Customs, Excise and Gold Tribunal - Delhi
Paints And Colour vs Collector Of Central Excise on 31 October, 1985
Equivalent citations: 1986(25)ELT288(TRI-DEL)
ORDER K. Prakash Anand, Member (T)
1. This matter arises from a Revision Application filed before the Government of India against Order No. 461-B of 1980 dated 21.6.1980 of the Central Board of Excise and Customs, New Delhi. On the setting up of this Tribunal, this Revision Application has been transferred here and is "now being treated as an appeal before us.
2. The allegations are that the appellants manufactured and clandestinely removed, without account them in their statutory records, 2,42,516.3 Litres of ready-mixed paints and enamels, 16,108.5 Kgs. of stiff paints, 35,330 Litres of Varnish, 1,75,244 Litres of Bituminous black and 948 Litres of plastic emulsion paint, during the period from 1.8.69 to 22.3.1973, thus contravening Rules 9(1), 173F, 173G(1), 173G(2) read with Rules 52A and 173(G) of Central Excise Rules. It is alleged that this was detected when the factory premises and head office of M/s. Paints and Colour and the residence of the Proprietor of the Company were simultaneously searched by the Central Excise Officers on 22nd/23rd March, 1973. The Excise authorities also recovered certain documents, viz. cash/credit memos, challana, bills, etc. said to belong to (1) Northern Agency of Paschim Icchapur, Barasat (24 Parganas), (2) Eastern Traders of Begmari Road, Calcutta-54, (3) B.A. Trading of Madhab Sen Lane, Calcutta-7 and (4) Mohd. Hashem of 90, Mechua Bazar Street, Calcutta-7. On a scrutiny of these documents, it appeared that the above-mentioned firms were non-existent and that M/s. Paints and Colour had disposed of their own goods by using the names of the above firms, which were fictitious. While the sales of paints and varnishes appear to have been made in the names of B.A. Trading and Mohd. Hashem, such sales had been made in the name of Northern Agency and Eastern Traders by M/s. Paints and Colour. In the course of the search, certain private as well as statutory records, stated to belong to M/s. Bose & Company, were also recovered from the factory and the head office of M/s. Paints and Colour. Scrutiny of these records showed that M/s. Bose & Co. under the proprietorship of one Shri D.P. Bose, had taken out separate Central Excise Licence in Form L-4, showing the location of the factory at the same premises at which the factory of M/s. Paints and Colour were located. It was shown to be known power-aided unit of Paints and Varnishes. Scrutiny of these records showed that the records, both private and statutory, belonging to M/s. Bose & Co., were being maintained by the staff of M/s. paints and Colour. It also appeared from certain documents that certain clearances, shown to have been made by Bose & Co., were of Pigeon Brand products, actually manufactured by M/s. Paints and Colour. Shri D.P. Bose, the so-called proprietor of Bose & Co., as per the seized records, was a regular monthly paid employee of M/s. Paints and Colour. The Bills of Bose & Co. had also been recovered from office of M/s. Paints and Colour and no payment appeared to have been made by M/s. Paints and Colour against sales of paints and varnishes to them in respect of purcahses made from Bose & Co. Certain bills also showed sales of ready-mixed paints and enamels by M/s. Bose & Co. but these were not covered by any gate passes of Bose & Co. Enquiries by the Excise authorities from the purchasers revealed that M/s. Paints and Colour had issued challans, bills, etc. to cover their supplies in many cases to their purchasers in the name of M/s. Eastern Traders, Northern Agency and Bose & Co. A clear statement to this effect was made by M/s. Shyam Trading Company. From these facts, it was clear that the real manufacturers of the items, shown in the names of Bose & Co., M/s. Eastern Traders and Northern Agency, were M/s. Paints and Colour.
