Custom, Excise & Service Tax Tribunal
M/S Natraj Plast Industries Ltd vs Cce, Delhi-I on 4 July, 2011
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
West Block No.2, R. K. Puram, New Delhi.
Court No. 1
Date of hearing:17.3.2011
Date of decision: 4.7.2011
For approval and signature:
Honble Shri Justice R.M.S. Khandeparkar, President
Honble Shri Rakesh Kumar, Member (Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982.
2
Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3
Whether Their Lordships wish to see the fair copy of the Order?
4
Whether Order is to be circulated to the Departmental authorities?
Excise Appeal No. 1545 of 2008
M/s Natraj Plast Industries Ltd. Appellants
Vs.
CCE, Delhi-I Respondent
AND
Excise Appeal No. 1491 of 2008
M/s Aditya Plastic Appellants
Vs.
CCE, Delhi-I Respondent
AND
Excise Appeal No. 1547 of 2008
Dinesh Kumar Gupta, Director Appellants
M/s Natraj Plast Industries Ltd.
Vs.
CCE, Delhi-I Respondent
AND
Excise Appeal No.1548 of 2008
M/s Tanishq Wiress & Conductors Pvt. Ltd. Appellants
Vs.
CCE, Delhi-I Respondent
AND
Excise Appeal No. 1546 of 2008
Gaurav Gupta, Director Appellants
M/s Tanishq Wire & Conductors Pvt. Ltd.
Vs.
CCE, Delhi-I Respondent
AND
Excise Appeal No. 1493 of 2008
Sunil Mittal Appellants
Prop. M/s Mukesh Industries (India) Ltd.
Vs.
CCE, Delhi-I Respondent
[All appeals arising out of common order-in-original No. 12/2008 dated 31.3.2008 passed by the Commissioner, Central Excise, Delhi-I].
Appearance:
Rep. by Smt. Seema Jain, Advocate & Shri A.K. Mishra, Advocate
for the appellants.
Rep. by Ms. Monica, DR for the respondent.
Coram: Honble Sh. Justice R.M.S. Khandeparkar, President
Honble Sh. Rakesh Kumar, Member (Technical)
ORAL ORDER NO. Dated:_____________
Per: Shri Rakesh Kumar:
The facts giving rise to these appeals are, in brief, as under:-
1.1 M/s Natraj Plast Pvt. Ltd. (hereinafter referred to as M/s Natraj), a private limited company with Shri Dinesh Kumar Gupta, his wife Mrs. Bharti Gupta, his son Sh. Gaurav Gupta and his daughter-in-law Mrs. Archana Gupta as its Directors, are engaged in manufacture of PVC compound and PVC related goods such as PVC master batches, PVC tape, PVC wires & cables etc. all of which are chargeable to central excise duty. They avail cenvat credit of excise duty paid on inputs used in or in relation of there final products. One of the main inputs for them is PVC resin of various grades. During the period of dispute, M/s Natraj purchased emulsion grade PVC resin CP172SG from M/s Chemplast Sanmar Ltd., PVC resin of 6701 grade from M/s Reliance Industries and PVC resin of other grades from M/s Oswal Cables Products and M/s Sancheti Vinyl.
1.2 M/s Tanishq wires & Conductors Pvt. Ltd. Sonipat (hereinafter referred to as M/s Tanishq) is a private limited company with Shri Dinesh Kumar Gupta and his son Shri Gaurav Gupta as Directors. It is also engaged in manufacture of PVC compound and PVC insulated wires.
1.3 M/s Aditya Plastic, Delhi is a proprietorship concern of Shri Rajesh Mittal. It is engaged in trading of PVC resin. It is alleged that during the period of dispute, they purchased CP172 SG grade PVC resin from M/s Chemplast Sanmar under invoices and from M/s Natraj without invoices and supplied the same to various manufacturers of battery separators including M/s Mukesh Industries (India), Delhi (hereinafter referred to as M/s Mukesh) which is a proprietorship concern of Shri Sunil Mittal.
1.4 Acting on an information that M/s. Mukesh are evading central excise duty by clandestine clearances, a watch was kept at their premises on 6.5.2005 and a tempo loaded with battery separators manufactured by M/s. Mukesh Industries was intercepted very close to the factory premises. The goods loaded in the tempo were without any duty paying documents and the same were placed under seizure. With regard to demand of duty on the goods seized from the tempo, a separate show cause notice dated 21.08.2005 has been issued to M/s. Mukesh and the same is not subject matter of this case. On inquiry with M/s. Mukesh Industries, it was found that they were purchasing their main raw material CP-172 SG Resin from M/s. Chemplast Sanmar Ltd., Delhi. On enquiry with Shri Ravi Kumar Ahuja, Regional Sales Manager of M/s. Chemplast Sanmar, he, in his statement dated 6.5.2005 stated that PVC resin CP172SG is a special type of resin which is manufactured by them, that they were selling this product to various customers in or outside Delhi, that among their customers were M/s. Mukesh Industries, M/s. Aditya Plastics and M/s. Natraj and that one Shri Rajesh Mittal used to come to him for purchase of this resin for M/s. Aditya Plastics and M/s. Natraj. Inquiry was, thereafter, made in respect of M/s. Natraj and it was found that they have a factory at Sirsapur, Delhi for manufacture of PVC Compound, PVC master batches, PVC Tapes, PVC Filler Cord, PVC Wire and Cables, etc. Preliminary inquiry indicated that they were purchasing huge quantity of CP 172 Resin from M/s. Chemplast for which they did not appear to have any use, as, as per the information given by Shri Ravi Ahuja of M/s. Chemplast. CP 172 Resin is a plastic resin which is meant for manufacture of battery separators while M/s. Natraj were manufacturing PVC Compounds, PVC Tapes, PVC Filler, PVC Cord, PVC Wires and Cables etc. The factory premises of M/s. Natraj, M/s. Tanishq, M/s. Aditya Plastics were searched on 14.02.2006. In case of M/s. Natraj, it was found that on 6.2.2006, they had written a letter to the jurisdictional Asstt. Commissioner surrendering their central excise registration and declaring thereunder that duty had been paid in respect of the finished goods lying in their factory as on 6.2.2006. However, it was found that at the time of visit of the officers to the factory on 14.02.2006, there was a stock of finished goods in respect of which there was no evidence of discharge of duty liability and the finished goods were, therefore, placed under seizure. From the premises of M/s. Tanishq, finished goods as well as raw materials including 4.37 MTs. of CP 172 SG Resin were found. The goods were placed under detention. In the course of search of premises of M/s. Aditya Plastics on 14.02,2006, certain records regarding purchase of CP 172 SG Resin and other plastic resins by M/s. Aditya Plastics from M/s. Chemplast Sanmar, M/s. Royal Industries and M/s. Vikas Pvt. Ltd. were recovered which were placed under seizure. Certain stock of CP 172 SG Resin was found in the premises of M/s. Aditya Plastics, which was placed under detention. Residential premises of Shri Dinesh Gupta, Director of M/s. Natraj was also searched on 14.2.2006 in presence of panch witnesses in course of which certain documents were recovered and the same were resumed.
