Custom, Excise & Service Tax Tribunal
Deepak Industries vs Raipur on 4 January, 2019
1
Ex. Appeal No.51274 of 2017
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
PRINCIPAL BENCH, NEW DELHI
Date of Hearing: 24.09.2018
Date of Decision: 04.01.2019
Excise Appeal No.51274 of 2017
[Arising out of Order-in-Original No. RPR/EXCUS/000/COM/08/2017
dated 22.05.2017 passed by the Commissioner, Central Excise, Customs &
Service Tax, Raipur (C.G.)]
M/s Deepak Industries ......Appellant
(Rep by Sh. M. Saharan, Advocate for the appellant)
Vs.
CC&ST, Raipur ......Respondent
(Rep by Sh. R.K. Mishra, DR) Appearance:
Rep. by Shri Manish Saharan, Advocate for the appellant. Rep. by Shri R. K. Mishra, DR for the respondent.
Coram:
Hon'ble Shri Anil Choudhary, Member (Judicial) Hon'ble Shri Bijay Kumar, Member (Technical) Final Order No. 50018/2019 PER ANIL CHOUDHARY:
The present appeal has been filed by the Appellant M/s Deepak Industries against Order-in-Original No. RPR/EXCUS/000/COM/08-2017 dated 22.5.2017 passed by the Commissioner, Central Excise, Raipur wherein the adjudicating authority has confirmed demand of Rs.2 Ex. Appeal No.51274 of 2017
4,48,20,768/- against M/s Deepak Industries with equivalent amount of penalty for alleged suppression of production and clandestine removal.
2. The brief facts of the case are that the appellant M/s Deepak Industries were engaged in the manufacture of Binding Wire and H.B. Wire and are registered under Central Excise. Their factory premises was searched on 20.5.2013 by the Officers of DGCEI, Pune and documents were seized under Panchnama. Statements of key persons were recorded. Also, office premises of Appellant Unit situated at Wire Rod Mill Division of M/s Prakash Industries Ltd was searched by the officers. The officers seized pencil written ledgers containing raw material purchases and also unaccounted sales details of finished goods as well as traded goods. Besides the above diaries maintained for recording of orders from customers, despatches of finished goods, weighment slips, cash transactions, acknowledgment of payments to raw material suppliers and other documents were also seized. Statement of Shri Ajay Kumar Singh, Sr. Assistant of M/s Prakash Industries Ltd, who was looking after the work of maintenance of records of the Appellant in his statement dated 21.5.2013 stated that he is maintaining day-to-day party- wise pencil written ledgers of material purchases in cash and by cheque and also maintaining party-wise ledger account of cash sales of manufactured/traded goods as well as goods sold on bills. That all the ledgers were written by pencil. Shri Ajay Kumar Singh also stated that procedure of maintenance of ledgers. He also named suppliers of raw material and buyers of finished goods. Statement of Shri Ravindra Singh- 3 Ex. Appeal No.51274 of 2017 proprietor of the Appellant unit was also recorded on 20.5.2013 and on other dates wherein he stated that they are manufacturing Binding Wires and H.B. Wires. Wire rod is raw material for H.B. wires, which in turn is raw material for Winding Wires. That Shri Ajay Kumar Singh is working for Prakash Industries Ltd. and is also writing accounts of Deepak Industries. The Ledgers contain purchase of raw material and sale of finished goods among other details. That the purchase ledger is also maintained party-wise and has details of goods. He after comparison and compilation, stated that the purchases and the sales maintained in the statutory record and diary records are not in agreement with the partywise records maintained in the ledger and the dispatch register seized by the Department. Resultantly the Show Cause Notice was issued to the Appellants demanding duty on alleged clandestine clearances of 33,351,715 MT of H.B. Wires/Binding Wires for the period June 2010 to 19th May, 2013 on the ground that the said goods were not recorded in their books of accounts and daily stock accounts and were cleared without payment of central excise duty. The demands were also made on the job work activity undertaken by the Appellant unit, on conversion basis, from June 2010 to March 2011 on conversion of 3138.715 of H.B. Wires/Winding Wires manufactured by the Appellant and on 8 Nos. of alleged parallel invoices said to be covering the clearances made by the Appellant unit. It was also proposed to impose penalty upon the Appellant Unit.