3. The matter was first adjudicated by the Collector of Central Excise, Calcutta, who found that it had been proved that the appellants had themselves clandestinely manufactured and removed the stated quantities of paints, varnishes, etc., and he demended duty on such goods amounting to Rs. 38,206.74 for removals during the period from 1.1.69 to 31.7.69 and Rs. 3,61,705.02 for removals from 1.8.69 to 22.3.1973. The Collector also imposed a penalty of Rs. 25,000/- on the appellants under Rule 173Q. Further, he confiscated land, buildings, plant, machineries, materials of any other things valued at Rs. 25,000.00 used in connection with the manufacture, production, storage, removal or disposal of the excisable goods, giving the party an option to redeem the same on payment of a fine of Rs. 10,000.00. In appeal, the Central Board of Excise and Customs upheld the order of the Collector, holding that the charges against the appellants were fairly established and that the demand of duty was also correct. The penalty was, however, reduced from Rs. 25,000.00 to Rs. 10,000.00, taking into consideration "the financial position and smallness of the enterprise". The order regarding confiscation of the plant and machinery and the redemption fine fixed in lieu of confiscation was also set aside.
4. Now, before us, the appellants have pleaded in their written submissions that the bulk of the purchases' were from M/s. Chemo Synthetics, M/s. Bose & Co. and other open market parties to whom payments, it is claimed, were made by account payee cheques and under proper challans, bills, duty-paying documents, etc. It is stated that the purchases made from other parties were fully accounted for in the books of accounts of the appellants. M/s. Chemo Synthetics, it is stated, was separate duty paying unit. Similarly, it is stated that M/s. Bose & Co. was separate non power aided unit, although the sales of these factories were organised from the City/ Sales office. Being a small concern, it is claimed, that the employees in the City/Sales office were also engaged in other part-time jobs, including working for and maintaining of records of M/s. Chemo Synthetics and M/s. Bose & Co. and the appellants state that they had no concern with such occupation of his employees. It is admitted that two of the appellants' employees, namely Shri G. Banerjee and Shri D.K. Mitra, were doing the business of purchases and sales of paints and varnishes under the names and styles of M/s. Eastern Traders and Northern Agency respectively. But appellants state that they had no concern with these transactions. Similarly, Shri D.P. Bose, the Proprietor of M/s. Bose & Co., it is stated, was using the City/Sales Office of M/s. Paints and Colour as his place of business. It is denied that he was an employee of the appellants. Appellants state that while their premises was searched by the Excise authorities, no search was made of the premises of Bose & Co. and other allegedly fictitious firms, like Northern Agency and Eastern Traders, etc. It is further stated that the premises of M/s. Chemo Synthetics, owned by Smt. Bose, wife of the proprietor of the appellants Co., was also searched and, as a result of the proceedings in that case sales and removal of the products of M/s. Chemo Synthetics to M/s. Paints and Colour were found separately charged to duty. It is stated that these very sales and removals are contained in Annexure-I to the show-cause notice issued to the appellants and, therefore, demand of duty on the same quantity of paints and varnishes from M/s. Paints and Colour amounted to a double levy, which was not legally proper or correct. It is pleaded that, in the course of the seizure, the department had taken over current challans, purchase bills, DGS&D Order copies, in duplicate, and all requests for return of one copy, after retaining one copy for the use of the department or after retaining one photostat copy, where necessary, at the cost of the appellants, were turned down. As a result, appellants' collections from statutory bodies and market customers got stopped or delayed or fell in arrears or, otherwise, got time-barred or turned to bad debts. It is further stated that the show cause notice dated 2nd January, 1976, was served after about three years of the seizure and during the period from 12.1.1976 to 12.11.1976, when the appellants were given an opportunity to examine the records, they could examine only a few of them and further examination was refused on the, plea that the appellants were unable to give reference to the serial number of the records which they wish to examine and that they were taking a long time in examination. They said that the Collector decided the matter without giving the appellants further opportunity to examine the records. It is pointed out that the Collector himself had admitted in his order-in-original that considering the volumes of records that had to be examined by the department and the lengthy statements required to be compiled, the possibilities of mistakes could not be Ruled out. It is said that the findings of the Collector that ample opportunity had been given to the appellants to examine the case records and also to appear for