Customs, Excise and Gold Tribunal - Bangalore
Sridhar Paints Co. P. Ltd. vs Commr. Of Cus. And C. Ex. on 30 November, 2005
ORDER T.K. Jayaraman, Member (T)
1. These Appeals have been filed against OIO No. 14/2004, dated 22nd September 2004 passed by the Commissioner of Customs & Central Excise, Hyderabad Commissionerate.
2. The brief facts of the case are as follows:
M/s. Sridhar Paints Company Limited, Hyderabad (hereinafter referred to as SPCPL) are manufacturers of synthetic enamel/Acrylic Emulsions/Oil bound distemper paints, cement primers and varnishes, all excisable commodities. They were availing of SSI benefit under relevant notification during the period from 1999-2003. On the basis of intelligence gathered, Revenue conducted certain investigations into the affairs of the SPCPL. Searches were carried out at the factory, residence of Shri Rudhra Shankar, SPCPL's Managing Director, the business premises of M/s. Vandana Enterprises, Hyderabad (hereinafter referred as 'VE') and the business premises of M/s. Anuradha Agencies, Vijayawada (hereinafter referred to as 'ARA'). In the factory of SPCPL the officers detected shortages and excess of raw materials and finished products. The goods were seized. In the residential premises of Shri R. Shankar, MD incriminating document viz., Lorry Receipts, Cash Collection Books (CCBs), Cash Memo Books (Kutcha Bill Books) and some documents in loose condition were found. The above documents were also seized. In the business premises of M/s. VE, unaccounted quantities of various varieties of finished goods of SPCPL valued at Rs. 19,02,653/- were found. Incriminating documents viz., purchase and sales register, Credit Bill Books, Cash Bill Books, Cash Credit Memo, Ledgers, etc., were found. Further an amount of Rs. 1,85,450/- in Indian currency related to the sale of unaccounted goods of SPCPL was found. Statements of Shri R. Shankar, MD, Shri K.B. Vijay Kumar, Managing Partner of VE and Mr. R. Sridhar, Son of Shri R. Shankar and Director of SPCPL were recorded under Section 14 of the C.E. Act, 1944. The premises of M/s. Sree Sree Kaleswari Lorry Service were searched. The officers recovered five Patti books relating to the period 7-9-2001 to 23-11-2001 (one book) and for the period from 25-4-20Q2 to 1-12-2000 (four books) and one collection book were seized under Panchanama. From the premises of M/s. ARA, Vijayawada, the officers recovered certain records. Statements were also recorded of V. Radha Krishna, Proprietor of ARA, Shri Boppana Rajendra Prasad of M/s. Sree Sree Kaleswar Lorry Service and Shri Srinivas, Director of SPCPL. On the basis of the investigation, it was revealed that the appellants indulged in clandestine production of excisable goods and their removal without payment of Central Excise duty. Show cause notices were issued to them. On conclusion of the adjudication proceedings, the adjudicating authority passed the impugned order.
3. The details of the impugned order are as follows:
(a) Denial of SSI Benefit for the period from 1999 to September, 2003.
(b) Duty Rs. 2,83,04,8637- for the period 1-4-1999 to 4-10-2002 & Rs. 6,39,9557- for the period April, 2003 to September, 2003.
(c) Penalty Rs. 2,83,04,8637- under Section 11AC &
(i) Rs. 15,00,000 on M/s. SPCPL under Rules 173Q and 210 of CER, 1944/New Rule 25 & 27 of CE 2001, Rule 25 & 27 CE Rule, 2002.
(ii) Rs. 20,00,0007- on Shri Rudhra Shankar, Managing Director, SPCPL under Rule 209A of CER, 1944/ Rule 26 CER, 2001 and Rule 26 of CER, 2002.
(iii) Rs. 5,00,0007- on Shri Rudra Sridhar, Director, SPCPL under Rule 209A of CER, 1944/Rule 26 of CER, 2001 and Rule 26 of CER, 2002.
(iv) Rs. 5,00,0007- on Shri K.B. Vijayakumar, Managing Partner of VE under Rule 209A of CER, 1944/Rule 26 of CER, 2001 and Rule 26 of CER, 2002.
