Custom, Excise & Service Tax Tribunal
Shimac Organics vs Ce & Cgst Noida on 2 May, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT NO.I
Excise Appeal No.71123 of 2018
(Arising out of Order-in-Appeal No.NOI-EXCUS-001-APP-1999 to 2001-17-18
dated 28.03.2018 passed by Commissioner (Appeals) Goods & Central Tax,
Noida)
M/s Shimac Organics, .....Appellant
(D-17 UPSIDC, Industrial Area,
Sikandrabad, Bulandshahar, U.P.-203001)
VERSUS
Commissioner of Central Excise, Noida ....Respondent
(Noida) APPEARANCE:
Shri Nishant Mishra, Advocate for the Appellant Shri A. K. Choudhary, Authorized Representative for the Respondent CORAM: HON'BLE MR. P.K. CHOUDHARY, MEMBER (JUDICIAL) HON'BLE MR. P. ANJANI KUMAR, MEMBER (TECHNICAL) FINAL ORDER NO.- 70243/2025 DATE OF HEARING : 21.02.2025 DATE OF PRONOUNCEMENT : 02.05.2025 P. K. CHOUDHARY:
The present appeal has been filed assailing the Order-in- Appeal No. NOI-EXCUS-001-APP-1999 to 2001-17-18 dated 28.03.2018 passed by the learned Commissioner (Appeals), to the extent it relates to the Appellant and confirms demand of Excise Duty of Rs.1,10,96,149/- and recovery of credit of Rs.76,45,618/- along with interest and penalty.
2. The facts giving rise to the present appeal, in brief, are that the Appellant, a partnership firm of Shri Shiv Shankar Barathi and his son Shri Hardesh Kumar Barathi, was engaged in the manufacture of pesticides and organic manure falling under CETH 3803 and CETH 3101 respectively, of the Central Excise Tariff Act, 1985 and was availing Small Scale Industries1 1 SSI Excise Appeal No.71123 of 2018 2 exemption under Notification No.8/2003-CE dated 01.03.2003, as amended.
3. On 06.08.2015, the Anti-Evasion Officers of Central Excise Commissionerate, Noida-II visited and searched the factory premises and head office of the Appellant. During the visit at factory, the officers on receiving telephonic information from the other team visiting the Head Office that the turnover of the Appellant had exceeded the exemption limit, seized the stock of finished goods on the reasonable belief that the finished goods are liable for confiscation having been manufactured without obtaining registration with an intent to remove the same clandestinely without payment of duty. During the visit at the Head Office of the Appellant, the Officers also collected sales details for the year 2011-12 to 2015-16 (upto July' 2015) and also recorded statement of Shri Shiv Shankar Barathi. Later on statements of Shri Hardesh Barathi were also recorded on 28.03.2016 and 18.04.2016.
4. Show Cause Notice2 dated 20.06.2016 was then issued on the ground that the Appellant has clandestinely cleared pesticides and organic manure, to the extent that the value of first clearances of pesticides exceeded Rs.1.5 crores in 2011-12 and the aggregate value of clearances of pesticides and organic manure exceeded Rs.4 crores in 2012-13. The SCN thus alleged clandestine removal during the period from 2011-12 (January' 2012) to 2015-16 (upto 08.08.2015) and consequently, alleged disentitlement to SSI exemption and proposed demand of Excise Duty of Rs.1,10,96,149/-. The SCN also proposed appropriation of amount of Rs.50,08,500/- deposited during investigation and also recovery of credit of Rs.76,45,618/- alleged to have been availed in respect of the documents issued more than six months/one year old. The SCN further proposed imposition of personal penalties on the two partners.
5. The SCN was adjudicated vide Order-in-Original dated 30.01.2017, by which the demand of duty of Rs.1,10,96,149/-, appropriation of Rs.50,08,500/-, recovery of credit of 2 SCN Excise Appeal No.71123 of 2018 3 Rs.76,45,618/- along with interest and penalties on the Appellant along with personal penalties on the two partners were confirmed.
6. Aggrieved by the adjudication order, the Appellant as well as the two partners preferred separate appeals before the Ld. Commissioner (Appeals). By the impugned Order-in-Appeal dated 28.03.2018, the appeal of the Appellant has been rejected but the appeals filed by the two partners have been allowed and personal penalties on them have been set-aside.
7. Aggrieved with the impugned Order-in-Appeal, the Appellant has preferred the instant appeal.
8. Heard Shri Nishant Mishra, learned counsel for the Appellant and Shri A. K. Choudhary, learned Authorized Representative for the Respondent Department. Ld. counsel for the Appellant has broadly made submissions and has also filed written submissions along with the judgments on the following grounds:-
(i) Demand of duty is based on the allegation of clandestine removal to the extent stated in the SCN, for which the Revenue has failed to bring on record any corroborative material and once the charge of clandestine removal fails, the consequent charge of excess clearances also fails, making the Appellant entitled to the benefits of Notification No.8/2003-CE dated 01.03.2003, as amended;
(ii) Two statements of Shri Hardesh Barathi, which were recorded under duress, were neither supported by any corroborative material nor admitted under Section 9D and were retracted once the same were relied upon, there is no material on record to sustain the charge of clandestine removal;
(iii) Even the sales details and MRP Lists obtained from Shri Hardesh Barathi during the course of recording his statement were prepared on the instance of the revenue and were on much higher side when compared to the sale details submitted during the search proceedings and also by letter dated 16.11.2015 and also there is no basis given Excise Appeal No.71123 of 2018 4 in the SCN for computation of value of clearances being almost double the value of clearances admitted by the Appellant;
(iv) Even in respect of the MRP relied upon in the SCN, no enquiry either from market or regular purchasers was conducted to find out the retail sale price (RSP), when at the time of search itself Shri Shiv Shankar Barathi in his statement stated that the sale was to direct parties and also to M/s Shimac Organics (P) Ltd. and M/s Amvac Agri- Rasayan (P) Ltd.;
(v) The Revenue has not considered the effect of insertion of proviso in Notification No.8/2003-CE dated 01.03.2003 (Inserted by Notification No.8/2006-CE., dated 01.03.2006), which provides that exemption contained in this notification shall apply subject to the conditions.
