Custom, Excise & Service Tax Tribunal
Maa Mahamaya Industries Ltd vs Commissioner Of Central Excise, ... on 12 August, 2014
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Final Order Nos. 21319-21320 / 2014 Application(s) Involved: E/Stay/27481/2013, E/Stay/27482/2013 in E/27181/2013-DB, E/27182/2013-DB Appeal(s) Involved: E/27181/2013-DB, E/27182/2013-DB [Arising out of Order-in-Original No. VIZ-CEX-001-COM-009-2013 dated 28/02/2013 passed by the Commissioner of Central Excise, Customs and Service Tax, Visakhapatnam-I] Maa Mahamaya Industries Ltd. R.G. Peta Village, L. Kota-Mandal, Vizianagaram - 535 161 Andhra Pradesh Appellant(s) Ashok Kumar Agarwal, Chairman Cum Managing Director of Maa Mahamaya Industries Ltd. Appellant(s) Versus Commissioner of Central Excise, Customs and Service Tax Visakhapatnam-I Central Excise Building Port Area Visakhapatnam - 530 035 Andhra Pradesh Respondent(s)
Appearance:
Mr. C. Saravanan, Advocate No. 12, (Old No. 22) 5th Block, 14th Street, Anna Nagar Chennai - 600 040 Tamil Nadu For the Appellant Mr. R. Gurunathan, AR For the Respondent CORAM:
HON'BLE SHRI B.S.V. MURTHY, TECHNICAL MEMBER HON'BLE SHRI S.K. MOHANTY, JUDICIAL MEMBER Date of Hearing: 12/08/2014 Date of Decision: 12/08/2014 Order Per: B.S.V. MURTHY The appellant is a manufacturer of sponge iron, billets, TMT bars and started commercial production in June 2006. The second appellant Sri Ashok Kumar Agarwal, is the Chairman and the Managing Director (referred to as the MD) of the company and he is also Managing Partner of the partnership firm M/s. Ashok Kumar Agarwal (referred to as the firm).
2. On the basis of information received that first appellant is engaged in clandestine manufacture and removal of excisable goods manufactured by them, investigation was taken up and further after issue of show-cause notice and adjudication proceedings, the impugned order has been passed wherein the duty demand amounting to Rs. 7,42,33,021/- for the period 2007-08 to 2008-09 with interest has been confirmed and penalty equal to the duty demanded has been imposed on the first appellant under Section 11AC of Central Excise Act, 1944 and Rs. 25,00,000/- under Rule 25 of Central Excise Rules, 2002. A penalty of Rs. 5,00,000/- has also been imposed on the second appellant. The first appellant has deposited an amount of Rs. 10,00,000/- during the course of investigation.
3. The learned counsel submitted that the appellant could not defend their case properly because there were a number of CDs recovered and documents recovered from the appellant but despite their request the CDs were not returned and only print outs from some of the CDs were supplied. As a result, the reply could not be effectively submitted. The learned AR seriously contested this. After hearing both the sides, we have to state that even though appellant may be having a case on the ground that they did not receive the entire set of documents/records/CDs, the case was not effectively put forth by the appellants themselves before the learned Commissioner and they did not make a serious issue of the disadvantage that they were put in. This is emerging from the observations in the impugned order wherein the proceedings of personal hearing and other related issues have been discussed by the learned Commissioner which are not disputed and have been found to be factual. The appellant had submitted reply on 16.01.2013 to the show-cause notice which was issued on 20.01.2012 and the personal hearing was fixed on 24.01.2013. In the reply to the show-cause notice, the appellant had stated that they had not received all the relevant papers, print outs etc. However at the time of personal hearing, the Commissioner has recorded the following findings:
3.1. As seen from the record of personal hearing on 24.01.2013, the appellant had requested that cross-examination of Sri. A.K. Agarwal which was allowed and after the cross-examination, the appellants had argued their case. It has been recorded that the learned advocate undertakes to submit his arguments in the form of additional written submissions on or before 31.03.2013. He has not requested for any further cross-examination or for any additional documents except the documents mentioned in Para 35 which he has requested for providing if not already given to them. As regards the written reply submitted to Sri Ashok Kumar Agarwal, the advocate had submitted that he would submit reply by 28.01.2013.
Thereafter the learned Commissioner himself observed that one of the documents which had not been handed over was provided to them on 29.01.2013 as emerging from the records. Thereafter the first appellant submitted the reply on 04.02.2013 in the form of additional submissions which has also been taken note of and considered. In these additional submissions also the appellants have not complained or expressed their grievance about non supply of CDs or documents and the disadvantage faced by them nor did they say that the reply may be considered as incomplete.