1.5 Inquiry was made with Shri Dinesh Gupta of M/s. Natraj in course of which his statements were recorded on 14.02.2006, 14.03.2006. 28.4.2006, 15.06.2006, 23.06,2006, 3.8.2006 and 28.08.2006, 22.09.2006, 3.10.2006, 7.11.2006, 8.11.2006 and 10.11.2006 under Section 14 of the Central Excise Act, 1944. Shri Dinesh Gupta in his statement dated 14.02.2006 stated that they had started their factory in the name of M/s. Natraj Plast Industries in the year 1994 at Vajirpur Industrial Area, that thereafter it was shifted to Sirspur, that they were engaged in the manufacture of PVC wires and PVC cables, PVC Compound, PVC Filler Cord, PVC tapes, etc., that in the manufacture of PVC Compound, they were using Resin of Grade 6701 manufactured by M/s. Reliance, M/s. Shri Ram Industries to the extent of that resin CP 172 SG purchased by them from M/s. Chemplast were used by them only in the manufacture of Filler Cord to the extent of 25%, that during the current financial year i.e. 2005-2006 (till 14.02.2006), they had procured about 350 MT of CP 172 SG resin from M/s. Chemplast Sanmar, that except for the quantity used for the manufacture of Filler Cord, remaining quantity of CP 172 SG resin was sold to manufacturers of battery separators, and that though he had taken Cenvat credit in respect of CP 172 SG Resin purchased by him from M/s. Chemplast Sanmar, this Cenvat credit was not reversed when the same was sold as such. At that time, he also gave two post-dated cheques of Rs.10 Lakh each (total Rs.20 Lakhs) towards his duty liability on the diverted inputs. However, Shri Dinesh Gupta in his third statement dated 28.04.2006 and in subsequent statements claimed that SG Resin 172 purchased by him, in addition to being used for manufacture of PVC Filler Cord, had also been used in manufacture of PVC Tapes and that for manufacture of PVC tapes, proportion of CP 172 SG Resin was 56%. In course of scrutiny of the records of M/s. Natraj, it was found that 28 invoices regarding sale of PVC Compound had been issued to M/s. Cabcom India. Shri Dinesh Gupta, in respect of these invoices, in his statement dated 14.02.006 stated that no materials had been supplied and this fact was corroborated by Shri Sandeep Sharma, Proprietor of Cabcom India in his statement dated 14.02.2006 stating that he had only procured the invoices for PVC Compound from M/s. Natraj for availing Cenvat credit but no material PVC Compound had been supplied under those invoices. M/s. Cabcom India, after admitting the receipt of invoices and availing of Cenvat credit on the basis of same gave, a cheque dated 14.03.2006 for an amount of Rs.10 Lakh towards their duty liability. In course of further scrutiny of the records of M/s. Natraj, it was also found that the some invoices for PVC Compound had been issued to M/s. Appu Cable, Delhi and on inquiry, Shri Naresh Bansal of M/s.Appu Cables, it was found that no material had been supplied under those invoices. The Cenvat Credit illicitly passed on to M/s. Appu Cable under those invoices was Rs.1,13,130/-, which was deposited by Shri Naresh Bansal, Proprietor of M/s. Appu Cables on 25.03.2006. Shri Dinesh Gupta in his statements, while claiming the use of certain quantity of CP172 SG Resin purchased by him for manufacture of PVC Filler Cord, PVC Tapes admitted that substantial quantity had been sold as such without reversing the Cenvat credit and that some of the parties to whom CP 172 SG resin had been sold were Shri Rajesh Mittal of M/s. Aditya Plastics, Shri Sunil Mittal of M/s. Mukesh Industries and Shri Rajesh Bansal, Proprietor of M/s. Micro Sec Industries. On inquiry with Shri Rajesh Mittal of M/s. Aditya Plastics, it was found that they were purchasing CP 172 SG Resin directly from M/s. Chemplast and that the quantity was being sold mostly under invoices, but for supply of this resin to the manufacturers of battery separators, who wanted the same without invoices, they were procuring this resin from M/s. Natraj who was supplying the same without any invoices. Shri Sunil Mittal of M/s.Mukesh in his statement dated 7.7.2006 admitted that he was purchasing the CP 172 SG Resin directly from M/s. Chemplast and also from M/s. Natraj. Shri Rajesh Bansal, Proprietor of M/s. Micro Sec in his statement dated 3.7.2006 admitted that he was engaged in the manufacture of Battery Separators for which principal raw material is CP 172 SG Resin and that while same had been purchased directly from M/s. Chemplast under invoices, substantial quantity had been purchased without any invoices from M/s. Natraj.
