Custom, Excise & Service Tax Tribunal
Texmo Industries vs Coimbatore on 27 September, 2018
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
E/00399/2012
[arising out of Order-in-Appeal No.CMB-CEX-OOO-APP-112-12, dated
21.05.2012 passed by the Commissioner of Customs, Central Excise & Service
Tax (Appeals), Coimbatore]
M/s. TEXMO INDUSTRIES APPELLANT
Versus
COMMISSIONER OF CUSTOMS, CENTRAL EXCISE & RESPONDENT
SERVICE TAX, COIMBATORE Appearance:
For the Appellant Shri C.R. Raghavendra, Adv. For the Respondent Shri R. Subramaniyan, AC (AR) CORAM:
Hon'be Smt. Sulekha Beevi C.S, Member (Judicial) Hon'ble Shri Madhu Mohan Damodhar, Member (Technical) Date of hearing 27-09-2018 Date of pronouncement 09-10-2018 FINAL ORDER NO. 42569 / 2018 Per Bench:
The brief facts are that the appellants are engaged in the manufacture of Electric Motors and power driven pumps. The officers of the Preventive Unit visited the premises of the appellants and on scrutiny of the documents certain discrepancies were noticed. Statements were recorded from the employees of the appellants as well as from certain buyers, who purchased scrap. It appeared that the Motor Division of the appellants sold scrap and realized additional consideration over and above the invoice value by suppressing the actual value of scrap and thus evaded duty to the tune of Rs.6,20,650/-. It was also noticed that the appellants cleared parts of 2 E/00399/2012 Electric Motors without payment of duty and that the duty of Rs.2,05,077/- is due to under-valuation of scraps removed from the Pump Division. Show-cause notice was issued and the original authority confirmed the demand of Rs.8,42,869/- and Rs.2,05,077/- from the Motor and Pumps Division of the appellants. Against this order, the appellants filed an appeal before Commissioner (Appeals), who upheld the demand, interest and penalties. Aggrieved, the appellants are now before the Tribunal.
2. On behalf of the appellants learned Counsel Shri C.R. Raghavendra appeared and argued the matter. He submitted that in the earlier round of litigation, the department failed to provide the entire relied upon documents to the appellants. Even though, the appellants made request to furnish the relied upon documents, this was not heeded to by the department. The matter reached the Tribunal and vide Final Order dated 06.05.2010, the Tribunal remanded the matter to the adjudicating authority for de novo adjudication, after furnishing all the records to the appellants. The adjudicating authority, thereafter, took up the matter for de novo adjudication and passed Order-in-Original dated 26.08.2011.
3. The first allegation raised against the appellants is that they have under-valued the scrap cleared by them. The learned counsel submitted that there is no evidence to support this allegation. The department has confirmed the demand on this allegation merely basing upon the statements of the employee and buyer of scrap [scrap dealer]. These statements are not corroborated by any other evidence. Further, that the appellants had requested for cross- examination of the employee Shri Venkatachalam and also the scrap 3 E/00399/2012 dealer. This was denied by the authorities below by putting forward baseless reasons. When the demand has been confirmed only on the statement made by these persons, the department ought to have granted an opportunity to cross-examine these persons. He relied upon the decision in the case of M/s. Andaman Timber Industries Vs Commissioner of Central Excise, Kolkata-II reported in 2015 (324) E.L.T.641 (S.C.) and also the decision in the case of M/s. J & K Cigarettes Ltd., Vs Collector of Central Excise reported in 2009 (242) E.L.T.189 (Del.). Another ground raised by the appellants with regard to the said allegation of under-valuing of scrap is that the scrap not being a marketable commodity, the duty demand on the scrap itself cannot sustain. The appellants do not manufacture the scrap; that the scrap arises in the course of manufacture of finished goods, which are pumps and motors.
