Andhra HC (Pre-Telangana)
M/S.Rukmini Industries vs The Commissioner Of Central Excise, ... on 9 April, 2014
Bench: G. Chandraiah, Challa Kodanda Ram
HONBLE SRI JUSTICE G. CHANDRAIAH and HONBLE SRI JUSTICE CHALLA KODANDA RAM
CENTRAL EXCISE APPEAL No.2 of 2005
09-04-2014
M/s.Rukmini Industries .Petitioner
The Commissioner of Central Excise, Hyderabad-I.. Respondent
Counsel for the appellant: Sri Ch.Pushyam Kiran
Sri S.Ravi
Counsel for Respondent: Dr.K.Manmadha Rao, Standing
Counsel for Central Excise.
<Gist :
>Head Note:
? Cases referred:
1. AIR 1972 SC 391
HONBLE SRI JUSTICE G. CHANDRAIAH
and
HONBLE SRI JUSTICE CHALLA KODANDA RAM
CENTRAL EXCISE APPEAL No.2 of 2005
JUDGMENT:- (Per Honble Sri Justice G. Chandraiah) The appellant/manufacturer had filed the present appeal under Section 35-G of the Central Excise Act, 1944, aggrieved by the order of the Customs, Excise & Service Tax Appellate Tribunal (for short the Tribunal), South Zonal Bench at Bangalore, dated 27-04-2004, confirming the order in original of the Commissioner of Central Excise, dated 13-11-1998.
2. The brief facts, from which the order of the Tribunal as well as the Commissioner are mentioned below.
3. The appellant is a small-scale industrial unit engaged in the manufacture of acid slurry, soap oil and waste weak acid since 1989-
90. The business of the appellant is now closed. The main raw materials for manufacture of acid slurry are: linear alkyle benzene (hereinafter referred to as LAB), oleum and water. All the said three raw materials are very much essential for the manufacture of finished goods. The appellant was availing Modvat credit of duty paid on the raw materials after filing necessary statutory declarations before the concerned authorities. There was no discrepancy either in respect of raw materials in stock or in the matter of availment of Modvat credit by the appellant. The periodical returns in Form RT-12, were being filed and assessed by the concerned Range Superintendent.
4. There was an inspection at the premises of the appellant by the Directorate General of Anti-Evasion, Hyderabad on 13-04-1994 and certain records were seized. The statements of the certain persons were recorded. Based on the inspection and the information obtained, a show-cause notice dated 20-01-1995 was issued alleging that the appellant had not accounted for purchase of raw material namely, LAB made from a public sector organization by name, M/s.Tamil Nadu Petro Products (hereinafter referred to as TPL)
5. The appellant submitted a detailed reply denying the purchase of goods, which were consigned to 27 dealers by TPL. The appellant also submitted that the entire purchases of LAB from TPL have been accounted and the allegation of the department that the appellant received the goods from TPL which were meant for the 27 dealers is not correct and justified on the facts and in circumstances of the case. The appellant also submitted that for manufacture of acid slurry out of 546 tonnes of LAB the manufacturer is required to mix 652 tonnes of oleum to obtain the alleged clandestine removal of 856 tonnes of acid slurry. The oleum is required in greater quantity than LAB for manufacture of acid slurry. There was no allegation that the appellant has received oleum clandestinely. In the absence of any evidence of clandestine receipt of corresponding quantity of oleum, to prove the case in the notice, the impugned order cannot be sustained.
6. The Commissioner of Central Excise passed an order dated 13-11-1998 confirming the proposal made in the show cause notice. In the impugned order dated 13-11-1998, the learned Commissioner of Central Excise confirmed a duty of Rs.53,73,428/- and also imposed a penalty of Rs.5 lakhs on the appellant-firm. Further, the Commissioner of Central Excise also confirmed the confiscation of plant and machinery and gave an option to redeem the same on payment of fine of Rs.3 lakhs. The Commissioner also imposed a personal penalty of Rs.1,00,000/- on Sri C.Ramchander Rao, partner of the appellant-firm and also imposed a penalty of Rs.50,000/- on Sri B.Damodar Rao and Sri M.Narsing Rao under Rule 290A of the Central Excise Rules, 1944.
7. Aggrieved by the order dated 13-11-1998 passed by the Commissioner of Central Excise, the appellant filed an appeal before the Customs, Excise and Service Tax Appellate Tribunal under Section 35-B of the Central Excise Act, 1944.
8. In the appeal, the appellant had raised as many as 11 questions of law said to be arising from the order of the Tribunal. On perusal of the same, we find that most of them are grounds of appeal rather than questions of law. In that circumstances, we deem it appropriate to frame questions of law. Based on the material available on record and after hearing both the parties, three questions of law are framed for consideration.
