Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise, ... vs M/S. Global Polybags Industries Pvt. ... on 28 October, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
C/266 to 275/2012, C/CO/7 to 12/2012, C/Misc./619/2012
E/512 to 515/2012, E/Misc./450 to 453/2013
(Arising out of Order-in-Original No. 1/2012-Customs dated 31.5.2012 passed by the Commissioner of Central Excise, Madurai)
For approval and signature:
Honble Shri P.K. Das, Judicial Member
Honble Shri R. Periasami, Technical Member
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 the Members wish to see the fair copy of the Order?
4. Whether order is to be circulated to the Departmental authorities?
Commissioner of Central Excise, Madurai Appellant
Vs.
1. M/s. Global Polybags Industries Pvt. Ltd.
2. Shri T. Muralitharan
3. Shri T. Mathi Prakash
4. Shri T. Uvaraj
5. M/s. Ramya Polymer Agency Pvt. Ltd.
6. M/s. Sri Lakosha Polymer Pvt. Ltd.
7. M/s. Seven Seas Polymers Pvt. Ltd.
8. M/s. Alagendran Exports Ltd.
9. M/s. Alagendran Polymers (P) Ltd.
10. M/s. Priya Mills Respondents
E/41562/2013 and E/41845 to 41848/2013
1. M/s. Global Polybags Industries Pvt. Ltd.
2. M/s. Global Polybags Industries Pvt. Ltd.
3. T. Muralitharan
4. T. Mathi Prakash
5. T. Uvaraj Appellants Vs. Commissioner of Central Excise, Madurai Respondent Appearance Shri N. Venkataraman, Senior Advocate and Shri S. Muthuvenkataraman, Advocate for the Assessees Shri P.R.V. Ramanan, Special Counsel and Shri M. Rammohan Rao, DC (AR) for the Revenue CORAM Honble Shri P.K. Das, Judicial Member Honble Shri R. Periasami, Technical Member Date of Hearing : 25.7.2014 Date of Pronouncement: 28.10.2014 Final Order No. 40670 to 40688/2014 Per P.K. Das These appeals are arising out of a common order and therefore, all are taken up together for disposal.
2. M/s. Global Polybags Industries Pvt. Ltd. (hereinafter referred to as the Assessee), has been granted Licence as 100% Export Oriented Unit (EOU) as per the letter of permission PER:282(1995)/EOA/367/95 dated 8.6.1995 issued by the Secretarial for Industrial Apparels, New Delhi, subject to the execution of legal undertaking before the Development Commissioner, MEPZ, Chennai, to the effect that the Assessee shall export the entire production excluding rejects for a period of 10 years. On the basis of the said permission, the Assistant Commissioner of Central Excise issued a Private Bonded Warehouse Licence No.1/95 for manufacture and export of Plastic Carry Bags classifiable under Chapter 39 of the First Schedule to the CETA, 1985 at the premises of 500A, Perali Road, Virudhunagar. The Assessee was permitted to import the raw materials namely HDPE/LDPE/LLDPE/PP granules (in short, plastic granules) duty-free in terms of Customs Notification No.53/97-Cus. dated 6.3.1997, through Tuticorin Port, subject to the conditions amongst others that the imported duty-free plastic granules would be used by the Assessee for in-bond manufacture of export goods (plastic carry bags).
2.1 On 12.1.2001, the Central Excise Officers of Headquarters Preventive Unit of the Madurai Commissionerate visited the Assessees factory. As a follow up action, the said officers, visited the Assessees sister unit namely M/s. Priya Mills, (M/s. Priya), M/s. Rajalakshmi Mills, (M/s. Rajalakshmi) and M/s. Universal Poly Bag situated adjacent to Assessees factory premises and also searched various other premises and seized several documents and recorded statements.
2.2 On the same day i.e. 12.1.2001, the said officers seized 996 bags containing 20.661 MTs of reprocessed plastic granules at the premises of M/s. Priya on a reasonable belief that the said materials were duty-free imported plastic granules clandestinely cleared from the warehouse of the Assessee.
3. A show-cause notice dated 4.7.2001 was issued by the Deputy Commissioner (Adjudication), whereby the Assessee and M/s. Priya were required to show cause to the Commissioner of Central Excise, Madurai as to why the 996 bags of alleged imported plastic granules seized on 12.1.2001 at the premises of M/s. Priya should not be confiscated under Section 111(j) and 111(o) of the Customs Act, 1962 (in short Act, 1962). It has also proposed to impose penalty on Shri Muralitharan, Managing Director of the Assessee-company and partner of M/s. Priya, Shri T. Madhi Prakash and Shri T. Yuvaraj, both brother of Shri Muralitharan and directors of the Assessee-company under Section 112 and 117 of the said Act, 1962.
3.1 Thereafter, another show-cause notice dated 26.3.2002 was issued by the Superintendent of Central Excise (SPAC), O/o Commissioner of Central Excise, Madurai, to the Assessee, proposing demand of customs duty of Rs.16,13,10,303/- along with interest under Section 72 read with proviso to Section 28(1) of the said Act, 1962 on the ground that during the period from 1.9.1998 to 12.1.2001 (in short the said period) the Assessee clandestinely removed 8142.57 MT duty free imported plastic granules from their warehouse in violation of Notification No. 53/97-Cus. dated 6.3.1997 and sold in DTA and failed to fulfill the export obligation as specified in the said notification. It has also proposed to impose penalty to equal amount of duty under Section 114A of the Act, 1962 and penalty under Section 112/117 of the said Act. It was also proposed demand of central excise duty of Rs.4,65,456/- under Section 11A of the Central Excise Act, 1944 (in short Act, 1944) along with interest and penalty equal amount of duty under Section 11AC of the Act, 1944 and penalty under Rule 209/210 of the erstwhile Central Excise Rules, 1944 on the ground that the Assessee sold Carry Bags into DTA without accounting and payment of duty. In the said show-cause notice, S/Shri Muralitharan, Mathiprakash and Yuvaraj were required to show cause as to why penalty should not be imposed on them under Section 112/117 of the Act, 1962 and separate penalty under Rule 209A of the erstwhile Central Excise Rules, 1944. There was also a proposal to impose penalty on high-sea seller of duty-free imported plastic granules to the Assessee, namely:- M/s. Alagendran Group Companies, Chennai, M/s. Ramya Polymer Agencies Pvt. Ltd., Madurai, M/s. Sri Lakosha Polymer (P) Ltd., Coimbatore and M/s. Seven Seas Polymers Pvt. Ltd., Karur, under Section 112 of the Customs Act, 1962. All the noticees were directed to submit their reply to the Commissioner of Central Excise, Madurai.
4. The Assessee and the other co-noticees submitted reply to show-cause notices. On 23.9.2003 and 24.9.2003 the Assessee cross-examined various persons including the concerned Central Excise officers who attended export-import formalities at the Assessees factory, as permitted by the Adjudicating authority. The Assessee and others appeared in personal hearing on 31.3.2011 and 1.4.2011 before the adjudicating authority. The Assessee raised a preliminary objection insofar as show-cause notice dated 26.3.2002 is not valid and liable to be dropped on the ground that the Superintendent of Central Excise is not the proper officer to issue notice under the provision of Customs Act, 1962. The other objection is that the show-cause notice dated 26.3.2002 involved demand of customs duty of more than Rs.16 crores and it was issued without prior approval of Chief Commissioner of Customs in violation of 3rd proviso to Section 28(1) of the Act, 1962 as it stood during the material period. The Assessee contested the demand of duty on merit also.
5. By the impugned Adjudication Order dated 31.5.2012, the Commissioner of Central Excise, Madurai adjudicated, both the show-cause notices dated 4.7.2001 and 26.3.2002. He dropped the proceedings initiated in both the show-cause notices against the Assessee and other co-noticees on merit. It was ordered that 996 bags of plastic granules seized from the premises of M/s. Priya is to be released unconditionally. But, the preliminary objections raised by the Assessee, as mentioned above, were overruled.
6. Revenue filed 10 appeals (Appeal Nos. C/266 to 275/2012) against the respondents under Sections 129D(4) of the Act, 1962 to determine, whether in the facts and circumstances of the case and the judgment of Honble Courts and Tribunal as cited in the appeal, the impugned order of the Commissioner of Central Excise is legal and proper. They have filed a miscellaneous application C/Misc./619/2012 with their appeals requesting that the impugned order involving violation of customs and central excise law and the appeals have been filed may be treated as a single order passed under Customs Act and requirement of filing separate appeal for excise duty may be dispensed with. Respondent No. 1 to 4, 6 and 10 filed cross-objections No. C/CO/7-12/2012 against the adjudication order insofar as the preliminary objections raised by the Assessee were overruled. Again, Revenue filed 4 appeals (E/512 to 515/2012) against respondent Nos. 1 to 4 under Section 35B(1) of Central Excise Act, 1944 in respect of dropping of demand of central excise duty. Thereafter, respondent No.1 to 4 filed miscellaneous application No. E/Misc./450 to 453/2013 praying inter alia to direct the Revenue to take and stick to only one stand in filing appeals under Customs or Central Excise Act. The Assessee also filed appeal No. E/41562/2013 and another set of Appeal Nos. E/41845 to 41848/2013 by the Assessee and its three Directors under Section 35B(1) of Act, 1944 against appeals of the Revenue in respect of dropping of demand of central excise duty.
7. All these appeals were heard extensively on 29.6.2014, 23.7.2014, 24.7.2014 and 25.7.2014. Both sides argued at length and also filed written submissions with compilation of case laws. The learned Special Counsel appearing for Revenue reiterated written submission, also referred to grounds of appeal, earlier written submission and case laws filed by them. He explained the modus operandi of diversion of duty-free virgin granules by the Assessee, as they obtained such granules either purchasing from High Seas Sellers (HSS) or directly importing them. The imported granules reached their private bonded warehouse and removed the same through their sister concerns M/s. Priya Mills and Rajalakshmi Mills under out-passes. Thereafter, the said sister units sold the imported granules to the same HSS and other local buyers under the cover of their invoices. It is stated that 6966 MTs of duty-free virgin plastic granules were resold to HSS and 1176 MTs were sold to others. The Out-Registers/Out-Passes maintained at the Assessees premises are corroborative with the records of HSS and other dealers/manufacturers, invoice and bills, stock registers, purchase registers, purchase invoices etc. The HSS and other dealers had admitted these facts in their statement which were not retracted at any point of time.
7.1 It is clearly evident from the material evidence as mentioned in the show-cause notice that the Assessee adopted dubious methods to remove the duty-free imported materials clandestinely in DTA and manipulated the production records and other records. During the investigation, voluminous evidences were unearthed on three areas namely:-
(a) Raw materials diversion:- Illegal removal of duty-free imported plastic granules and sale to the same high-sea sellers and others
(b) Manipulation of production:- Manipulation of statutory production records so as to show excess production and excess export
(c) Manipulation of Exports:- Manipulation of export documents and showing excess quantities of exports, excess values and export of junk/waste material in the guise of export to dubious firms in Singapore.
The learned Special Counsel drew the attention of the Bench relevant portion of the Grounds of Appeal and Show Cause Notice.
7.2 On the preliminary objection of the Assessee of validity of Show Cause Notice dated 26.3.2002, it is submitted that after the insertion of the second and third proviso to Sections 28 in Customs Act, 1962, in the year 2000, Central Excise Commissionerate of Madurai had issued a communication dated 27.6.2000 to all ACs/DCs. This was followed by an Office Order No. 6/2001 dated 7.6.2001 by which a new Section known as Show cause notice Prior Approval Cell (SPAC) was formed to process SCN for taking approval of Commissioner / Chief Commissioner. Further, by Office Order dated 18.7.2001, 4 Superintendents were assigned the work of processing of proposals and concurrence in respect of specific Divisions including cases of Headquarters Preventive Unit. This work included issue of SCN and denovo notices. Such assignment is in line with the assignment contemplated under Section 2(34) of Customs Act, 1962. The learned Special Counsel placed a copy of the letter dated 8.3.2002 issued by the Additional Commissioner, O/o of Chief Commissioner of Central Excise, along with affidavit dated 18.7.2014 of the Chief Commissioner of Customs (Preventive), Tiruchirappalli stating that the Chief Commissioner of Central Excise, Chennai accorded approval of show-cause notice. The learned Special Counsel also filed a compilation of Statutory Provisions for Issue of SCN Finance Act, 2000 Commissioner Orders.
8. The learned Senior Advocate on behalf of the Assessee and other co-noticees submits that the entire proceeding suffers from gross illegality. It is submitted that show-cause notice dated 26.3.2002 was issued by the Superintendent of Central Excise (SPAC) in violation of 3rd proviso to Section 28(1) of the Act, 1962 as it stood at the relevant time. It was issued without prior approval of the Chief Commissioner of Customs. It is also submitted that the Superintendent of Central Excise is not the proper officer under the Act 1962. All the appeals filed by the Revenue should be dismissed on this ground alone. He relied upon various decisions.
8.1 On 12.1.2001, the Central Excise officers of the Headquarter Preventive Unit visited and searched the factory premises and other premises of the sister units of the Assessee. The goods seized from the sister unit M/s. Priya on 12.1.2001 were re-processed granules. The officers drew the samples of the seized material but no test report was communicated. It is implied that the goods were not virgin duty-free imported plastic granules but reprocessed material as claimed by the Assessee. Search was conducted in 40 premises during the period from 18.1.2001 to 18.9.2001. But not a single gram of duty-free plastic granules was available at any place.
8.2 The Department informed FEMA authorities and they examined the issue and search was conducted. After examination of records, the FEMA authorities did not find any irregularity. The Development Commissioner vide order dated 15.10.2003 observed that the Assessee fulfilled their export obligation and they earned foreign exchange of Rs.44.08 crores. The Assessee submitted written submissions before the Tribunal along with compilation of case laws. They have filed a rejoinder of the synopsis refuting the submission of the learned Special Counsel during the course of hearing. It is submitted that in reply to the show-cause notice they have rebutted each and every allegation para-wise made in the show-cause notice. They have also countered each and every grounds of appeal filed by the Revenue.
