Custom, Excise & Service Tax Tribunal
(I) vs (I) on 14 December, 2017
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Appeals (s) Involved: E/129, 130, 362/2007 [Arising out of Order-in-Original No.23/2006 dated 29.11.2006 passed by the Commissioner of Central Excise & Customs, Calicut.] (i) M/s. Paragon Steels (P) Ltd. Kanjikode. Appellant(s) (ii) Shri M. Paramasivam Managing Director M/s. Paragon Steels (P) Ltd. (iii) The Commissioner of Central Excise, Customs & Service Tax Calicut Versus (i) The Commissioner of Central Excise, Customs & Service Tax Calicut Respondent (s)
(ii) The Commissioner of Central Excise, Customs & Service Tax Calicut
(iii) M/s. Paragon Steels (P) Ltd.
Kanjikode.
Appearance:
Mr. B. Venugopal, Advocate For the Appellant Mr. Pakshirajan, AR For the Respondent Date of Hearing: 05.12.2017 Date of Decision: 14.12.2017 CORAM:
HON'BLE SHRI V. PADMANABHAN, TECHNICAL MEMBER HON'BLE SHRI S.S. GARG, JUDICIAL MEMBER Final Order No. _23172 23174 / 2017 Per : V. PADMANABHAN The present appeals have been filed both by the assessee as well as Revenue against the Order-in-Original No.23/2006 dated 29.11.2006.
2. The assessee is engaged in the manufacture of ingots of iron and steel. The Departmental officers visited the premises of the assessee on 29.7.2003 which resulted in seizure of various incriminating documents indicating large-scale unaccounted production. Statements of various connected persons were recorded on the day of the search operations and also during the course of detailed investigation. The main documentary evidences which were brought on record during the course of investigation are as follows:
(i) Certain small scribbling note pads said to contain the details of goods removed without payment of duty by the assessee. In the statement dated 29.7.2003 recorded from Shri R. Jawahar, Commercial Manager of the assessee, he deposed that these scribbling pads contain the details of the ingots removed without payment of duty. The said statement was retracted by Shri R. Jawahar, however, the department again summoned him and further statement was recorded on 18.9.2003 in which he deposed that such scribbling pads contain record of goods cleared clandestinely.
(ii) On the basis of seized records in the form of scribbling pads, it was inferred that a total of 553.495 MT of goods were clandestinely cleared without payment of duty.
(iii) A vehicle bearing registration No.KL 9D 756 driven by one Shri Suresh Babu reached the factory during search on 29.7.2003. The driver was found in possession of a copy of invoice No.181 dated 29.7.2003 of the assessee for 12.420 MT of MS ingots issued to M/s. Gasha Steels (P) Ltd. A duplicate copy of the weighment slip matching with the above seized of invoice was also found. In his statement, Shri Suresh Babu stated that he had delivered the ingots covered by the said invoice to M/s. Gasha Steels and returned the documents as instructed by Shri Karunanidhi, Cashier of the assessee-company.
(iv) A computer was seized from the factory of the assessee during the course of search operation and the data available therein was transferred to a CD. By the process of regeneration, two invoices bearing same serial No.181 with dates of issue as 27.7.2003 in favour of M/s. Kariraly and invoice 28.7.2003 in the name of M/s. Gasha Steels for quantities 11.54 MT and 10.76 MT respectively were found. In this connection, when Shri Malarmannan, Accounts Assistant of the assessee, who was in charge of the preparation of invoices, was questioned, he admitted in his statement dated 29.7.2003 that he used to generate invoices with the same number more than once and used to delete such invoices from the computer. The invoices re-generated from the computer bear the same number 181 which was also recovered from the possession of the driver Shri Suresh Babu.
(v) A gate register maintained at the factory gate was recovered by the departmental officers. This register was showing details of vehicles that entered and exited with time of entry and exit and the names of driver and destination to which the vehicles moved on 28.7.2003. As per the register, six consignments moved to M/s. Gasha Steels and four consignments moved to M/s. Kariraly on the said date.
(vi) In respect of multiple quantities in invoice bearing Invoice No.181, the entries in the gate register correlated with the multiple clearances as bearing from the same invoice no.181.
(vii) Commercial Tax Authorities carried out verification in the premises of the assessee on 23.1.2002 when shortage of certain raw materials in the form of scrap was noticed by them.
(viii) Enquires were made by the departmental officers with Kerala State Electricity Board (KSEB) and it was found that the KSEB had carried load survey from 14.6.2003 to 24.7.2003 (40 days) and also for the period 22.11.2003 to 1.1.2004. In this connection, Mr. Sasidharan Pillai, Assistant Executive Engineer of Kanjikode, who was in-charge of power supply to the assessee, in his statement deposed that the electricity meter installed in the assessees premises did not record the power consumption properly.
2.1 After conclusion of investigation, the department estimated that the assessee could have manufactured 780 MT ingots per month by taking 10-14 heats per day and by taking the average final product output of 3 MT per heat and 26 working days in a month. By adopting this calculation for the period 1.5.2000 to 29.7.2003 (39 months), the total clandestine clearance was projected at 30,420 MT and after deducting the quantity already accounted by the assesse, it was alleged in the show-cause notice that total quantity of 3440.500 MT was clandestinely cleared. On these quantum of finished products, the show-cause notice was issued for demand of Central Excise duty amounting to Rs.56,79,181/-.
