Custom, Excise & Service Tax Tribunal
M/S Rajasthan Explosives & Chemicals ... vs Cce, Jaipur I on 20 December, 2016
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No. 2, R.K. Puram, New Delhi 110 066. Principal Bench, New Delhi COURT NO. I DATE OF HEARING : 08/12/2016. DATE OF DECISION : 20/12/2016. Excise Misc. Application No. 52155 of 2015 in Appeal No. 2135 of 2009 [Arising out of the Order-in-Original No. 21/2009 (C.E.) dated 05/05/2009 passed by The Commissioner of Central Excise, Jaipur I.] M/s Rajasthan Explosives & Chemicals Ltd. Appellant Versus CCE, Jaipur I Respondent
Appearance Shri Abhinav Srivastava, Advocate for the appellant.
Shri G.R. Singh, Authorized Representative (DR) for the Respondent.
CORAM :Honble Shri Justice Dr. Satish Chandra, President Honble Shri V. Padmanabhan, Member (Technical) Final Order No. 55936/2016 Dated : 20/12/2016 Per. V. Padmanabhan :-
The Appellant company is a Joint Sector Company started as Joint Venture between RIICO and M/s. IDL Chemicals Ltd. in the year 1979. In the year 1991, M/s. IDL Chemicals Ltd. disposed of their share in favour of a private promoter Shri Rajesh Jain who became its Managing Director. The Appellant company is engaged in manufacture of Electric Detonators (EDN) and R-Cords/Detonation fuse, both chargeable to Central Excise Duty under sub-heading 3603.00 of the Central Excise Tariff. Shri B.D. Agarwal was the Vice President(Commercial), Shri A.K. Jain was the Vice President (Production) and Shri A.K. Gupta was Manager (Finance) of the Appellant company during the period of dispute. On 08/11/1997, the factory premises of the Appellant company were visited by the jurisdictional Central Excise Officers who resumed several documents. Subsequently, the residential premises of Shri M.L. Agarwal, Dy. General Manager of the Appellant company was searched on 05/03/1998 and from the residential premises, several documents including the documents called the incentive sheets were recovered. Scrutiny of the documents resumed revealed that during 1995-1996, 1996-1997 & 1997-1998 period, the Appellant company was maintaining records called incentive Sheets in respect of the quantity of production of EDNs and R-Cords/Detonator fuses and the entries in the incentive sheets in respect of EDNs were made on the basis of the daily production by each regular worker and entries in respect of R-Cords were made on the basis of actual consolidated monthly production. On the basis of the figures of production in the incentive sheets, payments were being made to the workers. The incentive sheets were being prepared by the plant in-charge with the assistance of the supervisor. Shri M.L. Agarwal, Dy. General Manager, from whose residence the incentive sheets were recovered, admitted the authenticity of the same and the statement of Shri M.L. Agarwal was corroborated by the statements of Shri A.K. Jain, Vice President (Prod.), Shri R.D. Agarwal, Vice President(Comm.), Shri A.K. Gupta, Manager (Finance), Shri Ram Charan Agarwal, Manager(Prod.), Shri Hari Singh, Production-in-charge, Shri V.P. Suresh, Shri G.C. Bahuguna, both Chief Manager(Production) and Shri A.K. Mathur, General Manager. On comparing the production of EDN and R-Cord/Detonator fuses as recorded in the incentive sheets with production recorded in the R.G.I Register, it was found that the production of 34,89,450 no. of EDN and 16,15,060 meters of R-Cord were not accounted for in the RG.I Register. Scrutiny of the seized documents also indicated that the huge quantity of inputs like ordinary/special ordinary/super plain detonators (OD/ SOD/SPD) for manufacture of various types of EDNs had been received from various suppliers, one of the main supplier being M/s. H.N. Explosives(P) Ltd., Sohna (HNEPL) with Shri Ganesh Mathur as its MD, without accounting for the same in the statutory records and these purchases had been made in cash. The unaccounted purchase of OD/SOD/SPD was admitted by Shri A.K. Jain, Vice President (Production) stated in his statement dt.19.5.98. Shri A.K. Jain in his statement also deposed that while for manufacture of one meter of R-cord, 10 gms of PETN was required, they were, in practice, using only 8 gms. to 9.5 gms of PETN for manufacture of one meter of R-cord and the quantity of PETN saved in this manner was being used for manufacture of unaccounted R-cords. The enquiry also indicated that on the instructions of Shri Rajesh Jain, Shri B.D. Agarwal, Shri A.K. Jain, clandestine clearances of EDNs, R-cords/Detonator fuses, Slurry Explosives etc. were made, one of their main buyer being M/s. HNEPL, under parallel invoices and the fact of clearances of these items without payment of duty and without being accounted for in the statutory records was also admitted by Shri A.K. Jain in his statement dated 19/05/1998. It is on this basis that a show cause notice dated 09/07/1998 was issued to the Appellant company as well as to Shri Rajesh Jain, MD; Shri B.D. Agarwal, Vice President; Shri A.K. Jain, Vice President and Shri Ganesh Mathur, MD of M/s. HNEPL, Sohna, the supplier of unaccounted raw-material and one of the buyers of unaccounted EDNs/R-Cords, for :