1.6 It was also found that while in course of search of the premises of M/s. Aditya Plastics on 14.02.2006, 100 bags of CP 172 SG Resin of Batch No.369 had been recovered, 148 bags of CP 172 SG Resin of the same batch had been supplied by M/s. Chemplast to M/s. Natraj under invoice dated 30.12.2005, which indicated that 100 bags of CP 172 SG Resin seized from the premises of M/s. Aditya Plastics had come from M/s. Natraj, as there was no purchase of CP172 SG resin of Batch No.369 by M/s.Aditya from M/s. Chemplast. In case of M/s. Mukesh Industries, in course of search of their premises on 14.02.2006, 520 bags of CP 172 SG Resin of Batch No.408, 409, 410, 411 and 414 had been found. On inquiry with M/s. Chemplast, it was found that these batches had been manufactured in their manufacturing unit at Salem, Tamil Nadu, from where the same had been transferred to their depot at Delhi on 13.01.2006, 15.01.2006, 18.01.2006 and 17.01.2006. However, the last purchase of CP 172 SG Resin by M/s. Mukesh Industries from M/s. Chemplast was under invoice dated 30.12.2005. Since other than M/s. Chemplast, there is no other manufacture of Cp 172 SG Resin, it appeared that the stock of 172 SG Resin with M/s.Mukesh Industries was unaccounted. Further, inquiry revealed that the above mentioned CP 172 SG Resin of Batch No.408, 409, 410, 411 and 414 manufactured at Salem, Tamil Nadu and stock transferred to Delhi had been purchased by M/s. Natraj, which clearly showed that the stock of CP 172 SG Resin found in the premises of M/s. Mukesh Industries had come from M/s. Natraj.
1.7 Shri Dinesh Gupta in his statement dated 8.11.2006 gave details of the purchase of the CP 172 SG Resin from M/s.Chemplast during the period 2001-2002, 2002-2003, 2003-2004, 2004-2005 and 2005-2006 and also the details regarding the use of the same in his factory for manufacture of PVC Filler Cord and PVC Tapes. As per these details given in his statement, M/s. Natraj during 1.11.2001 to 31.3.2002 period of 2001-2002, 2002-2003, 2003-2004, 2004-2005 and 2005-2006 (upto 14.02.2006) had purchased 166 MT, 179.367 MT, 118 MT, 339.411 MT and 352.937 MT respectively (total 1055.715 MT) of CP 172 SG Resin from M/s.Chemplast, out of which, while the use of this Resin during the period 2001-2002, 2002-2003, 2003-2004, 2004-2005 and 2005-2006 for manufacture of PVC Filler Cord was 5.56 MT, 121.37 MT, 32.97 MT., 26.556 MT and 17.542 M.T. respectively, claimed the use of this resin in the manufacture of PVC Tapes during this period was nil, nil, 0.735 MT, 117.671 MT and 112.396 MT respectively. Even if these figures are accepted, the resin actually used was only 344.8 MT which indicated that at least 720.915 MT of resin had been illicitly divested.
1.8 Statement of Dr. R. Paliniappan, Technical Officer, M/s. Chemplast Sanmar was recorded on 25.04.2006 wherein he stated that CP 172 SG Resin has been specially developed for manufacture of battery separators and he was not aware of the uses of this resin for the manufacture of PVC insulated Wire and Cables, PVC Tapes, etc. 1.9 One of the major buyers of PVC Tapes manufactured by M/s. Natraj was M/s. Motherson Sumo System and it was found that every consignment of PVC Tapes being supplied by M/s. Natraj was being tested by them in their laboratory for various parameters like tensile strength, elongation team strength, etc. before and after aging to check as to whether the tape meets their minimum requirements regarding various parameters. The officers conducted an experiment in the factory of M/s. Natraj for the manufacture of PVC Tapes by using CP 172 SG Resin to the extent of 56% and PVC Tapes so manufactured were sent to Central Institute of Plastic Engineering & Technology (CIPET), Lucknow for testing of the above mentioned parameters. After comparing the above mentioned parameters of the PVC Tapes manufactured under the officers supervision by using CP 172 SG Resin to the extent of 56% and the parameters of PVC tapes supplied by M/s. Natraj to M/s. Motherson Sumo System, it was found that the above mentioned properties of the two batches of tapes were different. The officers were, therefore, of the view that CP 172 SG Resin has not been used in the PVC Tapes supplied to M/s. Motherson Sumo System or to other buyers. The officers were, therefore, of the view that CP 172 SG Resin has been used only for the manufacture of PVC Filler Cord to the extent of 25% and the balance quantity had been illicitly divested without reversing the Cenvat credit.
1.10 From the records recovered from M/s. Natraj, the officers found that during the period from 1.11.2001 to 14.02.2006, a total of 1102.715 MT of CP 172 SG Resin had been purchased by M/s. Natraj from M/s. Chemplast out of which, only a quantity of 104.01 has been actually consumed in the manufacture of PVC Filler Cord and the balance quantity of 998.705 MT in respect of which Cenvat credit involved is Rs.1,15,61,492/- has been illicitly divested.
1.11 It was also found that M/s. Natraj had availed cenvat credit amounting to Rs.77,586/- on 7.314 M.T. of plasticizer and had sent the same to M/s. Tanisq for manufacture of PVC Compound on job work but the same was not used for this purpose. Therefore, cenvat credit of Rs.77,586/- appeared to be recoverable from M/s. Natraj.