4. Even though learned counsel submitted that they had written several letters making a grievance of non-production of documents, ultimately on 24.01.2013 during the personal hearing, they did not press this ground and they did not make an issue out of this. Commissioner did order and ensured supply of some additional document/s and made a note of this and there is no grievance that the additional submissions made on 4-2-2013 have not been considered.
5. At this stage learned counsel once again interrupted and drew our attention to page 232 of their paper book filed before the Tribunal wherein they had mentioned that a copy of the e-mail message had not been given to them. In response the learned AR takes us through paragraph 127 of the impugned order wherein learned Commissioner had discussed the print out of mails which have been provided to them. From the observations of Commissioner we cannot make out as to what exactly appellants have claimed that they have not received and what the Commissioner had observed that they were given. Nevertheless we take note of the fact that this relates to an amount of only Rs. 7,27,149/- and having regard to the fact that the total demand is more than Rs. 7.4 crores, it would be appropriate for us to proceed to decide the matter rather than avoid coming to a proper conclusion on other issues.
6. The net result of the above observations is that it is not possible to remand the matter on the ground (which was the first request of the learned counsel) that principles of natural justice have not been observed. If the appellant was not satisfied with the documents or the time given for reply, they should have agitated the matter. Therefore at this stage we do not consider that appellant has made out a case for remand on the ground of non-observance of principles of natural justice.
7. Thereafter we requested the learned counsel to argue the matter on merits. There are several issues listed but since this is a case of clandestine removal and the detailed consideration would require scrutiny of voluminous documents, papers, submissions, records etc. we decided to consider certain important aspects wherein substantial amounts are involved. The total amount involved and various issues are available in the show-cause notice itself in paragraph 102 and the brief summary is as under:
Sl. No. Details Total Central Excise Duty payable 1 Short accountal of Billets Production Rs. 35,69,969/-
2 Short accountal of Billets clearances Rs.7,27,149 3 Undervaluation of billets during Feb 09 Rs. 3,37,224/-
4 Short accountal of TMT Production Rs. 11,31,693/-
5 Short accountal of TMT clearances Rs. 3,52,982/-
6 Short accountal of TMT Production & Clearances Sept 08 Rs. 57,23,297/-
7 Clandestine clearance of Sponge Iron in the guise of captive consumption Rs. 1,00,08,818/-
8 Clandestine clearance of TMT bars made in the firm name of M/s. A.K. Agarwal only Rs. 3,21,32,055/-
9 Physical shortage of finished goods Rs. 33,30,096/-
10 Re-cycling of unaccounted sale proceeds in the guise of trading sales Rs. 1,69,19,738/-
Total Rs. 7,42,33,021/-
7.1. The first item that we take up is clandestine clearance of TMT bars made in the name of M/s. A. K. Agarwal (the firm owned by the M.D) at serial no. 8 of the table.
7.2. The stand taken by the Revenue is that the firm had ceased to exist before the commencement of the period under consideration in this case. For this purpose the learned AR relied upon paragraph 199 of the order-in-original. In this paragraph the Commissioner has recorded the findings that the records of the firm show purchases from suppliers located in Rourkela, Jarshuguda and Suundargah of Orissa and also there was sales to customers located in Andhra Pradesh and the suppliers were found to be non-existent and one supplier who is existing had clearly stated that he had not even heard the name of the firm. The purchasers were also non-existent. Income Tax Department in Dhamtari (the place of registration of the firm) informed that no returns were filed by the firm from 2007-08 onwards and dissolution of the firm was intimated to the Income Tax Department on 10.04.2007. Sri A.K. Agarwal, the MD himself had written a letter to the department on 13.09.2011 that the firm has discontinued its business from 2007-08 onwards which is corroborated by the investigation conducted by the Revenue. Further it was also submitted that appellant had registered with the VAT department. Further the learned counsel also drew our attention to a letter written by the MD to the Commercial Tax Officer wherein he had intimated the Commercial Tax officer that they had decided to restart the trading of various goods in their firms name and requested for reissue of the registration number. However we find that there is no acknowledgment from the department and there is no other evidence forthcoming that appellant continued to do the business and further it is also noticed that there is just a mention on the paper drop box on 01.11.2007 at 1.30pm. This means that this letter was dropped in the drop box. There is no indication who dropped in the drop box and also there is no indication whether the firm filed vat returns thereafter or not. However it is also noticed that Commercial Tax Department at Andhra Pradesh had issued a registration certificate in the name of the firm Ashok Kumar Agarwal and the date of registration is 02.06.2014. At this stage the learned counsel drew our attention to the Profit & Loss Account which has been relied upon by the Revenue for arriving at the quantum of tax payable in respect of TMT bars. Thus there is clear evidence available from the Income Tax Department that the appellant had given them the details of dissolution and they had not submitted the income tax return and first appellant themselves gave intimation in 2011 that the firm has discontinued. We are unable to accept the submission that because department has relied upon the profit and loss account, the firm has to be treated as in existence. At this stage the case of the department is that appellant had shown the quantity of TMT bars cleared by the first appellant as the one being traded by A.K. Agarwal the firm. The only question that arises is whether A.K. Agarwal, the firm has traded or not. Allegation of the department was that TMT bars which were shown as traded by the firm were in fact produced by the first appellant and fictitious accounts were maintained. No explanation is forthcoming why this is not correct. The appellants contention is that the Profit and Loss Account even if it is not relevant, if other evidences are forthcoming to show that there was actually no trading, the obvious conclusion would be that there was no trading activity by the firm. Therefore the fact that the Profit and Loss Account was prepared in our opinion may not be relevant in view of the clear finding available that there was actually no trading of TMT bars by the firm.