4Ex. Appeal No.51274 of 2017
3. The adjudicating authority vide impugned order upheld the charges of clandestine removal. However, he reduced the quantity of clandestine removal of goods of 20,706 MT, on the ground that the reduced quantity of goods were cleared by the Appellant on payment of duty. He also reduced the demand to the extent it was found that the alleged unaccounted purchases were in fact made by the appellant on payment of duty, of which cenvat credit was available to the Appellant. Thus duty demand of Rs. 4,48,20,768/- was confirmed holding that the Appellant has cleared 20706 MT of goods without payment of duty, as found in the manual pencil written ledgers. He also confirmed demand of 116 MT of goods alleged to have been cleared under the cover of 8 parallel invoices. Further demand of Rs. 3139 MT of goods cleared through job work was also confirmed on the ground that the Appellant did not receive the goods under prescribed challans under the Cenvat Credit Rules, 2004, for job-work done for M/s Jai Ambe Wires and other units. Hence, the present appeal.
4. Ld. Counsel, Shri Manish Saharan, appearing for the Appellant submits that the demand of 20706 MT of HB Wires/Winding Wires has been made on the basis of a Chart detailing the entries found in pencil written ledger. He submits that when the pencil written ledgers itself were not legible, in that case the rewritten ledgers on computer and calculation of demand prepared on the said basis, is itself not sustainable. Shri Ravindra Singh in his cross examination dated 8.9.2016 had clearly stated that the pencil written entries were seized from the premises of M/s Prakash 5 Ex. Appeal No.51274 of 2017 Industries and he does not remember whether he was questioned by the Officers regarding the same. That the Charting detailing the said pencil written ledgers were not his document, but was prepared by the Department and he has not cleared any goods without payment of duty. All the clearances were made on payment of duty. He does not know who has prepared the computerized ledger on the basis of such pencil written, illegible ledger. His statements were obtained by the Officers under the threat of arrest and were not voluntary. That he has not made any dealings in cash and no offence under excise law was committed by him. He also named officers who threatened him. The Ld. Counsel submits that in view of cross examination of Shri Ravindra Singh, the statement of Shri Ravindra Singh on the basis of which allegation has been made against the Appellant unit has lost its evidentiary value. His statements are negated by the cross examination and cannot be relied upon to make any demand against the appellant unit. That even the adjudicating authority, in order to confirm the demand has relied upon only on the statement of Shri Ravindra Singh, but has not spelt a single word as to why the cross-examination of Shri Ravindra Singh is not acceptable to him. In the show cause notice, it is an accepted fact that the Appellant unit was also doing trading of goods. He submits that the show cause notice has accepted only those sales as trading sales where the goods were cleared in the same vehicle in which they were received and other clearances were held to be without payment of duty. This analogy adopted in the show cause notice is incorrect as it is not necessary that only 6 Ex. Appeal No.51274 of 2017 those sales should be considered as trading sales in which the goods were cleared on the same day. It is obvious that when the Appellants are involved in trading of finished goods and raw material, they will be keeping the goods in stock also and clearing the same few days after making purchases. Hence all the clearances cannot be held to be clandestine clearances. That in the light of this fact the allegations of the show cause notice are self- contradictory. No duty can be demanded in case of traded goods, as it is the manufacturer of goods, who is liable to pay the duty. He also takes us to Para 15 of the Show Cause Notice and submits that the entries in ledger on the basis of which removal of goods, without payment of duty has been alleged, were digitalized. He submits that as stated by Shri Ravindra Singh the Officers have re-written and computerized the same as per their own will and cannot be a ground to demand duty. Such computerized statement and the clearances were detailed in chart (RUD-4) of the show cause notice, but was refused to be accepted by Shri Ravindra Singh. Thus it cannot be alleged that the Appellant has made any clandestine removal. The Show Cause has not given a single evidence of goods being cleared clandestinely by the Appellant. There is no evidence of any unaccounted raw material received by the Appellant manufacture of alleged clandestinely cleared goods, reference/dated/document as to when the alleged buyers received the goods from the Appellant. There is no single transport document which can show the removal of the goods to the alleged buyers or receipt of consideration from the buyer. That cross examination of the buyers was also sought but 7 Ex. Appeal No.51274 of 2017 was denied and thus no opportunity was granted to the appellant to cross- examine the