Customs, Excise and Gold Tribunal - Tamil Nadu
B.G. Plywood Ind. (P) Ltd. And Ors. vs Cce on 13 March, 2001
Equivalent citations: 2001(96)ECR709(TRI.-CHENNAI)
ORDER S.L. Peeran, Member (J)
1. All these appeals arise from common Order-in-Original passed by Commissioner of Central Excise, Madras vide his Order-in-Original No. 63/95 dated 3.8.1995. By this order, he has confirmed a duty demand of Rs. 52,90,941/- as detailed in the show cause notice against M/s. B.G. Plywood Industries (P) Ltd. (hereinafter called M/s. BGP) under Rule 9(2) of CE Rules read with proviso to Sub Section 1 of Section 11A of CE Act, 1944 and Section 11A(2) ibid. Further, there is a penalty of Rs. 5,00,000/- on M/s. BGP under Rule 173Q of CE Rules. There is a penalty of Rs. 5000/- on M/s. B.G. & Sons (hereinafter referred as BGS) and M/s. Vijay Enterprises (hereinafter known as M/s. VE) under Rule 209A of CE Rules. A penalty of Rs. 10,000/- has been imposed on Shri Lalchand Agarwal, Director of BGP under Rule 209A of CE Rules 1944. The Commissioner had ordered for confiscation of plant and machinery of M/s. BGP under Rule 173Q of CE Rules. However, he allowed the same to be redeemed on payment of a fine of Rs. 10,000/- under Section 34 of CE Act 1944.
2. The case against M/s. BGP made out by the investigating officers, Hqrs. (Preventive), Madras is that they are manufacturers of veneer and plywood falling under Central Excise Chapter heading 4404 and 4408.90 of CE Act, 1985. A visit to their premises on 25.2.1991 and on recording of statements from persons and from some buyers, it revealed that there were three concerns namely M/s. BGP, M/s. BGS and M/s. VE managed by Lalchand Agarwal and his brothers M/s. Pawan Kumar Agarwal and Uday Kumar Mussadi and Ajay Kumar Mussadi as Directors and partners in the respective concerns. M/s. BG & Sons and M/s. VE were working as trading concerns dealing in timber. Another trading concern was also functioning under the name and style of "Lalchand Vijay Kumar" with Directors of M/s. BGP and Arun Kumar Agarwal as Partners.
3. Under letter dated 3.11.1990 and 5.11.1990 M/s. BGS and M/s. VE had sought permission from Assistant Collector for sending logs to M/s. BGP for manufacture of veneers under Rule 57(2) on job work basis. M/s. BGP too on its part filed a declaration/undertaking in respect of that job work. Permission was granted vide Assistant Commissioner's letter C. No. IV/16/4/76/9-T 2 dated 12.11.1990 and IV/16/470/90-T2 dated 7.11.1990. However, M/s. BGS and M/s. VE were only trading concerns and had no Central Excise Licences.
4. On a perusal of LRs of M/s, Gupta Transport Corporation, it was noticed that certain consignments of veneers had been removed from M/s. VE. Further, slips, GC notices, Lorry weighment slips of weigh-bridges, etc. recovered showed the despatch of the said goods from M/s. VE. There were no purchase of veneers from M/s. VE. Hence, it was considered as manufactured by M/s. BGP. Statement of Shri Shivkumar Jindal of M/s. Gupta Transport Corporation was recorded. However, it was noticed that despatches had not been entered in RG-I of M/s. BGP.
5. Further, M/s. BGP had not raised any charge on M/s. VE for the purported job work of manufacture of veneers at its factory and that no purchase of peelable logs were shown in the accounts of M/s. VE. Further, M/s. BGS or VE did not own/occupy any premises at Puduvayal from where Veneers were cleared under the factory gate pass (not CE Gate pass) of M/s. BGP and bills of M/s. BGP and of such removals were made directly to buyers thereof under the BGS's bills and that no Central Excise duty was paid. Therefore, it was gathered that M/s. BGP had clandestinely manufactured and removed veneers without payment of Central Excise duty.
6. The bills of M/s. BGS and LRs in the name of M/s. VE indicated that the veneers had been valued at Rs. 3 to Rs. 5.50 per Sq. Meter. However, in their periodical stock statement to their banks, M/s. BGP had indicated the price as Rs. 6.44 per Sq. Meter. It therefore appeared that correct value of clearances of veneers had not been taken into account by M/s. BGP. The show cause notice and the order refers to various sizes of plywood manufactured by M/s. BGP. The correspondence of M/s. BGP was also examined and found that they were manufacturing other type of plywoods like VWR plywoods, Marine plywoods under the brand "lyushman, W.R. plywoods" and supplied to various bus bodybuilders. It was also found that M/s. BGS while supplying such costly plywoods had also sent GP-I to M/s. BGP's buyers to enable them to avail Modvat. Further, the documents such as tenders, purchase orders and correspondence letters of the buyers and the bills of M/s. BGS clearly indicated the quality of plywood as BF bonded/Marine/VWR/Shuttering plywoods. The buyers with whom enquiries were made had also confirmed that the quality of plywood as bonded to be supplied to M/s. BGP under BGS bills were of PF bonded variety. The details of prices quoted in the bills of M/s. BGP from where goods had been cleared to M/s. BGS and the prices at which M/s. BGS had sold to the buyers have all been brought out in the show cause notice and in the Order-in-Original in para 11.
7. It was also found that some of the dealers of M/s. BGP who had been buying ordinary UF bonded plywood had also on some occasions placed orders on M/s. BGP for the supply of PF bonded plywood. However, sales had been made under the bills of M/s. BGS even though there was no bills evidencing purchase of PF bonded plywoods from others by M/s. BGS. Further records have been recovered evidencing production of PF bonded plywood in the factory of M/s. BGP only. Therefore, it has alleged that M/s. BGP had indulged in gross under-valuation of PF bonded plywoods manufactured and cleared from their factory. The details of the bills raised by BGP and M/s. BGS in respect of similar quality of plywoods have been underlined and brought out in para 13 of the order. Detailed enquiries were made with the sales agents and with the Vijaya Bank, Purasawalkam and Current Account of M/s. BGP/M/s. BGS were scrutinised. Statement of Directors of M/s. BGP was also recorded. So also the statement of Chairman of M/s. BGP besides the statement of Ramkumar, Chartered Accountant-Cum-Cost Accountant working as an Internal Auditor of M/s. BGP and its sister concerns were also recorded. Statement of Shri R.V. Suresh Kumar, Despatch Clerk, Shri V.M. Bahadur, Watchman were also recorded. The department has solely relied on the statement of one Shri Venkataraman. The department claims him to be a Liaison officer of M/s. BGP/BGS while the appellants deny that he was their Liaison officer but admitted that he was working for them on commission basis besides working for large number of other manufacturers also on commission basis. Based on his statement and recovery of certain slips, invoice and records, the department has made out a case of undervaluation of goods and sale of goods by M/s. BGP to their various dealers. Statement of dealers were also recorded and in which M/s. Ganesh Timber Trading and M/s. Vaideeswaran Timber Trading admitted about paying extra amounts while large number of other dealers denied any such payment. In statements of 8 dealers/consignment agents as mentioned in para 31 of the Order-in-Original was recorded besides undertaking investigation and recovery of several documents relating to correspondence/transaction by parties with BGP and its sister concerns. Enquiries were also conducted and gathered with Vijaya Bank, State Bank of India and Canara Bank. Several statements from the Purchase agents was recorded and on the basis of all these materials, the appellants were issued with show cause notice alleging suppression of invoice value and under invoicing and thus evasion of duty. Besides, manufacture and supply of goods, mis-declaration as of lower quality instead of the goods being Marine Plywood and VWR Plywoods.