1. Whether in the facts and circumstances of the case, the Tribunal was right in affirming the findings of the Commissioner that there was a material in the case with respect to purchase of LAB in the third parties names by the appellant used in manufacture of acid slurry by the appellant and whether the findings of the Tribunal are perverse and based on no material ?
2. Whether in the facts and circumstances of the case, the Tribunal was right in law in not accepting the arguments of the appellant that extended period of limitation cannot be applied ?
3. Whether in the facts and circumstances of the case, the order of the Tribunal suffers from the illegality in not considering the claim of the appellant for modivat credit, which is alleged to have purchased and used in third parties names on account of the fact that duty on the manufacture of acid slurry was being demanded from the appellant ?
9. Sri S.Ravi, learned Senior Counsel appearing on behalf of the appellant would submit that the order of the Tribunal is purely based on surmises and conjectures and there is no material whatsoever evidencing purchase of LAB by the appellant and the same having been received in the Factory by the appellant. Further, he would submit that there is no material with respect to manufacture of acid slurry, a product which attracts higher rate of duty and also there is no material evidencing clearance of acid slurry from the premises. He would further submit that the Commissioner of Appeals as well as the Tribunal had erroneously put burden on the appellant to prove the existence of 27 persons, who where the purchasers of the LAB as per the documents, which came to be in possession with the Department. In that view of the matter, the learned counsel would submit that it is a case of no evidence and both the authorities below had failed to appreciate the material on record in proper perspective and as such, he would urge that at best it is fit case for remand to the authorities for adjudication of the matter. Alternatively, the learned counsel would submit that even assuming without conceding the findings as recorded by the authorities to be confirmed to the extent that there was a purchase of the LAB, a raw material in the manufacture of acid slurry and assuming the said material is used in manufacture of the finished product and the same was sold by the appellant, the appellant cannot be denied the Modvat credit, which is available to a manufacturer under Rule 57-B of the Central Excise Rules, 1944. He would submit that while fastening the liability of the Central Excise Duty, it is not justifiable in denying the corresponding modvat credit by the Commissioner merely stating that on account of his suppression of the transactions, the appellant is not eligible for availment of modvat credit. By drawing analogy of deductions that are liable to be allowed by the Income Tax Officer under the Income Tax Act even in cases of illegal businesses, expenses and losses that are required to be allowed. For the purposes of arriving at taxable income, he would submit that modvat credit cannot be denied in the present case. For this proposition, he would rely on the judgment of the Supreme Court reported in COMMISSIONER OF INCOME TAX, GUJARAT Vs. S.C.KOTHARI .
10. On the other hand, Dr.K.Manmada Rao, learned counsel appearing for the Department would support the findings of the Tribunal and would point out that it is not a case of no evidence as submitted by the learned counsel for the appellant. He would take us through extensively to the orders of the Commissioner as well as the Tribunal. He would further submit that inasmuch as there was a suppression of huge turnover and clandestine manufacture excisable goods carried on by the appellant, the invocation of the provisions of extended period of limitation cannot be found fault with. He would also submit that there is no justifiable reason for the appellant to be allowed with modvat credit, as there is no material evidencing purchase of the raw material by the appellant.
11. We have considered the rival submissions.
12. A perusal of the order of the Commissioner would reveal that during investigation and enquiry, the manager of the appellant and also one Sri B.Damodar Rao, GPA Holder of the appellant had admitted that they have received certain quantities of LAB from the stock point of TPC in the name of various fictitious/non-existing customers and utilized the same for the manufacture and clearances of unaccounted Acid Slurry. Documents 18, 19, 20 and 49 which were seized from the registered office of the appellant were relied upon for this purpose. The documents revealed for the period between February, 1990 and April, 1993. Quantities of Acid Slurry were produced and cleared and there was a huge difference with the statutory RGI register, which confirmed the allegations of suppression of production. The Commissioner found based on the private documents seized, a quantity of 1,20,983 kgs. of Acid Slurry having been purchased by the appellant and no account was maintained in the statutory record and the same were cleared without payment of duty. The Commissioner also found transport vouchers maintained by the appellant showing huge quantities of Acid Slurry having been cleared without being accounted in the RGI register during the period September 1990 to September 1991 totalling about 55,630 kgs. The Commissioner had recorded various other aspects including the evidence of purchase of demand drafts by the appellant on account of 27 persons.
13. These findings were recorded based on documents Exs.D-46, D- 47, D-49, D-50 and D-51. These documents were admitted and not denied by the appellant, though the discrepancy was sought to be explained, as discrepancy of mistake in maintenance of accounts and also on account of un-cleared and unsold stock. We do not wish to burden the record with various other findings, which are recorded by the Commissioner exclusively in paras 8.6, 8.7, 8.8 and 8.9 of the order in original, dated 13-11-1998 except to state that there is sufficient adequate material for the Commissioner to have come to a conclusion that the appellant was in fact did manufacture of Acid Slurry by purchasing raw material in third parties names, but failed to account for the manufacture and clearance of the same by paying appropriate duty.