(v) Rs. 5,00,0007- on Shri V. Radhakrishna, Former Proprietor and now Person-in-charge of M/s. ARA, Vijayawada under Rule 209A of CER, 1944/Rule 26 of CER, 2001 and Rule 26 of CER, 2002.
(vi) Rs. 6,39,955/- on M/s. SPCPL under Section 11AC of the C.E. Act, 1944 for the period April, 2003 to September, 2003.
(vii) Rs. 2,00,000/- on M/s. SPCPL under Rule 27 of the CER, 2002 for the period April, 2003 to September, 2003.
(d) Confiscation/fine
(i) Finished goods valued at Rs. 3,10,000/- were seized from M/s. SPCPL on 4-10-2002 and redemption fine Rs. 10,000/-.
(ii) Raw materials worth Rs. 1,90,000/- were seized from M/s. SPCPL on 4-10-2002 and redemption fine of Rs. 5,000/-.
(iii) Finished goods worth Rs. 19,02,653/- were seized from M/s. VE on 7-10-2002 and redemption fine of Rs. 1,00,000/-
(e) Interest under Section 11AB have also been demanded.
4. The appellants have strongly challenged the finding of the adjudicating authority. Hence they have come before this Tribunal for relief.
5. Shri A. Mahadev, learned Advocate appeared for the appellants and Shri R.M. Viswanath, learned SDR for the Revenue.
6. The learned Advocate adduced the following arguments.
(i) The learned Advocate stated that the show cause notice has been issued without the prior approval of the Chief Commissioner of Central Excise. Since the demand was for more than Rs. 1 crore at the relevant period the approval of the Chief Commissioner was necessary, since that has not been done the show cause notice cannot be sustained.
(ii) The statements made before the Central Excise authorities were taken under coercion and threat. This has been stated in the reply to the show cause notice. But this has not been taken into account by the adjudicating authority.
(iii) The adjudicating authority has denied the right of the appellant to cross-examine the witnesses and the investigating officers.
(iv) The statements were not recorded independently and the witnesses. The statements said to have been recorded from the other witnesses were shown to the other witnesses and they were asked to confirm the contend, which is totally against the law.
(v) The statements were typed written, which clearly indicates that such statements were not made voluntarily as has been held by many courts.
(vi) The appellant was manufacturing paints varnishes and oil bound distempers in the brand name of '3 Apples' and 'Nikhita' and there was no reference to such branded products in any of the documents seized, during the search.
(vii) The cash collections were in relation to goods covered by the Kutcha Bills and the Kutcha Bills did not relate to the finished products and therefore no inference could be drawn about the alleged illicit manufacture of the products or clandestine removal of such products.
(viii) The Adjudicating Authority should have seen that to find out whether there was any possibility of extra manufacture other than the products cleared after payment of duty, as contained under Rule 173, necessary enquiries could have been made as to what is the normal capacity of the plant and how much electricity was consumed, how many labourers employed and that no such enquiries were made and therefore, in the absence of the same no importance could be given to the alleged admission of the witnesses.
(ix) The Adjudicating Authority having not disbelieved the Certificate issued by a Chartered Engineer, indicating the production capacity, should not have brushed it aside, observing that such Report relates to later period.
(x) The Adjudicating Authority should have also seen that there was no fraud or suppression by the Assessee and therefore the extended period of limitation cannot be applied and accordingly, the show cause notice is barred by limitation.
(xi) The Adjudicating Authority should have held that in the absence of proof of 'Mens Rea', no penalties could be imposed on any one.
(xii) The Adjudicating Authority should have also seen that the penalty could not be imposed under separate provisions separately, when the provisions of Section 11A are clear that for the contravention of any provisions of the Act or the rules and when there is any fraud etc., the penalty equivalent to the duty evaded could be imposed.
(xiii) The learned Advocate relied on the following judgments
(a) Sunder Ispat Limited v. CCE, Hyderabad - Natural Justice - Documents relied on by the Department to be supplied to petitioner at an early date - Also, witnesses examined on behalf of Department to be produced for cross-examination in accordance with principles of natural justice -Section 35K of Central Excise Act, 1944 - Article 226 of Constitution of India.