8. It was alleged on the basis of the entire investigation, violation and contravention of Rules 9(1), 52A, 53 read with 173G, 173B, 173F, 173C and 226 of CE Rules, 1944 in as much as they have
(a) manufactured the excisable veneers and removed the same without accounting and without payment of duty due thereon to their sister concerns viz. M/s. BG & Sons, Madras-112, & M/s. Vijay Enterprises, Ms.-112;
(b) removed the excisable veneers without the cover of proper documents;
(c) misdeclared/mis-classified the costlier and special varieties or phenol formaldehyde bonded plywoods under the guise of ordinary, cheaper varieties of urea formaldehyde bonded plywoods;
(d) mis-declared the grades (quality) of ordinary urea formaldehyde bonded plywoods;
(e) resorted to under-valuation of veneers and plywoods manufactured and cleared, and realised extra consideration from the buyers thereof, over and above the billed amounts;
(f) consequent to under-valuation, failed to compute the correct value of clearances of excisable goods (veneers & plywood) manufactured on its own as well as on job work basis to their sister concern viz. BG & Sons & Vijay Enterprises for determination of exemption and payment of duty;
(g) failed to determine themselves their correct liability to duty due on veneers and plywoods so manufactured and removed by them without payment of full excise duty on the correct assessable value; and
(h) Improperly maintained the entry books and records; all with intent to evade due payment of appropriate duty by resorting to fraud, wilful mis-statement etc. thereby rendering themselves liable to payment of Central Excise duty to the tune of Rs. 52,90,942/- comprising BED of Rs. 50,38,992/- and SED of Rs. 2,51,950/- for the clearances of veneers and plywoods that had taken place during 1989-90 and 1990-91 (upto 25.2.1991) and penalty under the provisions of Rules 9(2) read with proviso to Section 11A (1) of the Central Excise and Salt Act, 1944, 52A, 173Q, 210 & 226 of the Central Excise Rules, 1944.
In view of (a) misdeclaration of value of veneers and plywoods manufactured and cleared by M/s. BGP with an intent to wrongly avail the exemption; and (b) contravention of the provisions of the Central Excise Rules, committed by them by fraud, mis-statement, suppression of material facts with intent to evade due payment of duty, the extended time limit prescribed under proviso to Sub-section (1) of Section 11A of the Central Excise & Salt Act, '44 becomes invokable against them for demanding duty on past clearances. Hence, show cause notice No. 38/92. dated 12.11.1992 was issued to M/s. B.C. Plywood.
9. The appellants in reply to the show cause notice denied suppression of production and clearance, as absolutely incorrect. With regard to suppression of production, they pleaded that the department had not adduced any evidence regarding procurement of basic raw materials with that of production and clearance, but simply relied on the delivery challans of M/s. BGS and M/s. VE. M/s. VE purchased veneers from Calcutta Custom House and with the approval of M/s. BGP have stored them in the factory premises of M/s. BGP and those veneers had been cleared by them under their own delivery challan. They pleaded that those veneers were not manufactured by M/s. BGP even though permission under Notification 214/86 was obtained by them from Assistant Collector for doing job work by M/s. BGP in M/s VE. They pleaded that job work had been done by M/s. BGP and thereafter clearances were effected by M/s. BGS/Ms. VE under their own documents after doing some processes. Hence, Rule 9(1) cannot be invoked. They relied on the decision of CEGAT in the case of Indian Iron & Steel Ltd. v. CCE 1984 (15) ELT 21 : 1984 ECR 1150 (T). They assailed the allegation of clandestine removal and under-valuation.
10. As far as the bank transaction was concerned, they admitted that in the normal course of business, any manufacturer who avails banking facility, always use to show figures more than the actuals only to obtain loans and merely because such higher figures were shown for taking higher loans that would not give room for conclusion that there was manufacture and clandestine removal. In this regard, they relied on the judgment . They stated that the statements dated 25.2.1991, 8.3.1991 and the statement recorded on others and Directors were obtained under duress which were retracted on the very next day, hence they pleaded no reliance could be placed on them. In this regard they relied on the decision of Gujarat High Court decision in the case of Abdul Quader and that of Abdul Ghani Harnian ; ARS Bajaj v. CCE : Leonardo Villarico v. CCE .
11. Describing the process of Marine plywood, they pleaded that the product can be classified only under Chapter heading 4408.10 if it could satisfy the IS 710 -1976 as per Chapter Note 3 to Chapter 44. Further, for manufacturing Marine Plywood, M/s. BGP are not in possession of all machinery's viz. Vacuum cleaning, impregnation plant, testing equipment, etc. They contended that they had written to their customers to obtain orders and to capture the market about the supply of BWR plywoods. They stated that the department had not verified with the Transport companies whether they had supplied only Marine plywood. They asserted that they have supplied only commercial plywood of ordinary grade. In the absence of concrete proof about the manufacture of superior variety of plywood, they stated that the department's decision arrived at that M/s. BGP had suppressed the value is not correct. Further, it was argued that even though samples had been given to officers, they were not sent to ISI organisation for test and hence department had not proved that the item cleared was Marine Plywood in terms of Chapter Note 3 to Chapter 44 for classification purpose under Sub Heading 4408.10 of GET.
12. As regards valuation, they submitted that M/s. BGP had the factory sales and the prices charged to independent buyers is also being charged by M/s. BGP to BGS. They stated that M/s. BGP had never shown any extra commercial consideration to M/s. BGS and all the sales effected to M/s. BGS are at arms length.
13. It was stated by them that where PF resins were used, the same had been shown in the hot press production report. Clearance of PF bonded plywood were also effected. A comparison of purchase of UF resin/PF resin, it is seen that more than 10 times of PF resin, UF resin had been purchased. They contend that the department treating that all the clearances as Marine Plywood is not correct. They stated that the statements had been obtained under duress. Almost all the statements had been prepared by the officers and the deponents were forced to sign. It was also pointed out that some deponents had sent retraction by letter or telegram viz. Standard Timber, (2) Mekalay Agencies, (3) Shri Ganesh Plywoods, (4) Vijay Agencies and (5) Sakthi Agencies.
14. They stated that the allegation of the department that M/s. BGP had recovered extra amounts by way of cash is not correct. But they denied this allegation. They stated that according to the cash account, those amounts had not been brought into the account of M/s. BGP. The department could have verified the ledger. They asserted that at no point of time M/s. BGP had indulged in any such activity and whatever amount shown in the invoices only was collected.
15. As regards the slips mentioning the higher rates than invoice price recovered form Shri Venkataraman, they contend that Venkataraman was working for M/s. BGP on commission basis and also for several other companies and organisations like Kitply, etc. They pleaded that the seized documents from his premises and slips cannot be relied upon and conclusions drawn as they were not having any evidential value and no copies have been made available to them.
16. As regards the fictitious receipts of amounts into the banks, they pleaded that the allegation that the remittances relate to them and those remittances had been found a place in their books had not been established. They denied all the allegations brought about in the show cause notice. They sought for cross-examination of the following persons:
(1) Shri R. Durga Prasad, Supdt.
(2) Shri Shenpakamurthy, Standard Timber (3) Shri Sugukar, Vijay Agencies (4) R. Chandrasekhar, Vijay Agencies (5) K. Kesavan, Ganesh Plywoods (6) Mekalay Agencies, Madurai.
They were allowed to peruse the documents and took xerox copies including relied documents in the show cause notice and the slips.