14. Though arguments were advanced before the Tribunal disputing some of the findings of the Commissioner, on appreciation of the record before them, the Tribunal had come to a different conclusion and affirmed the findings of the Commissioner. Before us, there is no contra material to dispute the findings as recorded by the Tribunal. It is well settled that in exercise of the appellate power under Section 35-G of the Central Excise Act, this Court is bound by the findings of fact as recorded by the Tribunal. Unless this court comes to a conclusion that such findings are based on no material/no evidence whatsoever and such findings are perverse. In the case on hand, we are unable to persuade ourselves that the findings recorded by the Tribunal are in any way perverse or based on no evidence. Accordingly, question No.1 is required to be answered in the negative and against the appellant.
15. In the light of the findings recorded by the authorities below that there was suppression of manufacture and removal of dutiable product applying the extended period of limitation cannot be faulted and in that view of the matter, question No.2 is also required to be answered in the negative and against the appellant.
16. The very premise on which a show-cause notice was issued resulting in the adjudication order fastening liability of the excise duty, is that appellant had in fact purchased raw material in 27 third parties names and utilized the said raw material in manufacture of a dutiable product and cleared the finished product without payment of duty. In the process of adjudication the authorities recorded a finding that in fact the appellant was involved in procurement of raw material and manufacture and sale of dutiable product and demanded tax. It is not in dispute that in normal circumstances the appellant would have been eligible to avail modvat credit on the purchase of LAB, raw material, which was used in the manufacture of the dutiable product. The modvat credit is sought to be denied to the appellant on the ground that the appellant had involved in suppressing the turnover. A perusal of the Rules would show that there is no rule prohibiting extending the benefit of modvat credit in a case where it is found that there was a suppression of manufacture and clearance of dutiable goods. Though in the context of the Income Tax Act, we may refer to the judgment of the Supreme Court referred to above, wherein the Honble Supreme Court held as follows:-
The approach of the high Court in the present case has been that in order to arrive at the figure of profits even of an illegal business the loss must be deducted if it has actually been incurred in the carrying on of that business. It is the net profit after deducting the out goings that can be brought to tax. It certainly seems to have been held and that view has not been shown to be incorrect that so far as the admissible deductions under s. 10(2) are concerned they cannot be claimed by the, assessee if such expenses have been incurred in either payment of a penalty for infraction of law or the execution of some illegal activity. This, however, is based on the principle that an expenditure is not deductible unless it is a commercial loss in trade and a penalty imposed for breach of the law during the course of the trade cannot be described as such. Penalties which are incurred for infraction of the law is not a normal incident of business and they fall on the assessee in some character other than that of a trader; (See Haji Aziz & Abdul Shakoor Bros v. Commissioner of Income tax, Bombay City(2). In that case this Court said quite clearly that a disbursement is deductible only if it falls within s. 10(2)
(xv) of the Act of 1922 and a penalty cannot be regarded as an expenditure wholly and exclusively laid for the purpose of the business. Moreover disbursement or expense of a trader is something "which comes out of his pocket. , A loss is something different. That is not a thing which he expends or disburses. That is a thing which comes upon him abextra" (Finlay J., in Allen v. Farquharson Brothers & Co.) (3). If the 'business is illegal neither the profits earned nor the losses incur-red would be enforceable in law. But that does not take the profits. out of the taxing statute. Similarly the taint of illegality of the business cannot detract from the losses being taken into account for computation of the amount which can be subjected to tax as "profits" under s. 1 0 ( 1 ) of the Act of 1922. The tax collector cannot be heard to say that he will bring the gross receipts to tax. He can only tax profits of a trade or business. That cannot be done without deducting the losses and the legitimate expenses of the business. We concur in the view of the High Court that for the purpose of s.10(1) the losses which have actually been incurred in carrying on a particular illegal business must be deducted before the true figure relating to profits which have to be brought to tax can be computed or determined. This will, however, not conclude the answer to question No. 2 because it seems to have been framed with the other aspect relating to "set off" under s.24 of the Act.
17. Applying similar analogy, in the absence of a specific rule making the manufacturer to be ineligible for availment of modvat credit when such manufacturer is involved in suppression of turnover/clearance of goods out of the record, we are of the view that modvat credit to the extent of input utilized in manufacture of dutiable finished product is leviable and the benefit of the same cannot be denied. In that view of the matter, question No.3 is required to be answered in favour of the appellant and against the Revenue.
18. The appeal is disposed of accordingly. No order as to costs. Miscellaneous Petitions, if any pending, shall stand closed. ___________________ G. CHANDRAIAH, J _________________________ CHALLA KODANDA RAM, J Date:09-04-2014