9. After hearing both sides and on perusal of the records, we find that the Assessee has been granted licence as 100% EOU as per Letter of Permission No. PER 282 (1995) EOA/367/95 dated 8.6.1995 issued by the Secretariat of Industrial Approval, New Delhi subject to execution of legal undertaking before the Development Commissioner, Madras Export Processing Zone (MEPZ), Chennai. The Assessee furnished the undertaking that the unit shall export the entire production excepting rejects for 10 years. They were permitted to import capital goods, raw materials and components without payment of customs duty subject to fulfillment of the conditions as specified for 100% EOU and prescribed in the EXIM policy.
9.1 A Private Bonded Warehouse Licence No. 1/95 was issued by the Assistant Commissioner of Central Excise, Virudhunagar Division to the Assessee in relation to manufacture and other operations and for storing duty-free imported materials and for carrying out in-bond manufacturing operations in the premises of 500A, Perali Road, about one kilometer distance from the Central Excise Division Office, Virudhunagar, in accordance with Section 58 of the Customs Act, 1962. It appears from the record that the Licence was renewed time to time and the last renewal was on 9.8.2002 (i.e. after visit of the officer on 12.1.2001) for the period from 23.8.2002 to 22.8.2007. The Superintendent of Customs, Tuticorin, permitted the Assessee to transact business with Customs House, Tuticorin as self-exporter / importer.
9.2 The main raw materials for manufacturing plastic carry bags are HDPE, LLDPE, LDPE and PP granules and master batches. They imported the plastic granules without payment of duty directly and also through High Sea Sellers under exemption Notification No.53/97-Cus. dated 6.3.1997 subject to the condition that the duty-free imported granules shall be used for the manufacture in-bond export goods. They procured master batches from the domestic markets. As per Notification No. 53/97-Cus. the Assessee is required to fulfill the conditions amongst others, as under:-
(1) The imports, clearance, export, transfer and usage of the goods and goods manufactured there from and the net foreign exchange earning as a percentage of export shall be subject to the conditions of the "Export and Import Policy"
(2) The importer has been granted necessary license for the import of the goods for the said purpose.
(3) The importer carries out the manufacture, production, packaging or job work or service in Customs bond and subject to such other conditions as may be specified by the Assistant Commissioner of Customs or Deputy Commissioner of Customs in this behalf.
(4) Importer exports out of India 100% or such other percentage, as may be fixed by the Board of Approval for 100% EOU through the Development Commissioner, of articles manufactured wholly or partly from the goods during the period stipulated by the said Board or such extended period as may be specified by the said Board.
9.3 The Assessees had purchased duty-free import granules directly and also from the high-sea sellers as under:-
1. Alagendran Group Companies, Chennai
2. Alagendran Polymers (P) Ltd., Chennai
3. Ramya Polymer Agency (P) Ltd., Madurai
4. Sree Lakosha Polymers (P) Ltd., Coimbatore
5. Seven Seas Polymers (P) Ltd. Karur They have sister units adjacent to the premises of the Assessee.
9.4 The Assessee filed Statements of Import and Export of goods during the period 1.9.1998 to 12.1.2001 duly certified by the Chartered Accountant. It is seen from the said statements that during the said period they imported duty free plastic granules to the quantity of 10,414.7 MTs under the cover of about 300 Bills of Entry on various dates and exported finished goods Polythene Bags to the quantity of 6662.3055 MTs under the cover of about 367 numbers of Form AR4s on different dates. In their written submission, it is stated that during the said period they had cleared 796.086 MTs Waste and 3468.854 MTs Rejects into DTA.
9.5 It has been alleged in the Show Cause Notice dated 26.3.2002 that since 1996 the Assessee received duty-free imported goods 11514.7 MTs and during the said period, they clandestinely removed duty-free plastic granules 8142.57 MTs from the private warehouse into DTA. It has also been alleged amongst others that there are evidences of export of bogus items.
10. The Assessee is a 100% EOU and the Notification No.53/97-Cus. extended the benefit to import the goods without payment of duty for the purpose of manufacture of articles of export out of India. So, it is appropriate to examine as to whether the Assessee had discharged the export obligation as per EXIM Policy.
10.1 The Revenue relied upon the various corroborative evidences and supporting evidence to establish that the Assessee exported bogus items and the imported goods were diverted in the local market. On the other hand, the Assessee placed various substantial evidences to establish that the goods exported were genuine. It has also refuted the allegations made in the show-cause notice.
10.2 Revenue in Grounds of Appeal contended as under:-
(i) Evidences on inflated Weight, Value and Export of bogus items:-
The modus adopted by the Assessee for inflating quantity and value of export of bogus items revealed manipulation jointly for mutual benefit of the Assessee and M/s. Dart (i.e. customer). By a fax message recovered from the premises of Inspecting agency, M/s. Dart had requested for over invoicing for claiming rebate. Inflated weight and different weight shown in the customs documents and Purchase orders of M/s. Dart and Proforma invoice during the period up to 7.9.1999, added the bogus items in the invoice and other documents, which are not mentioned in the purchase order during the period from 8.9.1999 to 31.10.1999.
(ii) Proof of export of bogus items would be evident as under:-
(a) The fax message dated 20.9.1999 written on the proforma invoice of the Assessee sent by Mrs. Laila of M/s. Dart, Germany to Shri Muralitharan as what is this item? We did not order this unknown item.
(b) By another fax message, Mr. Ami Fried, MD of M/s. Dart had asked for rebate for the bogus items and requesting Murali to stick to original item and to increase the price by 30% to 40% and rebate the difference.
(iii) Proof on Export Invoices with Inflated Value and Weight and Dubious nature of Singapore Firms:-
The incredible value and weight in the name of fictitious firms in Singapore shown them as merchant exporter, while the goods were delivered based on the purchase orders, negotiation of price was made with M/s. Dart, Germany, inspection of goods was done by the agent appointed by M/s. Dart, proforma invoice prepared as per PO to M/s. Dart during the period from November 1999 to 12.1.2001. Various documents shown in Annexure to Show Cause Notices would show that inspection of goods had been done as per PO of actual buyers, but the commercial invoice raised to the fictitious firms at Singapore are different. With regard to the Trading Companies in Singapore was on evidence that there were 2 invoices i.e. one (Proforma Invoice) from the Assessee to M/s. Dart, Germany and another commercial invoice from the Assessee to Trading Company in Singapore. The Fax dated 14.12.1999 from Shri Ami Fried, M.D. of M/s. Dart to Shri Muralitharan of the Assessee seized from Apoorva Agencies, Chennai available in file No. 7 page 462 read as follows:-
(2) Your invoice 39/99, Nafia Invoice 100235 A (Our P.O. 8941) Please explain why you added three item 900-50-60-10 when the total amount of the invoice is identical to our P.O) $116 added for resin)? I dont understand why you are complicating the invoicing.
The fax message dated 8.4.2000 of M/s. Dart along with proforma invoice would show that the Assessee had supplied more items instead of one item ordered by M/s. Dart.
(iv) Evidence on Role of Inspecting Agency:-
Shri P.S. Nathan, Proprietor of M/s. Apporva Agency (Inspecting Agent of M/s. Dart) in his statement dated 6.9.2001 had clearly explained how the price had been fixed. It is obvious from the statement that Shri Nathan was fully aware of the price. As the inspection report was based on value of export goods the inspecting agency had to be aware of the basis on which price was fixed. Shri Nathan in his statement dated 15.5.2001, stated that he was not aware of the existence of the Singapore firm.
Shri Govindarajan, employee of SGS Ltd. Teynampet, Chennai (another inspecting agency of M/s. Dart) in his statement dated 6.6.2001 stated that weight parameters were not tallying with the specifications of the buyer and in one case he had clearly stated that instead of 26 lakh pieces only 22 lakh pieces were provided. All these evidences and statements clearly proved that the weight of the consignment would not be more than 12 MTs. In the inspection report dated 27.9.2000 conducted by SGS, it was clearly written the words INTERMARCHE AND MATIERE PLASTIQUE RECYCLABLE missed in the inspected bags when compared to the sketch and reference bag provided by the client. In support of that, scan copy of some of the inspection reports were reproduced in the grounds of appeal. It is stated that European countries follow strict inspecting norms that it should be made of re-cyclable plastics, whereas in this case SGS report proved that the exported items were not printed with re-cyclable sign.
(v) Lack of evidences on Usage of Packing Material for Export of Bogus Item:-
The packing materials purchased was not in proportion to the quantity exported and the inference with the quantity shown as exported (bogus items) were other than poly bags. The Assessee and the sister unit M/s. Priya Mills had not given any substantive evidence regarding their machinery and other required infrastructure for the manufacture of cartons from the imported inter leaving partitions of different sizes. The Assessee should have informed the Department about the manufacture of carton boxes out of imported sheets which was not done. The Assessee had also not informed that they had such carton printing machines.
(vi) Proof of Production Capacity:-
Table II was prepared and mentioned in the Grounds of Appeal, on the basis of the statutory registers, monthly statements and shift registers of the Assessee showing production of plastic bags, rejects and waste in the Grounds of Appeal. The Assessee had shown a production quantity of 5901.517 MTs in six months (4028.850 MTs of finished products, 236.849 MTs of waste and 1635.818 MTs of rejects) during the first half of the financial year 2000 01, whereas the production capacity was only 5600 MTs per annum as permitted in LOP for the said year based on the Assessees application. It could also be seen that the percentage of Rejects generated to the finished product was 40% approximately which would show that the Assessee had manipulated the records and annual capacity of production. In January 2000, the Assessee was in possession of 9 extruders and in July 2000, 11 extruders were use. The Fax message dated 12.9.2000 of the Assessee to their customer seized from M/s. Apoorva Agency (Inspecting Agency) stated that their total capacity was 11 containers per month. It was stated by the Assessee in their letter to Mr. Eugune that their capacity, both printed and plain, was 10 containers per month. On reading of the fax message and the letter, it is clearly evident that in the year 2000, the production capacity was around 10 to 11 containers only. Even the other corroborative evidences with respect to the documents recovered from the Assessee and the job worker proved that they have not produced much quantity on job work basis and only intermediate process had been done on job work.
11. The Assessee in their reply to show-cause notice as well as cross-objection filed before the Tribunal and written submissions refuted the allegations, which are briefly as under:-
(a) During the entire investigation at the factory or elsewhere i.e. the port of shipment, the Department did not find any material evidence in basing its estimations for excess weight or inflated invoice value. The Department at no point of time had recovered any cut waste being stocked as finished goods meant for exports. Even on the date of visit i.e. 12.1.2001 two consignments have been verified and certified by the Range officers and goods have been removed from the factory for export through Tuticorin Port.
(b) On the date of visit i.e. 12.1.2001, the Department seized reprocessed granules packed in outer cover bags bearing the name of foreign manufacturers such as Mobil, Sabic and Asrene. The Department also collected the floor sweepings within the factory and had also bundled them into bags. These materials were roughly 20.957 tonnes.
(c) It is worthwhile to note that all the exports have taken place under the watchful eyes and able supervision of the Central Excise authorities. It was also clearly stated in the export documents by the authorities that samples were taken from carton box and were weighed. The consignments were sealed (One Time Seal) in the presence of the officers of the Department. They certified that the same was found to be correct. The same has not been questioned by the Department.
(d) The merchant exporters at Singapore have no connection with the Assessee and are independent firms engaged in active trading operations.
(e) During the middle of 1999 when Muralitharan, M.D. of the Assessee, visited Germany in connection with a business trip and met the executives of M/s. Dart, Germany. They were impressing upon him the fact that they are getting into supermarket business and therefore wanted the following improvements:-
(i) The load holding capacity of the bag should be increased to the extent by 100% of its original capacity.
(ii) The quality should be superior in nature and they were willing to pay a higher price since the quantum of rejections would be more at the production level, cost of which can be loaded to the price of the bags.
(iii) Since Dart insisted that the bag making should be done by using heat sealing machines to have better sealing strength. (The cost of the machines will be twice or thrice of the normal machines). The company had to import around 5 machines more to accommodate their requirements.
(iv) Since bags have to be supplied to supermarkets, Assessee was forced to use more percentage of master batches to create better opaqueness for the bags.
(v) They also wanted the bag to be delivered in a printed form and to achieve good printing quality company had to buy graver printing machines.
(vi) They were insisting that both the handle width should be uniform and identical and in the process there is bound to be higher rejection which had to be costed to the product value.
(f) M/s. Dart insisted that the Assessee should continue to issue proforma invoice for a lesser weight and value as this would enable them to settle lesser commission to the inspecting agencies and also facilitate them to enjoy certain benefits at the time of clearance by them. To this suggestion, the Assessee agreed to raise shipping documents and export invoices at the correct value and weight of export but it would give a proforma invoice at a reduced value and weight to suit Darts convenience. This suggestion was not accepted by M/s.Dart. However, the Assessees were very clear that they cannot commit any infraction but was still interested to continue the business operations due to commercial compulsion. It was therefore suggested by M/s. Dart that goods can be sold to various merchant exporters at Singapore at the correct value and weight and the Assessee can continue to issue proforma invoice at a lesser value and weight to them. This suggestion was acceded to since the Assessee would not be committing any infraction with the provisions of law. It is in these circumstances, goods were sold to the merchant exporters at Singapore. When M/s. Dart suggested that the Assessee should sell the goods to the merchant exporters at Singapore the assessee did not blindly accede to the request without any verification. All sales by the Assessee to these merchant exporters at Singapore are covered under the ECGC Policy Scheme. This scheme gives an insurance coverage and the ECGC undertakes the responsibility of settling the dues for and on behalf of the foreign buyer in case the payments are not settled by them. Therefore, the details including banking operations were furnished to ECGC and after due verification by them at their end the insurance policies were issued covering the export consignment in question.
(g) The Assessee has made total export of Rs.44.08 crores during this period. There is not even an iota of evidence to support this case. No prudent buyer would pay excess money for any consignment. No proof has been tendered in the entire show cause proceedings. It is also significant to note that no notice has been issued to M/s. Dart or its employees nor any investigation has been done. The Assessee has as usual exported certain consignments to M/s. Dart after inspection. It appears that the inspecting agency has forwarded an adverse report on this consignment. However, due to their liability to recall the container Dart vide letter dated 30.6.2000 suggested the following course of action to the assessee:-
(i) That it shall convince the customer to take the goods failing which the consignment would be rejected
(ii) It is therefore suggested that the normal operations of selling the goods to merchant exporters and clearing the documents through bank can be avoided since Dart was unwilling to remit the monies before it could sell the consignment to customer
(iii) It is therefore suggested that a direct invoice be raised by the Assessee on Dart without involving the bank
(iv) Since RBI regulations do not approve of this the Assessee continued with the existing practice of selling the goods to merchant exporters.