4. The second allegation is that the appellants have cleared parts of the motor pumps without payment of duty. It is again stated by the appellants that the demand on this ground is raised basing upon the statements recorded from Shri A. Sampath Kumar, Supervisor of the Pumps Division and also from the statements of Shri K. S. Seshadri, Manager of M/s. Dhanalakshmi Machine Tools, which is the Authorized Service Centre. He submitted that though the appellants requested for cross-examination of these witnesses, the same was disallowed stating flimsy reasons. The learned counsel adverted to Annexure-2 of the show-cause notice, which gives the details of the demand raised for clearing motor parts without payment of duty and submitted that the period involved is 1994-95 and 1998- 99 [upto Nov.'98]. As per the annexure, quantification is made on 4 E/00399/2012 the basis of the statements given by Manager, M/s. Dhanalakshmi Machine Tools. This Authorised Service Centre was engaged by the appellants only for the period 1997-1999. However, basing upon the statement given by such persons, the department has quantified the demand for a period of almost 6o months of which major part of the period falls prior to 1997. Other than the statements of the Manager of Authorised Service Centre, there is no evidence to show that the appellants have cleared parts of motor pumps without payment of duty. Further, the quantification of demand basing upon the statements of such Manager of Authorised Service Centre is only erroneous. He, therefore, prayed that the demand cannot sustain and requested to set aside the same.
5. The learned Authorised Representative Shri R. Subramaniyan supported the findings in the impugned order. He submitted that the claim of the appellants that the scrap is not a manufactured product, is not acceptable as the appellants have been paying duty on the scrap. Department has rightly calculated the value on the basis of the statements of the employee as well as the scrap dealer. It was brought out from their statements that the scrap is valued 20% below the price and, therefore, the demand has been raised in such a manner. Since the appellants through his employee have accepted the under-valuation, there is no necessity for cross- examination of such persons. In regard to second allegation, he submitted that the appellants have removed parts of motor pumps without payment of duty. This has come to light from the statements deposed by the employee as well as the Manager of Authorised Service Stations. These statements showed that the appellants have cleared 5 E/00399/2012 the parts of the pumps without payment of duty for the warranty period. Thus, the demands raised are legal and proper.
6. Heard both sides.
7. We have perused the records. The demand with regard to the under-valuation as well as clearance of parts without payment of duty is mainly based on the statements recorded. We do not find any documentary evidence put forward by department to establish the under-valuation of scrap and clearance of pats without payment of duty. It is very much clear that though the appellants requested for cross-examination of the said persons, the original authority or the Commissioner (Appeals) has not acceded to the request. In the decisions relied upon by the learned counsel, it has been categorically held that when the department relies upon statements, the opportunity of cross-examination of such witnesses ought to be granted to the appellants. The relevant portion in the decision of M/s. Andaman Timber Industries (supra) is reproduced herein below:-
"6. According to us, not allowing the assessee to cross- examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross- examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them.6
E/00399/2012
7. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross- examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17-3-2005 [2005 (187) E.L.T. A33 (S.C.)] was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions.
8. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the show cause notice."
7. Similar, view has been taken by the Hon'ble Delhi High Court in the case of M/s. J & K Cigarettes Ltd., (supra).
8. Taking the facts into consideration, we find that the denial of cross-examination tantamount to violation of natural justice. The demand has wholly been raised, on the basis of the statements recorded. In such cases, the denial of cross-examination is fatal to the proceedings.
9. With regard to the allegation that the appellant cleared parts of motor pumps without payment of duty, it is seen that in Annexure- 2, the quantification has been made basing upon the statement of the Manager of the Authorised Service Centre. According to the appellants such service station was engaged only for a short period. The quantification of demand on the basis of the statements of such persons for a period prior to 1997 indeed cannot sustain. From the discussions made above, we are of the considered opinion that the department has failed to establish the allegations raised in the show- 7
E/00399/2012 cause notice. The demand, therefore, cannot sustain. The impugned order, therefore, requires to be set aside, which we hereby do. The appeal is allowed with consequential relief, if any.
(Pronounced in open court on 09.10.2018)
(MADHU MOHAN DAMODHAR) (SULEKHA BEEVI C.S.)
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
ksr
05-10-2018
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DRAFT Remarks
I II III
Date of 27.09.2018
dictation
Draft Order 01.10.2018
- Date of
typing
Fair Order 05.10.2018
Typing
Date of .10.2018
number
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