(vi) Admission of duty liability in letter dated 16.11.2015 was under the wrong impression that duty is payable on both pesticides and organic manure by claiming SSI exemption only till 2012-13;
(vii) Demand under Rule 14 is not tenable as credit was only availed and not taken under the bona fide impression that credit would be admissible if duty demand is confirmed, the same was reversed before utilisation and it is also not the case of the revenue that any part of the credit was utilised towards payment of duty;
(vii) Findings recorded in the impugned order are perverse, based on irrelevant material and demand of interest and imposition of penalties is not sustainable in law.
9. Ld. Authorised Representative for the Revenue has relied upon the findings recorded in the impugned order and the Adjudication Order. He submits that the Appellant has clandestinely manufactured and cleared goods to the extent stated in the SCN and is therefore not entitled to SSI exemption and liable to pay duty along with interest and penalty, which was also admitted by the partner of the Appellant. He also submits Excise Appeal No.71123 of 2018 5 that the Appellant has wrongly taken Cenvat credit and therefore, the amount of credit is rightly ordered to be recovered from the Appellant alongwith interest and penalties.
10. Heard both the sides and perused the appeal records.
11. We find that the case set up by the Revenue in the SCN is that the Appellant, being a manufacturer of pesticides (excisable goods notified under Section 4A) and organic manure (chargeable to Nil rate of duty), has clandestinely manufactured and cleared both pesticides and organic manure to the extent quantified in the SCN, and therefore, the value of first clearances of pesticides exceeded Rs.1.5 crores in 2011-12 onwards and also the aggregate value of clearances of both pesticides and organic manure exceeded Rs.4.0 crores in 2012-13. It is on this ground that the benefit of exemption under Notification No.8/2003-CE dated 01.03.2003 has been restricted for the period 2011-12 & 2012-13 and denied for the period from 2013- 14 to 2015-16 (upto 8th August' 2015) and consequently duty has been demanded on excess clearances. The SCN also proposed appropriation of amount deposited during investigation and recovery of inadmissible credit taken on the basis of documents issued prior to six months/one year.
12. We propose to first examine the issue of demand of duty qua entitlement to exemption under Notification No.8/2003-CE dated 01.03.2003, as amended. Notification No.8/2003-CE dated 01.03.2003 ('exemption notification') exempted first clearances of goods specified in the Annexure to the said notification, upto Rs.1.00 crores made on or after the 1 st day of April in any financial year. The exemption under the notification was conditional and the relevant conditions for the purposes of the present appeal, as applicable during the period in dispute were as under:-
"(iii) the manufacturer shall not avail the credit of duty on inputs under rule 3 or rule 11 of the CENVAT Credit Rules, 2002 (herein after referred to as the said rules), paid on inputs used in the manufacture of the specified goods cleared for home consumption, the aggregate value of first clearances of which, as Excise Appeal No.71123 of 2018 6 calculated in the manner specified in the said Table does not exceed one hundred lakh rupees;
(vii) the aggregate value of clearances of all excisable goods for home consumption by a manufacturer from one or more factories, or from a factory by one or more manufacturers, does not exceed rupees three hundred lakhs in the preceding financial year."
By Notification No.10/2005-CE dated 01.03.2005, the amount specified in condition No. (vii) above was enhanced to Rs.4.00 crores and by Notification No.8/2007-CE dated 01.03.2007, the specified limit of exemption was enhanced to Rs.1.50 crores. By Notification No.8/2006-CE dated 01.03.2006, the following proviso was also added to the exemption notification:-
"Provided further that exemption contained in this notification shall not apply to goods which are chargeable to nil rate of duty or are exempt from the whole of the duty of excise leviable thereon."
13. There is no dispute that pesticides were specified in the Annexure to the exemption notification and also that pesticide has been notified under Section 4A of the Act. The issue in the present case is as to whether the value of clearances of pesticides exceeded Rs.1.5 crores from 2011-12 and also whether the aggregate value of clearances of pesticides and organic manure exceeded Rs.4.00 crores in 2012-13, thereby restricting the benefit of exemption for 2011-12 & 2012-13 and denying exemption for 2013-14 to 2015-16 (upto 8th August' 2015). Since the Revenue's case is based on clandestine manufacture and removal to the extent specified in the SCN, hence it will be useful to refer to the law on the subject. The jurisdictional High Court i.e. the Hon'ble Allahabad High Court in Continental Cement Company vs. Union of India (2014) 309 E.L.T. 411 (All) has held as under:-
"12. Further, unless there is clinching evidence of the nature of purchase of raw materials, use of electricity, sale Excise Appeal No.71123 of 2018 7 of final products, clandestine removals, the mode and flow back of funds, demands cannot be confirmed solely on the basis of presumptions and assumptions. Clandestine removal is a serious charge against the manufacturer, which is required to be discharged by the Revenue by production of sufficient and tangible evidence. On careful examination, it is found that with regard to alleged removals, the department has not investigated the following aspects :
(i) To find out the excess production details.
(ii) To find out whether the excess raw materials have been purchased.
(iii) To find out the dispatch particulars from the regular transporters.
(iv) To find out the realization of sale proceeds.
(v) To find out finished product receipt details from regular dealers/buyers.
(vi) To find out the excess power consumptions.
13. Thus, to prove the allegation of clandestine sale, further corroborative evidence is also required. For this purpose no investigation was conducted by the Department."