(a) recovery of Central Excise Duty amounting to Rs.51,51,960/- from the Appellant company under Rule 9(2) of Central Excise Rules,1944 read with proviso to Section 11A(1) of Central Excise Act, 1944 in respect of clandestine clearances of EDNs, R-cords/Detonator Fuses, Slurry explosives etc. during period from 1995-1996 to 1997-1998 alongwith interest on this duty at the applicable rate as per the provisions of Section 11AB of Central Excise Act,1944;
(b) imposition of penalty on the Appellant company under Section 11AC of Central Excise Act, 1944 and also under the provisions of Rule 9(2), 52-A(8), 173Q(1) and 226 of Central Excise Rules, 1944;
(c) imposition of penalty on Shri Rajesh Jain, Shri B.D. Agarwal and Shri A.K. Jain under Rule 209A of Central Excise Rules, 1944; and
(d) imposition of penalty on Shri Ganesh Mathur, MD of HNEPL under Rule 209A ibid.
1.1 The show cause notice was adjudicated by the Commissioner of Central Excise, Jaipur vide order-in-original No.2/99 dt.8.3.99 by which -
(a) the duty demand alongwith interest was confirmed against the Appellant company and besides this, penalty of equal amount was imposed on the Appellant company under Section 11AC;
(b) penalty of Rs.25 lakhs was imposed on Shri Rajesh Jain, MD of the Appellant company and penalty of Rs.5 lakhs was imposed on Shri Ganesh Mathur, MD, HNEPL under Rule 209A of the Central Excise Rules, 1944; and
(c) penalty of Rs.10 lakhs each was imposed on Shri B.D. Agarwal and Shri A.K. Jain, Vice Presidents of the Appellant company, under Rule 209A of the Central Excise Rules, 1944.
1.2 The Appellant company, Shri Rajesh Jain and Shri B.D. Agarwal, Shri A.K. Jain and Shri Ganesh Mathur, MD of HNEPL filed appeals against the order-in-original No.2/99 dated 08/03/1999 and the Tribunal vide its order No.A/837-840/99-NB dated 25/08/1999 remanded the matter to Commissioner for denovo adjudication with direction to provide an opportunity of being heard to the Appellants and also supply certain relied upon documents to Shri Ganesh Mathur. Denovo adjudication in pursuance to the Tribunals order was done by the Commissioner vide order-in-original No.36/2000 dated 03/11/2000 by which the Commissioner again confirmed the entire duty demand alongwith interest, imposed penalty of equal amount on the Appellant company under Section 11AC and imposed penalties of Rs. 25 lakhs on Shri Rajesh Jain and Rs. 10 lakhs each on Shri B.D. Agarwal and Shri A.K. Jain, penalty of Rs.5 lakhs on Shri Ganesh Mathur of H.N. Explosives (P) Ltd., Sonha. Appeals were filed before the Tribunal against the above order-in-original dated 03/11/2000 of the Commissioner and the Tribunal vide Final Order No.A/403-411/2002 dated 15/04/2002 again remanded the matter for denovo adjudication with direction to pass a speaking and well reasoned order. Third round of adjudication was done by the Commissioner vide order-in-original No.46/2006 dated 08/09/2006 by which an order identical to the earlier order No. 36/2000 dated 03/11/2000 was passed. Again the appeals were filed before the Tribunal and the Tribunal in respect of the appeals filed by the Appellant company, Shri Rajesh Jain, Shri B.D. Agarwal and Shri A.K. Jain passed Final Order No.120-23/08 dated 19/03/2008 and once again remanded the matter to the Commissioner for denovo adjudication as the cross examination of certain witnesses had not been allowed. The forth round of adjudication was done by the Commissioner vide order-in-original No.21/2009(CE) dated 06/05/2009 by which the Commissioner
(a) confirmed the duty demand of Rs.51,51,960/- against the Appellant alongwith interest on it at the applicable rate as per the provisions of Section 11AB;
(b) imposed penalty of equal amount on the Appellant company under Section 11AC;
(c) imposed penalty of Rs.25 lakhs on Shri Rajesh Jain, MD of the Appellant company and penalty of Rs.5 lakhs on Shri G.M. Mathur and
(d) dropped the penal proceedings against Shri B.D. Agarwal and Shri A.K. Jain.