personal hearing and that of the Board that there was no reason to remand the case of the Collector for de novo proceedings were unjust, inequitable and contrary to law and, therefore, liable to be set aside. It is further argued by the appellants that there were some 1600 entries in Statement No. 1 to the show cause notice. Of these only 200 entries related to factory challans. The remaining over 1400 entries related to challans and bills seized from the City Office; which was eight Kms. away from the factory. It is admitted that some of these challans were also factory challans but the remaining, it is claimed, did not indicate that they were removals from the factory and, therefore, did not establish evasion of duty. It is also claimed that in respect of about 500 removals, as listed in Statement No. 1, shown against factory challan Nos. 4601 to 4999 and Nos. 301 to 799 of 1972-73, there was no- mention of the supporting documents with reference to the search list. It is said that pages 1 to 81 of Statement No. 1 were based on no evidence or incorrect/imperfect interpretation of facts on record and, therefore, the levy of duty on the basis of the same is clearly bad in law and liable to be quashed. It is said that sales from the City/Sales office were out of "purchased goods and returned goods" and that this fact was totally ignored while computing the duty liability. It is stated that duty that 'has been levied in the order-in-original, in the case of Chemo Synthetics, covered the total quantity of about 25.5% of the demand of duty made on the appellants. Purchases from M/s. Bose & Co. represented about 3.4% of the total demand and 7% of the sales were out of open market and returned goods. It is added that there was no evidence of any purchase from other fictitious firms. It is stated that the department ignored the voluminous records of outside purchases from M/s. Chemo Synthetics. Further, it is urged that the Excise authorities relied on certain portions of contradictory statements obtained from Managers of different firms at the time of search and seizure, ignoring such portions of statements which were not convenient to them. Appellants claim that there was denial of natural justice as they were not allowed proper and sufficient opportunity for examination of records, as a result of which they got debarred from producing documentary evidence lying in the seized records, which was in their favour. It is stated that the department has not discharged the onus of proving that the goods sold under the bills, challans, slips and statutory nil duty paying documents of other parties had actually been removed from the appellants' factory. It is further stated that from the fact that some of the other parties had used brand names of the appellants, it is not established that the goods were manufactured or removed from the appellants' factory. It is stated that the Appellate authorities erred in law and facts in holding that Bose & Co. v. Eastern Traders and Northern Agency were fictitious firms.
5. Now in the roral submissions before us, Shri R.M. Das, learned Consultant for the appellants, has made the point that the demand of duty on him is barred by limitation. From the department side, Shri B.R. Tripathi, learned SDR, has objected to the raising of this issue at this stage, pointing out that it is a question of fact which has not been raised or examined at lower levels and, therefore, it cannot be raised now. Shri R.M. Das, however, states that it is -a question of law and there is no bar on raising this issue even at this stage. Apart from this point, Shri R.M. Das has reiterated that there has been denial of natural justice in his case, as already stated in the written submissions, as he was not allowed due facilities for inspection of the relevant records. Further, he states that, in so far as alleged clandestine removals are concerned, it is only pages 13 to 93 of the show cause notice which list removals which are in appellants' own name. The rest are in the names of others and the department has not been able to discharge the onus of proving that they are removals from appellants' factory. On a query from the Bench whether the appellants contest the factual findings of the Collector in his Order-in-Original that the private and statutory records belonging to M/s Bose & Co. were written by the staff of M/s. Paints and Colour and that these were recovered from the possession of the firm, that the proprietor of M/s. Bose & Co., who was the brother of the proprietor of the firm, was also a paid employee of the firm, that the records recovered from the firm do not show payment of any amount towards the receipt of paints and varnishes claimed to have been purchased from M/s. Bose & Co. and the other four firms, namely, M/s. Northern Agency, M/s. Eastern Traders, M/s. B.A. Trading and Mohd. Hashem, that M/s. Bose & Co. are shown to have sold the product under the brand name 'Pigeon', which was, in fact, the brand name of products manufactured by the appellants and actually it was not shown that M/s. Bose and Co. had any premises separate from that of the appellants, the learned Consultant has stated that he does not contest these facts.