Hon'ble Delhi High Court also recently laid down the same principle of law in Commissioner of Central Excise vs. Kuber Tobacco Products Pvt. Ltd. (2024) 18 Centax 417 (Del), as under:-
"26. It is a settled law that there cannot be clandestine removal of the goods unless the assessee manufactures the same clandestinely and for that purpose, procures raw material clandestinely and uses it without disclosing its utilization. Admittedly, there is no evidence of purchase of major raw material like supari, tobacco etc even in the loose sheets/Hisaba Books recovered in the search. Revenue has not produced any evidence about the procurement of raw material which may be regarded as sufficient for the manufacture of the final product, which is alleged to have been clandestinely removed.
27. .............In Commissioner of Central Excise v. Shakti Zarda Factory (I) Ltd. 2015 (321) ELT 438 (Del), the Court declined to frame a question of law in a reference made to it from an order of a Tribunal on the issue of clandestine removal. In that case, it was found the CCE had relied upon evidence that was either inadmissible or lacked Excise Appeal No.71123 of 2018 8 corroboration from other reliable concrete documentary evidence. It was pointed out that "the initial burden was on the Department to prove the allegations of the clandestine receipt of raw material or manufacture and removal of the final products." The Special Leave Petition filed by the Department against the said order being SLP (Civil) No. 6594 of 2004 was dismissed by the Supreme Court on 16th August, 2004."
The Hon'ble Calcutta High Court in Satyam Iron and Steel Company Private Limited vs. Commissioner, Central Excise and Service Tax, Bolpur 2023 SCC OnLine 775 (Cal) has also observed as under:-
"6. In Continental Cement Company v. Union of India (2014) 309 ELT 411 (All) it was held that to prove clandestine removal, evidence is required on purchase of raw materials, use of extra electricity, sale of final products, clandestine removal, transportation, payment, realization of sale proceeds, modes and flow-back of funds etc. It being a serious charge, it is required to be proved by the revenue by tangible and sufficient evidence and mere statements of buyer based on their memory was insufficient without support of any documentary evidence.
7. In Commissioner of Central Excise, Kolkata - III v. Sai Sulphonate Private Limited, (2022) 380 ELT 441 (Cal) it was held that the onus to prove clandestine removal is on the department and in the absence of any material on record establishing the charge of clandestine removal and trying to establish the charge by way of inference taking note of the ratio as adopted in the manufacturing process cannot be made."
Thus, the Hon'ble High Courts have consistently held that clandestine removal is a serious charge which is required to be proved by clinching evidence by bringing sufficient and tangible evidence on record, such evidences may be in the form of evidence of purchase of excess raw material, evidence of dispatch particulars, evidence of realisation of sale proceeds, evidence of receipt from purchasers, evidence of excess power consumption etc. and also that the initial burden to prove the charge of clandestine removal is on the Revenue.
Excise Appeal No.71123 of 2018 9
14. Applying the aforesaid test in the present case, we find that there is no material on record to show that there was excess production, purchase of raw material, excess electricity consumption, excess sale of finished goods, clandestine removal, transportation, payment, realisation of proceeds, modes and flow back of funds etc. We find from the records that no enquiry in this regard has been conducted and no material has been brought on record to sustain the charge of clandestine removal. In our opinion, the case of clandestine removal set up by the Revenue, falls foul of the parameters laid down by the Hon'ble High Courts, as referred above.
15. The only material on which the Revenue relies to sustain the charge of clandestine removal to the extent stated in the SCN, is the statement dated 28.03.2016 of Shri Hardesh Barathi and the sale details along with MRP Lists obtained from him on the basis of which duty liability has been quantified and his second statement dated 18.04.2016 wherein he admitted the duty liability. While the Revenue has heavily relied on the said two statements and the sale details along with MRP Lists, the ld. counsel for the Appellant has contended that the statements were obtained under duress and sale details were prepared at the time of recording of statement on the higher side under the duress of Officers. He further submitted that application of duress can be ascertained from the facts as it cannot be expected from any prudent person to first provide the material for determination of huge duty liability and thereafter admit the huge duty liability in second statement, duress was there from the date of search itself when post-dated cheques of Rs.1.5 crores were collected in absence of any existing demand, it was for the Revenue to prove that the statements were voluntary and the statements were retracted when the statements were relied upon against the Appellant in the SCN.
16. Hon'ble Supreme Court in Commissioner of Customs (Imports), Mumbai vs. Ganpati Overseas (2023) 386 E.L.T. 802, after considering the earlier judgments on the issue of Excise Appeal No.71123 of 2018 10 admissibility of a statement as evidence, when such statement is claimed to be given under duress or coercion, as under:-
"28. Thus, what is deducible from an analysis of the relevant legal provisions and the corresponding judicial pronouncements is that a customs officer is not a police officer. Further, the person summoned and who makes a statement under section 108 is not an accused. However, a statement made by a person under section 108 of the Customs Act before the concerned customs officer is admissible in evidence and can be used against such a person. Object underlying Section 108 is to elicit the truth from the person who is being examined regarding the incident of customs infringement. Since the objective is to ascertain the truth, the customs officer must ensure the truthfulness of the statement so recorded. If the statement recorded is not correct, then, the very utility of recording such a statement would get lost. It is in this context that the customs officer who is empowered under section 108 to record statement etc. has the onerous responsibility to see to it that the statement is recorded in a fair and judicious manner providing for procedural safeguards to the concerned person to ensure that the statement so recorded, which is admissible in evidence, can meet the standard of basic judicial principles and natural justice. It is axiomatic that when a statement is admissible as a piece of evidence, the same has to conform to minimum judicial standards. Certainly a statement recorded under duress or coercion cannot be used against the person making the statement. It is for the adjudicating authority to find out whether there was any duress or coercion in the recording of such a statement since the adjudicating authority exercises quasi-judicial powers."