1.12 It is in view of the above facts that show cause notice dated 2.1.2007 was issued to MJ/s. Natraj, Shri Dinesh Gupta, Director of M/s. Natraj, Shri Gaurav, Director of M/s. Natraj, M/s. Tanishq, Shri Sunil Mittal, Proprietor of M/s. Mukesh Industries and Shri Rajesh Mittal of M/s. Aditya plastics for
(a) recovery of Cenvat credit amounting to Rs. 1,13,76,073/- (excluding Cenvat credit of Rs.1,85,419/- in respect of 15.5 M.T. of resin covered by show cause notice No.IV/.PRV/15/7/06 dated 10.08.2006 issued for the seizure portion) illegally availed by M/s. Natraj on purchase of CP 172 SG resin during the period from 1.11.2001 to 6.2.2006 by M/s. Natraj and illicitly divested by them to M/s. Sunil Mittal of M/s. Mukesh Industries and Shri Rajesh Mittal of M/s. Aditya Platics, under Rule 12 of the Cenvat Credit Rules, 2001/2002/ Rule 14 of the Cenvat Credit Rules, 2004 read with proviso to Section 11 A(1) of the Central Excise Act, 1944, along with interest on the same at the applicable rate under Section 11AB of the Central Excise Act, 1944;
(b) recovery of Cenvat credit amounting to Rs.77,586/- on 7.314 MT of PVC Resin illicitly availed by M/s. Natraj under Rule 12 of the Cenvat Credit Rules, 2001/2002 of 2004/ under Rule 14 of the Cenvat Credit Rules, 2004 read with proviso to Section 11 AC along with interest on it under Section 11 AB;
(c) Appropriation of an amount of Rs.20 Lakhs already deposited by M/s. Natraj towards their above said demand;
(d) Imposition of penalty on M/s. Natraj under Rule 13 of the Cenvat Credit Rules, 2001/2002/Rule 15 (2) of the Cenvat Credit Rules, 2004 read with Section 11 AC of the Central Excise Act, 1944;
(e) Imposition of penalty on shri Dinesh Kumar and Shri Gaurav, both Directors of M/s. Natraj under Rule 26 of the Central Excise Rules, 2002;
(f) Imposition of penalty on M/s. Tanishq under Rule 26 of the Central Excise Rules, 2002; and
(g) Imposition of penalty under Rule 26 of the Central Excise Rules, 2002 on Shri Sunil Mittal, Proprietor of M/s. Mukesh Industries, Shri Rajesh MIttal, Proprietor of M/s. Aditya Plastics.
1.13 The above show cause notice was adjudicated by the Commissioner vide order dated 31.03.2008 by which
(a) Cenvat credit demand of Rs.1,13,76,073/- was confirmed against M/s. Natraj along with interest and an amount of Rs.20 Lakh already deposited was appropriated;
(b) Cenvat credit demand of Rs.77,586/- in respect of 7.314 MT of Plastics Resin was also confirmed along with interest against M/s. Natraj;
(c) Penalty of Rs.1,13,76,073/- was imposed on M/s. Natraj under Rule 13 of the Cenvat Credit Rules, 2001/2002/under Rule 15 of the Cenvat Credit Rules, 2001 read with Section 11 AC of the Central Excise Act, 1944; and
(d) Penalty on Shri Dinesh Gupta, Shri Gaurav Gupta, M/s.Tanishq, Shri Sunil Mittal and Shri Rajesh Mittal was imposed under Rule 26 as under:-
(i) Shri Dinesh Gupta Rs.50 Lakhs
(ii) shri Gaurv Gupta Rs.50 Lakhs
(iii)M/s. Tanishq Rs. 5 Lakhs
(iv)M/s. Sunil Mittal Rs. 5 Lakhs
(v) M/s. Aditya Plastics Rs. 5 Lakhs.
1.14 Against this order of the Commissioner, the present appeals have been filed.
2. The stay applications filed by all these appellants were disposed of vide Stay order No.963-968 of 2008-Excise dated 15.09.2008 by which M/s. Natraj were directed to deposit an amount of Rs.40 Lakhs in addition to the amount of Rs.20 Lakhs already deposited during the investigation within a period of 8 weeks and compliance was to be reported on 17.11.2008. Since M/s. Natraj did not deposit the directed amount within the stipulated period, all the appeals of M/s. Natraj and other appellants were dismissed vide Final Order No.597-602/09 dated 21.08.2009. Against this order of the Tribunal, M/s. Natraj and other appellants filed writ petitions before the Honble Delhi High Court. The Honble Delhi High Court after directing them to deposit the amount of Rs.40 Lakhs within the certain period permitted by the Honble Court and after compliance of the order, disposed of the writ petition vide order dated 17.09.2010 by which the Tribunals order dismissing the appeals was set aside and the Tribunal was directed to decide these appeals on merits as expeditiously as possible. Accordingly in pursuance of the above order of Honble Delhi High Court, these appeals were taken up for hearing.
3. Heard both the sides.
4. Smt. Seema Jain, Advocate, ld. Counsel appearing for M/s. Natraj Plast Industries, M/s. Tanishq, Shri Dinesh Gupta and Shri Gaurav Gupta and Shri A.K. Mishra, Advocate, ld. Counsel for M/s. Aditya Plastics and M/s. Mukesh Industries made the following submissions:-
(1) M/s. Natraj Plast Industries has been using PVC Resin CP 172 SG purchased by them from M/s. Chemplast Sanmar for manufacture of PVC Filler Cord and PVC Tapes. Only a small quantity of about 275 MTs could have been diverted. It is wrong to hold that 998.706 MTs of this resin has been illicitly diverted and demand the amount equivalent to the Cenvat credit in respect of the same.
(2) The department has not disputed the use of CP 172 SG Resin in the manufacture of PVC Filler Cord to the extent of 25%. In addition to this, M/s. Natraj Plast, from the very beginning have been stating that this resin was also being used in the manufacture of PVC Tapes in which its proportion was 56%.
(3) The department does not dispute the manufacture of PVC Tapes by M/s. Natraj. For manufacture of this tape, PVC Resins is used to the extent of 56%. No evidence has been produced by the department regarding unaccounted procurement of any Resin other than CP 172 SG for manufacture of PVC Tapes. Similarly, there is no evidence of illicit diversion of CP 172 SG Resin by M/s. Natraj to the extent that the same has been alleged by the department in the show cause notice. If some resin other than CP 172 SG had been used for the manufacture of PVC Tapes, then same part of the resin would have been recovered at the premises of M/s. Natraj Plast or M/s. Tanishq. But no such resins have been recovered.