veracity to the statement of alleged buyers. No single evidence of production of goods was found, or use of labour was found. That alleged ledger entries on the basis of which the clandestine removal was alleged was hand written with pencil and not legible. The same was re-written in spite of the fact that when the entries were not legible, it was not possible to rewrite ledger and prepare list on the basis of such entries, the said ledger was not seized from the factory of the appellant but was seized from alleged office located of Prakash Industries. No extra purchase of other raw material like Oil, chemical was shown or extra use of power. No payment was received towards alleged removal of finished goods or mode of receipt of consideration towards the same. He submits that the Appellant it eligible to avail cenvat credit on duty paid raw material, and about 80 to 90 % of the duty payable on their final product is paid by utilizing the cenvat credit duty paid on inputs, hence, there is no reason for the Appellant to indulge in clandestine removal. There is no evidence of procurement of such a huge quantum of raw material; No evidence of any discrepancy in the quantum of raw material or final product at factory premises; No statement of the transporters deposing against the assessee; No statement of any production staff indicating the production of such huge quantum of the final products; no recovery of any such amount from the appellant or evidence of cash payments to the input suppliers. No verification of the total production capacity of the factory was ascertained and/or verified. No records regarding 8 Ex. Appeal No.51274 of 2017 the electricity consumption were either checked or even perused. No account books and bank records of the Appellant were checked to ascertain about the flow back of money particularly in relation to the alleged clandestinely removed material. He also relied upon the following judgments in case of Andhra Cements Ltd Vs. CCE Guntur 2004 (170) ELT 363 (Tri), Nav Bharat Papers Pvt Ltd Vs. CCE, Ghaziabad 2004 (165) ELT 564, Essvee Ploymers (P) Ltd Vs. CCE, Chennai 2004 (165) ELT 291 (Tri) and other judgments.
5. He also submits that the Adjudicating Authority failed to appreciate that the hand-written ledgers were maintained by Mr Ajay Singh, who was diverting funds of the Appellant unit with malafide intention to hamper the reputation and business of the Appellant unit. The Appellant had therefore asked for cross-examination of the author of the papers and incriminating documents alleged to have been seized, and also of Panch witnesses. However the same was denied. In such case the veracity of the statement of Shri Ajay Singh and the records relied upon in the Show Cause Notice, cannot be a ground to demand duty against the appellant unit. He further submits that clearances of the alleged finished goods would require at least 2500 to 3000 trucks for removal of the same. However not a single transport document or evidence of transportation of such huge clearance is available. There is no corroborative evidence to substantiate the charge of clandestine removal. As regards clearance by 8 parallel invoices, he submits that the invoices were photocopies, which were not even seized from their premises, 9 Ex. Appeal No.51274 of 2017 but were received by the Department from some unknown source. He submits that there are no buyers for the said 8 parallel invoices, allegedly issued by the Appellant. That the officers prevailed upon Shri Ravindra Singh-Proprietor of the unit to state that the goods were cleared on such parallel invoices. However, the statement of Shri Ravindra Singh stands retracted in his cross-examination and hence cannot be relied upon. He relies upon the judgment of the Hon'ble High Court of Delhi in case of CCE, Del-I v/s Vishnu & Co. Pvt. Ltd., - 2016 (332) ELT 793 (Del) to support his contention. As regards the demand of job work activity undertaken by the Appellant without adopting the job work procedure, he submits that the no receipt of prescribed challen cannot lead to demand of duty as there is no dispute about the job work. He also submits that the Revenue did not ascertain the fact as to whether the principal manufacturer has paid the duty on such finished goods or not, in spite of the knowledge of the principal manufacturer for which job work activity was undertaken. The Department was supposed to carry-out investigation as to whether the person who sent the job work goods has paid the duty or finished goods or not. Not- maintenance of challan by the Appellant is only a procedural aspect, which cannot be made basis for confirmation of duty demand on job work clearances. Just for not following the procedure and not maintaining the job work register, demand cannot be made against the Appellant. He relies upon the rulings in case Commr. Excise, Shillong Vs Vinay Cement Ltd 2002 (147) ELT 724, Keshari Wire Products (P) Ltd Vs. Commr. Ex., Patna 2003 10 Ex. Appeal No.51274 of 2017 (160) ELT 180, Sewak Pharma Vs Commissioner of C.Ex, Mumbai-III 2004 (175) ELT 645, Jayaprakash & Co. Vs Commissioner of C.Ex, Surat 2004 (178) ELT 429, Lakshmi Auto. Loom Works Ltd Vs CCE, Coimbatore 2005 (183) ELT 195.