Thus, the Hon'ble Supreme Court has held that the Officer who records the statement has the onerous duty to see that the statement is recorded in a fair and judicious manner so that the statement can meet the standards of basic judicial principles and natural justice and it is the duty of the Adjudicating Authority to find out whether there was any duress or coercion in the recording of statement.
17. We find that the following findings have been recorded in paragraph 5.2(iii) of the Adjudication Order regarding the plea of Excise Appeal No.71123 of 2018 11 duress and the assessable value determined on the basis of sale details obtained:-
"(iii) I find that there is no dispute regarding assessable value of pesticides and organic manure, as the same value has been taken in SCN and by the party in defence reply dated 03.01.2017 vide Para No. 12.8. However, the difference in value resulting in to difference of duty as pointed out by the party is due to the fact that the exemption of Rs. 1.50 Cr was calculated by the party in all years whereas, the same was calculated in the SCN for only two years as discussed in preceding paras. Therefore, the submission of the party on this count, that the duty has been calculated incorrectly in the SCN, is not correct.
The detail calculation for the year 2011-12, 2012-13, 2013-14, and 2014-15 already submitted by the party during the investigation which are part of RUD-9 along with quantity and value of each and every items of production. Moreover the MRP calculated on the basis of the value and quantity given by the party. The party‟s argument of challenging the MRP is nothing but after thought. The calculation of MRP is based on the data given by the party not on presumption and assumption. It is also fact that the party never challenged the statement and the facts given at the time of investigation. Hence party‟s argument that the statement given under duress is not correct."
18. The aforesaid findings and conclusion of the Adjudicating Authority appears to be erroneous and based on incorrect appreciation of facts, for more than one reasons, as follows:-
(i) Firstly, the finding that there is no dispute over assessable value of pesticides and organic manure and reliance in this regard on the value taken in the SCN and those stated in paragraph 12.8 (page 86 APB) of the defence reply, clearly appears to be incorrect, as paragraph 12.8 of the defence reply refers to the alternative submission of the Appellant and not the main submission on the assessable value.
Thus, it cannot be said that the assessable value mentioned in the SCN was not disputed by the Appellant;
Excise Appeal No.71123 of 2018 12
(ii) Secondly, once the submission of the Appellant has been rejected only on the basis of alternative submission, then the conclusion reached by the Adjudicating authority on the assessable value of clearances is clearly based on irrelevant material;
(iii) Thirdly, RUD-9 is the sale details obtained from Shri Hardesh Barathi during the course of recording of his statement dated 28.03.2016, which is clear from the following recital made in paragraph 8 of the SCN:-
8. Whereas, during the investigation the party was summoned on many occasions but they avoided presence and submission of information and documents required under summons. Finally Shri Hardesh Barathi, partner of the firm appeared on 28.03.2016 when his statement was recorded under Section 14 of the Central Excise Act, 1944 (RUD-7) wherein he inter-alia stated as under-
(i) That he in association with his father Shri Shiv Shanker look after all work of the unit;
(ii) He produced copies of the following documents-
a. MRP Lists for the years 2011-12, 2012-13 and 2013-14.
b. Month wise and product wise sale details (i.e. quantity and value ) for the years 2010-11, 2011-12, 2012-13, 2014-15 and 2015-16 (up to 08.08.2015).
c. Flow charts of process of manufacture of organic manures both Granules and Liquid.
d. Copy of license issued by the State Government for manufacture of pesticides.
Reference to the month wise and product wise quantity and value of clearances also finds place in paragraph 10 of the show cause notice, as under:-
10. Whereas, during the investigation, the party submitted product wise and month wise quantity and value of their clearances of pesticides and trading sale for the year 2011-12 to 2015-16 (up to 8th August 2015) (RUD-9) Excise Appeal No.71123 of 2018 13 Thus, the month wise and product wise sale details along with quantity and value, referred to as RUD-9 in the Adjudication order, was nothing but the sale details obtained from Shri Hardesh Barathi during the course of recording of his statement dated 28.03.2016. Once the Appellant pleaded duress in recording of statement dated 28.03.2016, then any information gathered during the course of recording of such statement, cannot form the basis and reason to reject the plea of duress. Therefore, merely because the Revenue obtained product wise and month wise details during the course of recording of statement dated 28.03.2016, the same does not constitute relevant material and also cannot give rise to a presumption that the statement was voluntary and not recorded under duress.
(iv) Fourthly, the finding in the Adjudication order that MRP was calculated on the basis of the value and quantity given by the party and not on assumption and presumption, is also perverse and contrary to record, as its nobody's case that the MRP was calculated by the Revenue. On the contrary, the case of the Revenue is that MRP Lists for the year 2010-11 to 2013-14 were provided by Shri Hardesh Barathi during the course of his statement dated 28.03.2016, on the basis of which duty liability has been calculated. Thus, this finding is also clearly based on incorrect appreciation of facts.
(v) Lastly, the finding that the Appellant never challenged the statements also appears to be incorrect, as plea of duress was specifically taken in the defence reply, after the statements were relied upon against the Appellant. Since the case of the Appellant is that the copies of statements were not provided while the statements were recorded and the same were relied upon and provided for the first time along with the SCN, then the Appellant was well within its right to raise the plea of duress in its defence reply. Once the maker of the statement resiled it, even after a lapse of Excise Appeal No.71123 of 2018 14 time, then it is no longer safe to rely on it as a substantive piece of evidence, as held by Hon'ble Delhi High Court in Commissioner of Central Excise vs. Vishnu & Co. Pvt. Ltd. (2016) 332 E.L.T. 793 (Del), where the Hon'ble Court held as follows:-
"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 latter 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."
