Custom, Excise & Service Tax Tribunal
In The High Court Of Punjab & Haryana ... vs M/S Brij Printing Works on 29 May, 2012
IN THE HIGH COURT OF PUNJAB & HARYANA JUDICATURE AT CHANDIGARH
IN D.B. CENTRAL EXCISE REFERENCE APPLICATION NO. 41 OF 2000
Date of Hearing : 29/05/2012
In the matter of
CCE, Ludhiana ---- Applicant
Versus
M/s Brij Printing Works, ---- Respondent
Amritsar.
Appearance Shri Nagesh Pathak, Authorized Representative (DR) for the appellant.
None - for the Respondent.
STATEMENT OF CASE The Honble Punjab & Haryana High Court, Chandigarh vide order dated 20/05/2010, passed in Central Excise Reference Application No. 41 of 2000 filed by the department, directed Customs, Excise and Service Tax Appellate Tribunal, New Delhi to draw a statement of case in respect of the final order No. A/21-22/2000-NB (C) dated 07/01/2000 passed by the CESTAT, New Delhi, in respect of an appeal No. E/1238/1998- NB filed by the respondent (referred to as Respondent No. 1 in reference application) & E/1724/98 NB filed by the applicant Department, against the Order-in-Original No. 2/CE/CHD-II/1998/1996 dated 20/03/1998, passed by the Commissioner of Central Excise, Chandigarh II and held that in the opinion of the Court, the following questions of law arise out of the Tribunals order for the decision of the Honble Court: -
1. Whether the learned Tribunal was correct in arriving at the conclusion that the Department has not discharged the onus of proving clandestine clearance by Respondent No. 1 ?
2. Whether the circumstantial evidence based on corroborative documents like Appraisal Report prepared by the Income Tax Department supported by the statements made under Section 14 of the Central Excise Act, 1944 by the persons involved in the evasion of duty can lead to the conclusion that the Respondent No. 1 and officials involved therein have evaded Central Excise Duty?
3. Whether the retraction of the statement at a later stage by a person who has abetted in the evasion of huge amount of Central Excise Duty to the tune of Rs. 1,36,08,091/- can be accepted as his true statement by completely discarding his earlier statement recorded under Section 14 of the Central Excise Duty?
2. Accordingly, in compliance to the Honble High Courts order, the present Statement of Case is prepared after hearing the Departmental Representative. None had appeared for the respondent when this matter had been fixed for hearing.
2.1 On 24/08/94, the Income Tax Department conducted raids over business premises of M/s Brij Printing Works, Amritsar (the Respondent in short) as well as residential premises of its partners i.e. S/Shri Deepak Kapoor and Ajay Kapoor, during which huge unaccounted sale and purchase records were un-earthed and large number of diaries, registers, loose bills and challans were seized, on the basis of which an Appraisal Report was prepared by the Investigation Wing of the Income Department, Amritsar. The Respondent surrendered to Income Tax Department an amount of Rs. 10.65 lakhs on account of unaccounted grey fabrics lying in their city office and Rs. 5 lakhs on account of recovery of unaccounted demand drafts of Rs. 4.56 lakhs. However, these grey fabrics and demand drafts had been recovered from the premises of M/s Ganesh Textiles, whose Proprietor is Mr. Ravi Kapoor, brother of Mr. Deepak Kapoor, Partner of the Respondent firm, but these surrenders were made in the hands of M/s Brij Printing Works, the Respondent.
2.2 As the Respondent was a registrant of the Central Excise Department, the Central Excise Department, on the basis of the said Appraisal Report of the Income Tax Department conducted investigations against the Respondent. The investigations revealed as under :
- M/s Brij Printing Works, Batala Road, Amritsar, is a processing unit engaged in manufacture of man-made fabrics, falling under Chapter 54 of Central Excise Tariff.
- There are two partners in M/s Brij Printing Works, one Mr. Ajay Kapoor and other Mr. Deepak Kapoor, both sons of Mr. Chunni Lal Kapoor, and the latter had another trading firm in the name of M/s Chunni Lal Arun Kumar, Katra Ahluwalia, Amritsar (CLAK in short) dealing in grey fabrics for the last 15 years.
- As per Appraisal Report of the Income Tax Department, the Respondent had made a surrender of Rs. 27,20,740/- before the aforesaid Income Tax Authorities. Shri Ajay Kapoor, partner of the Respondent, in his statement dated 09/11/94, attributed income of Rs. 14,55,740/- towards clearance of processed fabrics from factory, without payment of Central Excise duty.