17. Cross-examination of witnesses was sought by them. Summons were issued to all the witnesses. However, only 10 witnesses were present and the remaining persons pleaded their inability to appear. The Commissioner has summarised the statement recorded during the investigation as well as the replies given in cross-examination. Thereafter, he has proceeded to analyse the evidences to record his finding from para 56 to 76.4. The gist of the findings as arrived at by him are as follows:
In para 56 of his findings, Commissioner has noted that appellants had requested to cross-examine totally 21 witnesses of which only 10 turned up for cross-examination. He has noted that Shri Ramachandran and Venkatraman who are the key witnesses on whose statements and recovery of slips the case of undervaluation has been made out did not turn up for cross-examination despite summons issued. He has noted that appellant's letter did not press for their cross-examination and volunteered to file their defence. This portion of the finding is seriously challenged by the appellants before us on the ground that they never gave up their right to cross-examination of these two witnesses not turning up for cross-examination. The appellants submit that the Commissioner has on his own recorded that appellants did not press for their presence after hearing on 16.2.1995 and they could not have given up their valuable right as the case was built on their statements and recovery of some slips. They also denied that they gave up the cross-examination of the officers who recorded the statements as noted by the Commissioner in para 57.4 of his findings. In para 59 of his findings, he has noted that the first charge is of manufacture and clearance of veneers and plywood without bringing them into statutory accounts as trading and/or manufacture and clearance by M/s. BG & Sons and M/s. Vijay Enterprises. He rejected the plea that M/s. BGS was independent manufacturer and they had their own licence and observed CE formalities and SSI certificate. He has noted that they have not proved their case of establishing the existence of manufacturing facility at M/s. BGS, by producing list of machinery held by them, production accounts, if any, maintained, either for excise purpose or for their own internal purpose or their balance-sheet indicating quantum and value of goods manufactured in their premises. He has noted that there is nothing on record to indicate existence of manufacturing facility with M/s. BGS, let alone to show actual manufacture of Plywood.
18. In para 59.1, the Commissioner has noted that the only claim made relating to manufacture of M/s. BGS and Vijay Enterprises is a claim that they sent raw materials under Rule 57F(2) Procedure to M/s. BGP on job work basis. He had noted the plea both M/s. BGS and M/s. Vijay Enterprises had obtained permission from the department to send raw material for job work to M/s. BGP. However, in para 59.2, he has noted that no further evidence was produced to support the movement of materials, if any, sent to M/s. BGP, the item/product manufactured at the premises of M/s. BGP on job work basis and return and the final process of manufacture, if any, carried out at the premises of M/s. BGS and M/s. VE, under Rule 57F(2), the raw material as such, or after processing, can be despatched to a job worker to get intermediate goods manufactured for further processing at the principal's manufactory. However, as already observed, no evidence in this regard was made available. He has noted that M/s. BGP who are Central Excise Licencee, did not deem it necessary to inform the department before undertaking job work for M/s. BGS and VE and prior to their receiving their raw materials. They have also not come forward with any record of having manufactured intermediate goods on job charge basis. He has noted that as against the above facts, adequate evidence is available to indicate that M/s. BGP, BGS & VE were constituted by the same set of persons with addition of certain others. Further, transporters M/s. Jindal Gupta Transport Corporation have also stated that the goods carried by them under the bills of M/s. BGS and VE were actually transported from M/s. BGP only. Similarly, the noticee did not deny the fact that M/s. VE & BGS did not have any manufacturing premises at Puduvayal. They also did not claim that all the goods removed under the Bills of M/s. VE & M/s. BGS were transported from their respective declared premises. Factory Gate pass used by the noticee for internal monitoring of the movement of goods showed that all such goods were in fact removed from the premises of M/s. BGP at Puduvayal. Finally, the customers such as M/s. Sundaram Industries, Madurai had admitted that certain consignments sold by M/s. BGS had been accompanied by GPs issued by M/s. BGP. The transporter and M/s. Sundaram Industries (P) Ltd. have not retracted from their initial statements. The Commissioner has noted that the noticee have also not attempted to disprove the validity of these evidences by seeking to cross-examine the representative of M/s. Jindal Gupta Transport Corporation or Shri Chandranarayanan of M/s. Sundaram Industries, Madurai. In para 60 he has noted that "it had also been offered, in reply to show cause notice, that the accounts regarding receipt and disposal of veneers by M/s. VE would be produced at the time of hearing. However, the accounts and receipts and disposal of veneers were not produced during the personal hearing. Except xerox copy of cash memo of Custom House, Calcutta was filed to show that the same had been issued in the name of Shri Shankar Agarwal of M/s. Nitin Timber Mart, and not M/s. VE. Nor was any further evidence filed to show as to how and when M/s. VE came into possession of the said veneers covered by the Calcutta Custom House cash memo issued to Shri Shankar Agarwal. Besides, the product description mentioned on the cash memo was also not veneers, but only peeled logs. He noted that it is admitted even by M/s. BGP in their written reply that for making veneers, peeled logs are taken to the veneer clipper, for clipping the veneers. Then they are cut into sizes and fed into drier for making the veneers moisture free. M/s. VE had no facility for carrying out the above manufacturing processes and had admittedly, got it done at the premises of M/s. BHP." Therefore, he has held that veneers had come into existence at the factory premises of M/s. BGP who are to be considered as manufacturers of veneers, but apparently, sold under the invoice of M/s. VE to avoid payment of duty. Therefore, he concluded that M/s. BGS and M/s. VE would not have had any manufacturing capability/facility and were utilised by M/s. BGP to account for goods manufactured and cleared clandestinely.
19. The second charge was pertaining to mis-declaration and mis-classification of costlier special varieties of phenol formaldehyde bonded plywood, viz. BWR/Marine/Shuttering plywood as urea formaldehyde bonded plywood. The Commissioner has rejected the pleas raised by the assessee in their replies and did not accept the list attached and forming part of the Insurance Policy of M/s. United India Assurance Company filed by them to show that they did not have the necessary machinery for manufacturing these goods. Even he did not accept the plea of Note 3(2) to Chapter 44 to conform to ISI No. IS 710 of 1986 to consider the item as BWR/Marine/Shuttering plywood. He has relied on the seized documents and their own test results to uphold the charge of mis-declaration and has not given clear finding on the Note 3 of Chapter 44 for its classification as according to Commissioner, it is not much of significance in the light of the appellants' documents. He also did not accept their plea that department had drawn samples and had not given them the test results on the findings that though the sample had been drawn, but the same had not been forwarded to Chemical Examiner for test, presumably according to Commissioner, because of the otherwise overwhelming evidence available to conclude that the main products are BWR/Marine/Shuttering Plywoods. He has noted that the burden of disproving the genuineness or acceptability of documents recovered from the noticee's premises is on the noticees themselves and they have not done so and hence the charge is proved. He has recorded further findings in para 65 on this aspect of the matter.
20. As regards the third charge on the major demand pertaining to undervaluation of the bonded plywood and veneers, the Commissioner has recorded his findings in para 68.1 to 74 which are extracted below:
68.1 According to the show cause notice, statements recorded from several of the customers of M/s/BGP at different places, on different dates and different officers has brought out that M/s. Arihant Sale Corporation, Madras, Ganesh Timber Trading Company, Madras, Babu & Co., Vaideeswaran Timber Trading Co., Madras, ACS Guruswamy Nadar, Tenkasi, Sri Ganesh Plywood Agency, Trichy, Sri Vijaya Agencies, Trichy, Sri Shakti Agency, Sri Nagala Enterprises, Bangalore, Danier Plywoods, Bangalore, Kohinoor Plywood, Madras, Balaji Timber, & Plywood, Madras, Coimbatore and Plywoods and Tools Mart, Coimbatore, Ply Centre, Coimbatore, Nizzar Wood Works, Sri Ram Laminates, Coimbatore and Krishna Plywood, Bangalore had paid extra amounts over and above the billed amount in cash to M/s. BGP or M/s. BGS as the case may be. M/s. Sundaram Inds. Ltd., had also stated, inter alia, that the values shown in the GPs of M/s. BGP and BGS bill or M/s. BGS differs vastly.