Further, the Adjudicating Authority has not found out whether there was any duress or coercion in the recording of statements. In the facts of the case, where post-dated cheques were collected at the time of search itself, sale details were obtained during the course of recording of first statement, duty was quantified on the basis of such sale details, duty so computed was accepted in second statement and there is no corroborative material on record to support the quantum of sales details, the Adjudicating Authority was required to undertake a deeper scrutiny of facts instead of rejecting the plea on the aforesaid reasoning. This issue has also not been considered in the impugned order despite specific ground taken in the appeal.
19. Apart from above, we also find that the Adjudicating Authority has not invoked Section 9D before relying upon the statements. The rationale behind Section 9D has been explained by Hon'ble Punjab & Haryana High Court in Jindal Drugs P. Ltd. vs. Union of India (2016) 340 E.L.T. 67 as under:-
"12.The consequence would be that, in the absence of the circumstances specified in Section 9D(1), if the adjudicating authority relies on the statement, recorded Excise Appeal No.71123 of 2018 15 during investigation in Central Excise, as evidence of the truth of the facts contained in the said statement, it has to be held that the adjudicating authority has relied on irrelevant material. Such reliance would, therefore, be vitiated in law and on facts.
Xxxxxxx xxxxxx xxxxxxx xxxxxxxxx
16.If none of the circumstances contemplated by clause
(a) of Section 9D(1) exists, clause (b) of Section 9D(1) comes into operation. The said clause prescribes a specific procedure to be followed before the statement can be admitted in evidence. Under this procedure, two steps are required to be followed by the adjudicating authority, under clause (b) of Section 9D(1), viz.
(i) the person who made the statement has to first be examined as a witness in the case before the adjudicating authority, and
(ii) the adjudicating authority has, thereafter, to form the opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice.
17.There is no justification for jettisoning this procedure, statutorily prescribed by plenary Parliamentary legislation for admitting, into evidence, a statement recorded before the Gazetted Central Excise Officer, which does not suffer from the handicaps contemplated by clause (a) of Section 9D(1) of the Act. The use of the word "shall" in Section 9D(1), makes it clear that, the provisions contemplated in the sub-section are mandatory. Indeed, as they pertain to conferment of admissibility to oral evidence they would, even otherwise, have to be recorded as mandatory.
18.The rationale behind the above precaution contained in clause (b) of Section 9D(1) is obvious. The statement, recorded during inquiry/investigation, by the Gazetted Central Excise Officer, has every chance of having been recorded under coercion or compulsion. It is a matter of common knowledge that, on many occasions, the DRI/DGCEI resorts to compulsion in order to extract confessional statements. It is obviously in order to neutralize this possibility that, before admitting such a statement in evidence, clause (b) of Section 9D(1) mandates that the evidence of the witness has to be recorded before the adjudicating authority, as, in such an atmosphere, there would be no occasion for any trepidation on the part of the witness concerned.
Excise Appeal No.71123 of 2018 16
19.Clearly, therefore, the stage of relevance, in adjudication proceedings, of the statement, recorded before a Gazetted Central Excise Officer during inquiry or investigation, would arise only after the statement is admitted in evidence in accordance with the procedure prescribed in clause (b) of Section 9D(1). The rigour of this procedure is exempted only in a case in which one or more of the handicaps referred to in clause (a) of Section 9D(1) of the Act would apply. In view of this express stipulation in the Act, it is not open to any adjudicating authority to straightaway rely on the statement recorded during investigation/inquiry before the Gazetted Central Excise Officer, unless and until he can legitimately invoke clause
(a) of Section 9D(1). In all other cases, if he wants to rely on the said statement as relevant, for proving the truth of the contents thereof, he has to first admit the statement in evidence in accordance with clause (b) of Section 9D(1)."
Thus, before relying on the statements, the Adjudicating Authority ought to have invoked Section 9D and thereafter record the evidence of Shri Hardesh Barathi to cull out the truth, which exercise has not been conducted in the present case and therefore the statements needs to be eschewed from consideration. The same view has been taken by this Tribunal in Jeen Bhavani International vs. Commissioner of Customs (2023) 6 Centax 11 (Tri-Bom) wherein pari-materia provision Section 138B of the Customs Act, 1962 has been considered. It is relevant to mention here that the appeal against the said decision stands dismissed by Hon'ble Supreme Court in Commissioner of Customs vs. Jeen Bhavani International (2023) 6 Centax 14 (SC).
20. There is one other aspect of the matter which needs to be considered. We find that paragraph 5(v) of the SCN records that the details of sales for the entire period were provided by Shri Shiv Shankar Barathi on the date of search itself. This is also clear from the statement dated 06.08.2015 of Shri Shiv Shankar Barathi, question No.5 and its answer is reproduced hereunder:-
Excise Appeal No.71123 of 2018 17 Q.No.5 Pl. state the sale figures of all the Co‟s mentioned in ans. no. - 4 for the F.Y 2009-10 till date Ans:- The sale figures in respect of M/s Shimac Organics and Ambac agri-rasayan (P) Ltd. are submitted herewith in chart/Balance sheet from duly signed by me. The sale figures of M/s Shimac Organics (P) Ltd. and Surya Pest Management Services will be submitted on 10-8-2015.