- Shri Chunni Lal Kapoor, when confronted with certain letterheads containing details of grey fabrics recovered during the raid, vide his statement dated 29/11/94 stated that the grey fabrics were supplied to the Respondent.
- Shri Ajay Kapoor, Partner of the Respondent, vide his statement dated 17/4/95 confirmed the contents of aforesaid statement of Shri Chunni Lal Kapoor.
- The Income Tax Department had also conducted search on premises of CLAK on 28/4/94 and found that they transacted grey fabrics valued at Rs. 14,48,00,000/-. Shri Chunni Lal Kapoor, Proprietor of CLAK, vide his statement dated 18/5/95 stated that the Respondent firm had surrendered unaccounted stock of grey fabrics valued at Rs. 11,86,38,654/- to Income Tax Department, out of the above transactions.
- The Respondent purchased a major portion of grey fabrics from another firm M/s N.K. Enterprises, Surat. Shri N.K. Mehra, Proprietor of the firm, in his statements dated 02/3/95 and 03/5/95 stated that grey fabrics were being sent by him to the Respondent; that grey fabrics were also purchased in the name of some other firms and sent to the Respondent. He further stated that Shri Deepak Kapoor, Partner of the Respondent used to place orders for grey fabrics in the name of other parties and send payment thereof by demand drafts.
- Importantly during search, a register (marked Annexure A.7) recovered from joint residential premises of Shri Chunni Lal Kapoor and family, contained account of grey fabrics valued at Rs. 11,86,38,654/- which had been transacted on commission basis. This register Annexure A.7 was written by Shri Deepak Kapoor in his own handwriting. Further investigations showed that this quantity of grey fabrics was processed and removed clandestinely by the Respodnent and had not been accounted for in the account books. Besides, Shri N.K. Mehra, Partner of M/s N.K. Enterprises, Surat, the broker, who arranged supplies of grey fabrics, had categorically stated in his statements that after Shri Deepak Kapoor became Partner of the Respondent firm in 1989, all the grey fabrics ordered by him were for the Respondent.
- From the above, it emerged that the Respondent was receiving grey fabrics for which payments were made by Shri Deepak Kapoor through bearer demand drafts.
- Such grey fabrics were kept unaccounted in their factory premises as well as in City Office, which were further processed and cleared in a clandestine manner, in the process, evading the payments of Central Excise duty.
- Thereby, Shri Deepak Kapoor, Partner of the Respondent appeared to have been arranging the supplies of grey fabrics to be processed in their factory, making payments for the receipts of grey fabrics etc. and Shri Ajay Kapoor, the other partner was handling the production of processed fabrics in the factory and thereafter clearing the same clandestinely, evading payments of Central Excise duty. Shri Deepak Kapoor had been ordering and making payments of grey fabrics showing the same for CLAK whereas the grey fabrics were received only by the Respondent, processed and cleared clandestinely without payment of Central Excise duty.
2.3 The Department worked out the total duty evaded by the Respondent on grey fabrics clandestinely received, processed and cleared during the period 01/6/93 to 24/4/94 as Rs. 1,38,61,097/-.
2.4 Accordingly, Demand-Cum-Show Cause Notice No. IV (Hqrs.) Prev/28/2/94/1093-95 dated 29/6/95 was issued to the Respondent and its partners by the Collector of Central Excise and Customs, Chandigarh (now re-designated as Commissioner of Central Excise, Ludhaina) on the ground that :
i) during 01/3/93 to 24/4/94, the Respondent had suppressed the production of man-made fabrics by not accounting for the same in the statutory records and cleared the same clandestinely without determination and payment of Central Excise duty leviable thereon ;
ii) did not follow the proper procedure as laid down under Central Excise Law and thus, contravened the provisions of Rule 9 (1), 52A, 53, 173F, 173G and 226 of the erstwhile Central Excise Rules, 1944 (here-in-after referred to as the Rules)
iii) suppressed the material facts from the knowledge of the Department.
Accordingly, Central Excise duty amounting to Rs. 1,38,61,097/- was proposed to be recovered from the Respondent under Rule 9 (2) of the Rules readwith Section 11A of the Central Excise Act 1944 (the Act in short) alongwith imposition of penalty under Rule 173Q of the Rules. Penalty under Rule 209A of the Rules for aforementioned contravention of Central Excise Law was also proposed to be imposed on the partners of the Respondent.