68.2 Though the cross examination of spokepersons of some of the above customers, who had earlier, given statements deposing extra payment, had brought about a different picture viz. that no extra cash amount over and above the billed amount was paid, I find that atleast two of the customers viz., Sri Ganesh of M/s. Ganesh Timber, Sri Jeyasunder of ACS Guruswamy Nadar, had stuck to their earlier version of having paid, either in cash or in kind, extra consideration over and above the billed value. The party themselves have not chosen to cross examine Sri Chandranarayanan of M/s. Sundaram Inds. Ltd., who had also admitted to the existence of a difference between the prices cited in the invoices of M/s. BGS and Gate-passes of M/s. BGP. Even in respect of the others, it is interesting to observe that exceeding not three (viz., Kesavan of M/s. Ganesh Plywood, objection of Shakti Agencies, Sri Saifee of Coimbatore), the others had not chosen to retract till cross examination form their initial statement of having paid more than the billed amount. The party's plea in this regard that many of them did not receive copies of the statements tendered by them till the date of personal hearing, is not convincing. Irrespective of whether or not they were supplied with copies of their statements, the deponents of the statements, certainly would remember what they had deposed, particularly when it had been given under coercion, threat or inducement, against his wishes and truth. They need not have waited till the date of personal hearing to retract from their statement. Even the retraction at cross examination stage would have to be viewed in proper perspective against the background of the deponents being from different places/States, their statements having been recorded by different officers and on different dates, etc. 68.3 In any case, as held by various forums statements recorded under Section 14 of Central Excises and Salt Act, are valid and admissible pieces of evidence in a quasi-judicial proceeding. In addition, when it gets corroborated by independent evidence, their credibility and acceptance go up, apart from the fact that M/s. Sundaram Industries Ltd., had corroborated the statements of other customers for having received invoices/Gate-passes for sale consignments indicating different prices. It is also seen from the show cause notice that the account slip maintained by the majority of the customers in respect of transactions with M/s. EGP have been collected and proper explanations have been obtained from the respective parties. Therefore, the statements of the customers referred to above in regard to payment over and above the billed amount cannot be disregarded.
68.4 For the same reason, Liaison Officer of M/s. BGP cannot be brushed aside inspite of the fact that the latter (M/s BGP) had tried to disown connections/links with Sri Venkataraman, holding that they cannot be held even vicariously responsible for this activity and that the department had failed to present him for cross examination. The statement recorded from several of BGP's customers and various documents written/retained by Shri N.K. Venkataraman for M/s. BGP and BGS, mentioned in the show cause notice, indicates that he was all along associated with both the firms, and had carried out the arduous task of collecting money in cash for M/s. BGP from its customers.
69.0. Thus, it is clear M/s BGS and VE were mere trading outlets of M/s BGP. It is also observed that the difference between the price at which M/s. BGP claimed to have sold to M/s. BGS on the one hand, and the price at which M/s BGS in turn, sold to customers is 200 to 300%. If this was the extent of margin of profit available to a trading concern, it is not understood why and how the partners of M/s BGS should have floated M/s BGP in 1986, by adding some more partners. This also brings out that in the first place, there could not have been a real sale between M/s BGS & BGP and secondly the first retail sale has taken place only at the premises of M/s BGS & VE and, therefore, the invoice price collected by M/s BGS & VE Minus the permissible deductions, if any, if to be treated as assessable value.
70.0 The discussions supra, have already brought out that, according to the statement of Shri Chandranarayanan of M/s Sundaram Inds. Ltd., they used to negotiate with M/s BGP for purchase of impugned goods and were advised to place orders with M/s BGS and also that they used to receive the goods under the bills of M/s BGS accompanied by the gate-passes of M/s BGP. This also clearly indicated that while clearances took place from the premises of M/s BGP in actual practice the sale to customers had taken place only at the door step of M/s BGS.
70.1 Even otherwise, instances have come to notice as cited in the show cause notice, wherein the price charged by M/s BGP was vastly suppressed as compared to those of M/s BGS for instance, the prices of impugned goods purchased by M/s Arihant Sales Corporation, under the invoices of both the units were as under:
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Thickness of plywood Price of BGP Price of BGS
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4 mm Rs. 18 Rs. 51.65 6 mm 25 74.35 8 mm 31 87.65 12 mm 42 122.40 18 mm 64 177.60
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70.2 Even conceding that the price of M/s BGP is exclusive of Sales tax, while that of M/s BGS is inclusive of Sales tax, the difference between the two prices mentioned above, is too large to be accounted for this factor alone.
70.3 Again, M/s Ganesh Timber Trading Co., who had purchased a consignment from M/s BGP, apart from paying Rs. 28,288/- by way of a cheque had made further cash payment to the tune of Rs. 28,200/- on 7.9.1990. Documents at Vijaya Bank had indicated that certain un-ac-counted cash remittance had been made, in the accounts of M/s BGS on behalf of M/s Ganesh Timber. Further, it is admitted that the price-lists chart seized from the premises of M/s Ganesh Timber shows the rates at which plywood of various thicknesses more than the rate at which M/s BGP had raised the invoices. A delivery note No. 36 dated 16.6.1990 had also been recovered from the same premises, on the reverse of which a note has been endorsed, which is admitted to be the real landed cost of plywood. Interestingly, a chit seized from the premises of Sri Venkataraman, the Liaison Officer of M/s BGP, also contained similar/identical details.
70.4 Similarly, a handwritten slip seized from the business premises of M/s Vaitheeswara Timber Trading Co., shows particulars of "rates payable in respect of such supply". It was admitted that even though the goods supplied are billed at Rs. 5,278/-, the slip shows the amount to be paid as Rs. 42,065/-, with breakup particualrs. The fact that extra amount had been paid is also evidenced from the account of M/s BGS at Vijaya Bank, which shows certain cash payment in the name of M/s Vaitheeswaran Timber Mart. No other explanation, if any, has been furnished, in regard to the cash payment made in the name of M/s Vaitheeswaran Timber Mart to the account of M/s BGS, at Vijaya Bank.
70.5 A slip in the handwriting of Shri Venkataraman seized from his premises, contained certain details which are in agreement with Bill No. 70 dated 1.9.1990 of M/s BGP issued to M/s Sakthi Agencies, in so far as the name of the party and quantum and thickness of the plywood supplied. The relevant bill has been made for Rs. 60,575.69, whereas the amount shown in the slip is Rs. 1,64,647.66 even though the billed amount is also indicated in the slip.
70.6 Another handwritten slip seized from the premises of Sri Venkataraman shows different rates to different quality of plywood. It also contained selling various types of plywood. The rates mentioned therein exactly corresponded to the landed cost of plywood mentioned on the reverse of the delivery note seized from M/s Ganesh Timber Trading Company.
70.7 Thus, slips have been seized from certain customers showing the actual rates of plywood sold by M/s BGP. These rates have been corroborated by slips seized from the residence of Sri Venkataraman. Hence, it is evident that whatever was admitted by the customers initially at the time of seizure of the slips is truthful and subsequent retraction is only an afterthought. Accordingly, I hold that apart from the earlier finding that the first independent sale, unaffected by any relationship, had taken place only at the door stop of M/s BGS & VE, the declared price at which M/s BGP had cleared to these two companies is a suppressed price not reflecting the true value.