Thus, it transpires from record that the sales details were submitted on the date of search itself. On the basis of such sales details, the Appellant also submitted letter dated 16.11.2015 admitting duty liability on aggregate value of clearances of both pesticides and organic manure, by treating both the products liable to duty @ 12.36% after claiming SSI exemption till 2012-
13. The value of clearances, calculated on the basis of amount of duty @ 12.36% stated in letter dated 16.11.2015 and by adding clearances of Rs.1.50 crores till 2012-13, comes as under:-
Year Duty @ 12.36% Aggregate Aggregate value accepted value of of Clearances Clearance after adding basis duty @ Rs.1.50 crores till 12.36% 2012-13 2010-11* 0.00 0.00 1,50,00,000 2011- 1,09,369.00 8,84,862.00 1,58,84,862 12** 2012- 8,45,959.00 68,44,328.00 2,18,44,328 13** 2013-14 37,41,318.34.00 3,02,77,656.47 3,02,77,656.47 2014-15 38,01,660.25 3,07,57,769.00 3,07,57,769.00 * No dispute in the present appeal, as no demand has been raised for 2010-11.
**Clearances of Rs.1.50 crores added to the clearances stated in letter dated 16.11.2015, as Appellant claimed SSI exemption till 2012-13.
21. On comparison of the aforesaid aggregate value of clearances of pesticides and organic manure calculated on the basis of letter dated 16.11.2015 with the aggregate value of clearances stated in paragraph 12 of the SCN, we find that the Excise Appeal No.71123 of 2018 18 aggregate value of clearances stated in paragraph 12 of the SCN is almost double the amount of clearances admitted by the Appellant, as under:-
Year Aggregate value of Aggregate value of clearances submitted by clearances taken in the Appellant para 12 of show cause notice 2011-12 1,58,84,862 3,71,54,263.00 2012-13 2,18,44,328 4,11,28,842.00 2013-14 3,02,77,656.47 5,78,33,911.00 2014-15 3,07,57,769.00 7,38,31,815.00 Although paragraph 10 of the SCN states that the sale value of pesticides shown in the documents resumed/submitted during search tallies with the sale value submitted during investigation, but we find that such sale value of pesticides and organic manure alleged to be shown in resumed/submitted records is also much higher from that arrived above on the basis of letter dated 16.11.2015. There is also no indication in the SCN that as to how the sale value of clearances stated to be shown in resumed/submitted has been arrived at. This was necessary to be indicated and demonstrated in the SCN when the Appellant not only on the date of search itself but also subsequently by letter dated 16.11.2015 provided sales details and at the same time the Revenue was alleging almost double the amount of aggregate value of clearances. There is also no corroborative material on record to support the aggregate value of clearances stated in the SCN. Once the initial burden was on the Revenue to prove clandestine clearances to the extent stated in the SCN, the Revenue was required to bring tangible and sufficient material on record to support the basis for value of clearances and in absence of any such material, it is difficult to uphold the aggregate value of clearances adopted in the SCN.
22. We also find that the Appellant was declaring retail sale price on the package of pesticides, which is clear from the contents of panchnama dated 06.08.2015 drawn at the factory premises, relevant part of which is as under:-
Excise Appeal No.71123 of 2018 19 "On being asked to depute some responsible person to get the stock of finished goods, Shri Tiwari deputed Shri G.N Sultania, Supervisor/Dispatcher in the unit for getting the stock of Finished goods verified. The stock taking of finished goods has been done on the basis of agreed upon method i.e. by taking the weight and price mentioned on the packings, Bags and on Bottles. The valuation of the finished goods verified was done on the basis of agreed upon method i.e. by multiplying the no. of pieces with their price mentioned over the packages/Cartons/bottles. The details of the Finished goods and its working for aggregation of value is reflected in Annexure-B to this Panchnama."
Thus, the Panchnama dated 06.08.2015 shows that retail sale price was declared by the Appellant on the finished goods which were yet to be cleared and hence there cannot be any presumption that the goods cleared by the Appellant prior to the date of search were such on which retail sale price was not affixed. However, for the products mentioned in Charts A to E to the SCN, the Revenue relied on the MRP Lists obtained from Shri Hardesh Bararthi during the course of recording of his statement dated 28.03.2016 and admission of such MRP along with duty liability in statement dated 18.04.2016. We have already observed in the preceding paragraphs that statements alone cannot be the basis of demand in absence of any corroborative material and voluntary nature of the statements has not been properly examined by the Adjudicating Authority.
In respect of the MRP Lists also, we find that no enquiry from market or regular purchasers was conducted by the Revenue to find out the retail sale price affixed on the products. When Shri Shiv Shankar Barathi in his statement recorded on the date of search stated that the sale of the Appellant was to direct parties and also to M/s Shimac Organics (P) Ltd. and M/s Amvac Agri-Rasayan (P) Ltd., the revenue ought to have enquired the matter further and find out the retail sale price affixed on the package. This exercise was clearly necessary when the Appellant was claiming submission of correct MRP List whereas the revenue was relying on the MRP List obtained from Excise Appeal No.71123 of 2018 20 Shri Hardesh Barathi during his statement dated 28.03.2016 wherein he also stated that the MRP List provided earlier was undervalued. Thus, instead of finding out the truth by making necessary enquiry, the revenue chose to rely upon the statement, which in our opinion, was not sufficient to disturb the value of clearances supplied by the Appellant.
23. In view of the above discussion, we are of the opinion that the charge of clandestine removal to the extent stated in the SCN cannot be sustained since it is not based on sufficient and tangible evidence but based on statements and sale details along with MRP Lists obtained during the course of recording of statement, which alone cannot form the basis of demand in absence of any other corroborative material on record. Once the charge of clandestine removal does not stands proved, the denial of exemption to the Appellant on the ground of aggregate clearances exceeding limits specified in the exemption notification also cannot be upheld. The amount appropriated under the adjudication order towards this demand, also cannot be sustained.