6. Making a brief presentation, the departmental representative has stated that he reiterates the view taken in the order passed first by the Collector of Central Excise and then by the Central Board of Excise and Customs. Pointing out that the issue of limitation was not urged at lower levels and that it could not, therefore, be raised now, he emphasised that the show-cause notice was issued under Rule 9(2) of Central Excise Rules, 1944. He also stated that there had been no denial of natural justice that the party was given ample opportunity to inspect the relevant records and that the records of personal hearing as well as the grounds of appeal did not show that the appellants had any cause for grievance regarding defence heing hampered for want of inspection of relevant records. In any case, is submitted that conclusions at the lower levels, which are identical and are amply supported by the evidence on record and are not shown to be vitiated by any legal error or any grave injustice having been done to the appellants, would not be subject to any review at higher levels. In support of this contention, he has relied on the decision in the case of Shree agency v. S.K. Bhattacharjee and Ors. (1977 ELT J-168)-S.C. The learned departmental representative has also referred to the recent Supreme Court decision in the case of McDowell & Company Ltd. v. Commercial Tax Officer (1985 ECC 259) and stated that tax planning may be legitimate provided it is within the frame-work of the law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid payment of tax by restoring to dubious methods. The departmental representative states that what the appellants had done was nothing but an elaborate exercise in tax evasion. He also said that the amoung of penalty was fully justified and could not be considered disproportionate to the gravity of the offence committed.
7. We have carefully considered the facts of the case, the evidence on record and the submissions made by both sides, both in writing and orally. The defence of the appellants mainly is that the bulk of the goods, on which duty has been demanded of them, comprise purchases from M/s. Chemo Synthetics and M/s. Bose and Company and from other open market parties, to whom payments were made by proper challans, duty-paying documents, etc. Purchases from other parties were also claimed to be fully accounted for in the books of accounts. It is admitted that the employees' of appellants' company were "engaged in other part-time jobs including for and maintaining records of M/s. Chemo Synthetics and M/s. Bose and Company" but it is stated that the appellants had no concern with such occupations of their employees. It is also admitted that two of the appellants' employees "were doing the business- of purchase and sale of paints and varnishes under the names and styles of M/s. Eastern Traders and Northern Agency", but, again it is stated that the appellants did not have any concern with these transactions. It is also not denied that Shri D.P. Bose, supposed to be the proprietor of M/s. Bose and Company, was functioning from the City Office of M/s. Paints and Colour. It is also admitted that the records pertaining to the various other firms showed transactions in "Superior" and "Pigeon" brand of products, which belonged to the appellants. During the course of the hearing of the matter by us, the learned Consultant for the appellants had stated that he is not contesting the factual findings of the Collector on the issue regarding the separate identity of M/s. Bose & Company, M/s. Northern Agency, M/s. Eastern Traders, M/s. B.A. Trading and Mohd. Hashem, etc. In view of this stand taken by the learned Consultant, the entire defence of the appellants, which rests on attempting to establish that these are Companies which had an independent identity, and that the appellants were not concerned with transactions undertaken in their names and, therefore, should not be asked to account for such goods or to pay duty thereon, falls to the ground. Similarly, the appellants have not been able to establish that the goods handled by their sales office were, in fact, as they put it, "purchased goods or returned goods". We observe that it is on record that as per enquiries made from the purchasers, M/s. Paints and Colour, were actually issuing challans, bills, etc. covering their own supplies in the name of M/s. Eastern Traders, Northern Avency, Bose & Company, etc. There is reference by the appellants to other open market purchases but no evidence has been produced in support thereof. The name of M/s. Chemo Synthetics has been belatedly introduced now with a view to show that demand of duty for separate proceeds in respect of that duty-covered goods on which duty is being demanded of the appellants. We cannot permit such an argument to be imported by the appellants in their defence at this late stage as there is no evidence whatsoever to support this contention and this was never urged at the lower levels. The matter regarding M/s. Chemo Synthetics has been heard separately and will be decided on merits, on the basis of the facts and evidence on record in that case. The appellants have made a major issue of their grievance expressed at the level of appeal to the Collector then the Central Board of Excise and Customs and now before us that in their case the principle of natural justice has been violated and that they have been denied the opportunity to examine the relevant records. We have carefully considered this submission and we find from the correspondence exchanged