Customs, Excise and Gold Tribunal - Mumbai
Krishnaram Dyeing And Finishing Works ... vs Commissioner Of Central Excise And ... on 22 November, 2006
Equivalent citations: 2007(115)ECC194, 2007ECR194(TRI.-MUMBAI), 2007(209)ELT410(TRI-MUMBAI)
ORDER M. Veeraiyan, Member (T)
1. These appeals arise out of the order-in-original number 1/MP/98 dated 27/02/1998 passed by the Commissioner of Central Excise and Customs, Surat I.
2. Heard the learned advocate Shri Mayur Shroff for the appellants and the learned SDR, Shri Ajay Saxena for the department. On behalf of the appellants several case laws, each of them covering certain aspects of the case were quoted and with the prayer to set aside the impugned order-in -original.
3. It would be appropriate to first narrate the case, then the law applicable to the facts of the case and thereafter consider the case laws relied by them.
On the Facts of the case
4. Brief facts of the case as set out in the Commissioner's order, are as follows:
a. The appellant is a processor of fabrics and they have done processing on behalf of several persons referred to as merchant manufacturers.
b. When the officers visited by surprise on 17/03/1997, they found stock of processed fabrics, in excess of what was accounted and seized 308 pieces of manmade fabrics measuring 28674 L.Mtrs. valued at Rs. 4,87,458/-.
c. They also found two private notebooks maintained at the office of the Printing Master one notebook 'Mayur' maintained party wise having details of lot number, number of pieces, variety, design number etc., pertains to the year 1996 and another note book marked as No. 2 maintained variety wise having details of date, lot number, number of pieces, variety, name of the party, etc., pertains to the year 1995. The lot register maintained were found manipulated.
d. The lot register maintained by them were ingeniously manipulated e.g., in a case where 60 pieces were removed it was altered as 6.0 by putting a decimal point after 6, thus actually accounting only 10% of the production and clearance.
e. The Comparison of the private note books, statutory lot register and the job cards maintained by them indicated 19081 pieces admeasuring 17,81,958/- L. Mtrs of processed manmade fabrics valued at Rs. 3,02,93,286/- were found to have been clandestinely manufactured and cleared involving evasion of duty to the tune of Rs. 40,26,799/-.
f. Shri Jyotindrabhai B. Lakhadia, the partner of the mills who is the other appellant before the Tribunal, have admitted and confirmed that the notebooks were belonging to them and maintained by the Printing Master as per his directions and instructions. He admitted the register having the details of grey fabrics received for processing and details of removal of the processed fabrics to the concerned traders. He also admitted that they paid the Central Excise duty on lesser quantity as mentioned in the lot register after reducing pieces / L. Meters against lot number entries. The modus operandi followed as above has been corroborated in their statements by the Printing Master Shri Natwarlal M. Modi and the Excise Clerk Shri Mohanbhai P. Jadhav.
g. The lot register and the notebooks contained details of 42 merchant manufacturers who have supplied grey fabrics for processing by the appellant company and all of them gave statements under Section 14 of the Central Excise Act, 1944 and admitted to sending grey fabrics as mentioned in the private notebooks and having received the processed fabrics, but paying duty only on the lesser quantity mentioned in the statutory records and thus evading excise duty.
h. Duty of Rs. 40,26,799/- has been paid during the course of investigation and before issue of show cause notice.
5. The Commissioner vide his order dated 27/02/1998 confiscated 308 pieces of unaccounted stock of fabrics valued Rs. 4,87,458/- with option to redeem the same on payment of fine of Rs. 1,46,500/- and confirming duty of Rs. 65,446/- on the seized goods; demanded the duty of Rs. 40,26,799/-on clearance of 19871 pieces valued at Rs. 3,04,91,436/-. He imposed penalty of Rs. 40,92,245/- on the appellant company with an option to redeem the same on payment of fine of- Rs. 10 lakhs. He also ordered confiscation of the plant, machinery, building and land belonging to the appellant company with an option to redeam its same on payment of fine of Rs 10 Lakhs. He also imposed Rs. 1,00,000/- on Shri Jyotindrabhai B. Lakhadia, partner of the mills who is the other appellant. In addition he also imposed penalties under Rule 209A of the Central Excise Rules, 1944 on the 42 merchant manufacturers who admitted receipt of the processed fabrics illicitly cleared by the mills without cover of Central Excises invoices and without payment of Central Excise duty.