71.0 Thus, enough evidence is also available in the SCN to indicate receipt of funds in the form of interest free loan by M/s BGP from M/s BGS. The latter had received deposits from M/s Vidyut Motors, who are not even claimed to be the purchasers of plywood sold by M/s BGS, or from M/s Shiv Bhandar to whom one of the customers of M/s BGP viz., M/s ACS Guruswamy Nadar & Sons had, reportedly, made the payments in cash for the plywood purchased from M/s BGS over and above the billed amount. Even the addresses of M/s Shiv Bhandar, at Patna, Hyderabad etc. have been found to be fictitious as stated in the show cause notice. In the case of M/s Vidyut Motors, Coimbatore, the person in charge has also deposed that they had no dealings with M/s BGS. Nor have the noticees established the correct addresses or credentials of the said firm. Accordingly, the balance of convenience lies in the presumption that the deposits received by M/s BGS from unconnected and non-existent firms where the excess amount realised on account of sale of plywood by M/s BGP at a suppressed value which has been ploughed back in the guise of interest free loan 72.0 In the case of veneers, which has been held above to have been manufactured and cleared by M/s BGP under the invoice of M/s VE, it is alleged that it had been sold at a much higher prices than that declared in the invoices of M/s VE. This allegation has been made on the basis of Bank documents. Though, it is argued by the noticees that documents produced at their bank cannot be taken as basis for the purpose of assessable value, since the said documents are intended for different purpose viz., loan, it has already been held by Hon. Tribunal in the case of Sri Dharamarajan v. CCE that when the bank statements, are showing excess production than declared to excise, it is indicative of clandestine removal. This ratio would equally apply to the valuation, inasmuch as, when a party has made such declaration to another department, it becomes his responsibility to disprove it if the same is not to be accepted for any other purpose. Accordingly, the bank documents have to be treated as admissible evidence for considerations exchanged.
73.0 Finally, it will be interesting to note that Sri Lalchand Agarwal and his brothers S/Shri Pawankumar Agarwal, Vijay Kumar Moosodi and Ajay Kumar Mussodi are the Directors of M/s BGP. M/s BGS is a partnership concern of the aforesaid S/Shri Lalchand Agarwal and Pawankumar Agarwal along with another brother Sri Arunkumar Agarwal. Similarly, M/s VE is a partnership concern of the wives of S/Shri Lalchand Agarwal and his brother Sri Pawan Kumar Agarwal along with Sri Anantharam. Therefore, the three firms are closely knit companies of the family members of Shri Lalchand Agarwal and his brothers. Combined with this, the other facts narrated above, viz., the actual sale to outsiders having taken place only at the door stop of M/s BGS and M/s BGP selling only at a very suppressed value to M/s BGS as well as to some outsiders, from whom they had received back excess amounts in cash, either directly or through M/s BGS, clearly establish the relationship between the three. Accordingly, the price charged at the door step of M/s BGP as per the billed amount cannot be considered as a real value in terms of Rule 173C(11) of Central Excise Rules, 1944.
74.0 Accordingly, it is proved beyond doubt that M/s BGP had contravened various provisions cited in the SCN and M/s BGS and VE had actively corroborated and connived with it, lending their names. Hence, they are punishable under Rule 173Q of Central Excise Rules, 1944/209A of CER, 1944. Considering the suppression involved, there is unquote justification to invoke proviso to Sub-section (1) of Section HA of Central Excise Act, 1944 for demanding duty.
74.1 The various statements recorded from the customers and the investigation conducted at the banks clearly establish that Shri Lalchand Agarwal has masterminded the entire clandestine activities. Therefore, I hold that he is also liable for penalty under Rule 209A of Central Excise Rules, 1944.
74.2 However, I do not find any evidence of active role by S/Shri Pawankumar Agarwal and Ajay Kumar Mussodi, excepting to the fact of their being Directors. Hence I feel the penalty is called for and ends of justice would be met by imposing penalty on the aforesaid firms and persons.
74.3 The plant and machinery at M/s BGP which had been used for manufacture of excisable goods cleared without discharging proper duty also become liable for confiscation under Rule 173Q of Central Excise Rules, 1944.
21. We have heard Shri B.N. Chattopadhayaya, learned Counsel for the appellants and Shri S. Kannan, learned DR for the Revenue. Learned Counsel took us through the entire records and pointed out that as per the show cause notice issued three charges and allegations have been made out as under:
(a) Under valuation of UF and PF plywood and also veneers.
(b) Misdeclaration and misclassification of costlier special varieties of Phenol formaldehyde (PF) bonded ply wood viz. BWR/Marine/ Shuttering plywood as Urea formaldehyde (UF) bonded plywood; and
(c) That the appellants viz. M/s. BG Plywood Industries Pvt. Ltd. (BGP) had cleared Veneer and plywood without accountal and without payment of Central Excise duty. Therefore, they are trading concern of M/s. VG & Sons (BGS) and M/s. Vijay Enterprises (V/E). The total value of such clearances were taken as Rs. 16,75,409.30 for BGS and Rs. 8,07,005.93 for VE which have been sought to be added in the manufacture and clearance of BGP.
22. On the first point regarding under-valuation of Plywood and veneer, learned Counsel submitted that during the year 1989 the main appellants BGP had 25 dealers and during the year 1991, they had 43 dealers. The raid took place in 1991 during which time only 19 dealers were checked by the investigating officers. It is his contention that 26% of the purchase of the BGP's clearance were made to one single dealer whose statement has not been relied upon in the show cause notice. Eighteen dealers had admitted paying more than the bill amount to them but retracted their statements on the ground that they were taken under duress by the departmental officers. It is his submission that only two dealers had ultimately struck to their earlier statements i.e. Sriganesh of Ganesh Timber Trading Co. and M/s. Jeya Sunder of ACS Guru Swamy Nadar and whose statements alone have been relied upon by the Commissioner in para 70.3 and 70.4 of his order. He pointed out that they had stated that they had paid some extra amount by depositing in the Vijaya Bank but they did not produce any correlationship to the extra amount deposited with the invoices. Even in the cross-examination they had admitted about the non correlation of extra amount and the invoice amount. They had also stated that the amount had been paid to Venkataraman, who was commission agent who had in his own statement clearly resiled and had stated that he was only taking 1% interest as against his earlier statement of receiving Rs. 1000/-. He pointed out that no credence can be given to the statement of Sriganesh of Ganesh Timber Trading Co. as there was no corroboration with any of the chits seized form the premises of Venkataraman who had not been given an opportunity of cross-examination. Therefore, nothing survived from the evidence of Sri Ganesh of Ganesh Trading Company with regard to the under valuation. He submitted that second witness was from M/s. A.C.S. Guru Swamy Nadar who also had mentioned about cash payment through Vijaya Bank which has not been correlated nor proved with regard to extra payment to each of the invoice billed to them. He likewise submitted that when these two witnesses' statements are scrutinised in the eye of law, then non-corroboration is available with regard to individual sales of each of the consignment removed to them. Therefore, extra consideration in each transaction having not been proved, the Commissioner was at serious fault in holding that under valuation in respect of the sales to all the dealers have been proved. He pointed out that there were more than 242 invoices. Invoice price had been arrived at in terms of Rule 173C(ii) and each of the invoice is a separate transaction and the department was bound to prove under valuation or extra consideration received over and above the bill value which has not been proved. There were slips seized from the residence of Venkataraman which is an additional piece of evidence which has not been put to test in the cross-examination and the same having not been corroborated in any manner, therefore, it cannot be a basis for enhancement of value of the 242 invoices. He pointed out that there were various sizes of the plywood and are of various makes of different price for each of the size. The slips did not indicate that there was any specific extra price invoice of any particular invoice of any dealer. Therefore, generalization cannot be made on under valuation as each of the invoice being independent transaction with 43 separate dealers. But the department proceeded to draw conclusion is presumptious and it is based on presumption and assumption. He pointed out that there was no extra consideration found in the account books of the BGS Trading Company and VE Trading Company. There was no un-accounted books of extra payment made against each bill. Therefore, their oral testimony for delivery of extra payment or deposit in the Vijaya Bank is not proved. He submitted that the law requires that every transaction has to be treated independently and proof of maintenance