(b) Swadeshi Polytex Ltd. v. CCE, Meerut reported in 2000 (122) E.L.T. 641 (S.C.) - Classification of goods - Natural justice -Cross-examination - Tribunal finding breach of principles of natural justice thus remanding the matter for a fresh decision but at the same time upholding the Collector's finding to deny cross-examination of witnesses whose statements Collector had relied to determine whether subject goods were waste or good fibre-HELD : When case is to be decided afresh, opportunity should be given to cross-examine the witness whose statement the Collector intent to reply - Sections 11A and 33 of the Central Excise Act, 1944.
(c) Khemchand Bhagnani v. CC (Preventive) - Natural Justice - Documents requested not supplied - Cross-examination of co-accused and officers of D.R.I. who recorded the statement also not allowed - Plea of statement being taken under threat and coercion also not discussed by adjudicating authority - Principles of natural justice violated.
(d) Raja Imports & Exports v. CC - Natural Justice - Cross-examination - Denial of cross-examination of witnesses whose evidence is relied upon results in violation of principles of natural justice.
7. The learned SDR contended that the Adjudicating Authority has given detailed findings on clandestine manufacture and removal of excisable goods without payment of duty. He brought to our notice the following decisions.
(a) Suman Silk Mills Pvt. Ltd. v. CCE, Baroda - Natural Justice - Cross-examination -Confessional statements - No infraction of principles of natural justice where witnesses not cross-examined when statements admitting evasion were confessional.
(b) Anil Das v. CC, New Delhi - Natural Justice - Cross-examination - Non-allowance of cross-examination of appellants when confessional statement made by themselves does not amount to violation of rule of natural justice.
(c) Beauty Dyers v. CCE, Chennai reported in 2001 (136) E.L.T. 339 (Tri.-Chennai) - Evidence - Statements - Cross-examination Non-availability of witnesses for cross-examination not a fatal flaw when the findings are based on documents about which there is no credible explanation and nothing on record to show statements not voluntary or effectively retracted within close proximity of the time these were detained.
8. We have gone through the records of the case carefully. The Adjudicating Authority has given a very detailed finding on the charges made against the appellants. The appellants manufactured paints and related products. They require several raw materials. A visit to the factory of SPCPL revealed shortages and excess of both raw materials and finished products. In fact, 4948.5 litres and 1048 kgs of unaccounted finished goods valued at Rs. 3.10 lakh were found, further, 3335.5 kgs and 8471 Nos. of unaccounted raw materials valued at Rs. 1.90 lakh were found. Even in the premises of M/s. VE unaccounted finished goods were found. It should be borne in mind that M/s. VE were dealing only with the goods manufactured by M/s. SPCPL. Shri R. Shankar, MD appears to have admitted the irregularities in the statements given before the authorities. Shri R. Shankar has admitted to the fact of procurement of raw materials illicitly for the manufacture of finished products. In fact, various raw materials have been procured under fictitious names. Shri R. Sridhar, Director of SPCPL has admitted to the fact of removal of goods without payment of duty. The goods seized at VE were also not duty paid. This fact was admitted by R. Shankar and later excise duty to the tune of Rs. 3,04,425/- was paid 464 copies of LRs issued by SSKLS were recovered from the residence of Shri R. Shankar. It is seen that they all relate to the transportation of paints from SPCPL to ARA. In respect of goods on which no duty is paid, the consignor and the consignee are shown as ARA. They have been cleared on Kutcha Bill. The Kutcha Bill Book also has been recovered. 11 Cash Memo Books also were recovered from the premises of R. Shankar. Shri R Sridhar has stated that they procure raw materials like Mineral Turpentine Oil on other names from various sources and payments were made either by cash or DD received from ARA. The fact of transportation of paints from SPCPL to ARA through SSKLS was supported by the statement of B. Rajendra Prasad of SSKLS. The Adjudicating Authority has made a thorough scrutiny of the incriminating documents seized and come to the conclusion that removal of excisable goods without payment of duty has taken place. The Adjudicating Authority has also taken into account the capacity of the factory as per the statement of Shri R. Sridhar, Director, SPCPL. Shri Sridhar is set to have admitted that the production capacity of SPCPL per shift is 5000 to 6000 litres and they operated only one shift. The Adjudicating Authority has stated that the estimate of illegal clearances has been made only on the basis of the documents seized. If no documents cover a period, no