(h) As regards the documents of Annexure to Show Cause Notice, there was a last minute request from Nafla orally to add a few items and this was acceded to as a business request. The added items were duly invoiced and sale proceeds realized. Since proforma invoice was already sent to Dart, there was a difference between the documents and actual shipment and may be they had problems at the time of clearance and this is an outburst of such a situation.
(i) Annexure C58 is a fax sent by the Assessee to M/s.Dart Import seeking an advice as to whether M/s.Dart Import had paid the bills as referred to in the letter. It is made clear that the invoices referred to are invoices raised on the merchant exporters at Singapore at its real value (which revenue has assumed it to be an exaggerated or inflated value). Advise is sought from M/s. Dart as to whether M/s.Dart has paid this value to Singapore supplier. Even though the consignment sold to merchant exporters would indicate always the correct value and weight and at the request of M/s. Dart, the Assessee furnished proforma invoice for lesser rate and value. Three parties were involved in the transaction. The Assessees are manufacturing exporter, Singapore buyers and the ultimate buyer M/s. Dart. The goods were meant for M/s. Dart and law does not prohibit exchange of correspondence or message amongst the three parties. Merely because there was communication between the Assessee and M/s. Dart that would not render the existence of these firms as bogus.
(j) Shri Nathan (Inspecting Agency) statement is relating to his commission, which is based on value. Proforma invoice issued to M/s. Dart carrying lesser value and weight constituted the basis for payments to Shri Nathan and therefore Shri Nathan has also been informed simultaneously indicating the reduction in value and consequential reduction in payment of commission. Shri Nathan has never been involved in fixing the price between the Assessee and M/s.Dart. It is a matter of common knowledge that prices are settled between the contracting parties and the inspection agency has no role to play. In the circumstances, Nathan has no right or locus standi to talk about the pricing pattern or about the average rate.
(k) The Assessee had exported as many as 300 consignments during the said period. Whereas M/s. SGS had tested one container and therefore this cannot stand as a basis for any conclusion. First inspection took place on 6.9.2000 and the second on 27.9.2000. Nearly 13 samples have been drawn and weighed and the weight variation ranges anywhere between 6.38 and 8.13. This shows that all the goods were not of uniform weight and variations are inherent and do exist as a matter of fact. Therefore, a few transactions cannot be the basis for deciding 300 transactions. Normally, the reports are prepared a day or two before the actual export and there is room for rectification before the export which has been done in the instant case. Inspection was done on 27.9.2000 and the export was done on 10.10.2000 and therefore the Assessee had made good the defects pointed out before export of the goods. The actual tonnage of export is only 18.28 Tons under AR4 124 dated 10.10.2000. The role of Shri P.S. Nathan is very limited and it cannot be equated with the role of the Government officials.
(l) The Assessee purchased cartons from regular vendors and statements were obtained from them. In addition to the above, the Assessee had themselves manufactured cartons from the good quality corrugated sheets that were received as inter-leaving partitions in the imported containers to hold the slippery plastic granule bags. The above fact is also supported by the seizure of 850 numbers of such paper board of different sizes at Priya Mills. The Assessee used simple tools (stapler and scissors) to convert inter-leaving partitions as corrugated sheets. With the availability of printing machines and stenciling all these were easily done in their premises. Since it was only for captive consumption and not meant for DTA sale the technical requirement of informing the Department was not done due to oversight.
(m) In the present case, Mr. Ami Fried of M/s. Dart is not a party to the present proceedings. No investigation/examination was done with regard to him and no summons was issued requiring either Ami Fried or Singapore Firms to turn up for the investigation. In the absence of any notice to these parties, the Department cannot expect them to come on their own and implead themselves as party to the present proceedings.
(n) It is a scanned copy of the letter of Bhagawathy Rajan dated 10.1.1998 and it could be inferred that the Assessee had four printed bags + six plain bags = ten container load bags production making capacity. With the addition of one more printing machine the day before the letters date, the printed bag production capacity has increased by two more containers taking into 6+6 plain = 12 containers/month. By the expected installation of two more printing machine the printed bags production capacity would further increase by four more containers taking it to 10 containers of printed bag making capacity. All along, the plain bags making capacity of 6 containers / month remains intact. This actually means that from August 1998 onwards the production capacity would become 16 containers per month of both printed and plain. It is submitted that the production capacity of July and August 2000 were compared with the scanned copy of the letter dated 10.1.1998. The same scanned copy reinforces their stand that the production capacity was much higher than the one projected by the Department. The fax message dated 12.9.2000 of the Assessee was a communication to their buyers M/s. Dart which was a business communication so as to not to reveal their production capacity in full.
12. On perusal of the Adjudication Order, we find that the Adjudicating Authority had discussed on the statements of the inspecting agencies and evidences namely fax message found in their premises. It is seen from the impugned order that the Adjudicating authority had seen from the File that a letter C. No. V/12/14/2001 dated 6.6.2001 by fax was sent by the Deputy Commissioner of Central Excise (Preventive) to Shri Amid Fried of Dart. But no reference was made by the Revenue in the show-cause notice and even before the Tribunal. The Adjudicating Authority has observed as under:-
Regarding the allegation that the units at Singapore are fictitious entities, as rightly argued by Global, ECGC, a Government of India undertaking having certified the genuineness and credit worthiness of the said merchant exporters and further standing as guarantor in cases of default in payment, the credibility and existence of the overseas merchant exporting firms cannot be called into question without credible and unimpeachable evidence which is totally absent in this case.
100. It is on record that the Branch Manager, Tamilnadu Mercantile Bank, Virudhunagar furnished the statement showing export bill-wise claim negotiated by Global during the period covered by the notice. The Branch Manager also said that ECGC policies were accepted as additional documents for discounting bills submitted by Global and he gave the ECGC limit for each of the overseas entities, namely Nafla, Oasis, Trinity, Trident, YSH Plastics and Oriole Polymers. He also explained in detail the method of getting the payments from overseas, like, the bills were sent to the foreign banks with the instructions to credit the amount in TMBs USD account with HSBC bank, USA, New York; the foreign banks would credit the amount in TMBs USD account after getting payments from buyers of Global; the details were checked by TMBs International Banking Division before being credited the account of Global; the proceeds in Singapore Dollar were credited to TMBs Singaopre Dollar account with Hong Kong Bank, Singapore; and there also details were checked before being credited to Global account. In the reply, Global took the stand that inasmuch as a premier financial institution owned by the Government of India like ECGC stands as a guarantor for default in payment and their banker TMB having furnished export bill-wise realization of sale proceeds coupled with a No Due Certificate, it is quite inappropriate to doubt the genuineness of the Singapore based firms or the source of remittance of foreign exchange for the goods delivered. I find sufficient force in the contention raised by Global. 12.1 The adjudicating authority also discussed the statement of the Inspecting agency as under:-
96. Shri P.S. Nathan of Apoorva Agency is only an onsite inspecting agent of Dart Import. In the statement dated 14.5.2001, he was fair enough to admit that the pre-shipment inspection was done merely to check whether the goods meant for export conformed to the specification. It should be noted that in the entire consignment, only samples were drawn and weighed. The consignment as a whole is not subjected to weighment. Further, samples are not drawn by the Inspecting Agent as he is merely provided with samples by Global. On many occasions Shri P.S. Nathan would be shown the cartons which required examination and the consignments would be ready for dispatch in packed condition. The test conducted, known as load bearing test is merely to ensure that each variety of bag is capable of holding a prescribed weight and if it passes the test there would be no objection for clearing the consignment. Thus Shri P.S. Nathan as an Inspecting Agent has a very limited role to play and he has absolutely no role to play in fixing price or to comment upon the genuineness of either the quantity exported or the existence of overseas firms. In his statement dated 6.6.2001, when asked as to whether Dart had any buying agents in the names of Trinity Concepts, Trident Concepts, Nafla Trading, Oasis Resources and others, he replied that some of the names mentioned were familiar and he had to ascertain from Dart as to whether Dart had any connection with those firms or any of these firms acted as Dart agents. However, in the statement recorded on 6.9.2001, he deposed that the documents shown to him established that the firms Nafia and Trinity were floated by Global to cover up their shady transactions. His volte face defies logic. Besides, in the reply filed by Global, it was pointed out that the suggestion made by Shri P.S. Nathan in para 82 of the SCN (dealt within para 12.3) for tallying the weight with reference to the shipping documents was incorrect since shipping bill No.1 295 connected with purchase order referred by Shri P.S. Nathan showed the weight of the consignment as 18.38 MTs and no 12.578 MTs as stated by him. It was also said that the stuffing details referred by Shri P.S. Nathan would neither contain weight nor value. In the circumstances, the statements of Nathan cannot be held against Global.
97. the discussion and observations above shows that Global had in fact manufactured plastic carry bags and exported the same as shown and certified in the export documents filed with the Department. The question of using reprocessed granules received from the converters for manufacture of goods exported would not also arise since strict quality norms are required for goods meant for export. 12.2 Shri P.S. Nathan, Apoorva Agencies of inspecting agency during cross-examination stated that he might have introduced suppliers to M/s. Dart but he did not negotiate any contracts between them. It is further stated that he spoke to Mr. Fried, MD of M/s. Dart on telephone in the presence of investigating officers, who said that it is highly confidential and it appears he did not want to talk to him and was only willing to clarify with the official. This was informed to the senior officer who was investigating and he provided all the phone and fax numbers of M/s. Dart to the investigating officers and told them that if needed they can contact directly and they also said they would take it up. He also stated that he gave his statement to the Department based on the interference of the paper shown to him and he had no role except inspection of goods. It is entirely in normal course of trade between buyers and sellers to enter into separate negotiations which need not be revealed to inspectors except that portion of the parameter which is required for inspection. Their inspection charges are based on the value mentioned in the purchase order of M/s. Dart provided to him and therefore they have always been very tough negotiators when it comes to the settlement of service charges and therefore they could have mentioned lesser weight and value in the purchase orders provided to him to squeeze him, which is not an uncommon feature in international trade. Sometimes, it is difficult for M/s. Dart to send fax to Virudhunagar office and they would forward it to his office. After going through the entire facts he agreed that the expressions manipulated or fabricated in his statement should not have been used by him as they are incorrect.
12.3 After going through the deposition of Shri Nathan, Inspecting Agency, during cross-examination, it appears that the fax and phone numbers of M/s. Dart were given to the investigating officer for clarification of fax message, purchase order, proforma invoice etc. The adjudicating authority observed that Deputy Commissioner of Central Excise (Preventive) made correspondences but, it was not disclosed in the show-cause notice and therefore it is difficult to accept manipulation of export on the basis of the said evidences. The supply of the goods to the Singapore firms were under ECGC scheme and the details of the said firm are available on record. It cannot be expected that the buyer would come forward to verify their transaction, unless any enquiry would be initiated by the investigating agency and the contention of the Revenue in the grounds of appeal cannot be accepted. It appears that M/s. Dart, Germany is the main customer of the Assessee, who arranged the business of Singapore Firm and claimed more benefit, which is a normal feature in the trade parlance. Apart from that the transaction between the buyer and seller based on the documents, export invoice, shipping documents, realization of sale proceeds etc. unless it is proved not genuine, cannot be discarded on the basis of proforma invoice, fax message etc. 12.4 It may be noted that the Assessee in their reply to show-cause notice submitted that on 12.1.2001, the officers of the Headquarters Preventive Unit of the Commissionerate during their visit noticed the clearances of two export consignments on the same date under cover of AR4 Nos. 212 and 213 both dated 12.1.2001 in their premises, which was also lying in the port till 14.1.2001. Further, just one day before of the visit, two consignments of export of goods were cleared under AR4 Nos.209 & 211 both dated 11.1.2001 were also lying in the port till 16th / 18th of January 2001. None of the consignments was seized or detained by the officers as the goods were found as per declaration in AR4, packing list and export invoices.
12.5 The adjudicating authority had taken into consideration of these facts in favour of the Assessee. Revenue in their appeal stated that if the Assessee was a bonafide exporter, they should have informed the senior officer to examine these containers with reference to the value and weight whereas they did not do so. It is also stated that the whole scheme were unearthed by the detail investigation for more than a year by the Department and therefore it cannot be expected that the officers would have anticipated dubious methods practiced by the assessee.
12.6 It is seen from the show-cause notice that the officers of Preventive Unit, Headquarters gathered intelligence that the Assessee was unauthorisedly removing the duty-free imported granules from their private bonded warehouse. Further, on 12.1.2001, the investigating officer seized 996 bags of alleged imported plastic granules at the premises of M/s. Priya sister unit of the Assessee on the basis of reasonable belief that the Assessee clandestinely removed virgin material from their warehouse. Hence, it is obvious that the investigating officers would detain the export consignment to verify as to whether the bogus items are in the export consignment. We have also seen that the Range Officers in their cross-examination stated that the investigating officers noticed the consignments of export of the goods. It is difficult to accept the plea taken by the Revenue in their appeal as stated above. The failure to examine the export consignment by the investigating officers would raise a benefit of doubt, which would go in favour of the Assessee.
12.7 The Central Excise officers have narrated the procedures of verification of export and import consignment in detail in their deposition during the cross-examination before the adjudicating authority.
(I) Shri T. Rajendran, Superintendent of Central Excise during the cross-examination in his deposition dated 23.9.2003 stated that he had served as Superintendent in-charge of the assessee-company. It is stated that after receipt of the intimation of arrival of imported goods, he deputed the officers and based on their report and records, issued the Warehousing Certificate. It is also stated that on receipt of the AR4 Form, he deputed the Inspector to carry out the checks and the export formalities in accordance to the Rule 187 of the erstwhile Central Excise Rules, 1944. It is categorically stated that during the final hours of stuffing, he used to visit and supervise the sealing and also countersign the AR-4.