2.2 After the due process of adjudication, the learned Commissioner passed the impugned order in which demand was confirmed only to the extent of Rs.7,52,843/- and penalties were also imposed on the assessee as well as the Managing Director. The rest of the demand made in the show-cause notice was dropped by the Commissioner.
2.3 Appeal has been filed by the assessee challenging the confirmation of the duty demand amounting to Rs.7,52,843/- as well as the penalties imposed on the assessee as well as Shri M. Paramasivam, Managing Director.
2.4 The Revenue has filed appeal against that portion of the impugned order in which duty demand to the extent of Rs.49,36,338/- was dropped.
3. With the above background, we heard Shri B. Venugopal, the learned advocate for the assessee and Shri Paramasivam, the Managing Director as well as Shri Pakshirajan, learned DR representing the Revenue.
4. Shri B. Venugopal, learned advocate highlighted the following grounds in the appeal made by the assessee and the Managing Director.
(i) During the course of investigation, the department had recorded the statement of various persons. During the course of adjudication, a request was made by the assessee before the adjudicating authority for cross-examination of 10 witnesses whose statements were relied in the proceedings. However, the adjudicating authority has allowed the cross examination of only one witness viz., Mr. Sasidharan Pillai, Assistant Executive Engineer of KESB. In terms of Section 9D of the Central Excise Act, 1944, before the statement of any witness is used during the course of any quasi-judicial proceedings, the same is required to be admitted by the adjudicating authority, then the witnesses are required to be made available for cross-examination. In the present case, the procedure outlined in Section 9D has not been followed by the adjudicating authority and hence, such statements will have no evidentiary value. He relied on the following case laws:
* G-Tech Industries Pvt. Ltd.: 2016 (339) ELT 209 (P&H) * Goyal Tobacco Co. Pvt. Ltd. vs. CCE: 2017 (348) ELT 720 (Tribunal) * Hingora Industries Pvt. Ltd.: 2015 (325) ELT 116 (Tri.-Ahmd.) * Jindal Drugs Pvt. Ltd.: 2016 (340) ELT 67 (P & H)
(ii) He submitted that the Honble High Court of Punjab and Haryana has upheld the above position. Accordingly, he submitted that the adjudicating authority cannot use the statements given by the witness against them.
(iii) The learned counsel further submitted that demand, in the worst case, can be only on the basis of three invoices bearing same serial number 181 for which demand will be much lesser than the confirmed amount of about Rs.7 lakhs.
5. The learned DR, not only justified the impugned order, but he also put forth the grounds of the departmental appeal. He submitted that the adjudicating authority should have confirmed the demand as proposed in the show-cause notice. It is his submission that the assessee is capable of manufacturing as much as 14 heats per day, each heat of capacity of 3 MT, however, the department has computed the demand in the show-cause notice only on the basis of taking 10 heats per day, which is a very reasonable quantity estimated per day. He opposed the contention of the assessee that without granting cross-examination of the witnesses, the statements cannot be made use of in any quasi-judicial proceedings. He sought to distinguish the case law in the case of G-Tech Industries (supra) by submitting that the said decision was given by the Honble High Court in writ petition which does not become a binding precedent and will be applicable only to that particular case. He further submitted that the provisions of Section 9D are directly applicable only in the case of criminal proceedings pending before the court.
5.1 The learned DR also placed reliance on the following case laws.
* Collector of Customs, Madras and Ors. Vs. D. Bhoormull: 1983 (13) E.L.T. 1546 (S.C.) * R.S. Company vs. CCE: 2017 (351) ELT 264 (MP) * Columbia Electronics Ltd. vs. CCE: 2002 (143) ELT 635 (Tri.-Del.)
6. Heard both sides and peruse the records.
7. At the outset, we consider the grounds advanced by the department in their appeal. In the show-cause notice, demand has been raised for the period May 2000 to July 2003 by working out the total quantity of ingots manufactured on the basis of the estimated production per month. The department estimated, on the basis of power consumption by the assessee, that each heat can manufacture 3 MT of steel ingots and in a day as many as 14 heats can be manufactured by the assessee using the equipments installed in the factory. However, taking into account various factors, it was estimated that a reasonable production can be arrived at by taking 10 heats per day. Taking the number of working days in a month as 26, quantity produced in a month was derived as 780 MT, projecting the production on the basis of the above calculation for 39 months, the total quantity manufactured was estimated and duty demand was proposed in the show-cause notice.
7.1 The adjudicating authority, however, did not uphold the demand estimated on the basis of the above theoretical calculation as above. During the course of examination of the witness, Mr. Sashidaran Pillai, Assistant Executive Engineer of KSEB has opined that the actual current consumption in one phase was not properly recorded in the meter and hence, the power consumption by the assessee was not properly recorded in the meter. He has further categorically stated that no incidence of power theft by the assessee has come to his notice. On this basis, the adjudicating authority has taken the view that the demand proposed, only on the basis of power consumption is not sustainable. But Revenue in their grounds of appeal has argued that the opinion of Mr. Sashidaran Pillai, Assistant Executive Engineer cannot be taken into account since he was in-charge of the factory only for the period from 6.12.2003 to 9.11.2004 whereas the demand in the show-cause notice was proposed for the period from 05/2000 to 07/2003.