(4) The departments conclusion on the basis of difference in the tensile strength, elongation, tear strength, etc. of the PVC Tapes sold by them to M/s. Motherson Sumo and the PVC Tapes manufactured by them by using the Resin CP 172 SG to the extent of 56% in presence of the departmental officers, is not correct, as while the thickness of PVC Tape manufactured in presence of the departmental officers and tested by the Laboratory of CIPET, Lucknow was 0.4 mm., the thickness of the PVC Tapes supplied to M/s. Motherson Sumo was 0.3 mm. and the difference in the tansile strength, elongation, tear strength, etc. could be because of difference in their thickness. Besides this, while the sample of the Tapes manufactured in presence of the departmental officers was tested by ASTMD 882 and ASTMS 1004 method, it is not known as to which method of test was adopted by the laboratory of M/s. Motherson Sumo as there can be difference in the measurement on account of difference in methods adopted for testing. Moreover, it is not known as to whether the composition of PVC Tapes supplied to M/s. Motherson Sumo and the tapes manufactured in presence of the departmental officers was identical, as small changes in ingredients can result in the difference in the physical properties like tensile strength and allocation, etc. Therefore, on the basis of the test reports alone, it cannot be concluded that M/s. Natraj had not used CP 172 SG Resin in the manufacture of PVC Tapes.
(5) The Tribunal in the case of Sanco Plastics Pvt. Ltd. Vs. CCE, Delhi reported in 2004 (176) ELT 740 had accepted the partys contention that emulsion grade resin can be used for manufacture of cable compound. The CP 172 SG Resin purchased by M/s. Natraj from M/s. Chemplast is also an emulsion grade and it would be wrong to say that the same cannot be used for manufacture of PVC Compound or PVC Tapes.
(6) No penalty is imposable on Shri Dinesh Gupta and on Shri Gaurav Gupta under Rule 26 of the Central Excise Rules, 2002 as there is no evidence that they have dealt with any excisable goods, which they knew or had reason to believe are liable for confiscation. No penalty is imposable on M/s. Tanishq as they have not diverted any cenvat credit availed on CP 172 SG Resin.
(7) No penalty is imposable on M/s. Aditya Plastics or M/s. Mukesh Industries, as there is no evidence that they are guilty of the type of contraventions of central excise law, which attract penal provisions under Rule 26 of the Central Excise Rules, 2002. Moreover, the allegations of purchase of CP 172 SG Resin by M/s. Aditya and M/s. Mukesh Industries from M/s. Natraj are merely based on the statements of Shri Dinesh Gupta, not on any positive tangible or material evidence. It is settled law that a statement uncorroborated by any positive or material evidence is not admissible as evidence.
5. Mrs. Monica Batra, ld. Departmental Representative, defending the impugned order by reiterating the findings of the Commissioner, pleaded that as is clear from the statement of Dr. R. Paliniappan, Technical Officer of M/s. Chem Plast Industries, the CP 172 SG Resin has been specially developed by M/s. Chemplast Sanmar for use in the manufacture of battery separators, that it is recommended by its manufacturer/suppliers, M/s. Chemplast Sanmar only for this use, that this Resin cannot be used for manufacture of PVC coated wire or PVC Tapes, that Shri Dinesh Gupta in his first statement dated 14.02.2006 had clearly stated that except for the use of a small quantity of CP 172 SG Resin in the manufacture of PVC Filler Cord, the remaining quantity has been illicitly sold to others without reversal of the Cenvat credit, that though in his subsequent statement, he has claimed the use of this Resin in the manufacture of PVC Tapes also, this claim of Shri Gupta is not acceptable at all, as on testing of the various properties of the PVC Tapes manufactured by M/s. Natraj by using CP 172 SG Resin under the supervision of investigating officers, with the same properties of the PVC Tapes manufactured by M/s. Natraj and sold to one of their main customers, M/s. Motherson Sumo, it was found that the properties of the two batches of PVC Tapes were totally different, that this shows that M/s. Natraj had not used CP 172 SG Resin in the manufacture of PVC Taps and the bulk of the quantity, except for use of a small quantity in the manufacture of PVC Filler Cord, had been illicitly diverted, that the statements of Shri Dinesh Gupta are corroborated by the statement of Shri Sunil Mittal of M/s. Mukesh Industries and Shri Rajesh Mittal of M/s. Aditya Plastics, wherein they have admitted purchasing CP 172 SG Resin from M/s. Natraj without any invoice, that the Batch No. of CP 172 SG Resin seized from the premises of M/s. Mukesh Industries was the same as the batch of this resin purchased by M/s. Natraj from M/s. Chemplast, which is a clear evidence that this Resin purchased by M/s. Natraj had been illicitly diverted without reversing of the Cenvat credit, that presence of substantial quantity of CP 172 SG Resin in the premises of M/s. Tanishq, which had no use for the same is also an indicator that this Resin was being illicitly diverted, that Shri Manoj Sharma, Driver of the Vehicle No.DL 1LB6258 in his statement dated 29.04.2006 has stated that on several occasions he had carried the materials from the premises of M/s. Natraj to the factory premises of Shri Sunil Mittal, that as against total quantity of 1102.715 MTs of CP 172SG Resin purchased by M/s. Natraj from M/s. Cam Plast during period 1.11.2001 to 31.03.2006 only a small quantity of 104.04 MTs of the Resin has been used in the manufacture of PVC Filler Cord and the balance quantity has been illicitly diverted without reversal of the Cenvat Credit, that M/s. Natraj, thus, only enjoyed the Cenvat credit in respect of CP 172 SG Resin purchased by them from M/s. Chemplast, while only a very small quantity had been actually used in the manufacture of PVC Filler Cord and the remaining quantity has been illicitly diverted, that there are number of instances where M/s. Natraj have issued bogus invoices regarding sale of PVC Compound without actually supplying any materials and thereby enabling his customers to avail the Cenvat credit, that in addition to M/s. Natraj, a sister concern M/s. Tanishq of which Shri Dinesh Gupta and Shri Gaurav Gupta are Directors and M/s. Aditya Plastics and M/s. Mukesh Industries are also involved in this Cenvat credit fraud and that the order passed by the Commissioner is based on the evidence on record and as such, there is no infirmity in the impugned order.
6. Smt. Seema Jain, Advocate, in rejoinder again emphasized that CP 172 SG Resin, in addition to being used in the manufacture of PVC Filler Cord has also been used in the manufacture of PVC Tapes, that the department has not produced any cogent evidence in support of its allegation that the CP 172 SG Resin has not been used in the manufacture of PVC Tapes and that at the most, only a quantity of about 275 MT of this Resin could have been diverted.