(II) Shri S. Doraichamy, Inspector of Central Excise, during the cross-examination on 23.9.2003, confirmed that he was in-charge of the assessee-company during the period between September 1998 and May 1999. He narrated the procedure for verification of the goods in respect of import and export in the assessees factory as under:-
a) Assessees will intimate the arrival of imported goods and he will visit the factory.
b) Check the seals and then allow them to be broken
c) Verify the consignments and see whether it matches with the Bill of Entry details. The same will be permitted to be unloaded in the bonded warehouse and then assessee will be asked to enter the details in the Raw Material Register and after verification, he shall sign.
d) They will intimate and file FORM AR 4 for export assignment and he will visit the factory and verify the container and ask for the TSA details
e) After ensuring the correctness and the container is received empty, he will proceed to the factory premises for giving clearance of export consignments. Southern Area is ear-marked as finished goods area.
f) The goods to be exported will be identified which are normally earmarked separately. At random, he opened the cartons and verify the contents and verify it with AR 4 / Packing list and then the same will be weighed.
It is categorically stated that there is negligible variation of the weight of the cartons and packing list. The process of counting is the row, filling and column will be counted. The consignments will be allowed to be loaded in the container. There is no provisions of containers bay in the unit which enables the stuffing the container from inside the factory building. It is stated that after verification in the manufacturing hall, he permitted the same to loaded into the container and also visited the stuffing point outside the building and supervise the loading process. After the loading is completed the container will be sealed with two seals, i.e. lead and wire seal and one time customs seal.
(III) Shri M. Murugananth, Inspector of Central Excise, in his deposition on 23.9.2003 stated that on receipt of containers of the imported goods, the Assessee intimated them. They visited the factory and verified the seal and ask them to break open the seal and the goods will be examined. Once the description in the Bills of Entry tallies with the particulars, the goods will be unloaded into the bonded store room. He also narrated the procedure of import and export followed by him as stated by the earlier officers. It is categorically stated that to comply the procedure of export, it would take about two to three hours. They have also examined the finished goods area, which is part of the manufacturing hall. He has noticed the production activities and it is confirmed that the assessee had applied for clearance of wastes and rejects. It is stated that on 12.1.2001 (i.e. the date of visit by the Preventive Officers), he supervised export consignment and the officers were doing investigation and allowed the export of the goods.
(IV) Shri M. Subramanian, Superintendent of Central Excise, in his deposition on 23.9.2003 stated that he served as an Inspector of Central Excise in the Range Office of the assessee during the period May 1999 to May 2000. The duty of the Inspector is to visit the 100% EOU whenever there is receipt of raw material and similarly whenever there is an export made out of those inputs. The assessee was intimating the Superintendents who in-turn assigns the work to the Inspectors. He also stated the details of the export and import procedure in the assessees factory as stated by other officers. He categorically stated that he had never seen the cut waste in the carton meant for export. He examined the number of cartons by resorting the file and column counting. They were examining the empty containers and only after this, other procedures are followed loading of the goods into the containers and sealing was done. There are two seals. First one is the customs seal and the other one they have a piler in the Range. By using the lead they put a marking with the help of the piler. It is stated that the description in AR4 and other documents as indicated had been physically exported. Regarding the sale of rejects, they sent a requisition and based on that quantity, the officers quantified the waste for sale, after signing the TR.6 challans for payment of appropriate customs duty. They had drawn samples of export goods. Regarding sale of Rejects, the Assessee sent requisitions and based on that they quantified waste for sale on payment of appropriate duty.
(V) Shri M. Chandrasekaran, Superintendent of Central Excise, in his deposition dated 23.9.2003 stated that he was Superintendent of Central Excise of the assessee-factory during the period from May 1999 to May 2001. It is stated that the officers verified the documents given by the customs i.e. Bill of Entry, sometimes, shipping bills, the bond number etc. They have also verified the containers in respect of export of goods before sealing. He has identified the entries in the register. He has also identified the samples of re-warehousing certificate. It is stated that the Inspector would go every time and sometimes he was also accompanying. The officers were taking the follow-up procedure of the export for 1 to 3 hours. It is stated that as per the knowledge, the assessee-factory enhanced the production capacity twice. He has also stated the procedures of export and import as under:-
(a) The Custom House sent the container under TSA trans-shipment application. They should verify the container number and have to see whether the container is loaded or not and whether the container is empty.
(b) They would go to the manufacturing hall in the factory premises where the export consignment will be stocked and seen the cartons and count all the cartons by way of files and columns.
(c) They took three cartons at random. It is the Departmental officers' prerogative to choose the carton at random. There will be a cellophone tape closing the carton, they would open the carton and would see the contents of the carton and there will be plastic carry bags. The cartons are again closed. Then test the weight of the cartons selected and the weights and tally with the declared weight. They had never found waste in the cartons.
(d) There may be minor variations, on an average it should tally with the declared weight. Mild variations are possible and they take 3 numbers of cartons and arrive at the weight. AR4 will be with them. After the sample weighment is over, the goods will be allowed to be loaded.
(e) He confirmed the permission letter vide C,No. V/16/108/99 dt. 1.12.2000 for sale of waste and rejects into DTA arising out of production and permission granted, the copy of which is also marked to the Supdt. of C.Ex., VNR-I Range for information and necessary action. He had gone on two occasions and have verified the clearance of wastes and rejects.
(f) The value as indicated in the AR.4 and in their commercial invoices has duly been realised by this unit as certified by their bankers.
12.8 In the Grounds of Appeal, Revenue contended that the deposition of the Central Excise officers in the cross-examination, who had a role in these affairs, lacked credibility. Moreover, the entire activity of the EOU had not taken place under the physical supervision of the officers. Hence the adjudicating authority had erred in relying the statements of the officers given during the cross-examination.
12.9 It is seen from the deposition of the Central Excise Officers that the Superintendent deputed the Inspector to carry out the export formalities in accordance with Rule 187 of the erstwhile Central Excise Rules, 1944. The Superintendent also used to visit and supervise the sealing and countersigned the AR4. The officers at random opened the cartons and verified the contents with AR4/packing list and drawn the samples of goods and the same will be weighed. The officers also supervised loading process and after completing the loading process, the container will be sealed with two seals, i.e. lead and wireseal and one time carton seal. They have also seen the production activities. The verification of export consignment would take time between 1 to 3 hours. The officers also confirmed the signature in the documents. They visited the manufacturing hall, where the export consignment will be stocked. It is confirmed that value indicated in the AR4 and in their commercial invoices duly been realized by the Assessee as certified by their bankers. Once the seal is intact, the customs officers would allow the shipment and they have their own internal instructions to have random check. There is no allegation of tampering of container seal at any point of time. All the officers recorded their duties for attending the supervision of export in their office diaries. So, the depositions of the officers are based on records and performed their duties as per statutory provisions of the law. Such depositions cannot be brushed aside by mere saying lacked credibility; without any proper enquiry. It is important to note that the Show Cause Notice was issued on 26.3.2002 and all the depositions of the Central Excise officers were taken on 23.9.2003. Personal hearing was granted on 31.3.2011 and 1.4.2011 and adjudication order was passed on 4.6.2012. We find that the officers were not re-examined and the depositions of the officers, were within one and half years from the date of show-cause notice and adjudication order was passed after about 9 years. There is no allegation of collusion between the Central Excise officers and the Assessee. So, we accept the depositions of the officers as legal and proper and reject the contention of the Revenue that the depositions lacked credibility.
12.10 Section 137 of Evidence Act, 1872 provides that examination of the witness, subsequent to the cross-examination by the party who called him, shall be called his re-examination. Section 138 of Evidence Act, 1872, provides that re-examination shall be directed to the explanation of matters referred to in cross-examination. The very purpose of re-examination is to explain matters which have been brought down in cross-examination. We find that no effort was made to re-examine the Central Excise Officers and therefore such statements of Central Excise officers based on statutory records would liable to be accepted.
12.11 In the case of P.V. Varghese Vs. CEGAT 2008 (232) ELT 420 (Ker.), the Honble Kerala High Court observed that statement of third party cannot be sole basis for imposing demand especially when their original statement denied by them in cross-examination. It is also observed that statement of third party can be taken as piece of evidence after considering evidentiary values of such statement tested in cross-examination. In the present case, Revenue has heavily relied on the statement of Shri P.S. Nathan of Inspecting Agency and documents recovered from their premises of Inspecting Agency. Shri P.S. Nathan during cross-examination clarified the documents and also stated that after going through the entire facts, the expression manipulated or fabricated should not have been used by him. Particularly, Shri Nathan had given the telephone number of M/s. Dart for verification of the contents of the said documents and the contents of the documents like fax message, purchase order, proforma invoice recovered from the premises of Apoorva Agency were not verified with the buyers. It cannot be accepted that in view of the confessional statement all other substantive evidences should be discarded. The goods exported accompanied with Form AR4, packing list, invoice etc. under the supervision of Central Excise officers at the factory of the Assessee and the customs officers at the Tuticorin Port and evidence of realization of sale proceed would be given preference to documentary proof and it cannot be treated as export of bogus consignment and the contention of the Revenue is not sustainable.
12.12 We have also noticed that the Assessee contended before the Adjudicating authority that the Development Commissioner vide order No. 437 dated 15.10.2003 observed that as per record, the Assessee fulfilled export obligation and earned net foreign exchange as per EXIM Policy. It is seen that FEMA examined the realization of foreign exchange and no dispute was raised. The Tribunal in the case of Jumbo Bag Ltd. Vs. CCE, Chennai 2005 (184) ELT 214 observed as under:-
6.?It has to be also noted that once the Development Commissioner has accepted these sales as satisfying export obligations, the Customs authorities should not take a contrary view that would render export promotion scheme unworkable. Customs and Central Excise exemptions are dovetailed to export promotion policy. Therefore, the same goods cannot be treated as export by export promotion authority and non-export by another governmental authority. In a three legged race for export promotion by the Customs and Export Promotion authority, the two authorities cannot run in opposite directions. Lack of clarity, if any, should be resolved in a manner facilitating the advancement of the policy and not in a manner that defeats public policy. In the case of CCE, Hyderabad Vs. Sanghi Spinners (I) Ltd. 2007 (209) ELT 43 the Tribunal rejected the appeal filed by the Revenue and observed that Development Commissioner examined the issue in the light of EXIM Policy and permitted to dispose of goods in DTA. Customs Department cannot take a view contrary to that Development Commissioner. In any event, this fact has a persuasive value to hold that the goods were exported.
13. The other part of the appeal of Revenue is that the Assessee received the imported plastic granules at their factory and thereafter the same were clandestinely removed / diverted from their premises, which had been proved through various documents recovered from the premises of HSS. These documents are corroborated by the records of out-passes and outward registers of the Assessee and inward and outward registers maintained by the sister units of the Assessee. The submission of the Revenue are precisely as under:-
(a) Shri Shanmugam and Ms. Pandi Selvi, employees of the Assessee in their statement had admitted that they prepared out-passes for removal of imported virgin granules from their premises and prepared invoices for the sister units. Shri Alagendran, Chairman of M/s. Alagendran Exports Ltd. and M/s. Alagendran Polymers Pvt. Ltd. in his statement dated 24.5.2001 had admitted that they have maintained the stock and purchase registers according to the brand name of the imported granules received from the Assessee and payments of difference amounts between the high sea sale amount plus re-sale from the value would be deposited by way of cheque or telephonic transfer into the accounts of trading firms. The fax message dated 15.12.2000 (2 pages) showing calculation of commission reproduced in the Grounds of Appeal, recovered by the Department from the computer of the Assessee, was admitted by Shri Alagendran in his statement. Vide his letter dated 15.6.2002, he reiterated that what he had deposed in his statement was correct and genuine.
(b) Shri S.K. Sridhar, Director of Sri Lakosha Polymers Pvt. Ltd. in his statement dated 16.5.2002, had admitted that initially two containers were sold to the Assessee on high sea sale basis and after import, the same granules were resold to him under the bills of Priya and Rajalakshmi. He also stated that the accounts in the name of the Assessee and the sister unit M/s. Priya were opened in Tamil Nadu Mercantile Bank, Coimbatore based on his introduction. Shri Karunakaran, Director of M/s. Ramaiya Polymers Agency Ltd. Madurai and Shri Arun Thangam, MD of M/s. Seven Seas Polymers Pvt. Ltd. in their statements had deposed in the same manner.
(c) The documents seized at M/s. Seven Seas Polymers P. Ltd. contained two sheets showing the stock position of their various depots, one revealed actual stock position and the other was fabricated to show surplus stock at the depot of Virudhunagar to enable them to issue sales tax forms. The adjudicating authority should not have allowed the cross-examination of Arun Thangam and S.K. Sridhar as they are co-noticees.
(d) If the transaction was genuine and involved transfer of title of goods and amount, the HSS should have received post-dated cheques and not blank cheques. Shri Muralithan, as a partner of M/s. Priya Mills has deposed in his statement dated 23.4.2001 that major quantity of reprocessed granules was received from the Assessee.
(e) The Assessee in their letter dated 5.12.2000 had informed the Range Officer that the rejects diverted contained master batches which include inks and materials to render these goods of lesser value as it could be used in the manufacture of buckets, marks etc. So, the claim of the Assessee that the said waste could be reprocessed and sold at a higher value should be rejected.
(f) The virgin granules were meant for first use and the reprocessed virgin granules manufactured out of waste and rejects arising out of first use, its stability and strength and definitely inferior in quality. The difference between the virgin granules and the reprocessed granules would be seen from the shape itself and from the cutting edge in the reprocessed granules.
(g) The Assessee had manipulated the records on generation of waste and rejects. The Assessee in their reply dated 25.10.2002 stated that Export or Import Policy itself permitted 5% waste of the imported quantity and 5% rejects of the total FOB value of exports. It is contended by the Revenue that the permission for enhancement of the percentage of the waste and rejects had been obtained only after the case was registered by the Department. The Assessee claimed that 3555.2 MTs of rejects and 721.8 MTs waste were physically cleared to M/s. Priya Mills. The Table as mentioned in the grounds of appeal would show that the Assessee had affected the sale of rejects to DTA even before the permission from the Assistant Commissioner. It is categorically stated by the Revenue that the actual percentage of clearance of waste, whether the rejects had been cleared in the guise of waste, usage of rejects as waste by the Assessee, for manufacture of reprocessed granules etc should have been examined.