2.5 The Commissioner, Central Excise Commissionerate, Chandigarh II vide order-in-original No. 2-CE/CHD-II/98/96 dated 20/3/98 adjudicated the case and :
(a) confirmed duty demand of Rs. 1,36,08,091/- out of total duty demand of Rs. 1,38,61,097/- and dropped demand for Rs. 2,53,006/- being not sustainable ;
(b) ordered payment of interest on the amount of duty demanded, and
(c) he, however, refrained from imposing penalty on the Respondent as well as on other parties on the ground that there were no legal/penal provisions for the same during the relevant period 2.6 The respondent field appeal before the CESTAT, New Delhi against the order-in-original No. 2/CE/CHD-II/98/96 dated 20/3/98 passed by the Commissioner of Central Excise, Chandigarh II on the grounds that the grey fabrics involved in the case had been received by M/s Chuni Lal Arun Kumar, a trading concern belonging to Shri Deepak Kapoors father, and there was no evidence that this quantity of grey fabrics had actually been received, processed and cleared without payment of duty by the Respondent.
2.6.1 An appeal before Honble CESTAT was also filed by the Department against the Commissioners order deciding not to impose penalty under Rule 173Q on the Respondent.
2.7 The CESTAT, New Delhi decided both the appeal i.e. appeal filed by the Respondent as well as the department vide common Final Order No. A/21-22/2000 NB dated 7/1/2000 by observing and holding as under :-
- The Honble Tribunal did not accept the Departments contention :
- that value of the grey fabrics transacted by CLAK was required to be considered, alongwith fabrics received clandestinely from other sources, for calculating the demand of duty against the Respondent,
- that as all the grey fabrics shown purchased and paid for by Shri Deepak Kapoor on behalf of CLAK were meant for the Respondent, the same were actually processed and cleared clandestinely from the factory premises of the Respondent without payment of Central Excise duty.
- The Tribunal held that the department had placed reliance on the statement of Shri N.K. Mehra, partner of M/s N.K. Enterprises, Surat, who stated that after Shri Deepak Kapoor became partner of M/s Brij Printing Works (Respondent) in 1989, whatever grey fabrics were ordered by him, were for the Respondent. Shri N.K. Mehra had subsequently stated on oath vide affidavit dated 05/9/05 that his initial statement was without reference to his records and that when he checked his books of accounts, he found that there were transactions with various firms of Kapoor family and not Respondent, therefore, his initial statement that all grey fabrics ordered by Shri Deepak Kapoor after 1989, were for M/s Brij Printing Works, was incorrect and contrary to documentary evidence.
- The Tribunal held that the adjudicating authority had rejected Shri N.K. Mehras subsequent statement in his affidavit as well as during cross-examination, as an afterthought, although they were supported by Shri Mehras account.
- Accordingly, the Tribunal held that turnover of CLAK cannot become that of the Respondent just for the reason that Shri Deepak Kapoor had been writing its accounts, placing orders on its behalf etc.
- Further, the Tribunal observed that trading documents recovered by Income Tax Authorities had been issued in the names of certain bogus firms did not bear the name of M/s Brij Printing Works. Therefore, these cannot be relied upon to held that the goods recovered therein were sent to the Respondent for processing.
2.7.1 The Tribunal concluded that the department has not discharged the onus of proving clandestine clearance by the Respondent and set aside the order-in-original No. 2/CE/CHD-II/98/96 dated 20/3/98 and allowed the appeal filed by the Respondent. The appeal filed by the department was rejected holding the same as without merits.