6. Shri R.K Mishra, ld DR appearing for the Revenue reiterates and supports the impugned order and submits that in case of M/s MM Industries Pvt. Ltd, one of the recipients of goods cleared by the appellant, the demand on manufacture and clearance of finished goods by said firm has been confirmed.
7. Having considered the rival contention and on perusal of records, we find that the demand is mainly based upon the handwritten pencil ledgers seized by the Revenue. Since the ledgers are not legible, the details were prepared on computer and relying upon the same a computerised chart viz. RUD - 4 Show Cause Notice has been prepared for raising demand against Appellant Unit. In the show cause notice, the adjudicating authority have relied upon the aforesaid documents and statement of Shri Ravindra Singh, wherein he has accepted the above document. We find that Shri Ravindra Singh in his cross-examination dated 8.9.2016 has refused to accept that the RUD-4 contains clearances without payment of duty. Further, he has also stated in his cross-examination that his statement were obtained against his will and upon threat. In such a case, we are of the view that on the basis of the computerized statement of clearances, which was made on the basis of illegible hand written ledgers and the statement of Shri Ravindra Singh, 11 Ex. Appeal No.51274 of 2017 which stands retracted in his cross-examination, the demand cannot be made against the Appellant unit. Our views are also based upon the judgment of Hon'ble High Court of Delhi in case of Commissioner of Central Excise Delhi-I Vs. Vishnu & Co. Pvt. Ltd. 2016 (332) E.L.T. 793 (Del.). We further find that no corroborative evidence has been brought on record to show transportation or procurement in the form of bilty receipts or goods receiving note by the recipient of the goods. We find that once the pencil written ledger entries were not legible, it was not possible to re-write the ledger and prepare ledger on the basis of such entries. Further, no statement of the supplier of the raw material has been recorded to show that the raw materials were supplied to the Appellant unit for manufacture of finished goods. There is no statement of the person who has received any consideration on account of supply of raw material in case from the Appellant unit, neither there is transport document showing transportation of raw material alleged to have been used in the manufacture of the clandestinely cleared finished goods by the Appellant. No evidence in the form of manufacture of finished goods, use of any extra power, extra labour or use of other materials like oil or chemical for the manufacture of finished goods has been brought on record. There is no evidence of consideration received towards the alleged clandestine removal. We also find that when the Officers visited the Appellant factory, no discrepancy either in raw material or in finished goods were found, which gives credence to the contention of the Appellant that no clandestine removal was made by them. When the Revenue has alleged huge 12 Ex. Appeal No.51274 of 2017 evasion by clandestine clearances, it was obvious that there would have been discrepancy either in the stock of raw material or finished goods, which is absent in the present case. We also find that the Adjudicating Authority has refused the cross-examination of the witnesses of the alleged buyers of the goods, which is not legal and in contravention of Section 9D of the Act. As the statements of buyers of the alleged finished goods are relied upon in the show cause notice, and such statements were recorded at the back of the Appellant, the adjudicating authority should have allowed cross-examination of witnesses or the alleged buyers of the finished goods as stipulated under Section 9D of the Act. However, the same was not allowed which is not legal. Our views are based upon the judgments in case of CCE, Delhi-II Vs. Balajee Perfumes 2017 (358) E.L.T. 87 (Del.) wherein it was held:-
20. On the other hand, Mr. A.K. Prasad, learned counsel appearing for the respondent pointed out that although the impugned order of the CESTAT in the respondent's case has been appealed against, no appeal has been filed against the three other noticees on whom penalty was levied and whose appeals had been allowed by the CESTAT by the same common impugned order. In other words, the Department was being selective. Secondly, he pointed out that there was no justification in denying cross-examination of the persons who gave statements against the respondent. It was a prerequisite of the principles of natural justice that the person against whom statements were made should be given an opportunity to test the veracity of such statements. That could be done only by way of cross-examination. The view taken by the CESTAT could not be said to be contrary to law. He submitted that in any event, the impugned order does not give rise to any substantial question of law.