7.3. As seen from paragraph 198, it is the claim of the appellant that TMT bars were not manufactured by them but was part of the trading activity of A.K. Agarwal firm and this assertion was made because the department had found the details in the computer showing sale of TMT bars. It was stated that the computer belonged to A.K. Agarwal firm and was kept in the factory since the M.D and the owner happened to be same and it was also stated that TMT bars was only a part of the trading activity. In fact it appears to be a fact the claim of the appellant that TMT bars were traded itself is wrong and in fact even the invoices in the name of A.K. Agarwal firm did not show any transaction of TMT bars. Only paper transactions or paper records have been created. This is the prima facie conclusion that can be drawn based on the records at this stage. Needless to say this is a very complicated case but fact remains that as regards TMT bars it was the claim of the appellant that this was a trading activity of the firm. But facts relating to the firm speak another thing, the invoices of the firm speak a different thing and the investigation conducted by the firm reveal another thing. The situation is nobody can understand what exactly happened. At this stage therefore the only option that would be available is to rely upon the paper records which are recovered which show that there was a trading of TMT bars which was kept in the administrative office and appellants themselves have claimed that it was a trading activity of the firm and that the firm was trading in TMT bars which has been found to be totally false. The appellant is engaged in the manufacture of TMT bars and therefore when they accepted it was a trading activity of the firm and the firm was owned by the M.D. and firm was not undertaking such activity, the obvious conclusion that would emerge is that the first appellant has manufactured TMT bars and has to account for the same. Therefore we find that appellant has not been able to make out a prima facie case in respect of 3.21 crores.
7.4. At this stage we also take note of the fact that Sl. No. 4, 5 and 6 of the table there is a short accountal of TMT bars, clearances and production-clearances on which demands have been confirmed against the appellant. In our opinion this has to be considered as part of a TMT bars accounted in the name of the firm and to come to any contrary conclusion we need evidence to show that this was not part of the TMT bars accounted for in the name of the trading firm and no such evidence was brought to our notice during the hearing. Therefore we consider that in respect of these three heads no prima facie case has been made out. We have to record here that we have not gone into great depth and details as regards these three heads.
8. The next major demand is a little more than Rs. 1 crore as per Sl. No. 7 of the table. The department has come to the conclusion based on the records maintained in the computer and based on the average production of sponge iron ore achieved using the iron ore during the past 3 years to come to the conclusion that there was excess production which was not accounted for. It has also been stated that excess use of sponge iron for the manufacture of billets has been shown to offset short accounting of sponge iron. The learned counsel vehemently argued that this is not correct. He submitted that the production has been calculated on the basis of the 1st years average production of sponge iron vis-`-vis the iron ore used. He submitted that the same average could not have been achieved during the 3 years continuously. However we have to observe that this assertion comes without any supporting evidences whatsoever. The appellant could have easily shown to the Revenue that there was difference in production because of quality of iron ore. After all, the first appellant must be conducting tests on the iron ore received by them and the test reports could have easily explained the difference in the production. After all iron ore content in the ore results in production of sponge iron. Therefore how much production was possible could have been calculated. There must be standards available as to how much quantity can be produced from a specific quantity of iron ore. In the absence of any such evidence and in view of the fact that records were recovered from the computer and also in view of the fact that there is absolutely no rebuttal of the claim of the department that consumption figures of sponge iron shown for production of billet were not actual and in the absence of a comparison of RG1 figures and private record figures by the appellant with suitable explanation for the difference, we have to accept the claim of the Revenue that on a prima facie basis the demand for more than Rs. 1 crore on the ground that the appellant did not account for excess sponge iron produced in their premises and therefore same was cleared in a clandestine manner has to held as probable. Therefore we consider Revenue has made out a prima facie case on this issue. Non accountal of billets etc from Sl. No. 1 to 3 once again would relate to the consumption of sponge iron to some extent. Therefore we would not like to go into great detail since demand for sponge iron has been in our opinion held to be prima facie sustainable. According to the Revenue sponge iron consumption was shown in excess and therefore obviously there is some relationship between the production of billets and the consumption of sponge iron. Therefore at this stage we consider that we need not go into details as to the sustainability of the demand under the heads 1 to 3 of the table. Needless to say our observations made in respect of TMT bars production would apply here also. Therefore prima facie at this stage we consider that we need not take that into account.
