Customs, Excise and Gold Tribunal - Ahmedabad
Hytaisun Magnetic Ltd. And Ors. vs Cce And C on 14 February, 2008
ORDER Archana Wadhwa, Member (J)
1. All these appeals are being disposed off by a common order, as they arise out of the same impugned order passed by the Commissioner vide which he has confirmed the duties and imposed penalties of varying amounts as detailed below:
SN Name of the Party Duty (Rs.) Penalty (Rs.) 1 M/s Hytaisun Magnetic Ltd.
1,09,875 9,06,63,632 3,58,93,669 5,00,00,000 74,05,443 10,00,000 43,373 15,18,671 3,73,817 15,18,671 4,38,00,113 2 Shri B.A. Patel 3,00,00,000 3 Shri Snehal B. Patel 2,00,00,000 4 Shri Vishnu S. Patel 50,00,000 5 M/s Reliance Indus. Ltd.
1,00,00,000 6 Shri S.K. Ray 1,00,00,000 7 M/s L.G. Polymers (I) Ltd.
25,00,000 8 M/s Gujarat Carbon 85 Inds. Ltd.
1,50,000 9 M/s GSFC 30,000 M/s Hytaisun Magnetic Ltd. (hereinafter referred to as M/s HML) is a 100% EOU engaged in manufacture of Video Magnetic Tapes, Video Cassettes & Video Housing for Video Cassettes, falling under Chapter Heading 85 of CETA, 1985. The said appellant is working as a 100% EOU since 1992-93 onwards and were availing the facility in terms of Notification No. 1/95-CE, dt.9.1.95 as amended. The said appellant was procuring the duty free indigenous raw material against CT-3 certificate for use in the manufacture of final product to be exported so as to fulfill the export obligations.
2. The appellant's factory was visited by Central Excise officers on 25.12.97, who conducted various checks and verifications. As a result, it was seen that the said appellant was not maintaining any statutory record required to be maintained by a 100% EOU. Investigations conducted at the appellant's end revealed that the CT-3 certificate against which duty free raw material was received by them were forged. The same were prepared by Shri Vishnu S. Patel, Excise Clerk of the unit and was signed by Shri Bharatbhai A. Patel, CMD of the factory. The statement of Shri Snehal B. Patel, Shri B.A. Patel, Shri Vishnu S. Patel, recorded during the course of investigation revealed that the said duty free raw material procured against forged CT-3 certificate never reached their factory nor was same utilized by them; signature of the superintendent of Central Excise incharge of the factory was forged by them; that AR-3A were never presented to their jurisdictional Central Excise officers; that re-warehousing certificate were also forged and sent to the supplier of the material. We are not going into the details of all the statements and other evidences available on record, establishing procurement of raw material in terms of Notification No. 1/95-CE, against forged CT-3 certificate and signing forged re-warehousing certificate to the supplier of the raw material in as much as the said allegations stand accepted by the appellant.
3. The learned advocate Shri J.M. Sharma appearing for the said appellant has argued on legal issue. It has been contended before us that in view of the fact that the raw material received against CT-3 certificate was not put to the use for which the same was procured, the liability to pay duty will rest upon the manufacturer. As such, learned advocate had made a prayer that it is not the responsibility of M/s HML to pay the differential duty in respect of goods in question, in as much as the manufacturer of the goods is liable to pay the duty for non-compliance of Rule 156B as modified Rule 173N in case of non-receipt of proper evidence of re-warehousing certificate received in the recipient's factory.
4. We do not find any force in the above contention of the learned advocate. Admittedly, the material has been procured against CT-3 certificate purported to have been issued by the supdtt. having jurisdiction over the appellant's factory. The said CT-3 certificate are admittedly invalid, the signature of the Supdtt. having been forged by the appellant themselves. We further note that the provisions of Notification No. 1/95-CE exempt the goods for the purpose of manufacture, packaging etc. when brought into 100% EOU, subject to the condition that 100% EOU filed a bond with his jurisdictional Assistant Commissioner, for proper accountal of receipt, storage and utilization of such goods and to pay on demand, an amount equal to the duty leviable on the goods and interest, if the goods are not proved to have been used in connection with the production of goods for export. Admittedly, in the present case, the goods were not used for the purpose for which the same were purchased. As such, if the goods are not brought into 100% EOU, the exemption ceases to be available and the consignee becomes liable to pay duty. The bond and the condition of the notification is to prevent the misuse of the goods by the consignee. Further, admittedly the re-warehousing certificates have also been sent to the supplier of the raw material, thus indicating the receipt of the goods and that the same have been put to right use, though such re-warehousing certificates have been found to be forged. In such a scenario, duty cannot be demanded from the supplier of the raw material, who have adhered to the condition of the notification and has acted according to the Rule of law.
