case of Commissioner of 22 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] Central Excise, Meerut-I Vs R.A. Castings Pvt. Ltd. reported at 2011 (269) ELT 377 (All) that under Rule 173E of erstwhile Central Excise Rules, 1944 there was mandatory requirement of fixation of norm for consumption to notify the same and arrived at manufacture on the basis of such consumption. He has submitted that there was no norm fixed for calculation of goods manufactured by use of catechu as raw material. Therefore, the quantity of final product alleged to have been manufactured by the appellant has not been arrived at on the basis of any principles laid down in the law. He has further submitted that challenging the above stated ruling by Hon'ble Allahabad High Court in the case of M/s R.A. Castings, Commissioner of Central Excise, Meerut filed a Petition for Special Leave to Appeal (Civil) Nos. CC 1209-1224/2011 which was dismissed by Hon'ble Supreme Court.
4. Learned A.R. for revenue submits as follows:-
4.1 The persons claiming ―sales return‖ couldn't provide evidences of sales return. Even the term ―sales return‖ came in picture in seventh year of the case history and clearly an ―after-thought‖.
23 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] 4.2 On exemption in North East Region:.......... ‗the amount which party have become entitled to by way of refund had to be invested in the north eastern states only with the approval of competent authority.
In the event of full production in the books of accounts, the resultant refund of excise duty will have to be invested in that region only. In case of clandestine manufacture and removal of final products, the sale proceeds thereof were at the disposal of M/s DSL and they could have enjoyed the money with full liberty and impunity.
4.3 The demand of duty has been worked out on the basis of information provided by the suppliers of catechu, the figures of catechu, appearing on documents recovered from the address.
4.4 The huge quantity of raw material i.e. caechu procured by M/s DSL was being used for manufacture of finished products and the finished products cleared with payment of duty is established from evidences of respective entries in recovered documents, statements of various responsible persons and statements of suppliers of Raw Materials. 4.5 On third party records- the details by the raw material suppliers were provided over a period of time. It was not a question of one day that entire information was 24 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] furnished. At no stage it was raised by M/s DSL that the suppliers were providing wrong figures. 4.6 On Weight loss of catechu during pulverization:- This issue on the basis of which the applicant is seeking substantial write down of their duty liability was never brought up by the concerned person of the applicant at any stage of investigation. After issue of SCN, the appellant is resorting any possible method, howsoever irrelevant and unsubstantiated, to reduce the massive duty liability.
4.7 On recovery of Cash from residence of Shri Ajay Kr.
Gupta, Director, DSL- His version that this amount was to be utilized for payment of freight and labour dues does not stand the test of reasonability in as much as the payment under these heads are made by contractor and not by the company;
4.8 On recovery of Cash from residence of Shri Subhash Chand Gupta- did not turn up as he was abroad. The claim of Shri Subhash Chand Gupta that the amount of Rs. 47 lakhs had been taken on loan from M/s Mansa Trading Company and M/s Surya Kiran Trading Company respectively, was not established. 4.9 On recovery of Cash from residence of Shri Vipul Gupta:- no tenable submission and an afterthought.
25 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] 4.10 In case of clandestine manufacture and removal, it would be futile to expect that all the documents duly authenticated by the evaders shall be up for grabs by law enforcing agencies.
4.11 In view of the facts and circumstances of the case, evasion of duty has been planned and carried out by four persons of M/s DSL i.e. Sri Subhash Chand Gupta, Shri Ajay Kumar Gupta, Shri Puesh Kumar Gupta and Shri Vipul Kumar Gupta and the factories owned and controlled by them. Shri Ajay Kumar Gupta in his statement dated 09.06.2009 had undertaken to locate and contact the elusive sixteen suppliers of catechu and to produce them before the DGCEI. In another statement dated 18.06.2009 he again undertook to produce the suppliers of Catechu. Finally, in his statement dated 11.07.2009 Shri Ajay Kumar Gupta promised to furnish the purchase details from these suppliers along with all bills and ledgers. However, he never submitted and required details. Shri Ajay Kumar Gupta undertook thrice to produce the elusive suppliers but never kept his words. In fact, Shri Ajay Kumar Gupta never made any sincere effort to contact the suppliers; rather his and his company's interest was better served if these suppliers did not turn up. Further, Shri Ajay Kumar 26 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] Gupta in his statement dated 09.06.2009 also confirmed that he alongwith his father looked after the purchase of catechu and supari of M/s DSL. The unaccounted purchase of catechu was eventually used in clandestine removal from the premises of M/s DSL Group Companies. Thus, Shri Ajay Gupta was key man behind all the illegal activities carried out by M/s DSL.