7. We have carefully considered the submissions from both the sides and perused the records. M/s. Natraj are manufacturers of PVC Compounds, PVC Master Batch, PVC coated wire and cables, PVC Filler Cord, PVC Tapes, etc. PVC Compound is made by mixing PVC resin, plasticizes, stabilizer, master batch and filler in a pre-determined ratio, heating the mixture at a particular temperature, extruding the same through extradition and cutting the extruded product into chips, which can be used for manufacture of various plastic articles. There is no dispute that during the period from 1.11.2001 to 14.02.2006, M/s. Natraj had purchased a total quantity of 1112.705 MTs of CP 172 SG Resin from M/s. Camplast under their invoices on the basis of which the Cenvat credit has been taken. The departments allegation is that out of this quantity of CP 172 SG Resin, only a quantity of 104.01 MTs has been used in the manufacture of PVC Filler Cord and the balance quantity has been illicitly sold to M/s. Aditya and M/s. Mukesh Industries, etc without reversal of the Cenvat credit. The Cenvat credit involved on 998.705 MT (1102.715 minus 104.01 MT) of Resin is Rs.1,15,61,492/-. Since out of 998.705 MT of the resin, a quantity of 15.5 M.T. involving Cenvat credit of Rs.1,85,419/- has been seized and for which separate show cause notice had been issued, in this case, the duty demand is confined to only Rs.1,13,76,073/-. The evidence relied upon by the department in support of this allegation against M/s. Natraj is, in brief, as under:-
(1) Statement dated 14.02.2006, 14.03.2006, 28.04.2006, 15.06.2006, 23.06.2006, 3.8.2006, 28.08.2006, 22.09.2006, 3.10.2006, 7.11.2006, 8.11.2006 and 10.11.2006 of Shri Dinesh Gupta, Director of M/s. Natraj, recorded under Section 14 of the Central Excise Act, 1944, none of which have been retracted. While in his statement dated 14.02.2006, Shri Dinesh Gupta stated that they were manufacturing only a Single Type PVC Compound in which they were changing the flexibility of the compound by changing the quantity of stablizer etc. and that in the manufacture of PVC Compound they were using Resins of 6701 grade manufactured by M/s. Reliance, Shri Ram Industries and M/s. Finolex to the extent of 56%,that the Resin CP 172 SG procured by them from M/s. Camplast was being used in the manufacture of PVC Filler Cord where it was being added to the extent of 25% and that surplus quantity of CP 172 SG resin left after manufacture of the PVC Filler Cord was being sold to the manufacturers of battery separators without any invoice or bills and that he was doing so as his financial condition was not good, in the subsequent statements dated 28.08.2006 and 22.09.2006, he, however, claimed that in addition to manufacturer of PVC Filler Cord, CP172 SG Resin was also being used in the manufacture of PVC Tapes to the extent of 56%. However, the quantity of PVC Tapes using CP 172 SG Resin claimed to have been manufactured is only 411.31 MTs in which the use of CP 172 SG Resin would be to the tune of 230.80 MT only and total use of CP 172 SG Resin including its use in the manufacture of Filler Cord would be to the tune of 334.8 MT only as against the quantity of 1112.705 MT of Resin purchased by them, which indicates that the bulk of the quantity has been illicitly diverted.
(2) Even the claim of M/s. Natraj regarding use of CP 172 SG Resin in the manufacture of PVC Tapes is not acceptable as the sample of PVC Tapes manufactured by M/s. Natraj by using CP 172 SG Resin in presence of Investigating Officers were tested by CIPET, Lucknow for its properties like elongatoin, tensile strength, tear strength, etc. and these properties on comparison with the same properties in the test reports of the samples of the PVC Resin supplied by M/s. Natraj to their main customers, M/s. Motherson Sumo, were found to be totally different.
(3) Statement of Shri Manoj Sharma, Driver of the Vehicle No. DL 1 LB-6258 wherein he has stated that he used to transport goods from the godown premises of M/s Chemplast Senmar in Delhi to the premises of M/s Natraj and from there, as per the directions of Shri Dinesh Gupta, to the factory of Shri Sunil Mittal under job-work challans and this statement of Shri Manoj Sharma is corroborated by the statement dated 15.6.2006 of Shri Dinesh Gupta.
(4) Statement dated 03.07.2006 of Shri Rajesh Bansal, Prop. M/s Microsep Industries, Delhi wherein he has stated that during 2004-05, 100 MT of PVC resin of CP172 SG grade was purchased by him without any bills from M/s Natraj through Shri Sunil Mittal and during 2005-06, 175 MT of PVC resin of CP 172 SG grade was purchased from M/s Natraj in similar manner.
(5) Statement dated 14.02.2006 of Shri Rajesh Mittal, Prop. of M/s. Aditya, wherein he stated that he is a dealer CP 172 SG resin, that the quantity of CP 172 SG resin purchased directly from M/s Chemplast under their invoice was being sold to buyers under invoices and that he was purchasing certain quantity of this resin, which is used for manufacture of battery separators, from M/s Natraj Plast Industries without any bills for supply to buyer who wants to purchase this resin without any bills.
(6) M/s Natraj had shown disposal of substantial quantity of CP1725G resin to M/s Tanishq for job work during 2004-05 and 2005-06. But in respect of 15.624 MT of CP1725G resin sent to M/s Tanishq, there was no record of receipt of finished product from M/s Tanishq. In this regard Sh. Dinesh Gupta in his statements dated 9.11.2006 and 10.11.2006 clarified that so far as CP1725G resin is concerned, its dispatch to M/s Tanisq for job work were only paper transactions and actually there was no supply of this resin to M/s Tanishq and that 61 MT of CP1725G resin dispatched to M/s Tanishq during 2004-05 and 183.85 MT of this resin dispatched to M/s Tanishq during 2005-06 under job work challans had actually been diverted to manufacturers of separators.
(7) Statements dated 14.2.2006, 22.7.2006 and 7.11.2006 of Shri Sunil Mittal, Prop. M/s Mukesh Industries wherein he stated that M/s Mukesh Industries is a SSI unit under full exemption, manufacturing battery separators, that CP172 SG resin for manufacture of battery separators was being purchased from M/s Chemplast Sanmar under bills and also from M/s Natraj without any bills.