2. Heard both the sides.
2.1 Shri Abhinav Srivastava, Advocate, learned Counsel representing the Appellant company and its Managing Director Shri Rajesh Jain, pleaded that the Departments case against the Appellant is based mainly on the incentive sheets recovered from the residence of the Dy. General Manager Shri M.L. Agarwal on 05/03/1998; that the details regarding production of EDNs and R-cords/Detonator Fuses, as mentioned in those incentive sheets do not reflect the actual production which was much less, as there used to be considerable rejection at the stage of quality control; that in the incentive sheets, the gross production used to be recorded, as payment of incentive amount to the workers was based on to the gross production, not the actual production after checking by the quality control; that a considerable quantity of detonators and R-cords is rejected during quality control, which is destroyed; that the Appellant company had been declared as a sick company in the year 1992, rehabilitation package had been ordered by BIFR in the year 2000 and is still under the rehabilitation period, that in view of this, the Appellant company is not in a position to comply with the provisions of Section 35F regarding pre-deposit of the entire duty demand, interest and penalty; that there is no case against the Appellant company for confirmation of the amount of alleged duty evasion of Rs.51,51,960/- alongwith interest and imposition of penalty and that in view of this insistence on pre-deposit of this duty, interest and penalty for hearing of these appeals will cause undue hardship. He also pleaded that prima-facie, there is no evidence against Shri Rajesh Jain to warrant imposition of penalty on him under Rule 209A of Central Excise Rules, 1944. In view of this, it was pleaded that the demand of duty, interest and penalty from the Appellants may be waived for hearing of these appeals.
2.2 Shri G.R. Singh, learned DR pleaded that the incentive sheets recovered from the residence of Dy. General Manager Shri M.L. Agarwal are authentic documents containing actual details of the production of EDNs and R-cords; that authenticity of the details of the production recorded in the incentive sheets has been confirmed by Shri A.K. Jain, Vice President(Prod.), Shri R.D. Agarwal, Vice President(Commercial), Shri A.K. Gupta, Manager(Finance), Shri Ram Charan Agrawal, Manager(Prod.), Shri Hari Singh, Production-in-charge, Shri V.P. Suresh and Shri G.C. Bahuguna both Chief Manager(Prod.) in their respective statements; that the production as recorded in the incentive sheets is much higher than that recorded in the RG.I Register which shows that the production not accounted for had been cleared clandestinely without payment of duty; that no account of rejected EDNs and R-cords and no record of their destruction, as claimed by the Appellant, has been maintained; that there is evidence on record showing purchase of huge quantity of inputs for the manufacture of EDNs from various sources including M/s. HNEPL and similarly there is also evidence on record showing clandestine removal of EDNs and R-Cords without payment of duty under parallel invoices; that there is concrete evidence on record indicating that this is a case of deliberate and well planned duty evasion, which was taking place with instructions and within full knowledge of Shri Rajesh Jain, MD and other senior officials of the company, that just because the company is under rehabilitation package under BIFR, they do not get exempted from the payment.