13.1 The Assessee in their reply to show-cause notice, cross-objection filed before the Tribunal and written submission refuted the charges as under:-
(i) Revenue seeks to suggest the quantities purchased from M/s. Alagendran had been resold through Priya, Rajalakshmi and Gowsalya Traders. Since materials were made available in bulk by these dealers, as a business venture Priya and Rajalakshmi who in fact reprocessed the rejects and waste of the Assessee agreed to sell reprocessed granules. These dealers were requesting for more quantities. Therefore, it is a case of sheer business coincidence and cannot be assumed as through imported granules were diverted to Alagendran.
(ii) The Assessee had not sold any goods to any of these parties and on examination, it was found that sales have been effected by Seven Seas and Priya. Any accountal / non-accountal has to be verified at their end and they do not form part of the Assessees books to defend the matter. It is not uncommon to provide dispatch details to any buyer. As regards fax message dated 14.4.2000, the details have been faxed using the Gobal fax machine. It does not mean consignments have been sent from Global. There is no indication to this effect in the document seized.
(iii) The documents referred to as Annexure C-13 is a document sent by Shyam Plastics to Arun Thangam. This is pure calculations and workings and does not suggest any sale of granules or reprocessed etc. In fact this document only goes to vindicate the Assessees stand that Seven Seas arrive at a landed cost including duty and being a sale to 100% EOU excludes the duty components. Commercially it is not viable to purchase the product at a landed cost including duty since whether through high sea sales or through direct import when a 100% EOU imports, the goods are free from duty. Therefore, credit of the duty difference is a very transparent mode of price finalization and nothing adverse could be drawn from such printing pattern.
(iv) Goods have been sold with these dealers and manufacturers only by Priya and Rajalakshmi and not by the Assessee. There is no evidence to support this. Any out pass of the Assessee only goes to show that the vehicles have entered in the Assessees premises for collecting the requisite documents of Priya, admitted during the depositions by various witnesses. The statement of account sought to be relied by the Revenue which according to Revenue is prepared by Seven Seas refers both to the account of the Assessee for sale of granules through high seas and Priya for purchase of reprocessed granules. Therefore, settlement of dues is no ground to suggest that goods sold to Seven Seas are only imported granules.
(v) The sequence of operations were as follows:-
(a) Waste and rejects were sold by the Assessee to Priya / Rajalakshmi.
(b) Priya after conversion into reprocessed granules have sold the same to all the parties
(c) These parties have sold other raw materials including master batches etc. to the Assessee
(d) Therefore, monies due from the Assessee to the third parties are also adjusted from Priya. Therefore, instead of paying Priya who had to later settle it to the Assessee, upon instructions third parties have settled the payment directly to the Assessee and the same commercially possible.
(vi) Department has not chose to refer the number of machines available for production during the disputed period. The Assessee had as many as 24 machines and had given sequence order in alphabetical sequence. This has been stated by Murali in his deposition. When the factory was visited on 12.1.2001 the Central Excise officers chose to draw a mahazar. However, for reasons best known, they have chosen not to record the number of machines available and their capacity. The physical stocks of raw material and finished goods were also verified and compared with the statutory register and revenue found no discrepancy and for reasons best known they have not brought out these facts in the mahazar.
(vii) Even during the investigation Murali had gone on submitting that waste and rejects will emerge at various stages, extrusion rejects, bag making rejects, printing rejects, quality rejects and rejects which can arise on account of inspection. The chart referred to has only recorded rejects at one stage and that too it pertains to rejects out of few machines out of the total machines.
(viii) Now coming to waste, the policy permits the maximum limit of 5% of the total quantity of imported granules. The Assessee were however averaging around 17% and the matter was referred to MEPZ and MEPZ had in turn had referred the matter to Ministry of Petroleum. A technically qualified person deputed by Ministry visited the factory and examined the process and after studying its details forward its report to MEPZ fixing the wastage at 12%. The Assessees were clearing the balance quantity of wastage on paying full rate of duty.
(ix) The alleged discrepancy in the serial numbers of invoice copies, prior approval and permission had been obtained on each occasion for sale of waste and rejects in the DTA. Approval is given only after physical verification of the stocks by the Range officers. Therefore, the emergence of waste and rejects, its existence and its readiness to remove can never be a subject matter of controversy. However, discrepancy still has arisen when it came to issuing invoices. These are handled by more than one staff members. Again, the discrepancy if any is only relatable to two instances namely, Invoice No. 166 dated 13.10.2000 and Invoice No. 170 dated 7.10.2000. the Assessee have verified the entire invoices issued and it was found to be in order. This technical discrepancy cannot give raise to the assumption that imported granules have been sold to various parties.
(x) It is stated that the duty-free imported goods have been sold to the Assessee by high sea sellers after adding a margin of profit by the trader. The traders were aware of line of activity and were equally aware of the fact that the waste and rejects arising out of the process could have greater utility. The Assessee had sold these waste and rejected materials to their sister units. These units later converted the rejects and waste as a good grade reprocessed granules. The prices of granules were fluctuating and granules prepared within India were getting pumped into market even though they are of an inferior grade or variety. It was therefore promised to them that the reprocessed granules would be sold to them by M/s.Priya, M/s. Rajalakshmi etc. Taking into consideration the volume of purchase and the commitment, the traders agreed to source imported granules at their own and as a compensating factor the sister units of the Assessee agreed to supply reprocessed granules. This venture is again absolutely commercial and there is no prohibition in carrying out such an operation under the laws of the country. As a part of business strategy, it was therefore agreed that the waste and rejects would be sold to M/s. Priya or M/s. Rajalakshmi by stuffing the same in the imported outer bags which originally contain the imported granules. After reprocessing, the sister concerns were selling the reprocessed granules again in the same used packing materials, which would save the extra packing cost. In other words, what were sold only reprocessed granules but the packing materials used were original import of virgin granules. Traders were also insisted on this, since they were able to command a better price if reprocessed granules are sold in outer cover bags with these brand names, since it had a better price. Therefore, the brand name sabic, equate etc. are nothing but the brand names found on the packing materials which contained reprocessed materials arising out of waste and rejects. It is categorically stated that the traders received reprocessed materials from M/s. Priya, M/s. Rajalakshmi and they issued a blank cheque in one for confirming transaction, but the said units were not made party of the proceedings and they are not noticees in the Show Cause Notice.
(xi) Revenue relied upon the statement of Shri Alagendran, Chairman of Alagrandran Exports Ltd. and Alagendran Polymers Pvt. Ltd. It is contended that they had maintained the stock and purchase register according to the brand name of the imported granules received from the Assessee and the payments of difference amount between the high sea sellers minus re-sale bill of the value would be deposited by way of cheque or telegraphic transfer into the account of trading firm and then paid the balance amount which was recovered by the high sea sellers required to be paid. The statement of Shri Alagendran is supported by fax message dated 15.12.2000 copy whereof is, reproduced in the appeal. The Assessee in their reply stated that the entire allegation is based on the few pages containing workings seized from the files of Alagendran Exports, which is figuring in the show-cause notice and requested for cross-examination of Shri Alagendran, who did not turn up.
(xii) The Assessee in their reply to show-cause notice stated that the computer (CPU) handed over by Shri K. Shanmugam was taken away by the department and when these were opened none of the officers or officials of the Assessee were present. The CPU was seized without sealing. Department had tried to open the file unilaterally and has chosen to rely on the same against the Assessee. It was objected to the contents sought to be relied upon as they were not sure about the veracity of its contents.
(xiii) The Assessee in reply to show-cause notice further stated that the goods loaded from M/s. Priya Mills and other sister concerns entered Assessees premises for collection of invoices and other documents as the staffs were common and while leaving the premises, an outward pass was issued and the security maintained the Outward Register. On the same analogy, the very same security persons would have made entries of incoming vehicles from sister concerns into the Assessees premises and also the clearances of wastes and rejects from the Assessees premises to sister concerns in the outward register.
14. It has been alleged in the show-cause notice that since 1996 the Assessee imported granules 11514.1 MT and this appears to be solid evidence for diversion of 8,142.57 MTs during the period September 1998 to 12.1.2001 involving customs duty of Rs.16,13,10,303/-. The details of diversion of goods are as under:-
Details Qty. in MTs Annx. No. To Sri Lakosha Polymers On High Sea Sale 225.25 D-1 To Ramya Polymers On High Sea Sale 606.75 D-2 To Alagendran Group On High Sea Sale 1834.00 D-3 To Alagendran Group On Direct Sale 360.75 D-4 To Seven Seas Polymers On High Sea Sale 2050.60 D-5 To Seven Seas Polymers On Direct Sale 1889.28 D-6 To their sister concerns (CPP/Sree Raja) 116.95 D-7 Direct Sale to Local Dealers and Manufacturers 1058.99 D-8 Total 8142.57 14.1 The Assessee in reply to show-cause notice stated that the total quantity of about 3000 MTs as mentioned in Annexure D-1, D-2, D-3 and D-4 are related to sale of reprocessed granules by the sister units, out of about 4290 MTs cleared by the Assessee to their sister units as waste and rejects as mentioned hereinabove. Annexure D-5 and D-6 relate to the calculation sheets furnished by M/s. Seven Seas of their own transaction. The findings of the Adjudicating Authority are as under:-
111. From the notice, I have taken out a few cases in which the oral evidence does not lend credence to the charge of Shri P. Murugesan, Managing Partner of M/s. Palaniappa Poly Bags,, manufacturer of carry bags, who allegedly purchased imported granules from Global, in his statement dated 13.6.2001 (para 6.3 above), inter alia, deposed that Sevenseas might have lifted the materials received by them from Global. Thus he was not sure as to whether the clearance had in fact taken place from Global. Likewise, Shri bommanasamy of Poovathal Polymers, another manufacturer of plastic bags, who allegedly purchased imported granules from Global, in his statement dated 13.6.2001 (para above) deposed that as per the information received from the drivers, the consignments were loaded from some unit at Virudhunagar. So, in this case also he was not sure of the materials having been lifted from Global. Likewise, Shri A.B. Anand, Proprietor of Bee Aay Plastics in his statement dated 17.5.2001, deposed that as per his knowledge, Global was mixing reprocessed granules with virgin granules for manufacturing plastic carry bags. The facts like how and from which source he acquired the knowledge remains unknown. Further during cross-examination, the aforesaid three witnesses had virtually gone back on their earlier version thus casting a shadow over the evidentiary value of their statements. 14.2 Shri Alagendran, Chairman of the Alagendran Group Companies had not appeared in the cross-examination before the adjudicating authority. The Assessee disputed the documents recovered from the premises of M/s. Alagendran. It appears from the Table as above that there was allegation of diversion of imported virgin granules to M/s. Seven Seas Polymers (P) Ltd. on high sea sale and direct sale. It is stated by Revenue that such diversion of goods is not only based on statement but also through register, accounts etc. of HSS. We find that Shri Arun Thangam, Director of M/s. Seven Seas Polymers (P) Ltd. made a deposition on 23.9.2003 before the Commissioner of Central Excise, Madurai during cross-examination that he introduced Shri Muralidharan of the Assessee to M/s. Shyam Plastic, consultants who supplied imported plastic granules by way of high sea sales. He was maintaining reconciliation statement of transaction of supplies of Shyam Plastics in his memory pad of computer as he introduced them in his business interest for calculation of commission in his personal capacity in transaction of Shyam Plastic. They have 1200 buyers/dealers in their role. It is stated that his note book form or diary form available in the computer as referred in his statement is the memory pad. He clarified that the noting market price = HSS consideration + clearing charges + customs duty as mentioned in the show-cause notice in respect of supplies of imported plastic granules by Shyam Plastic to the Assessee. It is stated that the abbreviation RP means re-processed granules, in other words, granules are re-claimed from waste which were supplied by M/s. Priya, M/s.Rajalakshmi. It is further stated that the investigating officer did not seize any record or document to show that 2050.60 MTs and 1889.28 MTs had been delivered by the Assessee. He categorically stated that the investigating officer did not seize any single consignment during transit relating to 2050.60 MTs.
14.3 The staffs/employees of the Assessee-company in their depositions made by them during the cross-examination before the Commissioner of Central Excise on 24.9.2003, clarified their statements recorded before the officers insofar as out-pass is a document to be submitted to the security when any vehicle carrying goods leave Assessees premises. The security would verify the out-passes with vehicle number and enter the details mentioned in the out-pass in the register. It is also stated that the security was not aware of the contents inside the bag. The re-processed materials were cleared in the original packing materials with the description of the original virgin granules of SPIC, MOBI etc. which is also mentioned in the out-passes for easy identification by the security and it was not mentioned in the bills. Shri C.V. Rajan, in-charge of the central excise staff of the Assessee-company stated that the description of the out-passes is based on the description in the outer bag for identification by the security. Shri K. Shanmugam, in-charge of the quality control of the Assessee-company stated that in case of shortage of space in the Assessee-company, the goods were stored at M/s. Priya and the out pass is being prepared to allow movement of the goods. Ms. Pandi Selvi, Telephone Operator of the Assessee stated that she has also prepared the invoice. She stated that the description of the out pass has no relation with the contents of material inside the bags and the description of invoice.
14.4 The statements obtained during investigation and the deposition made in cross-examination may create a doubt. In this situation, it may be noted that the Assessee took a definite stand that they cleared waste and reject materials to their sister units, who after due processing cleared reprocessed plastic granules packed in their used bags of imported materials, bearing with different brand names as mentioned in the outward passes. On perusal of the records, it is seen that the investigating officers got the opportunity to verify the contents of the packed materials on several occasions. On 12.1.2001, the investigating officers seized 996 bags of plastic granules of foreign origin as alleged at the premises of M/s. Priya, which was claimed as reprocessed plastic granules by the Assessee and samples were drawn and at the time of hearing before the Tribunal, it was informed that the said samples were not sent to chemical test. Further, the investigating officers detained the plastic granules packed in bags bearing foreign marking from the premises of M/s. Alagendran Polymers (P) Ltd. Chennai vide mahazar dated 19.1.2001, M/s. Alegandran Exports Ltd, Chennai vide mahazar dated 19.1.2001 and M/s. Lakosha Poly Packs Industries, Virdhunagar vide mahazar dated 19.1.2001. The Assessee in reply to show-cause notice stated that the goods were detained in three premises of the high sea sellers but there was no seizure of the goods and no show-cause notice was issued which would establish that the goods were reprocessed granules and not virgin granules.