3. The Department filed a Central Excise Reference Application No. 41 of 2000 before the Honble High Court of Punjab & Haryana at Chandigarh under Section 35H (1) of the Act against the Tribunals order on the following grounds :-
3.1 the CEGAT has erred not only in discarding the corroborative evidence produced by the Department; that both the firms M/s N.K. Enterprises of Surat and M/s Brij Printing Works, Amritsar, have connived in destroying the records on the basis of which, Central Excise duty can be ascertained when the assessee has been given so much freedom to determine the tax to be paid to the Government under Self Removal Procedure. It has been stated by the Proprietor and partners of both the firms and is also on record that both the firms are neither mentioning consignors name, nor of consignee and LR/GR are being regularly destroyed. These documents have been seized by the Income Tax Department. The CEGAT has ignored and has not taken into consideration all the allegations which have otherwise been proved, not orally but on record. The CEGAT has also noticed that a huge amount of cash was recovered unaccounted which was otherwise for transaction of unaccounted grey fabrics and on which the party has agreed to pay the Central Excise duty. This unaccounted grey fabrics cannot be purchased legally for which no records were found to be maintained. When Kapoor family has been found to have indulged in so many illegal acts, the weightage to the retracted statement cannot be given which has been retracted at such a belated period of about 4 months approximately. There are various decisions/judgments not only of the lower authorities, but also of Apex Court and some of them are reported below :
i) In case of Roxy Enterprises (P) Ltd. vs. CCE reported in 1991 (53) E.L.T. 585 (T), wherein it is held that it is no doubt true that the burden to prove clandestine manufacture and removal of goods is on the department. Clandestine manufacture and stealth are its covering guards. IN such cases, direct evidence would rarely be forthcoming which would prove beyond all doubts. It is for this reason that the Honble Supreme Court of India has held that standard proof in such cases has to be necessarily on the basis of preponderance of the probabilities. The Honble Supreme Court of Indias observations in case of Collector of Customs, Madras and others vs. D. Bhoormull are relevant as reported in 1983 (13) E.L.T. 1546 (S.C.) Paras No. 31 and 32. For the sake of convenience, these are reproduced hereunder :
31. The other cardinal principle having an important? bearing on the incidence of burden of proof is that sufficiency and weight of the evidence is to be considered to use the words of Lord Mansfield in Blatch v. Archar (1774) 1 Cowp. 63 at p. 65 According to the Proof which it was in the power of one side to prove and in the power of the other to have contradicted. Since it is exceedingly difficult, if not absolutely impossible for the prosecution to prove facts which are especially within the knowledge of the opponent or the accused, it is not obliged to prove them as part of its primary burden.
32. Smuggling is clandestine conveying of goods to? avoid legal duties. Secrecy and stealth being its covering guards, it is impossible for the Preventive Department to unravel every link of the process. Many facts relating to this illicit business remain in the special or peculiar knowledge of the person concerned in it. On the principle underlying Section 106, Evidence Act, the burden to establish those facts is cast on the person concerned : and if he fails to establish or explain those facts, an adverse inference of facts may arise against him, which coupled with the presumptive evidence adduced by the prosecution or the Department would rebut the initial presumption of innocence in favour of that person, and in the result prove him guilty. As pointed out by Best in `Law if Evidence (12th Edn. Article 320, page 291), the presumption of innocence is, no doubt, presumptio juris : but every days practice shows that it may be successfully encountered by the presumption of guilt arising from the recent (unexplained) possession of stolen property, though the latter is only a presumption of fact. Thus the burden on the prosecution or the Department may be considerably lightened even by such presumption of fact arising in their favour. However, this does not mean that the special or peculiar knowledge of the person proceeded against will relieve the prosecution or the Department altogether of the burden of producing some evidence in respect of that fact in issue. It will only alleviate that burden to discharge which very slight evidence may suffice.
ii) In case of M/s Indian Cork Mills Ltd. vs. CCE, Bombay 1984 (17) E.L.T. 513 (Tri.) wherein it has been held that there is considerable difference between adjudication proceedings and prosecution. Strict rules of evidence are not applicable to adjudication proceedings and prosecution. Strict rules of evidence are not applicable to adjudication proceedings which is different from the nature and extent of proof required in a criminal prosecution. In the case of criminal prosecution, the burden of establishing the guilt of the accused is to be discharged beyond reasonable doubt. But in an adjudication proceedings the INITIAL burden of establishing the charges lies on the Department when once this initial burden is discharged by the Department by adducing satisfactory evidence then the onus shifts to the delinquent to rebut the evidence against him. Further in an adjudication proceeding the Department is not required to establish the quit beyond reasonable doubt. The preponderance of probability is the test to be applied.
iii) Similarly Honble Supreme Court of India in the case of Collector of Customs, Madras & Others vs. D. Bhoormull reported as 1983 E.L.T. 1546 (S.C.) wherein regarding the discharge of burden of proof by the department is has held as under :-
.Department is not required to prove its case with mathematical precision to a demonstrable degree; for, in all human affairs absolute certainty is a myth, and as Prof. Brett felicitously puts it-"all exactness is a fake". El Dorado of absolute Proof being unattainable, the law, accepts for it, probability as a working substitute in this work-a-day world. The law does not require the prosecution to prove the impossible. All that it requires is the establishment of such a degree of probability that a prudent man may, on its basis, believe in the existence of the fact in issue. Thus legal proof is not necessarily perfect proof often it is nothing more than a prudent mans estimate as to the probabilities of the case.
iv) That in this case also, the processors have the machinery to process the Grey fabric which is dutiable and the processors have removed without payment of duty. So it is prayed that in view of the aforesaid facts, the state of mind of both the firms can be judged for the involvement of evasion of Central Excise duty to the tune of Rs. 1,36,08,091/-. So the order of the CEGAT may please be set aside.