5. We find that an identical issue was considered by the Tribunal in case of Santogen Textile Mill Ltd. and Ors. v. CCE, Mumbai 2007-TIOL-1016-CESTAT-MUM, wherein the plea of 100% EOU that in case the goods procured under CT-3 certificate are not received by them in their factory and are diverted in the open market, the duty should be demanded from the manufacturer, was rejected. For better appreciation, we reproduce Paras 18 & 19 of the said judgment.
18. The above view is supported by a catena of decisions e.g. CCE, Cochin v. BPL Systems & Projects 2002 (144) ELT 37 (Tri.) wherein it has been held that in case the goods are removed by manufacturer on receipt of CT-3 certificate to a 100% EOU and not used as envisaged under Notification No. 123/81-CE, dt.2.6.81, action for recovery of duty liability on exemption availed at stage of removal from the factory of manufacture and subsequent forfeiture security, confiscation of goods have to be initiated by officer-incharge of the 100% EOU and not that of the manufacturer's factory. In the case of CCE, Guntur v. Ferro Alloys Corporation it has been held that when the goods are cleared from the factory under valid L-6 license, the responsibility for accountal get shifted to the consignee. After the goods have been dispatched from consignor, manufacturer in this case has no control over the goods thereafter there is no provision in law holding him responsible in ensuring that the goods ultimately reach the consignee's end. All that a manufacturer is to ensure is that the goods are sent out to a consignee who holds a valid L-6 license. Revenue in such a situation is secured by execution of the bond by the L-6 license holder for due accountal of the goods for the specified use and if he is not able to do that it is he alone who should be called upon to pay the duty dues unless it is shown that the consignor i.e. manufacturer is bound himself by a bond in this regard. Similar view was taken in the case of CCE, Madras v. Madras Radiators and Pressings Ltd. and in the case of CCE, Mumbai-II v. Godrej and Boyce Mfg. Co. Ltd.
19. In view of the above, we hold that the duty has been rightly demanded from the appellants and we uphold the demand.
6. In the present case, not only goods were not put to proper use but same were also procured against forged CT-3 certificates and forged re-warehousing certificates were also issued. When the appellants are themselves indulging into fraud, their plea that duty should be demanded from manufacturer supplier of the inputs cannot be accepted. As such, we reject the said plea of the appellant.
7. It is further contended that the duty stands confirmed by the Commissioner twice. The total Central Excise duty demanded as shown in Annexure N to the SCN was Rs. 4,38,00,113 which included amounts indicated in Para 71(i) (ii) (iii) (vi) and an amount of Rs. 18,319 on goods illicitly removed and seized in the office premises. The Ld. Commissioner twice confirmed the amounts i.e. once individually as per Para 71 (i), (ii), (iii), (vi) and again as per Para 71 (vii). Further, against the C.E. duty demanded of 4.38 crores, Commissioner has imposed a penalty of Rs. 9.06 crores under Section 11AC. It is, therefore, submitted that the impugned order dt.24.1.01 passed by the ld. Commissioner is "bad in law" as it has been passed mechanically without application of mind by merely repeating the contents of SCN.
Though we find force in the above contention of the learned advocate, but to be on safer side and for verification of above fact, we would like the Commissioner to check the above contention of the appellant and to confirm the demand accordingly. For the said purposes, we remand the matter to the original adjudicating authority.