It is settled position of law that quantification of alleged clandestine clearance only on the basis of theoretical estimation of production cannot be sustained in the case of R A Castings Pvt. Ltd. vs. Commissioner: 2015 (318) ELT 433 (Tri.-Del.). The Tribunal observed that duty demand made on basis of theoretical calculations of production is not sustainable. The said decision has also been upheld by the Honble Supreme Court. By following the above decision, we are of the view that there is no infirmity in the impugned order in which the duty demand, projected only on the basis of number of heats per day, has been set aside. In the result, the appeal filed by the Revenue is rejected.
8. Next, we turn to the grounds of appeal taken up by the assessee. The main evidence on the basis of which the adjudicating authority has upheld the duty demand of Rs.7,52,843/- is the private documents in the form of scribbling pads recovered from the factory premises of the assessee. Such scribbling pads are said to contain the details of the goods removed without payment of duty by the assessee. On the basis of these scribbling pads, it is alleged that a total of 553 MT of ingots have been clandestinely cleared. The authenticity of the information contained in these scribbling pads has been confirmed by Shri R. Jawahar, Commercial Manager in his statement recorded during the search conducted in the assessees premises. Though such statement was retracted, a further statement was recorded from him on a later date in which he has confirmed that the scribbling pads indeed contained record of goods cleared clandestinely.
8.1 Some of the entries found in the scribbling pads have been corroborated by other evidences. From the computer, recovered from the factory premises, certain invoices were regenerated and printed. It was noticed that three invoices, all bearing same Sl. No.181, were found to have been issued on three different dates i.e., 27.7.2003, 28.7.2003 and 29.7.2003 in the name of three different customers showing different quantities. It was further noticed that another invoice bearing same Sl. No.181 was recovered from the possession of the driver of the vehicle Mr. Suresh Babu who admitted that the goods covered by the invoice in his possession was indeed delivered to the customer M/s. Gasha Steels. Shri Malarmannan, Accounts In-Charge admitted in his statement that he was in-charge of preparation of invoices and further admitted issuing three invoices with the same number 181 on three different dates. The invoice number, quantities and date pertaining to invoice No.181 tallied in respect of the entries found in scribbling pads, gate register as well as regenerated invoices. This clearly establishes the charge of removal of ingots without payment of duty and confirms the practice of multiple transportation under the same invoice.
8.2 The main ground on which the assessee has agitated against the duty demand is that out of 10 witnesses whose statements have been used against them, only one witness was produced for cross-examination, even though they had requested for the cross-examination of all the 10 witnesses. It has been contended by the assessee that this amounts to non-observance of the provisions of Section 9D of the Central Excise Act, 1944. They have also relied on case laws in which the Honble High Court of Punjab and Haryana has held that the provisions of Section 9D will be equally applicable to departmental proceedings and also criminal proceedings in the court. But the adjudicating authority has justified the non-production of 9 witnesses for cross-examination, on the ground that 9 witnesses were the employees of the company and since they are under the control of the assessee, the cross-examination will not serve any purpose as the assessee has hold over them and they can be made to retract the facts contained in their statements. We find the stand taken by the adjudicating authority to be reasonable under the circumstances of the case. We find that only one of the statements recorded from Shri Jawahar has been retracted subsequent to the date of recording. However, Shri Jawahar has confirmed the facts in his subsequent statements nullifying the retraction. In the absence of retraction by any of the other witnesses, the denial of cross-examination does not vitiate the proceedings. The adjudicating authority has confirmed the demand of duty of about Rs. Rs.7,52,843/- on the basis of documents recovered from such proceedings and whose veracity has been proved from the corroborative evidences like regenerated invoice and gate register evidencing the clandestine removal of the ingots by the assessee. He has fairly dropped the demand which has been projected on the basis of theoretical calculation. In view of above discussions, we find no reasons to interfere with the demand of duty and imposing of penalty on the assessee.
9. Appeal has been filed by Shri Paramasivam, Managing Director against the penalty of Rs.50,000/- imposed under Rule 26 of the Central Excise Rules, 2002. We find that Shri Paramasivam, Managing Director has admitted the clearance of excisable goods without payment of duty as is evident from his letter dated 29.7.2003 admitting the duty liability. He has concerned himself with the production and removal of excisable goods which were liable to confiscation. Consequently, we find no reason to interfere with the penalty imposed on him, which is upheld and the appeal filed by him is also rejected. The appeal filed by assessee is rejected.
10. In view of the above discussions, we find no reason to interfere with the impugned order, which is sustained and all the appeals filed by the assessee, Shri Paramasivam, Managing Director as well as the department are rejected.
(Order was pronounced in open court on 14.12.2017z V. PADMANABHAN TECHNICAL MEMBER S.S GARG JUDICIAL MEMBER rv 16 1