of proper register and entries had been produced to the deposit. On oral testimony given by inimical competitors or dealers on whom, they had claims and counter claims, therefore it cannot be a basis for drawing a conclusion of under valuation. He pointed out that the statements of other dealers who in their cross examination had clearly denied having paid any extra amount and there was no corroboration in respect of these dealers and their transactions being independent, therefore, the Commissioner was not justified in passing a general order without being specific to each of the invoice transaction. He pointed out that the show cause notice had given Annexure A with details of invoices and the value mentioned therein. But the department on the basis of the statement given by Venkataraman which is untested and uncorroborated statement enhanced the entire value of all the dealers where the goods are different, prices different and customers being different on the basis of quality and quantity of material supplied. Therefore, the whole basis of taking value of under valuation is not correct and not being as per law in terms of the various judgements rendered by the Tribunal and the Apex Court. He further pointed out that valuation has not been arrived at in terms of Section 4(4)(d) of the Act. He pointed out that the price is inclusive of the duty as mentioned in page 17 of the order itself. The duty element was excludible from the assessable value while computing the duty. Duty has not been deducted. He relied upon the judgement in the case of Srichakra Tyres v. CCE as reported in 1999 (32) RLT (1) in this regard. He pointed out that there cannot be clubbing of clearances of the appellants viz. VGP, with BGS and VE as the two are independent manufacturers and for supply of raw material under Rule 57F(2) for manufacture and the goods had been returned to BGS. There are conclusive proof for the existence of sale. They had independent SSI registration. He pointed out that the Commissioner was not justified in rejecting the evidence and holding that they did not produce any evidence while enormous evidence had been produced on record. As regards misdeclaration and misclassification of formaldehyde (PF). bonded plywood as commercial plywood he pointed out that they were only declared as Marine plywood which was in fact not so. The goods in order to be Marine plywood, it has to satisfy note 3 of Chapter 44 which lays down that "plywood conform to Indian Standard. Specification (ISS) No. IS: 710-1966", The department took samples but it did not get it tested by the Chemical Examiner to prove that it satisfied the IS 700: 1966 standard. Therefore, statutory note (iii) of chapter 44 not having been satisfied, the Commissioner was not justified in holding that he can rely upon other evidence to come to a conclusion that the item is marine plywood. He submitted that the advertising material or such declaration material published cannot be considered for determining classification. In this regard he relied upon large number of judgements.
23. The learned Counsel also submitted that BGS and VE are independent concerns operating business long before the appellants Company BGP started its operation in 1989. They had SSI registration and other registration certificates. They had taken permission from the Assistant Collector by their letter No. 12.11.1990. They had sent raw materials to carry out some job work to BGS and received back the goods after the BGS completed the process of trimming and cutting the goods to the required size and they were availing the benefit of Notification No. 214/86 CE. There was no clandestine removal of the goods and the sales cannot be taken as dummy sales made by BSG and their clearance cannot be clubbed with the clearances of the appellants. The Commissioner's inference that the customs house documents in the name of Shri S. Agarwal of VE cannot be accepted is not a proper conclusion. Shri S. Agarwal was the authorised person of VE who imported material and there was no disbelief of the evidence of the statutory documentary evidence maintained and their plea should be accepted.
24. As regards only the evidence of the statement of Venkataraman, learned Counsel submitted that the Commissioner's conclusion that the appellants did not press for the cross examination is not correct. They did not give up the cross examination, but the said Venkataraman had not turned up and therefore, the Commissioner had pressed for the appellant to proceed with the oral arguments. He submitted that when the evidence of the witnesses relied upon by the department is not put to cross examination, then that portion of the evidence is required to be rejected and cannot be taken in law as it is against the principles of natural justice. In this regard he relied upon the judgement rendered in the case of L. Chandrasekham v. CC reported in 1990 (30) ECR 23. He further relied upon the judgement in the case of Econthern Systems Private Ltd. v. CCE New Delhi reported in 1991 (33) ECR 715 which also lays down same proposition on the basis of the larger number of Tribunal and the Supreme Court judgement would lose its value if that statement is not put to test and cross examination. He submitted that in the case of Kalra Glue factory v. Sales Tax Tribunal and others reported in 167 ITR 498 the Hon'ble Supreme Court held that in arriving at the conclusion that the transaction entered into by the appellant firm was in the course of inter state trade and the Sales Tax Tribunal relied upon inter alia on the statement of the partner of another firm which had not been contested by cross examination, the Supreme Court set aside the order of the Tribunal as well as the order in revision passed by the High Court on the plea of disbelief for the said evidence is not acceptable in law since the same has not been put to cross examination. In particular the learned Counsel relied on the judgement in the case of Arsh Castings Pvt. Ltd. reported in 1995 (10) RLT 638 (CEGAT) which has looked into the earlier judgement cited before and have laid down that "it is the elementary principle of natural justice and fair play that a person who is sought to be proceeded against and penalised in adjudication on the basis of third party statement should be afforded effective opportunity to challenge the correctness of the same as per law by cross examination if he so desires. If the witness do not turn up for cross examination, it is open to the adjudicating authority to proceed with the adjudication without relying on the statement against the person so charged. Failure of a witness to appear for cross-examination will not be a ground to penalise the appellants, when the appellant is entitled to an opportunity of cross-examination of third party, on whose statement reliance was placed. He further cited the judgement rendered by the Division Bench of the Punjab & Haryana High Court in the case of Pahar Chand reported in 1972 (30) STC 211 which also lays that if the assessing authority was relying on the testimony of a witnesses, then the assessee should have been afforded an opportunity to cross examine. It was not open to the assessing authority to get over this hurdle on the plea that the witness had not been produced by the assessee and the assessing authority acted on material which was not legal. Further reliance was placed in the judgement of the Mysore High Court in the case of Neminath Appayya v. Jamboorao AIR 1966 Mysore 154 wherein it was held that the evidence of the witness must be excluded from consideration when there is a failure to give opportunity to cross-examine the witness. The Tribunal observed that witnesses have been examined behind the back and even those witnesses are keeping themselves away and are not ready to stand to test of cross examination against the statement of defence of the appellants and those statements should not be relied upon. The Hon'ble Supreme Court judgement in the case of Vasanthalal and Co. v. Commissioner of Income Tax Bombay also cited wherein the Hon'ble Supreme Court observed that Income Tax officer is not bound by any technical rules of the law of evidence. It is open to him to collect materials to facilitate assessment even by private enquiry. But if he desires to use the materials so collected, the assessee must be informed of the material and must be given an adequate opportunity of explaining it. Further, reliance was placed in the case of State of Kerala v. KT Shaduli Yusuff reported in 1977 39 STC 478 (SC) in the judgement in the case of Arsh Castings Pvt. Ltd. (supra) wherin it has been observed that it will be noticed that if some Sales Tax authorities refuse the prayer of the assessee to cross examine the wholesale dealers, then such refusal would not amount to an adequate opportunity of explaining the material collected by the assessing authority. It has been observed in the judgement of the Supreme Court that it is quite possible that the wholesale dealers may have mentioned certain transaction in their books of account either to embarrass the assessee or due to animus or a business rivalry or such other reasons which can only be established when the persons who are responsible for keeping the accounts are brought before the authorities and allowed to be cross examined by the assessee. Further, judgement in the case of Chandra Industries v. CCE reported in 1990 (28) ECR 165 (CEGAT) was also relied upon which is also on the same context. The learned Counsel therefore, submitted that there is gross violation of the principles of natural justice in the matter.