(8) As per manufacturers technical literature and statement dt. 25.4.2006 of Dr. R. Palaniappen of M/s Chemplast Sanmar, CP 172 SG resin is specially designed for use in the manufacture of Battery Separators. Evidence shows that this resin has not been used in manufacture of PVC tape. Only a small quantity of this resign has been used in the manufacture of PVC Filler Cord.
(9) Invoices regarding supply of CP172 SG resin issued by M/s Chemplast during 1.11.2006 to 14.2.2006 period which show that during 2001-02 (from 1.11.2006), 2002-2007, 2003-04 and 2005-06, 113 MT, 179.367 MT, 118 MT, 339.411 MT and 352.937 MT respectively (total 1102.715 MT) of CP1725G resin had been received by M/s Natraj from M/s Chemplast on which cenvat credit had been availed while their claim regarding its use was acceptable only to the extent of 104.01 MT in the manufacture of PVC Filler cord.
(10) 100 bags of CP1725G resin detained on 14.2.2006 at the premises of M/s Aditya and 520 bags of CP1725G resin detained on 14.2.2006 at the factory premises of M/s Mukesh Industries were of the same batches of CP1725G manufactured by M/s Chemplast which had been purchased by M/s Natraj and since the CP1725G resin of batches had not been purchased by M/s Aditya and M/s Mukesh Industries directly from M/s Chemplast Sanmar during that period, this indicates that the CP172 SG resin found in their premises had come from M/s Natraj.
3.1 The appellant M/s Natraj on the other hand plead that CP 172 SG resin had been used in the manufacture of PVC compound, PVC Filler Cord and PVC tape and that the difference between the elongation, tensile strength, tear strength and shrinkage of the PVC tape made using CP172 SG resin in the presence of the officers of the PVC tape earlier manufactured and supplied to M/s Methorson Sumo, is not the evidence of no CP172 SG resin having been used in the manufacture of the PVC tape supplied to M/s Methorson Sumo and others, as the thickness of the two tapes is different and such difference in physical properties can result on account of small variation in the properties of the ingredients like plasticizer and stabilizer
4. So far as the evidence in form of statements of Shri Dinesh Gupta Shri Rajesh Mittal, Shri Sunil Mittal, Shri Manoj Sharma, Shri Rajesh Bansal and other persons is concerned, we find that none of these statements have been retracted and all these statements are of inculpatory nature. Since these statements have been recorded by gazetted officers of Central Excise under Section 14 of the Central Excise Act, 1944, which is in peri material with Section 108 of the Customs Act, 1962, in view of the judgements of Honble Supreme Court in the case of - (a) Naresh J. Sukhwani vs. Union of India reported in 1996 (93) ELT 258 (SC); (b) KI Puvmny vs. Assistant Collector of Customs, reported in 1997 (90) ELT 241 and (c ) Surjeet Singh Chhabra vs. Union of India reported in 1997 (89) ELT 465 (SC)s with regard to evidence value of the statement of a person recorded under Section 108 of the Customs Act, 1962, the same have to be treated as substantive evidence. We also find that the statements of Sh. Dinesh Gupta admitting illicit diversion of major quantity of CP1725G resin to various dealers and manufacturing of battery separator are corroborated by
(a) statement of Shri Rajesh Mittal of M/s Aditya, Sh. Sunil Mittal of M/s Mukesh Industries, Sh. Rajesh Bansal of M/s Microsep and of the driver Sh. Manoj Sharma.
(b) Recovery on 14.2.2006 of 100 bags of CP1725G resin from the premises of M/s Aditya, which was from the same batch no. as that of the consignment of 148 bags of CP1725G resin purchased by M/s Natraj from M/s Aditya and recovery on 14.2.2006 of 520 bags of CP1725G resin from the premises of M/s Mukesh Industries which was of the same batches as that of the consignments of CP1725G resin purchased by M/s Natraj from M/s Chemplast Sanmar.
We, therefore, hold that there is truth in the statements of Shri Dinesh Gupta that major portion of the CP1725 G resin purchased by M/s Natraj from M/s Chemplast Sanmar had been illicitly diverted. As discussed above, the statement dt. 9.11.2006 and 10.11.2006 of Sh. Dinesh Gupta show that substantial quantity of CP1725G resin had been illicitly diverted under the guise of job work challans for M/s Tanishq.
5. Next point of dispute is regarding the actual quantity of CP1725G resin illicitly diverted by M/s Natraj. The department, on the basis of statement dt. 14.2.2006 of Shri Dinesh Gupta and the test report by CIPET, Lucknow of the sample of PVC tape manufactured by M/s Natraj under supervision of investigating officer by using CP1725 to resin to the extent of 56%, alleges that out of 1102.715 MT of CP172 SG resin purchased by M/s Natraj during 1.11.2001 to 14.2.2006 period from M/s. Chemplast Sanmar, only 104.01 MT has been used in the manufacture of PVC filler cord and the remaining quantity has been illicitly diverted, M/s Natraj on the other hand plead that based on the statement dt. 7.7.2006 of Sh. Rajesh Bansal of M/s Microsop, at the most, only 275 MT of resin could have been illicitly diverted and that CP 172 SG resin has also been used in the manufacture of PVC tapes.