6. The appellants challenged the order of the Commissioner inter alia on the following grounds:
a. 308 pieces which were seized by the officers did not reach RG-1 stage and therefore seizure and subsequent confiscation are not legal.
b. The two private notebooks were not maintained by the mills; this was found in the cabin of the printing master; this is the work of some disgruntled employees to discredit the reputation of the company;
c. No corroborative or supportive evidence to confirm the contents of the alleged private records have been produced.
d. The statements were taken under duress; the fact that merchants manufacturers were made to pay Central Excise duty forcibly by the officers is a clear indication of their violence at the time of recording of statements.
e. The cross-examination of various persons / officers as per the appellants request were denied;
7. It is to be decided whether it is a case of some disgruntled element trying to plant some private records as claimed by the appellants or is it a case of pre-meditated and fraudulent case of evasion. The claim that 308 pieces have not been accounted in RG1 as they have not reached the RG1 stage, is not acceptable as during the investigation all concerned including the partner have admitted that they were ready for dispatch and meant to be cleared without payment of duty. This has to be viewed in the context of other private records maintained by them which were explained and admitted by all concerned, the printing master, the excise clerk and the partner of the mills on the day of search. The private note books contained details of various merchant manufacturers and the quantity actually supplied by them for processing and the quantity actually accounted and cleared on payment of duty. All the 42 merchant manufactures whose statements were recorded had admitted to the modus operandi and in fact arranged for the payment of the differential duty evaded. It is unbelievable that all the 42 merchant manufactures were threatened or coerced to confess the crime which they have not done and made to pay the duty involved. The confessions by the merchant manufacturers and the confessions by the other concerned, the excise clerk who has indigenously manipulated the lot register, the printing master and the partner himself clearly corroborates and supports the contents of the private records in a clandestine activity as resorted by the appellant company. No further corroboration than the finding of unaccounted excess stock on the day of visit, admission of as many as 42 merchant manufacturers about the modus operandi besides the admission by the Partner, Printing Master and excise clerk of the Company is needed.
8. It is thus a clear case of well planned evasion involving manipulation of documents and collusion between the processor and Merchant Manufacturers with intention to evade payment of duty.
9. On the law applicable to the Case 9.1 The appellants have contended that the duty involved has been fully paid during the course of investigations and before the issue of show cause notice and therefore in terms of Section 11A(2B) even show cause notice need not be issued as the duty has already been paid and no penalty equal to the duty evaded can be imposed on them. It was also submitted that as the duty has already been paid there is no determination of duty short levied or short paid arises under Sub-section (2) of Section 11A. Section 11A(2B) reads as under:
Section 11A. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded --
(1) ...
(2) ...
(2A)...
(2B) Where any duty or excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person, chargeable with the duty, may pay the amount of duty before service of notice on him under Sub-section (1) in respect of the duty, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under Sub-section (1) in respect of the duty so paid:
Provided that the Central Excise Officer may determine the amount of short payment of duty, if any, which in his opinion has not been paid by such person and, then, the Central Excise Officer shall proceed to recover such amount in the manner specified in this section, and the period of "one year" referred to in Sub-section (1) shall be counted from the date of receipt of such information of payment.
Explanation 1 - Nothing contained in this subsection shall apply in a case where the duty was not levied or was not paid or was short-levied or was short-paid or was erroneously refunded by reason of fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty.
Explanation 2. - For the removal of doubts, it is hereby declared that the interest under Section 11AB shall be payable on the amount paid by the person under this sub-section and also on the amount of short-payment of duty, if any, as may be determined by the Central Excise Officer, but for this sub-section.