4.12 Shri Subhash Chand Gupta, Shri Puesh Kumar Gupta & Shri Vipul Gupta all directors of M/s DSL were involved and closely associated with the business activities of M/s DSL and working under the guidance and supervision of Shri Ajay Kumar Gupta and helped him in running the illegal business of clandestine manufacture and removal of finished goods without payment of duty.
4.13 All the four persons have planned and executed the modus operandi of clandestine manufacturing of gutkha, pan masala and mouth freshener at various factory premises at Guwathati and at Noida. They had been closely supervising the day to day work beginning from the stage of procurement of unaccounted raw materials to realization of sales proceeds of clandestinely manufactured Gutkha.
27 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] Considering the facts and circumstances of the case and the gravity of the offences, the adjudicating authority vide the impugned order in original dated 28.02.2017, confirmed the demand of the duty alongwith imposition of penalty, interest and personal penalty. Against the said Order-in-Original, the party's present appeal is fit to be dismissed.
5. Having considered the rival submissions and on perusal of records, we find that the learned Commissioner in the impugned order has not taken into consideration explanations given by the appellant in respect of discrepancies in the quantity of catechu presumed to have been procured and used by the appellant and various short supplies, wrong postings of figures and processing losses to arrived at actual quantity of catechu used by the appellant for manufacture of their final product. We also find that appellant had submitted that various other raw materials were required for manufacture of final products such as pan masala, pan masala containing tobacco, mouth freshener and meethy mazza for which no evidence was produced by revenue in the show cause notice nor the original authority has given any reasonable finding for such absence of evidence. We further find that Hon'ble High Court of Allahabad in the relied upon case of M/s 28 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] Continental Cement Company (supra) has held that clandestine removal is a serious charge against the manufacture and the same is required to be discharged by revenue by production of sufficient and tangible evidence. It further pointed out that revenue is required to prove about the excess raw material purchased, dispatch particulars from the regular transporters, realization of sale proceeds of finished products, and to find out receipt of finished products by the buyers. In the whole proceedings we do not find any evidence produced by revenue in respect of procurement of other raw materials which were required for manufacture of alleged quantity of final products in addition to one single raw material i.e. catechu discussed throughout the proceeding. We also did not come across any evidence in respect of dispatch of finished goods, realization of sale proceeds and receipt of the alleged finished goods by the purchasers. We further note that Hon'ble Allahabad High Court in the case of M/s R.A. Castings (supra) has delt upon provision under Rule 173E of erstwhile Central Excise Rules, 1944. The said rule provided for identification of principal raw material and on the basis of such principle raw material there was provision for arriving at normal production. During the material period catechu was not notified to be principle raw material for manufacture of pan masala, pan masala containing 29 E/MISC/70041/2018 IN APPEAL No.E/70382/2017-EX[DB] tobacco, mouth freshener and meethy mazza. Therefore, relying on the ruling by Hon'ble High Court of Allahabad in the case of M/s R.A. Castings (supra) we find that the conclusion drawn by original authority that alleged quantity of final products were manufactured on the basis of calculation of one single raw material i.e. catechu, is not sustainable.
6. We, therefore, set aside the impugned order and allow the appeal. The appellant shall be entitled for consequential relief, as per law. Miscellaneous Application No.E/Misc/70041/2018 filed by revenue for early hearing of appeal, is dismissed as infructous.
(Pronounced in Court on-13/06/2018)
SD/- SD/-
(Anil G. Shakkarwar) (Anil Choudhary)
Member (Technical) Member (Judicial)
akp