25. Shri Venkataraman was only a commission agent and in his statement itself he had clearly indicated that the previous statement recorded was not correct and he was only getting 1% commission and he was working for many others also. He has not explained the chits in his cross-examination. He was having strained relationship with the appellants. His statement has not been corroborated by any other evidence. Appellants have not been paid any extra consideration and therefore, the department has not proved the case. He also submitted that clearance of the goods by the partnership concern cannot be clubbed as held in a large number of judgements. He in this connection relied upon the judgement of the Tribunal in the case of CCE, Delhi v. Advance Automation & Process Control Pvt. Ltd. reported in 1998 (75) ECR 236 also in the case of Alpha Toyo Ltd. v. CCE, New Delhi reported in 1994 (53) ECR 310. On duty being collected on presumption not being enforceable the learned Counsel relied upon the decision in the case of Seshasayee Paper Boards Ltd. v. CCE as reported in 1991 (36) ECR 342 (CEGAT) with regard to computation of duty in different region/State of the Country pertaining to different class of buyers and therefore different sale price being different, sales price being separate should be accepted. He also relied upon the larger bench judgement in the case of CCE Chandigarh v. Taparia Tools Ltd. reported in 1999 (34) RLT 369 (Larger Bench) in support of his plea. As regards the classification of Marine Plywood, it was adopted on the basis of the advertising material which is incorrect and not as per the chapter note. The learned Counsel relied upon the judgement of the Bombay High Court in the case of Blue Star Ltd. v. UOI reported in 1980 ELT 280 (Bom.) : 1987 (25) ECR 69 (Bom) wherein it has been held that advertising material cannot be a criteria for deciding classification. Further he relied upon the ruling in the case of Chowgule & Co. (Hind) Pvt. Ltd. v. CCE, Bombay . As regards availment of Modvat Credit and the clearance made under Rule 57F(2) the Learned Counsel relied upon the ruling of the Hon'ble Supreme Court in the case of Formica India Division v. CCE and the ruling of the Tribunal in the case of Maschmeijer Aromatics (I) Ltd. v. CCE reported in 1990 (30) ECR 381. As regards the proposition that the appellants had taken higher loan on the basis of inflated invoices submitted to the Bank which has been justified by him as the practice of taking higher loan. He also relied upon the judgement of the Tribunal in the case of Alwyn Industrial Corporation Ltd. v. CCE, New Delhi wherein it has been laid down that merely taking \ higher loan from the Bank, Bank letters are not sufficient proof of manufacture and clandestine removal of goods. This judgement is based on large number of High Court judgements on this point on the whole. The learned Counsel submitted that the appellants have a very strong case in their favour and therefore the impugned order is required to be set aside. The learned Counsel also filed two letters of BGP seeking permission of the AC, Central Excise, Madras VIII Division, under Rule 173C. The said letters have been received by the Inspector of Central Excise with his seal. He also filed a letter received by them from the Additional Commissioner pertaining to the invoice price assessment under Rule 173C(ii) and by the said letter granting them permission and treating their unit as a SSI Unit.
26. Arguments were heard in the matter on 30.1.2001 and the learned DR took time to call for a report from the Commissioner with regard to various points raised by the learned Counsel for the appellants. Therefore, the matter was listed for final hearing by both the sides on 8.2.2001. The learned DR produced his letter dated 30.1.2001 addressed to the Commissioner by which he has sought for clarifications. In this letter he has sought for information on the following points:
1. Was the assessee operating under the provisions of Rule 173C(11) and if so, a copy of the permission given to them by the department may be submitted.
2. Clearly tabulated information regarding
(a) Total number of dealers/Commission agents
(b) Number of Dealers/Commission Agents for whom cross-examination was sought.
(c) Dealer/Commission Agent who retracted the statement immediately after giving them.
(d) Dealer/Commission Agent who retracted the statement at the time of cross-examination.
3. Was Sri Venkataraman the liaison officer of the Company if so, the proof of the same.
4. Total number of invoices involved in the demand and whether the entire demand has been raised on Shri Venkataraman's statement, who was not cross-examined.
5. The value on which demand has been made appears to be the selling price, which normally includes elements which cannot be included in the assessable value. Please explain on what assessable value is the differential demand raised.
6. Was there any investigation conducted regarding the flow back of extra amounts collected by Shri Venkataraman to the company?
7. Comments on each point raised in the additional submission enclosed may also be sent.
The Dy Commissioner (R & T) Chennai II Commissionerate vide his letter dated 6.2.2001 has sent the reply to the DR in response to his queries. This letter is extracted below:
OFFICE OF THE COMMISSIONER OF CENTRAL EXCISE CHENNAI II COMMISSIONERATE; CHENNAI-600035 C.No. V/44/2/15/2001 -R&T Dated: 06.02.2001 To, The Junior Departmental Representative, CEGAT, SRB, Shastri Bhavan Annexe, 26, Haddows Road, Chennai-600 006 Sir, Sub: C.Ex.-Appeal filed by M/s. E.G. Plywood Industries (P) Ltd.-Comments-reg.
Ref: A.No. E/797-800/95 dated 30.01.2001.
****************** With reference to the letter cited above, the following comments are offered.
1) The assessee was operating under the provisions of Rule 173C(11) of Central Excise Rules, 1944 as stated by him in his reply and as recorded in the impugned order. A copy of the letter dated 16.8.1989 submitted by the assessee to the department intimating their option to avail the invoice price assessment under Rule 173C(11) is enclosed herewith.
2) Total Number of Dealers/Commission agents-cannot be given as the details are not available on the case file. However, the number of dealers/Commission agents from whom statements were recorded for purpose of investigation is 25. Out of these, cross-examination was sought for 21 dealers/commission agents by the assessee. This has been admitted by them in their additional written submissions. Three dealers/commission agents have retracted their statements immediately as could be seen from para 68.2 (page No. 86 of the impugned order). Out of the 21 witnesses sought to be cross-examined by the assessee, 10 witnesses were cross-examined. The list of 10 witnesses and the details are as follows:
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SL. NAME OF THE WIT- WHETHER DURING CROSS-EX-
NO. NESS RETRACTED AMINATION OR IM-
THEIR MEDIATELY
STATEMENTS
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1. SHENBAGAMURTHY YES. CROSS-EXAMINATION
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2. G. SHANKAR NO. N.A.
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3. P.S. SUBRAMANIAN YES. CROSS-EXAMINATION
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4. T. JAYASUNDAR NO. N.A.
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5. N. NAGENDRAN YES IMMEDIATELY
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6. R.V. VYAS YES. CROSS-EXAMINATION
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7. T.L. SAIFEE YES. IMMEDIATELY
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8. M.C. PUGALIA YES. CROSS-EXAMINATION
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9. S. JDHNPANDIAN YES. CROSS-EXAMINATION
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10. K.S. AHMED IBRAHIM NO. N.A.