21. The Court has considered the above submissions. The Court is unable to find any justifiable reason for the Department to deny the respondent the opportunity of cross-examining the persons who made statements against the respondent during the course of the investigation. This was all the more necessary since the statement made by Mr. Varun Gupta and other noticees during investigation 13 Ex. Appeal No.51274 of 2017 stood retracted by their subsequent affidavits. Unless the makers of the statements were not available for some reason, there was no justification to simply deny the right of cross-examination.
22. In this connection, it is necessary to refer to Section 9 D (1) (a) of the CE, 1944 which incorporates the rule of natural justice. The relevant portion of the said provision reads thus:
A "(1) statement made and signed by a person before any Central Excise Officer of a gazetted rank during the course of any inquiry or proceeding under this Act shall be relevant, for the purpose of proving, in any prosecution for an offence under this Act, the truth of the facts which it contains-
(a) when the person who made the statement is dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by the adverse party, or whose presence cannot be obtained without an amount of delay or expense which, under the circumstances of the case, the Court considers unreasonable;"
23. In a similar situation, this Court in its decision dated 2nd December, 2015 in CEAC No. 62/2014 (Commissioner of Central Excise, Delhi-I V. Vishnu & Co. Pvt. Ltd.) [2016 (332) E.L.T. 793 (Del.)] upheld the order of CESTAT that had set aside the adjudication order on the ground that it proceeded on the basis of the retracted statement of the persons who were not offered for cross- examination. It was observed in that case "where such statements are subsequently retracted or resiled from, it becomes necessary for the Department to produce other evidence which is of an independent nature which corroborates the retracted statements."In this case, the Commissioner had proceeded on the basis of the retracted statements of persons not offered for cross-examination. There again, it was contended by the department that the retraction made beyond 20 months after the initial statement, would have no effect in the eyes of law. The Court negated the above statements and held as under:
"41. What. The above submission overlooks is the '"reliability' of such statements. Once it is shown that the maker of such statement has in fact resiled from it, even if it is after a period of time, then it is no longer safe to rely upon it as a substantive piece of evidence. The question is not so much as to admissibility of such statement as much as it is about its 'reliability'. It is the later requirement that warrants a judicial authority to seek, as a rule of prudence, some corroboration of such retracted statement by some other reliable independent material. This is the approach adopted by the CESTAT and the Court finds it to be in consonance with the settled legal position in this regard."14 Ex. Appeal No.51274 of 2017
24. Likewise, in its order dated 17th September, 2015 in CEAC 6/2013 (Flevel International V. Commissioner of Central Excise) [2016 (332) E.L.T. 416 (Del.)] dealing with a similar situation where the Adjudicating Officer had denied the notice the right of cross- examination, the Court observed as under:
"45. As regards the request for cross-examination of the other witnesses, the adjudication order again dealt with this perfunctorily. It simply stated in para 36 that if the request made by the Appellant in the letter dated 31st January, 1985 for cross-examination of "such a large number of persons was granted it would have taken the case to a non-ending process." This cannot be a justified reason within the meaning of Section 9D of the Act to deny that opportunity to the Appellant.