duty has been demanded. This has been stated in Para 82.2 of the Order-in-Original. Shri Sridhar has stated that after completion of a month/certain period, they normally take stock of the raw materials vis-a-vis cleared goods on payment of duty and also clandestinely. Accordingly, they prepare the accounts and then update the statutory records. This is evident from the computerized statements recovered from the residence of R. Shankar. Further, Shri R. Shankar has stated that they purchased raw materials mostly without documents and whatever documents they maintained were destroyed periodically. The amounts are always paid in cash and hence there is no account available anywhere. The Adjudicating Authority has, on the basis of the records has come to the conclusion that the appellants in each year during the relevant period have exceeded Rs. 3 crore. In view of he above, the appellants are not entitled for the SSI exemption. The Adjudicating Authority in Para 67.2 of the Order has stated that -
67.2 The Second and Third proviso of Sub-section (1) of Section 11A of the Central Excise Act, 1944 had been omitted vide Clause 131 of Finance Bill, 2003, which got President's assent on 14-5-2003. As the present show cause notice was issued on 25-9-2003, it was well within the purview of Section 11A of the Central Excise Act, 1944.
9. In view of the above, the appellant's plea that prior approval of Chief Commissioner was not obtained has no merits because when the show cause notice was issued the relevant provision pointed out by the appellant has been deleted. Shri V. Radha Krishna Proprietor of ARA, Vijayawada has admitted that they are sole distributors of paints manufactured by SPCPL and also LRs and Kutcha Bills showing details of goods booked and consigned by ARA from Hyderabad to Vijayawada relates to the paints received along with the goods. He further stated that as per R. Shankar's instructions they have not rendered the goods in their account. They destroyed the transport and other documents after receipt of this. The sales proceeds were handed over by him personally to R. Shankar when he visited Hyderabad. As regards, the Chartered Engineer's certificate, the adjudicating authority has stated that the same does not relate to the period mentioned in the show cause notice. All the persons involved, viz., Shri K. Vijaya Kumar of VE, Shri R. Shankra, MD, Shri R. Sridhra, Director and V. Radha Krishna of ARA in their statements have admitted that most of the transactions were done without any payment of central excise duty from SPCPL through Vandana Enterprises. The Adjudicating Authority has also distinguished each case law cited by the appellants. The Adjudicating Authority has further cited several case laws to show that denial of cross-examination of witnesses/officers is not a violation of the principles of natural justice, We find that the Adjudicating Authority has reached his conclusions not only on the basis of the statements of the concerned persons but also the various incriminating records seized. We hold that the statements have been corroborated by the records seized. Even unaccounted raw materials and finished goods have been seized. There is no infirmity in the Adjudication Order. A modus oprendus has been deviced to evade Central Excise duty systematically. Hence, invocation of longer period is sustainable. The levy of penalties on the appellants is justified. The seized goods are liable for confiscation. Hence, the Order of confiscation of the seized finished goods and raw materials is upheld. As per the mandatory penalty under Section 11AC is concerned, we feel that the ends of justice could be met, if the same is limited to 50% of the duty liability. The appellants had pleaded before the adjudicating authority that the Modvat credit benefit should be given to them, as several inputs have suffered duty. The adjudicating authority has denied the same on the ground that the appellants had to fulfill certain statutory requirements before availing Modvat credit. We feel that when the Revenue is demanding duty on the final products, the Modvat benefit should be given provided there is sufficient evidence for the payment of duty on the inputs. Therefore the duty liability has to be recalculated on the basis of the documentary evidence available with the factory during the relevant time for payment of duty on the inputs. The Adjudicating Authority's denial of SSI benefit to the appellants is upheld. Interest under Section 11AB is also upheld. The case is remanded to the original authority to compute the duty liability in terms of the above observations. Needless to say that the mandatory penalties upheld would depend on the re-computed duty liability. The confiscation of goods and imposition of redemption fines and adjustment of liability towards currencies seized are upheld. The appeals are disposed of in the above terms.
(Pronounced in open Court on 30-11-2005)