9.2 A close reading of Section 11A(2B) along with explanation to the sub-section makes it clear that the scope of the provisions is to cover cases of unintended short levy, short payment which may arise out of ignorance, difference of opinion, etc. If the explanation was not there then it could cover all types of cases. As per the explanation to Section 11A(2B) when there is evasion due to fraud or any willful mis-statement or suppression of facts or contravention of any of the provisions of the Act or the Rules with intent to evade payment of duty leniency of provision under Sub-section (2B) of Section 11A is clearly not available. This explanation cannot and should not be made redundant as the same has not been challenged and set aside by any competent court.
9.3 The present case is a clear case of well planned fraudulent evasion involving manipulation of documents. Therefore the leniency envisaged under Section 11A(2B) is not applicable.
9.4 Another legal issue raised is that first proviso to Section 11AC envisages a situation of determination of duty under Sub-section (2) of Section 11A. In a case where the duty evaded has already been paid there is no determination required. It is true the Central Excise law envisages self assessment at the time of clearance of the goods by the assessee. However, once a short levy or non-levy is noticed under circumstances mentioned in Explanation to Section 11A(2B) the determination of such short levy or non-levy has to be made only by the competent Central Excise officers under the provisions of Central Excise law. In such cases it is not open to the assessee to self determine the duty short levied or non-levied. Even the investigating officers of such cases are not the authorities who determine the short levy or non-levy but this functions and powers are only with the competent adjudicating authorities.
9.5 The legislative intention of introducing Section 11AC has two aspects. It aims to act as a deterrent to the evaders and at the same time to reduce the discretionary powers of the adjudicating authority in matters relating to imposition of penalty. Once the adjudicating authority finds that the ingredients of offence as narrated in Section 11AC are held to be proved then he has no option but to impose penalty equal to the duty evaded.
9.6 In the present case as seen from the appeal petition the appellants are questioning the duty demand on the illicit removals by assailing the evidence relied upon. In other words they are questioning the confirmation of duty which has already been paid.
9.7 In the liberalized excise regime where lot of faith is placed on the assessee and the control by the officers is minimal. In case of willful evasion, if the evader is let off without any penalty merely on the ground that he has paid the duty evaded before issue of show cause notice it will make the evasion a risk free game. There is no loss to him inasmuch as he is only paying the duty otherwise due. This could lead to an unhealthy and a dangerous situation. This will also be putting undue pressure on the genuine tax payer due to unhealthy competition. As such interpretation is neither advisable nor has any sanction of law as discussed above.
9.8 As regards the request for cross-examination of officers it has been rightly denied by the adjudicating authority. It is not the case that any statements of the officers have been relied upon against them. It is basically the private records of the company, the material evidence of the excess stock, and the admission statements of the concerned persons of the company and the merchant manufacturers numbering 42 which have been relied upon to come to the conclusion of a well planned and fraudulent evasion by the appellant company. It is not the case that the officers have been examined by the department before the adjudicating authority as witnesses of the department. The question of cross-examination without examination-in-chief is not legally sustainable. Of course if the appellant company wanted the officers to be summoned as their own witnesses it would have been different thing.
10. On the Case Laws
10.1 In the light of the specific facts of the case and the specific provisions of law which are to be applied to the above case, the case laws referred by them are not applicable.
10.2 The Hon'ble Punjab & Haryana High Court has reversed the decision of the Tribunal in the case of CCE, Delhi III v. Machino Montell (I) Ltd. 2004 (62) RLT 709 (CESTAT-LB) vide their judgment have held ''applicability of Section 11AC is not excluded at the threshold merely on deposit of the amount after having been caught and before issue of the show cause notice".
10.3 The Hon'ble Madhya Pradesh High Court in the case of Sai Machine Tools Pvt. Ltd. v. Commissioner of Central Excise & Customs, Indore 2006 (203) ELT 15 (MP) have held that "duty not payable according to whims and fancies at any time" by the assessee but the payment of correct duty at a correct point of time as per the provisions of the Act.
11. The appeals are therefore disposed off as follows:
a) The demand of duty and penalties imposed on the appellants are sustained;
b) However, confiscation of plant and machinery is set aside, as the same is very harsh;
c) Confiscation of seized goods upheld but the redemption fine imposed is reduced to Rs. 50,000/- from Rs. 1,46,500/-
(Pronounced in Court on 22.11.2006)