46. The CCE also wrongly proceeded on the basis that there was no right of cross-examination overlooking the fat that Section 9D of the Act restricts the grounds on which the cross-examination can be denied. It also overlooks the decision of the Supreme Court in Swadeshi Ploytex Ltd. V. Collector of Central Excise - 2000 (122) E.L.T. 641 (S.C.) and Laxman Exports Ltd. V. Collector of Central Excise - 2002 (143) E.L.T. 21 (S.C.) to the effect that when a statement is used against an Assessee an opportunity of cross- examining the persons who made those statements ought to be given to the Assessee."
47. In GTC Industries Limited V. Collector of Central Excise, New Delhi - 1997 (94) E.L.T. 9 (S.C.), the Supreme Court has frowned upon the practice of the adjudicating authority looking into allegations contained in another SCN to return a finding against the Assessee."
25. For all of the aforementioned reasons, the Court finds that the impugned order of the CESTAT does not give rise to any substantial question of law. The appeal is accordingly dismissed.
8. We also find that in absence of corroborative evidences, as discussed in preceding paras the demands against the appellants are not sustainable, as held in case of Essvee Ploymers (P) Ltd Vs CCE Chennai 2004 (165) ELT 291, Ambika Chemicals Vs. CCE Chennai 2002 (148) ELT 101 as upheld by Apex Court in case of 2003 (153) ELT A298 (SC), CCE, Calcutta-II Vs 15 Ex. Appeal No.51274 of 2017 Tube Bend (Cal) Pvt Ltd 2001 (136) ELT 839 (Tri, Kolkata), Andhra Cements Ltd Vs CCE., Guntur 2004 (170) ELT 364, Kittibhai Maganbhai Patel Vs Commissioner 2003 (159) ELT 1162 (Tri, Mum) Nav Bharat Paper Pvt. Ltd., Vs. Commissioner of C.Ex, Ghaziabad 2004 (165) ELT 564 which has been relied upon by the Appellant.
9. We also find that in case of demand on the basis of alleged clandestine removal under the cover of 8 parallel invoices, the Revenue has not shown either in the show cause notice or in the impugned order as to from where these invoices, which were photocopies, were retrieved by the Department. No Corroboration of these invoices are appearing on record. In such case when the authenticity of these invoices is in question and the same has not been substantiated by the Revenue, we hold that the demand made on the basis of such invoices does not sustain. As regards demand on job work activity undertaken by the Appellant, we find that the benefit of exemption notification has been denied to the Appellant on the ground that they have failed to maintain challan and register of such job work activity. We further find that when the Revenue themselves are of the view that the Appellant had undertaken the job work activity and the name of persons for whom such job work activity was undertaken, the Revenue should have investigated as to whether the principal manufacturer has paid the duty on the said finished goods or not. This Tribunal in case of ELECTRONIC COMPONENTS & TUNERS Vs. CCE, DELHI-II 2016 (338) E.L.T. 739 (Tri. - Del.) in somewhat similar issue, has held that there is no general rule that procedural 16 Ex. Appeal No.51274 of 2017 lapse, if any, can contribute to denial of substantive benefit, when there is no cross-verification of facts and material available. In case of M/s Sewak Pharma Vs. Commissioner of Central Excise, Mumbai - III (2004 (175) ELT 645 (Tri, Mum) the Tribunal has held that the benefit of exemption notification cannot be denied to an assessee on the ground of non-following the procedure, and thus the demand against Appellant are not sustainable.
10. In view of our above findings and observation as well as legal position, we, thus hold that the demand and penalty against the Appellant M/s Deepak Industries is not sustainable. We therefore set aside the impugned order and allow the appeal with consequential reliefs, if any.
(Pronounced on 04.01.2019)
(Bijay Kumar) (Anil Choudhary)
Member (Technical) Member (Judicial)
Ckp