3.2 In view of the above, in the Reference Petition filed before the Honble High Court it was prayed that Honble Tribunal may be directed to refer the following Questions of Law to the Honble High Court for decision :
(i) Whether the learned Tribunal was correct in arriving at the conclusion that the Department has not discharged the onus of proving clandestine clearance by Respondent No. 1 ?
(ii) Whether the circumstantial evidence based on corroborative documents like Appraisal Report prepared by the Income Tax Department supported by the statements made under Section 14 of the Central Excise Act, 1944 by the persons involved in the evasion of duty can lead to the conclusion that the Respondent No. 1 and officials involved therein have evaded Central Excise Duty?
(iii) Whether the retraction of the statement at a later stage by a person who has abetted in the evasion of huge amount of Central Excise Duty to the tune of Rs. 1,36,08,091/- can be accepted as his true statement by completely discarding his earlier statement recorded under Section 14 of the Central Excise Duty?
(iv) Whether the Tribunal was correct in holding that retraction of the statement given under Section 14 of the Central Excise Act, 1944 at a later date loses the evidentiary value of the original statement?
(v) Whether the Tribunal has exceeded the jurisdiction in allowing the appeal filed by Respondent No. 1?
4. The Honble High Court of Punjab and Haryana, at Chandigarh vide order dated 20/5/2010 directed this Tribunal to forward a statement of the case raising the following questions of law for the opinion of Honble High Court.
(i) Whether the learned Tribunal was correct in arriving at the conclusion that the Department has not discharged the onus of proving clandestine clearance by Respondent No. 1 ?
(ii) Whether the circumstantial evidence based on corroborative documents like Appraisal Report prepared by the Income Tax Department supported by the statements made under Section 14 of the Central Excise Act, 1944 by the persons involved in the evasion of duty can lead to the conclusion that the Respondent No. 1 and officials involved therein have evaded Central Excise Duty?
(iii) Whether the retraction of the statement at a later stage by a person who has abetted in the evasion of huge amount of Central Excise Duty to the tune of Rs. 1,36,08,091/- can be accepted as his true statement by completely discarding his earlier statement recorded under Section 14 of the Central Excise Duty?
5. Accordingly, under the provisions Section 35H (4) of the Central Excise Act, 1944 and in pursuance of the order dated 20/5/10 of the Honble High Court of Punjab and Haryana, the following questions of law arising out of the Tribunal Final Order No. A/21-22/2000 NB dated 07/1/2000 are referred to the Honble High Court for its decision :
(i) Whether the learned Tribunal was correct in arriving at the conclusion that the Department has not discharged the onus of proving clandestine clearance by Respondent No. 1 ?
(ii) Whether the circumstantial evidence based on corroborative documents like Appraisal Report prepared by the Income Tax Department supported by the statements made under Section 14 of the Central Excise Act, 1944 by the persons involved in the evasion of duty can lead to the conclusion that the Respondent No. 1 and officials involved therein have evaded Central Excise Duty?
(iii) Whether the retraction of the statement at a later stage by a person who has abetted in the evasion of huge amount of Central Excise Duty to the tune of Rs. 1,36,08,091/- can be accepted as his true statement by completely discarding his earlier statement recorded under Section 14 of the Central Excise Duty?
6. The Registry is directed to forward this statement of the case to Honble Punjab & Haryana High Court for decision on the above-mentioned points of law arising out of the Tribunals Final Order No. A/21-22/2000 NB dated 7/1/2000.
7. The relevant documents are enclosed.
(Justice Ajit Bharihoke) President (Rakesh Kumar) Member (Technical) PK LIST OF RELIED UPON DOCUMENTS
1. Show cause notice No. IV (Hqrs.) Prev/28/2/94/1093-95 dated 29/6/95.
2. Order-in-original No. 2-CE/CHD-II/98/96 dated 20/3/98 passed by the Commissioner, Central Excise, Chandigarh - II.
3. Final order No. A/21-22/2000/NB dated 07/1/2000 passed by the Tribunal in respect of appeals filed by the Respondent as well as by the Department against the Commissioners order.
4. Order dated 20th May, 2010 of Honble Punjab & Haryana High Court in respect of Reference application filed by the Department under Section 35H (1) of the Central Excise Act, 1944, against the Tribunals Final Order dated 7/1/2000.
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