3. We have carefully considered the submissions from both the sides and perused the records. The allegation of duty evasion against the Appellant company and duty demand against them is based on the documents called incentive sheets from 1995-96 to 1997-98 period, recovered from the residential premises of Shri M.L. Agarwal, Dy. General Manager. The submission of the appellant is that the quantity reflected in incentive sheets are further subjected to quantity controls in terms of the ISI specifications and as much as 35% of the quantities reflected in incentive sheets get rejected in quality control. Subsequent to quality control the goods are packed and it is at this stage that the quantum of production is entered in RG-1.
We find a lot of merit in the arguments advanced by the appellant. The quantity of production is to be recorded in RG-1 register after it has reached the stage of completion of manufacture. The goods cannot be considered as fully manufactured unless the quality control is completed and it is properly packed. Moreover, the goods are in the nature of explosives and the Chief Controller of Explosives had laid down strict conditions for quality control as well as packing. Hence, we conclude that incentive sheets cannot be a true reflection of the quantum of explosives manufactured. We also notice that para 43 in the impugned order is nothing but a verbatim re-production of the show cause notice without discussing the detailed submission made by the appellant and this shows non-application of mind on the part of the learned Commissioner.
4. Significant portion of demand stands confirmed on the basis of invoices resumed from the premises of M/s H.N. Explosives Pvt. Ltd. one of the main buyers. These photocopies of invoices have been considered as parallel invoices and the goods covered therein has been considered as cleared without payment of duty. Before coming to the conclusion that these photocopies actually covered goods which are cleared without payment of duty, the Revenue should have at least carried out investigations from the end of the consignees of both sets of invoices. No investigation appears to have been conducted at the end of the transporter also.
5. Another allegation made is that the appellant were practically using only 9 to 9.5 gms. of PETN a highly explosive chemical in the manufacture of R-CORDS, but later on started using 8 gms. It was alleged that the difference of 1.5 gms. was diverted for clandestine activities. The claim of the appellant is that the allegation has been made on the basis of a fax message which was recovered during search and relied upon in the show cause notice. Their submission is that the entire fax message read like this :-
You may produce 150 cases of R-CORD 8 gms. and then switch over to R-CORD 12 gms. in the meanwhile full arrangement be made to produce 12 gms. R-CORD.
The claim of the appellant is that they were manufacturing 12 gms. R-CORD and the same was omitted intentionally in the show cause notice to prejudice the Adjudicating Authority. Having perused the document, we find merit in the argument advanced by the appellant.
6. The appellant have also raised serious breach of principals of natural justice. They have claimed that the cross-examination of Shri Ganesh Mathur, MD of HNEPL was sought by them but the Adjudicating Authority did not make him available. Accordingly, their submission is that his statement cannot be used as evidence against them. It is well settled law that cross-examination has to be allowed normally before using such statements for confirmation of demand. If the witnesses do not turn up for cross-examination it is open to the Adjudicating Authority to proceed with the adjudication without relying on those statements.
7. The allegations made against the appellant are of serious nature. They are engaged in the manufacture of explosives which are strictly controlled. Even the factory of manufacture of such goods are under the strict supervision of the Chief Controller of Explosives. We also find that the appellant is a joint sector company between RIICO and M/s Ideal Chemicals Ltd. it is on record that almost 90% of the production of explosives is supplied to the Government and Government Undertakings to whom goods cannot be supplied clandestinely and without records. As discussed in the above paragraphs, the learned Commissioner has proceed to confirm the demand on the basis of incentive sheets, photocopies of invoices seized from third party etc. The appellant has successfully rebutted these evidences relied upon by the Commissioner. We also find that no investigation has been undertaken by Revenue towards procurement of additional raw materials clandestinely. No other corroborative documents have been produced such as increased electricity consumption. No transporters have been covered to establish the trail of supply of the alleged clandestinely cleared goods. Investigations against the consignees have also not been done before raising demand on the allegation of clandestine clearance. The onus is definitely on the Department to establish manufacture and clearance of such goods and also the receipt of payments. In the absence of such investigation and evidence, we are unable to sustain such huge demand for duty. Once the demand for duty payable, is not sustained there is no justification to impose penalties on the appellant company as well as on connected persons.
8. In view of the above, the impugned order is set aside and appeal is allowed. Miscellaneous application also stand disposed of.
(Order pronounced in open court on 20/12/2016.) (Justice Dr. Satish Chandra) President (V. Padmanabhan) Member (Technical) PK ??
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13EX/2135 of 2009