14.5 Revenue in the grounds of appeal before the Tribunal stated that high sea sellers had admitted the fact of receipt imported virgin granules and no show-cause notice was issued for confiscating these detained goods, which is apparently a mistake. Furthermore, it is seen from the deposition of Shri Arun Thangam, Director of M/s. Seven Seas Polymers Ltd. before the Commissioner of Central Excise on 23.9.2003 that the investigating officers did not seize any consignment of 2050.60 MTs in their depot (Qn. No. 41 to 43).
14.6 The Revenue in the grounds of appeal contended that there is no necessity to establish the virgin nature of imported granules by test reports as the goods in original packing bears foreign markings. But, we find that in other grounds of appeal it is contended by Revenue that there is difference between the virgin granules and reprocessed granules. All these incidents would show that the investigating officers got the opportunity on various occasions, to verify the materials physically as to whether the Assessee cleared reprocessed materials. The findings of the Adjudicating Authority are as under:-
The facts as narrated in the notice show that the investigating officers on 12.1.2001 found at the premises of Priya 996 bags of plastic granules of foreign origin (imported) weighing 20.661 MTs valued at Rs.8,26,465/- belonging to Global. The notice proposed to confiscate the said quantity of imported plastic granules under the provisions of the Customs Act, 1962. In the statement of facts annexed to the notice it was said that the officers found certain bags of plastic granules of foreign origin (as revealed by the foreign markings on the bags) in the premises of Priya Mills; Shri David, incharge of security present at the time of search, informed the officers that the goods belonged to Global; they were imported granules brought from the warehouse of Global; the goods were meant for various places outside as it was a regular operation; the 996 bags of plastic granules, apart from original foreign packing, also contained some loose bags; the seizure was done on the belief that the imported goods were illegally removed from a 100% EOU; the facts regarding origin and ownership of the goods were as stated by Shri David; and representative samples of the seized goods were drawn on 17.1.2001 under test memos. The statements given by Murali and various other functionaries were relied as evidence for the action proposed. The notice also proposed to penalize the Directors of Global and partners of Priya.
xxxxx xxxxxxx xxxxx xxx In this connection, I would like to observe that even as per the version of officers who effected seizure of the impugned goods that they were made aware of the foreign origin of the granules only by the foreign markings on the bags in which the granules were packed. Thus, the officers were not sure as to whether the contents were of foreign origin or not. Secondly, the offending nature of the goods was as told and admitted by one Shri David who was a security. To my mind, nay, even to a person of reasonable disposition, evidence of such incriminating nature cannot be vouched by a security staff. Thirdly, neither Shri Muralidharan nor any other staff admitted to the offending nature of goods. Fourth, though samples were drawn for test under test memos addressed to the Chemical Examiner, Customs House, Chennai, the result of chemical test is not known. Under these circumstances, I have no reason to hold that the goods seized were imported plastic granules belonging to Global. Since right from inception Global and Priya had been maintaining that the goods seized were reprocessed granules, I agree that the goods are as they said and not as alleged in the notice. 14.7 The Honble Supreme Court in the case of Polyglass Acrylic Manufacturing Co. Ltd. Vs. Commissioner of Customs, Vishakapatnam 2003 (153) ELT 276 (SC) observed that test report obtained at the instance of the Department itself had great force and it should not have been ignored. In the case of M.P. Industries Vs. Commissioner of Customs (Port), Kolkata 2002 (145) ELT 448, the Tribunal held that report of the Departmental Chemist / Chief Chemist cannot be brushed aside without giving any reason and is to be preferred to opinion of outside agencies. In the case of CIBA Speciality Chemicals Ltd. Vs. CCE 2000 (119) ELT 358, it has been observed that the report of the chemical examiner being relevant for classification of products in dispute. In view of that, we agree with the finding of the Adjudicating authority. It is also on record that the Assessee cleared the quantity of 4265 MTs waste and rejects during the material period.
14.8 Revenue in the grounds of appeal contended that the adjudicating authority should not have allowed cross-examination of M/s. Seven Seas Polymers and M/s. Lakosha Polymers as they are co-noticees and penalty had been proposed. It is contended by Revenue in their appeal that the voluntary statements recorded under Section 108 of the Act, 1962 given before the officers of customs were not mere oral evidence. It is also stated that the statement given by various persons were corroborated by documents. Revenue relied upon the decision of the Honble Supreme Court in the case of Surjeet Singh Chabra Vs. Union of India 1997 (89) ELT 6426 (SC) wherein it has been held that confessional statement made before the customs officer though retracted within six days is an admission and binding since customs officers are not police officers. They have relied upon the decision of the Honble Supreme Court in the case of Vinod Solanki Vs. Union of India 2009 (223) ELT 157 (SC). In both the cases, there is no observation that cross-examination is not permissible. It was strongly relied upon the decision of the Honble Supreme Court in the case of Commissioner of Customs, Madras Vs. D. Bhoormul 1983 (13) ELT 1546 (SC). In that case, the issue involved is that the effect of application of Section 106 of Evidence Act to cases under Section 167(8) of the Sea Customs Act which relates to discharge of burden of proof. We have already stated that after considering the evidences, in the present case, the investigating officers had failed to establish the alleged clandestine removal of plastic granules, by adducing sufficient and cogent evidences. In view of the decision of the Honble Kerala High Court in the case of P.V. Vargheese (supra), the third party statement should be tested in cross-examination and as such we are unable to accept the contention of Revenue that the adjudicating authority should not allow the cross-examination. Apart from that, the purpose of cross-examination is to find out the truth and detection of falsehood in human testimony. It is well settled that the adverse party have a right to cross-examine and in the facts and circumstances of the present case, the adjudicating authority righty had given such opportunity to do so.
14.9 In this context, the observation of the Tribunal in the case of Tejwal Dyestuff Industries Vs. CCE, Ahmedabad - 2007 (216) ELT 310 (Tri Ahmd.) may be referred as under:-
It appears that, having obtained confessional statements the Revenue Officers did not carry out the detailed investigation into the relevant aspects of the case, particularly, the Bank accounts of Bhimanis and the working of the assessees factory. Recording of the confessional statement would not put an end to the investigation and the Revenue Officers should be careful to ensure that they are not tricked out of a regular and detailed investigation by making strategic confessions which are retracted by preparing affidavits soon after they are made and which affidavits are again strategically withheld from the Revenue Officers, so that they become complacent and do not carry out a fuller investigation. It appears that the Revenue Officers in the present case have fallen victim to this type of strategic confessional statements which have been retracted soon after they were made in the affidavits which were withheld by the deponents till the proceedings came up before the Commissioner, by which time the damage of not a making fuller investigation, thinking that the confessional statements are made and not retracted, was already done. The Revenue Officers have not even cared to investigate into the types of final products manufactured by the appellants despite detailed declarations which were on record with them, which showed that all these inputs, particularly LAB and Soda Ash were being used by them for their final products. Some of these declarations which are on record as Annexure A (Collectively) show that at least for seven final products, LAB and Soda Ash were used as inputs, besides other inputs enumerated in the description of inputs in the declarations dated 22-2-1999, 3-4-2000, 12-4-2000, and 12-6-2000. It is not disputed that the returns were regularly filed and the fact that these inputs were used for the final products was mentioned from the very inception in the declarations made and the returns filed by the assessee before the Revenue authorities. The copies of monthly returns filed under Rule 7 of the Cenvat Credit Rules, 2001, which are on record, show the use of these inputs in the final products manufactured by the assessee. The receipt of these inputs in the factory premises of the assessee having been established, coupled with the fact that, as per the declarations and returns and other statutory record, the inputs were in fact used in the final products by the assessee, the lethargy of the Revenue Officers in not verifying the relevant statutory records and invoices, as to what exact quantity of raw material was used in the final products, and that in how many final products such inputs could have been used, existence of the particulars in the RG-23 Register reflecting the invoices and the existence of octroi receipts as also the expert opinion in respect of LAB having been used in the final product, altogether create a doubt as to the correctness of the contents of the statements of Naresh, Hitesh and Ilesh. The pre-ponderance of probabilities in the context of all other evidence vis-a-vis the confessional statements does not lead to the conclusion of inadmissibility of Modvat/Cenvat credit as reached by the Commissioner. 14.10 In the present appeal, the main thrust of the Revenue is that the investigating officers conducted searches of 40 premises from 18.1.2001 and ending on 8.9.2001 and recorded 51 statement of various persons. There is seizure of voluminous records recovered from various premises and on that basis the charges were framed in show-cause notice. The charges were framed, mainly on clandestine removal of duty-free imported plastic granules from warehouse and sold in DTA and the export of bogus consignment. On the other hand, the Assessee submitted that 40 premises were searched but not a single gram of duty-free imported granules was found. Similarly, the goods were exported on different dates under the supervision of Central Excise officers and properly sealed, accompanied with about 367 numbers of AR4s, packing list, export invoice and not a single consignment was found as bogus items. Department made correspondence with foreign buyer, which was not disclosed in show-cause notice. Perhaps, the investigating officers were under impression that the statements and seizure of documents are sufficient to establish the charges and ignored the vital aspects of the case. The Assessee is a 100% EOU and the main condition of exemption Notification No. 53/97-Cus. (supra) is the imports, clearance, export, transfer and usage of the goods and goods manufactured thereupon and the net foreign exchange earning as a percentage of export shall be subject to the conditions of Export and Import Policy. The Assessee have earned net foreign exchange as per EXIM Policy and accepted by the Development Commissioner. The receipt of duty-free material and export of goods under the supervision of Central Excise Officers cannot be brushed aside mainly on the basis of the statements of third party and documents recovered from their premises, when the buyer of the export goods was not examined and therefore the charge of clandestine removal is not sustainable.
14.11 It is well settled that the onus lies with the Revenue in respect of charge of clandestine and it can be shifted to Assessee only when they are confronted with documentary evidences indicating clandestine activities on their part. Removal of clandestine goods must be established on the basis of tangible and cogent evidence insofar as concrete, direct and authenticated evidence and cannot be on the strength of assumption and presumption. On the other hand, the Assessee can discharge their onus and the preponderance of probability, would be applicable on both sides. The learned Counsel submitted that the Revenue proceeded on the basis of corroborative evidence and supporting evidence gathered during the investigation. The learned Senior Advocate heavily relied on substantive evidences of the statements of the Central Excise officers before the Adjudicating authority along with cross-examination of various persons amongst other materials, to contradict the corroborating evidences placed by the Revenue, which would be more reliable than the corroborative evidence of the third party statements and documents recovered from their premises. Revenue contended that the Department had a strong and meritorious case had the adjudicating authority chose to apply the standard proof of preponderance of probability, which the adjudicating authority failed to do so. Revenue relied on the decision of the Honble Madras High Court in the case of Santhanam Vs. Collector of Customs, Madurai 1995 (79) ELT 564 (Mad.) and the decision of the Honble Supreme Court in the case of Collector of Customs, Madras & Others Vs. D. Bhoormull 1983 (13) ELT 1546 (SC). In the case of Santhanam (supra), the issue involved is that principle of natural justice have been violated, inasmuch as the statement recorded from several persons have been relied upon, without furnishing a copy of statements to the petitioner. In the case of D. Bhoormull (supra), the issue involved is that the effect of application of Section 106 of Evidence Act to cases under Section 167(8) of the Sea Customs Act, which relates to discharge of burden of proof. In the facts and circumstances of the present case, both the case laws relied by the Revenue are not applicable, as stated above.
15. Revenue in the grounds of appeal stated that the manipulation of statutory production reveals so as to show excess production and excess export. Revenue in their appeal contended that the packing material purchased was not in proportion to the quantity exported. It is also contended that the Assessee had not informed them that they had such carton printing machines. The Assessee in their reply to show-cause notice stated that Shri Muralitharan, M.D. of the Assessee in his statement dated 12.1.2001 stated that they had as many as 24 machineries and the investigating officers failed to prepare mahazar to record number of machines available. It is also contended by the Assessee in their reply that the physical stocks of raw materials and finished goods were verified and compared with statutory records and no discrepancy was found and it was not recorded in mahazar. We find that during the said period of about one year and four months, admittedly, the Assessee received the imported duty-free materials under cover of 300 Bills of Entry on various dates and cleared export of goods accompanied with 367 AR4s on different dates. There is no dispute that the import and export of the factory of the Assessee were supervised by the Central Excise officer and they verified the registers and noticed the manufacturing activities and therefore we do not find any force on the submissions of the Revenue.
15.1 The Assessee is a 100% EOU and the unit. It is seen from the deposition of the Central Excise officers, as stated above, that they had supervised the export and import of the goods and also visited the factory and examined manufacturing hall on several occasions. It is situated about 1 kilometer from Central Excise Division Office, the burden of proof heavily lies on the Department. The learned Senior Advocate relied upon the following case laws:-
(a) LML Ltd. Vs. Collector of Central Excise 1991 (51) ELT 434
(b) Balkrishnan Industries Vs. Commissioner of Central Excise, Aurangabad 2001 (135) ELT 368
(c) Leather Chemicals & Industries Ltd. Calcutta Vs. Collector of Central Excise, Calcutta 1984 (15) ELT 451
(d) Reliance Industries Ltd. Vs. Collector of Central Excise, Mumbai 1999 (112) ELT 653
(e) A. Rathinam Proprietor, Michael Match Works Vs. Collector of Central Excise 1992 (60) ELT 451
(f) Kale Khan Mohd. Hanif Vs. Collector of Central Excise, Nagpur 2001 (132) ELT 374 In all these cases, the Tribunal had observed that the Central Excise officers visited the factory of the Assessee as it was in physical control by the Department. So, it cannot be concluded that there has been deliberate suppression of facts with intent to evade payment of duty. In the present case, after considering the deposition of the Central Excise officers, as stated above, that the Departmental officers were in a position to have sufficient knowledge of the process of manufacture, receipt of raw materials and clearance of finished product.