between the appellants and the local authorities (copies of which are included in the appellants' own paper-book placed before us) that the charge against the department of the appellants being denied the right of inspection of records and their being violation of principles of natural justice is hardly supportable. We find that on the 12th January, 1976, appellants asked for examination of relevant documents/records. On 4th of February, 1976, they were asked to contact an officer designated for giving them this facility. In a letter, written on behalf of the appellants on 10th May, 1976, it is admitted that subsequent to the date of receipt of this letter dated 4th February, 1976, on many days their representative had gone to inspect the records although it was claimed that on many of these days their representative had to come away on account of non-availability of officers or similar reasons. It is stated that appellants were able to inspect only a few items of seized records and documents. It was said that there was no agreement whether all the seized records could be shown to the appellants. In reply to this and further correspondence, the Collector of Central Excise, Calcutta, himself addressed the appellants' Advocate, on 24.7.1976, pointing out that the appellants had undertaken inspection of records on 62 days during the period from 9.5.73 to 9.4.76 and took extracts from, or copies of, the documents required by them. He pointed out that this seemed to be quite a reasonable period for undertaking the inspection of records. In the meanwhile, it appears that Shri U.S. Bose, Proprietor of the firm, had met the Collector of Central Excise on 13th August, 1976, and asked for postponement of the personal hearing fixed in the matter on the grounds of illness of the Counsel. Dealing with the request, the Collector of Central Excise fixed a later date of hearing on 4th September, 1976, at the same time asking the appellants to come prepared with full list of records already seen and also those required to be seen. It is strange that in their reply dated 19.8.1976, to this letter, the appellants took the stand that it was true that they had been taking extracts from the relevant documents earlier but this was for the purpose of other Government department.-In other words, it implied that they wanted time to be allocated separately for taking extracts of documents in support of the various Government departments that they were dealing with. We also find that no list of documents, which they required to further examine, were furnished to the department. There were some further letters on behalf of the appellants asking for inspection of records and, therefore, on 6th October, 1976, the local authorities again asked the appellants to come over on 12th October, 1976, for inspection of records, as desired by them. In response, the appellants asked for some more time for doing the needful on grounds of ill-health, pooja, etc. Again, a letter was addressed to the appellants on 27th October, 1976, giving them a last chance for inspecting the records by 15th of November, 1976. To this, a reply was sent by the appellants on 16th November, 1976, stating that they had started taking extracts/copies of records with effect from 1st November, 1976, but that they could not get all the papers on the basis of which charges had been framed "because in show-cause notice there are entries of bills without challans and vice versa and that challans without bills". This point of the appellants is hardly tenable as the whole point of the Department's case was that the appellants were unable to satisfactorily account for all these transactions. It was for them to produce necessary covering documents. In the light of these facts, we are of the view that ample opportunity was given to the appellants to inspect the records and that there was no violation of the principles of natural justice. So far as the issue of limitation is concerned, while we agree that this had not been raised at the lower levels, we feel it is a question of law and the appellants cannot be barred from raising it before us. We find that the show cause notice was issued on the 2nd January, 1976, and the demand of duty related to the following two periods, i.e. 1st January, 1969 to 31st July, 1969 and 1st August, 1969 to 22nd March, 1973. It is seen that the demand for duty has been made by invoking Rule 9(2) of the Central Excise Rules. As a result of the Central Excise (1944 Amendment) Rules, 1977, Sub-rule (2) of Rule 9 was amended to provide for limitation of period as specified in Rule 10. This amendment came into effect from 16th August, 1977. The effect of this amendment was that period of limitation for five years was introduced for issue of demands under Rule 9(2) of the Central Excise Rules, 1944, in the case of clandestine removals of goods. Prior to this amendment, demands could be issued without limitation of time. We, therefore, hold that demand for duty was valid and limitation, as under Rule 10, did not become applicable. As regards penalty, we find some relief has already been given by the Central Board of Excise and Customs, who have reduced it from Rs. 25,000.00 to Rs. 10,000.00. They also set aside the redemption fine relating to confiscation of plant and machinery to the extent of Rs. 10,000.00. Having considered the matter carefully, we feel that no further relief is merited so far as penalty is concerned.
8. In view of our foregoing findings, we uphold the order of the Central Board of Excise and Customs and dismiss the appeal.