8. It has been further contended on behalf of M/s HML that no penalty can be imposed upon them in terms of Rule 173Q of Central Excise Rules, 1944 in as much as the said rule is not applicable to 100% EOU. Rule 173A(2) oust application of Rule 173Q to manufacturer to whom the provisions of Chapter VA apply. Since the appellant had been a 100% EOU working under Chapter VA, said rule will not get attracted. For the above proposition, they have relied upon the following decisions
a) Kuntal Granite Ltd. v. CCE 2001 (43) RLT 829 (T)
b) T. Gayathri Reddy and Anr. v. CC 2001 (94) ECR 726 (T)
c) La Mansion Granites Ltd. v. CCE
d) T.V. Raja Reddy v. CCE Guntur 2002 (138) ELT 793.
On the other hand, it is the Revenue's contention that wrong quoting of Rule will not make the penal proceedings as bad in law. It has been contended that since the appellant was admittedly indulging in clandestine activity and the charges against them stand clearly spelt out in show cause notice, mere mention of wrong rule will not act fatal to the proceeding. For the above proposition, reliance stands placed on the Tribunal's decision in case of
a) CCE, Pune v. Lanjekar Sales Corporation 2007 (210) ELT 79 (Tri-Mumbai)
b) Supercom India Ltd. v. DGFT, Ministry of Finance We agree with the above contention of the learned SDR. The appellant, having admittedly indulged in the clandestine activity, should not be allowed to go scot-free. In as much as we have already remanded the matter to the Commissioner for quantification of the demand, we would like him to adjudge the appellant's penal liability under the correct provision of law and to decide the quantum in consonance with the quantum of demand confirmed.
9. As regards penalties imposed upon Shri B.A. Patel, Shri Snehal Patel and Shri Vishnu Patel, it is seen that they were actively indulging in preparation of forged CT-3 certificates and re-warehousing certificates. They have taken law into their own hands had prepared the Supdtt.'s stamp and forged the signatures of the Supdtt. incharge. There are admissions on record, by way of their statements that the duty free indigenous raw materials procured by them by issuing forged CT-3 certificates were diverted in the local market and not used in the goods to be exported. The entire scheme was followed with ulterior motive of monetary gains and all three were active participants in that. The said appellants knew what they were doing and the said fraud played upon the exchequer with conscious mind and scheming forgery does not call for any leniency as regards penalties are concerned. However, we find that the present penalties stand imposed upon the appellants by the adjudicating authority keeping in view the demand of around 9 crores against M/s HML, which already stand remanded by us for re-quantification, we would desire the adjudicating authority to refix the penalty amounts afresh in the case of the said appellants also, in consonance with the demands confirmed in de-novo proceedings.
10. As regards the other appellants M/s GSFC, M/s Gujarat Carbon & Industries Ltd., M/s L.G. Polymers (I) Ltd., and M/s Reliance Industries Ltd., the penalties stand imposed upon them on the ground that they have supplied the material against forged CT-3 certificate and the quantity of the goods supplied by them was diverted in the domestic market without utilization in the manufacture of the final product. We find that the Commissioner has himself observed in the impugned order that the said 100% EOU had transpired in such a system and planned manner that nobody could smell that CT-3 certificates were forged, signatures and rubber-stamps of the officers were also forged with design motive of evasion of Central Excise duty. If that be so, the supplier of the raw material cannot be expected to know about the forged nature of the CT-3 certificate and re-warehousing certificates, in the absence of any other independent material on record to lead to the conclusion that they were aware of the deception carried out by M/s HML and were a party to the same. We do not find any such evidence on record. As such, the penalties imposed upon the said suppliers are set aside.
11. Shri S.K. Ray, is the General Manager of M/s Reliance Industries Ltd. The penalty stands imposed upon him on the ground that he introduced Shri Viren V. Vora, to M/s HML, the purchaser of diverted raw material. The said findings are based only upon the statement of Shri Snehal Patel. Shri Ray during interrogation, has denied that he has introduced Shri Vora. It is well settled that the statement of the co-accused cannot be made the sole basis for penalizing the appellant. Further, the findings that Shri Ray used to instruct the depot at Hazira for delivery of consignments to HML and used to mention the name of the transporter for delivering the consignment, is not based on any material on record. We also note that introducing somebody with another person cannot itself be a ground for holding that the introducer has aided and abated in committing any offence. As such, we set aside the penalties imposed upon him also.