24. This brings us to the letter dated 16.11.2015 by which the Appellant admitted duty liability. The Ld. counsel has submitted that during the course of search proceedings, the officers created doubt regarding availability of exemption on pesticides and also regarding exemption of organic manure, which doubt continued till the issuance of SCN. Under the impression that organic manure is not exempted and SSI exemption is not available after 2012-13, the Appellant submitted letter dated 16.11.2015 by calculating duty liability @ 12.36% on both the products by claiming SSI exemption till 2012-13 only. The ld. counsel further submitted that since the Appellant is entitled to SSI exemption and organic manure was subsequently treated at chargeable to Nil rate of duty by the revenue itself, hence the admission of duty liability was contrary to law, which is clear from the contents of Statement dated 06.08.2015, Letter dated 16.11.2015 and SCN dated 20.06.2016.
Excise Appeal No.71123 of 2018 21 To test this submission, we deem appropriate to reproduce the contents of the Statement dated 06.08.2015, letter dated 16.11.2015 and SCN dated 20.06.2016 relied upon by the ld. counsel for the Appellant :-
"Statement dated 06.08.2015:-
Q. No. 11:- Pl. state as to how and under which notification the organic manure are exempt from central excise duty and also state what do you mean by organic manure and how they are manufactured. Also state the inputs used for the manufacture of organic manure.
Ans:- As per my understanding and also as per trade practice the organic manure are not subjected to excise duty. VAT is also leviable on organic manure. However I am not aware under which provision of central excise law organic manure are exempt from duty.
Letter dated 06.11.2015:-
Dear Sir, You are aware that Central Excise Officers searched our premises on 06.08.2015. We participated in the investigation and given all the records as asked by the officers concerned. We have also taken central excise registration on the advice of the department. We are a small manufacturer of pesticides, insecticides and agro product falling under CETH 31 and 38 and entertained a believe that products manufactured by us are not excisable. Once informed about the duty liability by the department regarding our goods. We on our own assessee the duty liability which come to Rs 8499306.59 for the financial year 2010-11 to 2014-15 as per the sheet attached. We have decided to pay the above said amount in order to mitigate our future interest and penal liability. The payment has been made in the following SSI exemptions.
i) Rs.3164880.00 as cash through GAR-7 Challan (Proof enclosed)
ii) Rs.5467043.00 through utilization of the CENVAT.
Excise Appeal No.71123 of 2018 22
iii) SSI exemption as per the Notification No.8/2003 up to the FY 2012-13.
As the duty is being calculated for the financial year 2010-11 to 2014-15. We are taking the credit of the duty paid inputs. We are small manufacturer who bona-fidely believed products manufacturer are not excisable. We can take the CENVAT Credit for the past if the duty demand is made for the past period and the law has been settled in this regarding the following cases:
a) Mahavir Plastic verse CCE (2010) 255 E.L.T. 241.
b) CCE verse Bhawani Weaving Factory (2008) 209 E.L.T. 379.
c) Sridhar Paints verse CCE (2006) 198 E.L.T. 514.
As said above we are not aware about the basis of the demand and calculation thereof and would like contest Show Cause Notice, if any in this regard.
The deposit made above may kindly not be treated as acceptance of the evasion or guilt.
Show Cause Notice dated 20.06.2016:-
14. Whereas, during investigation the party was required to submitted the copies of invoices for the years 2011-12 to 2015-16 (up to 08.08.2015) which they failed to submit, however, the party vide their letter dated 04.08.2016 submitted the sample invoices of inputs of organic manures. The said sample invoices were examined and it is observed that the party was engaged in the manufacture and sale of organic manures and also in the trading of pesticide technical and other items. The sample invoices of purchase of organic manures were also examined and it appears that the organic manures manufactured and sold by the party are of vegetable fertilisers classifiable under CETH 3101 attracting NIL rate of duty."
25. Question No.11 in the statement dated 06.08.2015 shows that the Officers did made enquiries regarding exemption of organic manure and also with regard to inputs used in the manufacture of organic manure. Paragraph 14 of the SCN also shows that the position got clarified only when upon examination of invoices submitted by the Appellant, the revenue found that Excise Appeal No.71123 of 2018 23 the organic manures are of vegetable fertilizers. Though paragraph 14 of the SCN refers to the date of letter as 04.08.2016 but the said date appears to be incorrect as SCN was issued on 20.06.2016. However, in absence of any other communication issued by revenue in this regard to the Appellant prior to the issuance of SCN, it is clear that there existed a doubt in the mind of the partners regarding duty liability on organic manure and the position got clarified only on issuance of SCN. In this light, when we consider the contents of letter dated 16.11.2015, it is clear that the reference was to duty liability on all the products and not merely on pesticides, which is clear from the use of the words 'We are a small manufacturer of pesticides, insecticides and agro product falling under CETH 31 and 38 and entertained a believe that products manufactured by us are not excisable. Once informed about the duty liability by the department regarding our goods' and also that 'We are small manufacturer who bona-
fidely believed products manufacturer are not excisable'. Thus, letter dated 16.11.2015 refers to duty liability calculated @ 12.36% on both pesticides and organic manure and once organic manure is chargeable to Nil rate of duty and there is absence of sufficient evidence to sustain the charge of clandestine removal and value of clearances stated in the SCN, the duty amount admitted in letter dated 16.11.2015 is clearly contrary to law. The aggregate value of clearances, derived from the duty liability admitted in the letter dated 16.11.2015, however has to be presumed to be correct since it is the Appellant who has stated these aggregate value of clearances. In the present case, the aggregate value so derived at is less than the amount of Rs.4 crores in preceding financial year and therefore no adverse inference can be drawn on this count.