9. The last major demand to be considered is Sl. No. 10 which relates to recycling of unaccounted sale proceeds in the guise of trading line. The heading itself would show that this is a recycling of unaccounted sale proceeds that means the appellants were recycling the sale proceeds from one unit to other which are basically sister concerns. The trading is recycling of sale proceeds and not the goods. Apparently the claim of the appellant that there was no clearance and trading volume or turnover was shown for the purpose of obtaining loan/limits from banks seems to be having some basis. Moreover we also find that for demanding duty, the profit element has been taken into account and this is something which we are seeing for the first time. Normally our understanding is that Central Excise duty is demanded on the value of sales. But here in a peculiar manner duty has been demanded on the difference between the sale price and the purchase price. Therefore prima facie we do not consider this amount has to be taken for arriving at the quantum of pre-deposit to be made by the appellant.
10. Learned counsel vehemently argued pre-deposit should be waived because appellants have serious financial difficulty. It was submitted by learned counsel that appellants have suffered huge losses and the accumulated loss till 31.03.2014 is more than Rs. 144 crores. On seeing provisional accounts for the year ending 31.03.2014, we find that the appellants have current assets as under: cash on hand Rs. 30.46 lakhs, current account Rs. 1.46 crores, FD Rs. 14.93 crores, inventory of raw materials Rs. 98 crores, finished goods Rs. 17 crores etc. It is also noticed that appellants sundry debtors considered good which are pending for over 6 months is Rs. 51 crores and less than 6 months is more than Rs. 8.67 crores. We are very sure the amount which we are requiring for pre-deposit, the appellant can easily make and may not be a burden to the appellant under these circumstances. Moreover it can be said that when a company/person indulges in clandestine removal, such income cannot accounted for in the books of anyone and that will remain invisible. That being the position merely because the company has suffered loss, it cannot be said that there is no money available. These are details which are known only to the concerned persons who deal with such things. In such a situation it is difficult to accept the submission that requirement of pre-deposit should be waived on the ground of financial difficulty. Central excise duty is liable to be paid once in a month and receipt of consideration is irrelevant and duty is on the activity of manufacture. Therefore the tax is definitely a first claim over any asset which the assessee has. In this case period relates to 2007-09 and it is already 5 years since the events have taken place and Government is yet to get any money.
11. In view of the above discussion we consider that appellant should deposit an amount of Rs. 5 crores within 12 weeks and report compliance. The learned counsel submitted that since appellant could not defend their case properly and even though as observed by the Tribunal it was their fault, yet the fact remains that they did not get enough time to submit the reply and it would have been better if the department were to make copies of all CDS and give it to them. In such a case the present situation would not have arisen. Therefore we feel appellant should be given another opportunity before the original authority. We have already discussed this issue in the beginning. Even though it can be said that appellant is at fault, we have tried to consider all submissions and arrive at an amount would have been definitely payable on a prima facie basis. Therefore even if the appeal has to be remanded it cannot be remanded without considering the balance of convenience and justice to the public at large and the Government. In our opinion, having retained the money for more than 5 years, the appellant should deposit at least amount which we have found prima facie payable with a small portion of the interest that is payable if the matter is remanded. Normally the mater should be remanded after noting compliance but to avoid further lapse of time, we consider that it would serve the interest of justice and public interest if the matter is sent back at this stage itself. Therefore the appellant is directed to deposit an amount of Rs. 5 crores within 12 weeks and report compliance before the Commissioner who after taking note of the compliance, shall proceed to adjudicate the matter afresh after observing principles of natural justice. While reporting compliance the appellant has to indicate what are the documents, records and other items they require for submitting the reply. We request the Commissioner to ensure that appellants are supplied with all the documents relied upon or non-relied upon or whatever else available with the department to facilitate before reply by the appellant and appellants are given reasonable time to submit their reply after providing documents/records etc. asked for. We hope the assessee-appellants cooperate in the process of adjudication. The appeal itself is disposed of in the above terms. It is made clear that if the first appellant does not deposit the amount within the time specified and report compliance, the adjudication order shall revive automatically and can be enforced by the Revenue without any further reference to this Tribunal.
(Order dictated and pronounced in open court) (S.K. MOHANTY) JUDICIAL MEMBER (B.S.V. MURTHY) TECHNICAL MEMBER iss