5.1 During the period from 1.11.2001 to 14.2.2006 M/s Natraj had purchased 1102.715 MT of CP-1725G resin from M/s Chemplast Sanmar and had availed the cenvat credit in respect of this quantity. Out of this quantity use of 104.01 MT in the manufacture of PVC Filler Cord has been accepted by the department and according to department the balance of 98.705 MT of CP-1725G resin has been illicitly diverted. The use of this resin is the manufacture of PVC compound has not even been claimed by Shri Dinesh Gupta and he has claimed its use only in the manufacture of PVC filler cord and PVC tape. But total PVC tape manufactured by M/s Natraj during the period of dispute is 412.149MT (1.314 MT during 2003-04 + 210.127 MT during 2004-05 + 200.708 MT during 2005-06), in the manufacture of which at the rate of 56%, only 230.72 MT of CP 172 SG resin could be used, which leaves 768.03 MT of resin still unaccounted. The departments allegation based on test report of CIPET, Lucknow in respect of sample of PVC tape manufactured by M/s Natraj in presence of investigating officers by using CP1725G resin to the extent of 56% is that CP172 SG resin has not been used in the manufacture of PVC tape supplied to M/s Motherson Sumo Systems and other buyers, as the elongation, tensile strength, tear strength and shrinkage of the sample of the PVC tape manufactured by using CP172 SG resin in presence of officers and of the same type of the PVC tape supplied to M/s Motherson Somu, which are claimed to have been manufactured by using CP172 SG resin are different. But on this point we agree with the appellants plea that this difference in elongation, shrinkage, tensile strength and tear strength of the PVC tape manufactured in presence of the officers and the PVC tape supplied to M/s Motherson Sumo may be due to:-
(a) difference in thickness 0.4mm the case of PVC tape manufactured in the presence of officers and 0.3mm in case of PVC tape supplied to M/s Motherson Sumo;
(b) Minor change in ratio of CP1725G resin, plasticizer, filler, stabilize and master batch and difference in the temperature at which the product has been extruded; and
(c) Difference in the method of testing while CIPET has tested the tensile strength, tear strength and elongation by ASTMD882, ASTMD 1004 and ASTMD882 method respectively, the method adopted by Inhouse Laboratory of M/s Motherson Somu is not known.
In view of the above, so far as the claim of M/s Natraj regarding use of 230.72 MT of CP1725G resin in the use of PVC tape is concerned, they have to be given the benefit of doubt. However, with regard to 768.03 MT of CP1725G resin, the departments allegation that the same had been illicitly diverted is on strong footing and the same is upheld. M/s Natraj will therefore, have to pay alongwith interest the amount of cenvat credit taken on 768.03 Mt of CP1725G resin. Since this quantity of resin has been illicitly diverted by fraudulent means without reversing the cenvat credit, for recovery of cenvat credit on this quantity, longer limitation period under proviso to Section 11A (1) of Central Excise Act, 1944 would be available to the department and for the same reason penalty under Rule 15(2) of Cenvat Credit Rules, 2004 read with Section 11AC of Central Excise Act, would be imposable on M/s Natraj.
6. Under Rule 15(1) of Cenvat Credit Rules, 2004, any inputs or capital goods, in respect of which cenvat credit has been taken wrongly, shall be liable for confiscation. In this case, the illicitly diverted CP1725G resin would be liable for confiscation under this rule, as in respect of this illicitly diverted resin cenvat credit had been wrongly taken. Since Shri Dinesh Gupta, M/s Aditya, M/s Tanisq and sh. Sunil Mittal of M/s Mukesh Industries have dealt with the illicitly diverted resin knowing very well that the same was liable for confiscation, they would be liable for penalty under Rule 26 of Central Excise Rules, 2002. Therefore, imposition of penalty on them under Rule 26 of Central Excise Rules, 2002 is upheld. However, since penalty equal to cenvat credit demand under Rule 15(2) of Cenvat Credit Rules, 2004 read with Section 11AC has been imposed on M/s Natraj, penalty of Rs. 50 lakh on Sh. Dinesh Gupta under Rule 26 of Central Excise Rules is higher side and the same is reduced to Rs.15 lakh.
7. The impugned order imposes penalty of Rs. 50 lakhs on Sh. Gaurav Gupta, Director of M/s Tanisq under Rule 26 of Central Excise Rules, 2002 on the ground that-
Paper trail had been created in respect of so-called job work by M/s Tanisq Wires, a unit owned by Sh. Gaurav Gupta, Son of Sh. Dinesh Gupta, Director of M/s Natraj Plast. Evidences on record clearly reveal that so called job worker was not undertaking any job work for M/s Natraj. Paper trails were created only for diversion of materials on which cenvat credit had been availed to or through Sh. Sunil Mittal and Sh. Rajesh Mittal.
On going through the records we find that Sh. Gaurav Gupta is not the Proprietor, but only a Director of M/s Tanishq the other director being his father Shri Dinesh Gupta. In course of investigation, not a single statement of Sh. Gaurav Gupta has been recorded and absolutely no inquiry has been made with him. He has not been named by any other person regarding any role played by him in the illicit diversion of cenvat credit availed on plastic resin. The records rather indicate the role of only Sh. Dinesh Gupta in issuing job work challans to M/s Tanisq under which CP1725G resin was being illicitly diverted. In view of this, we hold that there is no justification for imposing penalty of Rs. 50 lakhs on Sh. Gaurav Gupta under Rule 26 of Central Excise Rules. The penalty on Sh. Gaurav Gupta is, therefore, set-aside.
8. In view of the above discussions-
(a) Cenvat credit demand alongwith interest, under Rule 14 of Cenvat Credit Rules, 2004, read with provisions of Section 11AB is uphold only in respect of 768.03 MT of CP172SG resin which is held to have been illicitly diverted;
(b) Penalty on M/s Natraj under Rule 15(2) of Cenvat Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1944 is upheld;
(c ) Penalty under Rule 26 of Central Excise Rules, 2002 on Shri Gaurav Gupta is set aside;
(d) Penalty on Sh. Dinesh Gupta, M/s Aditya, M/s Tanisq and Sh. Sunil Mittal under Rule 26 of Central Excise Rules, 2002 is upheld, except for modification that the penalty on Sh. Dinesh Gupta is reduced to Rs.15 lakhs; and
(e) The adjudicating authority is directed to re-determine the quantum of cenvat credit on the quantity of CP172 SG resin held to have been illicitly diverted and also re-determine the quantum of penalty on M/s. Natraj under rule 15(2) of Cenvat credit Rules, 2004 read with Section 11AC on that basis and for this limited purpose, the matter is remanded to the adjudicating authority.
8.1 The appeals stand disposed of as above.
(Justice R.M.S. Khandeparkar) President (Rakesh Kumar) Member (Technical) Ckp 1