12. In a nut-shell, appeal of M/s HML, Shri B.A. Patel, Shri Snehal Patel, & Shri Vishnu Patel stand remanded to the adjudicating authority for de-novo consideration, in the light of the observations made by us in the preceding paragraphs. The other small issues viz. confiscation etc. would also be considered afresh by him.
13. All other appeals i.e. of M/s GSFC, M/s Gujarat Carbon & Industries Ltd., M/s Reliance Industries Ltd., M/s L.G. Polymers (I) Ltd., and Shri S.K. Ray are allowed.
(Pronounced in Court on_________) (M. Veeraiyan) (Archana Wadhwa) Member (Technical) Member (Judicial) M. Veeraiyan, Member (T)
1. I agree with the order proposed by my ld. Sister Mrs. Archana Wadhwa, Member (Judicial). I also record my findings and observations on certain aspects of the case.
2. The four appellants M/s. Hytaisun Magnetic Ltd., a 100% EOU, Shri B.A. Patel, its CMD, Shri Snehal B. Patel, one of the Directors and Shri Vishnu S. Patel, Excise Clerk have fraudulently diverted the duty free material received for M/s. Hytaisun Magnetic Ltd. The 100% EOU was eligible to obtain raw materials duty free from the manufacturers of such raw materials. For this purpose, they were required to obtain CT-3 certificate from their jurisdictional Central Excise authorities; they were required to produce the CT-3 certificate to the supplying units; the supplying units were permitted to clear the required raw materials without payment of duty under AR3A; as a 100% EOU they were required to receive the duty-free material and account the same in their records and utilize for the purpose of manufacture of products for export. They were also required to present the AR3As (under which the goods have been received without payment of duty) to their jurisdictional Central Excise Authorities and obtain re-warehousing certificates and to send it to the supplying units for submission to their jurisdictional central excise officers.
3.1. M/s. Hytaisun Magnetic Ltd. through and with the active participation of Shri B.A. Patel, CMD, Shri Snehal B. Patel, a Director and Shri Vishnu S. Patel, Excise Clerk carefully hatched a plan; they forged the signature of jurisdictional Central Excise authorities and produced forged CT-3 certificates and presented the same to suppliers of raw materials (who are manufacturers).
3.2. The raw material suppliers, as per the practice, cleared the goods under AR3As based on the CT-3 certificates; received payment through DDs from M/s. Hytaisun Magnetic Ltd.; they also received re-warehousing certificates said to have been issued by the jurisdictional Central Excise authorities in charge of M/s. Hytaisun Magnetic Ltd. through the later. The re-warehousing certificates were also forged by M/s. Hytaisun Magnetic Ltd. with the knowledge and participation of Shri Vishnu S. Patel, Excise Clerk, Shri B.A. Patel, CMD and Shri Snehal B. Patel and produced to the supplying units.
3.3. Having prepared forged CT-3 certificates and produced to the supplying units and received material and having made payments by demand drafts to the supplying units for the materials sent by them and having sent forged re-warehousing certificates, these 4 appellants have deeply involved themselves in sophisticated fraudulent activities. They have also not received the raw materials in the factory and therefore have not utilized for the intended purpose of manufacture of export goods. To avoid easy detection, they have not maintained the accounts properly. This is a case of clear fraud committed by the recipient 100% EOU and their employees and officials. The units supplying to the 100% EOU without payment of duty is basically passing on the benefit of exemption to the 100% EOU based on the CT-3 certificate. The 100% EOU is the beneficiary of the fraud.
3.4. Having planned the fraud and enjoyed the benefit out of fraud, M/s. Hytaisun Magnetic Ltd. cannot escape the duty liability on the technical ground that the raw material has not been received in the factory. Having taken so many steps for procuring duty raw materials and having paid for the materials, they cannot claim non-receipt of raw materials. They have taken constructive delivery of the materials. The raw materials might not have been received in the factory. But the non-receipt of raw materials in the factory is only due to the commissions and omissions attributable to M/s. Hytaisun Magnetic Ltd. and their employees and officials.
4. The available evidence does not show knowledge or intention on the part of the supplying units about the fraud committed by the 100% EOU viz. M/s. Hytaisun Magnetic Ltd.
5. With the above findings and observations, I concur with the findings and decisions taken by my ld. Sister.
(Pronounced)