16. Revenue in their appeal contended that the adjudicating authority had not followed the direction of Settlement Commission. It is stated that the observation of the Settlement Commissioner, while rejecting the case, were not duly considered and appreciated by the adjudicating authority in the impugned order. We find from Order No. 24/2004-Cus. dated 12.3.2004 of the Settlement Commission that the Assessee pleaded before the Settlement Commission that in order to buy the peace and settle the issue, the Assessee admitted the liability of Rs.71,63,397.27. The admission was based on theoretical calculation that the international practice, a tolerance limit of (+) or (-) 5% is allowed in every consignment of export, and it was worked out across the board a 5% of the export quantity of 6,662.303 MT during the material period i.e. 333.115 MT as not exported and duty liability admitted to Rs.71,63,397.27. It appears that such theoretical calculation, as without any basis was not accepted by the Commission as true, fair and bonafide disclosure as condition precedent to settle the case. It is observed by the Settlement Commission that when the Assessee disputed the very basis of the show-cause notice, it is not understood how and why suddenly they should come forward with a disclosure that on many occasions they had taken undue advantage of the weight tolerance in terms of the international trade practice and that since they are not able to identify the specific occasions consignment wise when such advantage was taken. The findings of the Settlement Commission are reproduced below:-
This, however, is not to express any opinion on the legal validity of the various pleas raised against the allegations in the SCN, which allegations have to be proved by Revenue as per law and based on acceptable evidence. On the other hand, the Bench finds that the Revenue has also let in very many evidences in the form of seized documents, statements of the employees of the applicant-company, the applicants, the manufacturers of plastic bags, job workers and reprocessors who had claimed to have purchased granules from the applicant, suppliers of other raw materials such as master batches who had stated that they received granules from the applicant in exchange for master batches sold, other corroborating documents, etc. which have to be tested on the touch stone of admissibility as evidence by in-depth inquiry, including by way of cross-examination. This could be achieved only at a regular, adjudication forum, and not at the Settlement Commission, whose wherewithal is very limited. As a result, the Bench is not persuaded to accept the liability of Rs.71,63,397.27 as full and true liability of the main applicant-company, for admission of this application. This is, as already stated above, without any prejudice to the legal validity and the correctness of the pleas raised by the applicant against the allegations in the SCN and their plea that the notice has not adduced adequate and acceptable evidence in support of the said allegations, on all of which the Bench refrains from any view. In view of the above, we are unable to accept the contention of the Revenue that the adjudicating authority had not considered the observation of the Settlement Commission. In other words, the adjudicating authority tested the case on the touch stone of admissibility as evidence by in-depth inquiry, including by way of cross-examination as observed by the Settlement Commission. The Settlement Commission observed that there is no voluntary disclosure on the part of the Assessee.
17. It is contended by Revenue in the appeal that the adjudicating authority did not counter each and every specific allegations leveled against the respondents in the two show-cause notices covered in the impugned order and therefore it is a non-speaking order. They have relied upon the decision of the Honble Supreme Court in the case of TELCO Vs. CCE 2006 (203) ELT 360 (SC) and Nestle India Ltd. Vs. CCE 2009 (235) ELT 577 (SC). In the case of TELCO (supra), the Honble Supreme Court observed that the Tribunal concluded the matter with one line against the appellant-assessee by observing while it is not the case of the assessee that the goods were so used and the Honble Supreme Court further observed that the finding arrived by the Tribunal, being cryptic and non-speaking, is set aside. In the case of Nestle (supra), the Honble Supreme Court observed that the decision of the Tribunal is cryptic. It does not deal with the points which are specifically raised by the assessee in its appeals filed before the Tribunal. It is observed that the Tribunal failed to examine the contention of the assessee that no evidence has been led by the Department to show that the recipe is marketable.
17.1 There is no dispute that the order must be based on reason and it has the link between the materials on which certain conclusion are based and the actual conclusion. Fair play requires recording of germane and relevant precise reasons when an order affects the right of a citizen or a person. It also aids the appellate authority to see whether the order was passed fairly and justly to meet out the justice to the aggrieved person. It requires proper, adequate reasons to deal with the substantial points which have been raised. In the present case, the substantial points raised by Revenue in their show-cause notice in three aspects namely, raw materials diversion, manipulation of production and manipulation of exports. We find that the adjudicating authority dealt with all the aspects on the basis of materials placed before him in the show-cause notice, reply to the show-cause notice, deposition in the cross-examination and other relevant materials as discussed above. In view of that, we are unable to accept that the impugned order is a non-speaking order.
17.2 On perusal of the records, we find that the Assessee in their reply to show-cause notice and written submission before the Tribunal attempted to refute the charges by para-wise comments. The adjudicating authority had also considered the depositions made during cross-examination. The decision of the Honble Supreme Court in the case of Vinod Solanki (supra) though relied upon by the Revenue, would help the Assessee. In that case, the Honble Supreme Court observed as under:-
In the instant case, the Investigating Officers did not examine themselves. The authorities under the Act as also the Tribunal did not arrive at a finding upon application of their mind to the retraction and rejected the same upon assigning cogent and valid reasons therefor. Whereas mere retraction of a confession may not be sufficient to make the confessional statement irrelevant for the purpose of a proceeding in a criminal case or a quasi criminal case but there cannot be any doubt whatsoever that the court is obligated to take into consideration the pros and cons of both the confession and retraction made by the accused. It is one thing to say that a retracted confession is used as a corroborative piece of evidence to record a finding of guilt but it is another thing to say that such a finding is arrived at only on the basis of such confession although retracted at a later stage. In that case (i.e. Vinod Solanki), the Tribunal proceeded on the basis of issuance and service of a show-cause notice subserves the requirement of law only because by reason thereof an opportunity was afforded to the appellant to submit its explanation. The Honble Supreme Court allowed the appeal of Vinod Solanki as the Tribunal had proceeded on the basis of show-cause notice and had not considered the statement made by the appellant before the learned Chief Metropolitan Magistrate.
18. It is further contended by Revenue in their appeal that the adjudicating authority has lamented that the Department had sent a letter to the Enforcement Directorate after six months of issue of show-cause notice, whereas in the last 10 years period, while the Assessee had moved application before the Settlement Commission and later filed appeal with the High Court, Mr. Armid Fried and the so called M/s. Singapore Trading Companies never came forward to explain the allegations. The adjudicating authority had given undue weightage for realization of sale proceeds as per communication of Enforcement Directorate letter dated 8.2.2012. Revenue relied on the decision of the Honble Supreme Court in the case of P.V. Mohammad Barney Son Vs. Directorate of Enforcement 1992 (61) ELT 337 (SC), which is in respect of imposition of penalty and held that the Customs Act and FERA operates under different fields and dropping of procedure under one Act is not barring imposition of penalty under the Customs Act. In the present case, we find that the adjudicating authority had considered the finding of Development Commissioner insofar as the Assessee achieved net foreign exchange as per EXIM Policy, which is required to fulfill one of the conditions of exemption notification. Hence, the enquiry of Enforcement Directorate has certainly a persuasive value in the present case. So, the case law relied upon by Revenue is not applicable in the facts and circumstances of this case. Further, the investigating officers had failed to conduct any enquiry with the foreign buyer and the correspondences with the foreign buyer as referred in the adjudication order was not disclosed in the show-cause notice and even in the appeal before the Tribunal, and such burden cannot be shifted on the Assessee. In this context, it must be noted that there may be error of appreciation of facts and law by the adjudicating authority, which would be cured by the appellate forum as per our legal system and therefore such expression towards the Adjudicating authority who passed the adjudication order in exercise of quasi-judicial power is not proper. The Tribunal in the case of Indian Petrochemicals Ltd. Vs. Collector of Central Excise 1992 (61) ELT 138 (T) observed as under:-
In the face of the officials having physical control and the records being checked and scrutinised every day and in that event to hold that there is a calculated fraud with connivance of the officials of the Department does not behold to the status of the learned Collector. It is now well settled that the adjudicating officers or Appellate Court should use temperate language and as held in the case of Iswari Prasad Misra v. Mohammad Isa as reported in AIR 1963 S.C. 1728 and it has also been held that use of unduly strong words in expressing conclusions or adopting of intemperate or extravagant criticism against contrary view should be avoided. 18.1 The Honble Supreme Court in the case of Oryx Fisheries Ltd. Vs. Union of India 2011 (266) ELT 422 (SC), though relied upon by the Revenue, in our view, again, would help the Assessee. In that case, the Honble Court quashed the show-cause notice and the order of the authority. Show-cause notice was issued to show cause why their certificate of registration should not be cancelled. The authority passed an order and cancelled the registration certificate without giving any reasons, which was upheld by the Appellate Authority. High Court dismissed the writ petition filed by the appellant. Thus, Special Leave Petition was filed before the Honble Supreme Court. The observation of the Honble Supreme Court are as under:-
24 .It is well settled that a quasi-judicial authority, while acting in exercise of its statutory power must act fairly and must act with an open mind while initiating a show cause proceeding. A show cause proceeding is meant to give the person proceeded against a reasonable opportunity of making his objection against the proposed charges indicated in the notice.
25 Expressions like a reasonable opportunity of making objection or a reasonable opportunity of defence have come up for consideration before this Court in the context of several statutes.
26. A Constitution Bench of this Court in Khem Chand v. Union of India and Others, reported in AIR 1958 SC 300, of course in the context of service jurisprudence, reiterated certain principles which are applicable in the present case also.
27 Chief Justice S.R. Das speaking for the unanimous Constitution Bench in Khem Chand (supra) held that the concept of reasonable opportunity' includes various safeguards and one of them, in the words of the learned Chief Justice, is :
(a) An opportunity to deny his guilt and establish his innocence, which he can only do if he is told what the charges leveled against him are and the allegations on which such charges are based; 28 .It is no doubt true that at the stage of show cause, the person proceeded against must be told the charges against him so that he can take his defence and prove his innocence. It is obvious that at that stage the authority issuing the charge-sheet, cannot, instead of telling him the charges, confront him with definite conclusions of his alleged guilt.
xxxx xxxx xxxxx xxxxx xxxx xxxxx
33. The principle that justice must not only be done but it must eminently appear to be done as well is equally applicable to quasi judicial proceeding if such a proceeding has to inspire confidence in the mind of those who are subject to it. There is no doubt that the Revenue would defend the allegations made in the show cause. On the other hand, the exercise of quasi-judicial power of the adjudicating authority must not be arbitrary and vague, but legal and regular. It is important, in this context, the adjudicating authority entrusted to exercise quasi-judicial power in a rational and reasonable manner and not merely to defend the allegation of show-cause notice as held by the Honble Supreme Court in the above case.
19. The Assessee filed cross-objection aggrieved with the impugned order insofar as the adjudicating authority overruled the preliminary objection of the Assessee on validity of Show Cause Notice dated 26/3/2002 issued by the Superintendent of Central Excise (SPAC) proposing demand of Customs duty of Rs.16,13,10,303/- under Section 72 read with 3rd proviso to Section 28 (1) of the Customs Act 1962. It is mentioned in the show-cause notice that the Notice was issued with the prior approval of the Chief Commissioner of Central Excise, Chennai. The Assessee took a stand before the adjudicating authority that the show cause notice is not valid as it was issued in contravention of third proviso to sub-section (1) of Section 28 of the Customs Act, 1962. The Adjudicating authority observed that the decisions cited by the Assessee were not in the context of statutory provisions as it existed at the time of issue of notice and overruled the preliminary objection on the ground that the adjudication of a notice should be done only by the adjudicating authority who is competent to decide the case.
19.1 For the purpose of proper appreciation of the case, Section 28 of the Act 1962 as it stood during the relevant time is reproduced below :-
SECTION - 28. Notice for payment of duties, interest etc. ---- (1) When any duty has not been levied or has been short-levied or erroneously re-funded, or when any interest payable has not. been paid, part paid or erroneously refunded, the proper officer :may, -
(a) in the case of any import made by any individual for his personal use or by any individual for his personal use or by Government or by any educational, research or charitable institution or hospital, within one year,
(b) in any other case, within six months from the relevant date, serve notice on the person chargeable with the duty, or interest which has not been levied or charged or which has been so short-levied or part paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice :
Provided that where any duty has not been levied or has been short-levied or the interest has not been charged or has been part paid or the duty of interest has been erroneously refunded by reason of collusion or any willful misstatement or suppression of facts by the importer or the exporter or the agent or employee of the importer or exporter, the provisions of this sub-section shall have effect as if for the words "one year" and "six months", the words "five years" were substituted.
Provided further that where the amount of duty which has not been levied or has been short-levied or erroneously refunded or the interest payable has not been paid, part paid or erroneously refunded is one crore rupees or less, a notice under this sub-section shall be served by the Commissioner of Customs or with his prior approval by any officer subordinate to him :
Provided also that where the amount of duty which has not been levied or has been short-levied or erroneously refunded or the interest payable thereon has not been paid, part paid or erroneously refunded is more than one crore rupees, no notice under this sub-section shall be served except with the prior approval of the Chief Commissioner of Customs.
19.2 During the course of hearing before the Tribunal, the learned Special Counsel on behalf of Revenue placed a compilation of the Statutory Provisions for Issue of Show Cause Notice Finance Act, 2000 Commissioner Order dated 20.7.2011, as under:-
(a) By letter C.No. IV/16/4/2000-Adjn. dated 27.6.2000, the Commissioner of Customs and Central Excise, Madurai addressed to the Assistant/Deputy Commissioner of Central Excise, in-charge of Divisions issued instruction in respect of issue of SCN under the amended provisions of Section 11A. It was directed to follow the instruction for strict compliance. It is stated in the said letter that as the concurrence by the Commissioner or Chief Commissioner, based on monetary limit, has become part of law for purpose of issue of Notice, it is incumbent for the purpose of legal validity of the notice, it should be mentioned at the end of the notice to the effect that this notice is issued with the approval of the Commissioner/Chief Commissioner.
(b) Office Order No. 6/2001 dated 7.6.2001 was issued by the Commissioner of Central Excise, Madurai on re-organization of the work in Headquarters. It is stated in the said order that a new Section known as Show Cause Notice Prior Approval Cell (SPAC) is formed with 4 Superintendents and necessary supporting staff. This section will be responsible for the processing of Show Cause Notices for taking approval of the Commissioner or Chief Commissioner, as the case may be, as provided under Section 11(A) of the Central Excise Act and Section 28 of the Customs Act. This will include all the draft show-cause notices forwarded by the Divisions and the headquarters Sections (HPU), Audit etc.