26. We may also deal with the submission made by the Appellant regarding effect of the proviso inserted by Notification No.8/2006-CE dated 01.03.2006, on the strength of which it has been submitted that once the exemption notification does not apply to goods chargeable to nil rate of duty, the conditions of Excise Appeal No.71123 of 2018 24 the exemption notification also does not apply to such goods. We are unable to find merit in this submission, as there is no denial to the fact that both pesticides and organic manure are 'excisable goods' and therefore the condition specified in paragraph 2(vii) of the exemption notification would apply to both, the pesticides as well as organic manure. Since the exemption under the notification was in respect of first clearances upto an aggregate value not exceeding Rs.1.50 crores, hence the proviso was inserted to clarify that exemption shall not be applicable to goods chargeable to nil rate of duty i.e. the value of first clearances shall not include the value of clearances of goods chargeable with nil rate of duty. This in our opinion is the real intent and purpose of the proviso inserted vide Notification No.8/2006-CE dated 01.03.2006. Even if the interpretation placed by the Appellant is accepted, the same would only lead to ambiguity in the exemption notification, as while inserting proviso, the condition specified in paragraph 2(vii) was not amended. Thus, such an interpretation which leads to ambiguity cannot be accepted. We add that even in such a case, the benefit of ambiguity has to be strictly interpreted in favour of the Revenue, for which we rely on the constitution bench judgment of Hon'ble Supreme Court in Commissioner of Customs vs. Dilip Kumar & Co. (2018) 9 SCC 1 where it has been held thus :-
"53. After thoroughly examining the various precedents some of which were cited before us and after giving our anxious consideration, we would be more than justified to conclude and also compelled to hold that every taxing statute including, charging, computation and exemption clause (at the threshold stage) should be interpreted strictly. Further, in case of ambiguity in charging provisions, the benefit must necessarily go in favour of subject/assessee, but the same is not true for an exemption notification wherein the benefit of ambiguity must be strictly interpreted in favour of the Revenue/State."
Excise Appeal No.71123 of 2018 25 Thus, we approve the findings recorded by the lower authorities and have no hesitation in rejecting the submission of the Appellant on the issue of incorrect interpretation of exemption notification.
27. This takes us to the next issue of recovery under Rule 14 of the Cenvat Credit Rules, 20043. Rule 14 (1) of the CCR, 2004, after its substitution by Notification No.6/2015-CE (NT) dated 01.03.2015 with effect from 01.03.2015 provides for recovery of credit wrongly taken or erroneously refunded. Clause (i) of the said rule provides for recovery of credit taken wrongly but not utilised whereas clause (ii) provides for recovery of credit taken and utilised wrongly along with interest. Since it is not even the case of the revenue that the Appellant has utilised the credit or any part of it, hence clause (ii) of Rule 14(1) is clearly not applicable and there cannot be any interest liability on the Appellant.
28. So far as clause (i) of Rule 14(1), our attention has been drawn to the contents of letter dated 16.11.2015, statement dated 28.03.2016, letter dated 01.06.2016 and also the reply to the SCN, to contend that by letter dated 16.11.2015 the Appellant informed its intention to avail credit, in statement dated 28.03.2016 it was stated that the credit has not yet been availed, by letter dated 01.06.2016 the Appellant informed regarding entitlement to credit and availment of credit in books and on being served with the SCN the credit was reversed in the books under-protest.
On perusal of these documents, we find that though initially the Appellant informed its intention to take credit on the strength of documents issued prior to one year, yet the credit was availed in books somewhere between the period 28.03.2016 to 01.06.2016 and the same was reversed under-protest upon service of SCN. The authorities below have not alleged utilisation of any part of credit and have also not disputed the reversal of credit, though subsequent to issuance of the SCN. Despite specific pleading taken in this regard in reply to the SCN, the 3 CCR, 2004 Excise Appeal No.71123 of 2018 26 authorities below have not disputed the same. Thus, availment of credit in books and its reversal are not in dispute and despite query being made, the Ld. Authorized Representative did not dispute the fact of reversal of credit in the Books of Accounts.
29. Once the credit availed in the books was never utilised and was reversed before any utilisation, it cannot be said that any amount of credit was taken, as held in Commissioner of Central Excise vs. Bombay Dyeing & Mfg. Co. (2007) 215 E.L.T. 3(SC), Hello Minerals Water Pvt. Ltd. vs. Union of India (2004) 172 E.L.T. 422 (All), Commissioner of Central Excise vs. Ashoka Metal Décor (P) Ltd. 2011 (21) S.T.R. 469 (All.) and also in Commissioner of Central Excise & Service Tax, Bangalore vs. Bill Forge Pvt. Ltd. 2012 (26) S.T.R. 204 (Kar.) and therefore demand of credit is not sustainable. From the records, it also transpires that the Appellant was under an impression of huge demand on pesticides as well as organic manure for past period and under these circumstances the Appellant requested the department to allow Cenvat on the inputs and once upon service of SCN, the Appellant came to know that organic manure is chargeable to nil rate of duty, the Appellant immediately reversed the credit in its books.
30. We also add that this is not a case where the Appellant was entitled to credit and has taken it wrongly. On the contrary, once the period of one year lapsed, the entitlement to credit also lapsed and therefore there was no credit available to be taken. In these facts, when there was no credit available to be taken, it cannot be said that the Appellant has taken any valid credit, by making an entry to the said effect in the account books. We are, therefore, of the view that no amount of credit was available to be taken and accordingly demand on this count cannot be sustained for this reason also.
31. In view of the above discussion, we hold that the case of clandestine clearances to the extent stated in the SCN and thereby denial of exemption is not based on sufficient and tangible evidence and therefore the demand of duty on this count is liable to be set-aside. We also set-aside the demand of Excise Appeal No.71123 of 2018 27 Cenvat credit availed in the Books of Accounts and reversed prior to utilisation for the reasons stated in this order. Accordingly, the demand of interest and penalties are also set- aside and the appeal is allowed with consequential relief to the Appellant, as per law.
(Order pronounced in open court on - 02.05.2025) (P. K. CHOUDHARY) MEMBER (JUDICIAL) (P. ANJANI KUMAR) MEMBER (TECHNICAL) LKS