(c) Office Order dated 18.7.2001 vide C.No. IV/6/7/2001-SPAC was issued by the Deputy Commissioner (SPAC), Madurai on allocation of work among staff of the SPAC. The Superintendent who issued the present Show Cause Notice, was allocated the work of processing of proposals and concurrence (received for concurrence and issue of SCN and denova notice) in respect of Division: Dindigul and Virudhunagar including HPU (Headquarters Preventive Unit) cases of above Divisions.
(d) Commissioner of Central Excise, Madurai, vide Establishment Order No. 91/2001 dated 20.7.2001 allocated charges among DC/AC and one Deputy Commissioner was allocated for the work of Preventive, Service Tax, Statistics, SPAC and Training.
19.3 On the basis of the above Office Orders, the learned Special Counsel submitted that the Superintendent who has signed the present show-cause notice, assigned the work of issue of show-cause notice in respect of Dindigul and Virudhunagar including cases of Headquarters Preventive Unit. Hence, the Superintendent was competent to issue the show-cause notice, once the same was approved by the Chief Commissioner. In support of his contention the learned Special Counsel placed a copy of the letter C.No. V/39/15/6/MDU/2002-CZO dt. 08.03.2002 issued by the Additional Commissioner (CCO), O/o the Chief Commissioner of Central Excise, Chennai. The relevant portion of the said letter is reproduced below:-
The Chief Commissioner, after careful consideration of the proposal and after satisfying that there exist a prima facie case for issue of show-cause notice to M/s. Global Poly Bags Industries (P) Ltd. Virudhunagar, accorded necessary approval for the same under third proviso to Section 11A(1) of the Central Excise Act, 1944.
19.4 In addition to that, the learned Special Counsel placed affidavit dated 18.7.2014 of the Chief Commissioner of Customs (Preventive), Trichy confirming the fact that the Chief Commissioner of Central Excise, Chennai, after careful consideration of the proposals and satisfying himself that there existed a prima facie case for issue of notice to M/s. Global Polybags Industries P. Ltd and accorded his approval for issue of notice and the same was communicated vide C. No. V/39/15/6/MDU/2002-CZO dated 8.3.2002. The affidavit of the Chief Commissioner is only to confirm the letter dated 8.3.2002 of the Additional Commissioner of Central Excise as mentioned above.
19.5 On the basis of the above documents, the learned Special Counsel submits that the approval of the show-cause notice as a whole was given by the Chief Commissioner of Central Excise, is legal and no infirmity can be found in this regard. The learned Special Counsel placed File bearing No.V/39/15/269/2001-SPAC-Vol.-I from the O/o Commissioner of Central Excise, Madurai and particularly drew the attention of the Bench the letter dated 8.3.2002 issued by the Additional Commissioner as mentioned above. On a query from the Bench, as to whether the original File of letter dated 8.3.2002 is available, the learned Special Counsel fairly submits that the said file is not traceable due to change of office of the Chief Commissioner.
20. On the other hand, the learned Senior Advocate on behalf of the Assessee on the preliminary issue submits as under:-
a) The Superintendent of Central Excise has neither the competence nor the jurisdiction to issue the present show cause notice. Section 2 (34) of the Customs Act, 1962 defines a "Proper Officer" as in relation to any functions to be performed under this Act, means the officer of the customs who is assigned those functions by the Board or the Commissioner of Customs.
b) Section 2 (b) of the Central Excise Act, 1944 defines a Central Excise Officer which includes "any other officers of the Central Excise Department".
c) The Board's Circular No.F.No.437/8/910Cus-IV dated 13.5.1992 as partially amended vide circular No.47/97-Cus dated 6.10.1997 also emphasized that proceedings under the extended period of limitation for demanding duties through show cause notices can be issued by the Commissioner of Customs and the cases decided only by them. Modifications, if any, have been only in the limited extent of low revenue matters where it could be issued and adjudicated by the Additional commissioner.
(d) Relied upon the decision of the Honble Supreme Court in the case of Commissioner of Income Tax, Bihar & Orissa Vs. Maharam Pratapsingh Bahadur of Gidhaur, (1961) 2 SCR 760 / AIR 1961 SC 1026 / (1961) 41 ITR 421, wherein the Honble Court held that when the statute is enjoining a duty upon the Income Tax officer to obtain prior approval of the Commissioner and unless that approval was obtained, the notice could not be issued. The notices were thus invalid.
(e) Relied on in the case of Gujarat State Fertilizer Vs Union of India 1988 (34) ELT 442 (Guj.) wherein the High Court was pleased to hold that show cause notice under the extended period of limitation can be issued only by the Jurisdictional Commissioner and not by the Superintendent of Central Excise.
(f) The Larger Bench of the Tribunal in the case of H.Guru Instruments Vs Collector of Central Excise 1989 (40) ELT 180 (T) following the Gujarat High Court decision held that show cause notices issued by any officer other than the Commissioner would be illegal and the proceedings untenable. He also relied on the Larger Bench, in the case of LML Ltd. Vs Collector of Central Excise 1991 (51) ELT 434 (T).
21. On a plain reading of 3rd proviso to Section 28(1) of the Customs Act, 1962, as it stood during the relevant time, we find that it is mandatory that where the amount of demand of duty is more than Rs. One crore, no notice under this sub-section shall be served except with the prior approval of the Chief Commissioner of Customs. In the present case the demand of customs duty of Rs.16,13,10,303/- under Section 28(1) of the said Act vide show-cause notice dated 20.6.2002 shall be served with the prior approval of the Chief Commissioner of Customs. It is clearly evident from the letter dated 8.3.2002 of the Additional Commissioner (CCO) of the O/o Chief Commissioner of Central Excise as placed by the Learned Special Counsel that the Chief Commissioner of Central Excise had accorded necessary approval under the third proviso to Section 11A(1) of the Central Excise Act, 1944. There is no indication in the said letter that the approval was also accorded under 3rd proviso to Section 28(1) of the Customs Act, 1962.
21.1 We are unable to accept the submission of the learned Special Counsel that the Superintendent of Central Excise was delegated power to issue the show-cause notice vide Office Order dated 18.7.2001. This is clear from the order dated 7.6.2001 of the Commissioner that the new Section known as Show Cause Notice Prior Approval (SPAC) will be responsible for the processing of Show Cause Notice for taking approval of the Commissioner or Chief commissioner. Further, the Commissioner, by Establishment Order No. 91/2001 dated 20.7.2001 allocated the Deputy Commissioner to monitor the works allocated to the Superintendent of new Section SPAC. The Superintendent would process the proposal and concurrence received for issue of SCN and denova notice in respect of the Division, which would be monitored by the Deputy Commissioner of Central Excise. It is settled rule of interpretation that where express provisions were made in the statute to exercise the power by a particular person then the doctrine of implied power cannot be invoked. After amendment of provisions of Section 28 of Act, 1962 and Section 11A of the Act, 1944, the Commissioner of Central Excise, Madurai, by letter dated 27.6.2000 stated that the concurrence by the Commissioner or Chief Commissioner based on monetary limit has become part of law for the purpose of issue of notice. So, we are unable to accept the submission of the learned Special Counsel that the Superintendent is empowered to issue the show-cause notice. The action of Superintendent to issue notice demanding duty under Section 28(1) of the Act, 1962 vide Notice dated 26.3.2002 is contrary to the provisions of law.
21.2 However, in our opinion the other aspect of this issue is required to be examined. We find that show-cause notice was issued on 20.6.2002. The Assessee was allowed to cross-examine various persons in the year 2003. It is seen that the assessee cross-examined various persons and also filed reply to show-cause notice and attended personal hearing before the adjudicating authority. They have contested the show-cause notice on merit and the preliminary issue as stated above. The adjudicating authority dropped the Show Cause Notices on merit. Taking into account of the overall facts and circumstances of this peculiar case, in our considered view, the show-cause notice cannot be dropped only on the jurisdiction point, when the assessee contested the demand on merit as well as availed the opportunity of cross-examination of various persons as prayed for. We make it clear that this order would not become a precedent that the Show Cause Notice issued beyond jurisdiction, would be held valid by the appellate authorities.
22. Regarding the demand of Central Excise duty, it has further been alleged that the Assessee cleared carry bags sold to DTA without accounting and payment of central excise duty of Rs.4,61,692/- and it is based on out-passes of the Assessee to its sister unit. This was supported by the statement dated 15.6.2001 of Shri Arun Thangam, Director of M/s. Seven Seas Polymers (P) Ltd. The Assessee in their reply to show-cause notice stated that they have not sold plastic bags, but waste and rejects to M/s. Priya, who tried to segregate the good one and on test basis effected a few sales as seconds, which was not find good market and the idea was dropped. The evidence relied upon by the Revenue would show clearances of carry bags seconds. Apparently, the statement of Shri Arun Thangam is not corroborating with evidence. Further, Shri Arun Thangam in his deposition during cross-examination stated that he has not received any plastic carry bags from the Assessee. So, the allegation of clearance of plastic carry bags is on the basis of statement and the demand of central excise duty is not sustainable.
23. We find force in the submission of the learned Special Counsel that the percentages of Waste and Rejects appear to be excessive should be examined. Revenue contended in their appeal that the Assessee had obtained permission for the first time for clearance of 216.250 MTs of rejects and 230.050 MTs of waste from the jurisdictional Assistant Commissioner only on 14.2.2000 and they effected sale of rejects to DTA much before the date of permission from the Assistant Commissioner. It is also stated that the Assessee had obtained approval from the Development Commissioner, MEPZ, increasing the percentage of waste only after the investigation of the Preventive Unit on 12.1.2001. The Assessee in their reply stated that they were averaging the waste around 17% and hence the matter was referred to MEPZ. So, this issue is required to be examined as per EXIM Policy.
23.1 In the case of L.R. Brothers Indo Flora Ltd. Vs. Commissioner of Customs 2008 (232) ELT 77, the Tribunal held as under:-
5.?We have given careful consideration to the submissions of both the sides. There is no dispute about the fact that the duty exemption under Notification No. 126/94-Cus. and 136/94-C.E. is available subject to certain conditions - i.e. meeting the export obligation within the stipulated period and achieving the net positive foreign exchange earning. The point of dispute is as to who is to determine as to whether a 100% EOU has fulfilled the conditions regarding meeting the export obligation and achieving net positive foreign exchange earning. We find that on this very issue, the Tribunal in the case of Vishal Footwear Ltd. v. CC, New Delhi reported in 1999(114) E.L.T. 60, relying upon the Boards circular No. 29/95-Cus dated 10-3-95 has held that it is only when the Board of Approval or Development Commissioner arrives at a find that the EOU has failed to fulfil export obligation that duty demand can be confirmed by the customs authorities and when no such conclusion has been arrived at by the Development Commissioner, the Customs Commissioners order confirming the duty demand on the capital goods is not sustainable. The Boards circular No. 29/95-Cus., which has been relied upon in this order is reproduced below:-
Issue of show cause notice for recovery of customs duty on goods imported by 100% EOU :
A number of instances have come to the notice of the Board where 100% EOUs had imported capital goods, raw materials and other permissible items under Notification No. 13/81-Cus/ dated 9-2-81 but have failed to export any goods or have closed down after exporting a few consignments. A question has been raised as to the stage at which the customs authorities should proceed to recover duties on imported goods and other goods lying in the factory premises of the 100% EOU.
The matter has been examined by the Board in the context of an Audit objection and I am directed to say that the Board has taken a view that liability of customs duties on goods imported by 100% EOUs arises either at the stage of the unit being de-bonded or if any of the conditions of the exemption Notification No. 13/81, dated 9-2-81 has been violated or remains unfulfilled. In this regard, it is seen that one of the conditions of the exemption notification is that the importer exports out of India 100% or such other percentage, as may be fixed by the Board of articles manufactured wholly or partly from the goods for the period stipulated by the Board or such extended period as may be specified by the said Board. It is thus clear that if the Board of Approval or the Development Commissioner concerned determines that the units failed to export the fixed percentage of articles for the specified period, then in such case it may be held that the conditions of the exemption notification has been violated. At this stage, it will be open for this Department to issue a show cause notice to the unit for demanding the due duty on the imported goods.
Normally the customs authorities should immediately inform the Development Commissioner in case a 100% EOU ceases production prematurely or fails to commence production or export within the stipulated period. In case the Development Commissioner initiates action against the unit for non-fulfilment of export obligation etc. simultaneously, the customs authorities should issue show cause notice for failure to comply with conditions of Notification 13/81-Cus., dated 9-2-81. The demand of duty should be confirmed only after a definite conclusion has been arrived at by the Development Commissioner.
xxxxx xxxxxx xxxxxx xxxxx We, therefore, set aside the impugned order and remand the matter to the Commissioner for de novo adjudication of this matter after ascertaining from the Development Commissioner/Board of Approval about their decision with regard to the question of fulfilment of the export obligation and achieving NFEP. The show cause notice issued to the appellant is to be adjudicated only after the Development Commissioner/Board of Approval gives the findings on the issue of meeting the export obligation and achieving the NFEP. The appeals are disposed of in the above terms
24. In view of the above discussions, the appeal filed by the Revenue against the Assessee under the Customs Act to confirm the demand of customs duty along with interest and penalty on 8142.57 MTs of imported Plastic Granules, we hold that, out of which the quantity used in the manufacture and export of 6662.36 MT is not sustainable, as rightly dropped by the adjudicating authority and the demand of duty on the differential quantity, cleared as Waste and Rejects as claimed by the Assessee, would be adjudicated by the Commissioner after ascertaining the finding of the Development Commissioner / Board of Approval as per EXIM Policy and the impugned order is modified accordingly. The appeals filed by the Revenue against the Assessee under the Customs Act are disposed of in the above terms. The other appeals filed by the Revenue are rejected. The appeals filed by the Assessee are disposed of with the observation as above. The Miscellaneous Application and the Cross-Objection filed by the Revenue and the Assessee are also disposed of.
(Pronounced in open court on 28.10.2014)
(R. PERIASAMI) (P.K. DAS)
Technical Member Judicial Member
Rex
90