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As could be seen from the above, this list includes the 2 witnesses who retracted their statements immediately. Of the remaining 8 persons, 5 persons retracted their statements during the cross-examination and 3 persons stood by their statements besides providing additional details during the cross-examination.
3) Regarding the proof of Shri Venkataraman being the liaison officer of the company, the same has been dealt with in para 68.4 of the impugned order. In addition to this, the cross-examination proceedings of Shri N. Nagendran, who while retracting his statement has clearly admitted during the cross-examination proceedings that he knew Shri Venkatraman for 10 years as a representative of M/s. E.G. Plywoods. Therefore, even the cross-examination proceedings led to the fact that Shri Venkataraman was acting on behalf of M/s. B.G. Plywoods. The statement of Shri T. Ramachandran also clearly points to this fact. The evidence in the statements of Shri Ramachandran have been taken into consideration by the Commissioner by virtue of the fact that the same was not retracted at all. Moreover, the assessee had in his reply stated that the relations between them and Shri Venkataraman are strained as the commission was not paid to him. It is pertinent to note that para 68.4 of the order talks about the arduous task of collecting money in cash for M/s. BGP from its customers. Paras 70.5, 70.6, 70.7 also shows the nature of job of Shri Venkataraman, which a commission agent of the company cannot do on his own without the knowledge of the company. Therefore, M/s. B.G. Plywoods cannot wriggle out of their vicarious liability for the acts of Shri Venkataraman who admittedly and apparently acted on their behalf, regardless of the fact whether he acted as a liasion officer or a commission agent.
(4) The entire demand has not been raised on Shri Venkataraman's statement alone and corroborative evidences were taken from other statements also. Further, they were supported by documentary evidences such as the handwritten slips, demand drafts, bank accounts, transport documents and the factory gatepasses used by the noticees for internal monitoring of the movement of goods, etc. Regarding the basis of demand, the same has been detailed invoice-wise in Annexure D-l & D-2 of the Show cause notice.
(5) This is a case of clandestine manufacture and removal as well as under valuation of the goods manufactured and cleared by the assessee after accountal in statutory records. The aspect of selling price having other elements included in its price have been taken into consideration while passing the impugned order and since the assessee has collected extra amounts over and above the price mentioned in their invoices, the duty was demanded for the amounts collected by them.
(6) Detailed investigations have been made regarding the flow of money into the company collected by way of extra amounts whose details were incorporated in para 6.5.1., 6.5.2 and 6.5.3 of the show cause notice.
(7) Almost all the aspects of the additional submissions have been covered in the points mentioned above. Regarding the claim of the assessee in submission xi of the appellants that the Section 4(4)(d)(ii) benefit be extended to them, it is submitted that this is a fresh claim and at the time of adjudication, this claim was not preferred before the adjudicating authority, as could be seen from the order under appeal.
Sd/-
Deputy Commissioner (R&T) Chennai-II Commissionerate The learned DR took us through the various portion of the Commissioner's order and submitted that the Commissioner has given findings in paragraphs 60.1 to 71 on all the issues. He submitted that Venkataraman did not turn up for cross-examination and the Commissioner has noted in his order in paragraph 57.3 that the appellants had not pressed for the presence of Ramachandran and Venkataraman after the hearing on 16.2.1995 and had voluntarily submitted their defence even without their cross-examination. He pointed out that when the appellants have chosen not to press for the cross-examination of Venkataraman's statement recorded under Section 14 of the Act assumes great importance and it cannot be brushed aside, is correct. He was Liaison Officer in the appellants Company and he was authorised to collect money over and above the invoice value in cash. It is not necessary for the Revenue to produce documentary evidence and establish the case with mathematical precision. Once it is shown that the agent was collecting money, from the statement, which is corroborated by slips recovered, then the burden of proof shifts to the respondents to show that no extra cash was received by them. He pointed out that two of the agents had clearly admitted having paid extra amount in cash as noted in paragraphs 70.3 and 70.4 of the Commissioner's findings. Therefore, there was enough corroboration from thee two agents in regard to receipt of extra consideration by them. The learned Counsel's contention that such extra payments have not been recorded in these agent's registers has not been accepted by the Commissioner. The Commissioner has given reasons for not accepting their pleas. He submits that in a case of under invoicing, transactions are not recorded in the books and the plea of the Counsel for the appellants that the department should prove through the Registers of agents extra payment is not tenacious. The department has shown the deposits made in cash in Vijaya Bank by these agents which should be accepted as extra payment towards invoices. On a specific query from the Bench, as to whether "Such of these invoices have been discussed and whether extra consideration received in each of the invoice have been shown through evidence, the learned DR only reiterated what is recorded in the order and the written submission sent by the Commissioner to the DR which is already extracted above. With regard to the other two grounds he pointed out to the findings recorded in the order. In this context he pointed out that both the samples drawn were not forwarded to the Chemical Examiner for test as noted in paragraph 64. However, the Commissioner has relied upon the other evidence for holding the item cleared by the appellants to be Marine plywood for classification under heading 4808.10 for short levy to the extent of Rs. ' 27,229/-.
27. As regards the charge of clearance of Veneer from the other two units and clubbing of their clearances the Commissioner has given detailed findings in paragraphs 60 and 61 of his order for duty demand of Rs. 3,73,527/-. He contends that although the appellants had taken permission for supply of raw material to BGS, there is corroboration of evidence in the order and the appellants had not proved that the other units i.e. BGS and VE are independent manufacturers. They did not have any machinery and hence the findings arrived at by the Commissioner that the raw material was issued in the name of M/s. Nitin Timber Mart and not to VE is correct and no evidence has been filed to show as to how and why the other unit i.e. VE came into possession of the said Veneer covered by customs house cash memo issued in the name of Shri S. Agarwal. He also referred to the detailed findings by the Commissioner in para 60.1 on this aspect holding that clearance of Veneer in fact was done by BGS by suppression and non accountal and this finding is required to be accepted. The learned DR also submitted that slips recovered from Venkataraman give the price and rates of various sizes manufactured by the appellants and the slips corresponded to the landed cost which is corroborated by the statement of Sri Ganesh which is not resiled in the cross examination and thus the agent's corroborative evidence is established. He pointed out that the slips recovered from Venkataraman corresponded to the seizure of records from Ganesh Timber Trading Co. and therefore, it establishes the entire information and evidence which could be applied to all the dealers.
28. In counter, the learned Counsel reiterated his contention and further stated that activity carried out by BGS and VE with regard to veneer was not activity of manufacture. The process of trimming and cutting according to size did not result in coming into existence of new goods and BGS had equipment for trimming and sizing and there is no finding by the Commissioner on this aspect.
29. We have carefully considered the entire allegation, replies, evidence in the form of statements, result of cross examinations, arguments and citations produced before. After the closure of the case the Counsel and the appellant's representative were asked to produce copy of the annexure to the show cause notice which gives details of 241 invoices. The annexure gives entry of invoice value, the enhanced value and the short levy. Appellants have not produced the same nor the Revenue produced the same despite being called upon to do so except only their reply which is extracted. We are required to examine all the three allegations in the case.
30. The first allegation pertains to under-invoicing and undervaluation of clearances made by M/s. BGP to their dealers. The officers carried out search and seizure of the premises of M/s. BGP, M/s. BGS and its sister concern and about 18 dealers whose names have been indicated in the SCNs. Investigations were carried out with transporters and also with the bankers. The scrutiny of evidence led to visit of investigating officers to the premises of Shri Venkatraman who was canvassing the business on behalf of the appellant. Revenue has termed him as liaison officer while appellants claim that even as per his own evidence in the form of statement recorded that he was only a commission agent receiving 1% of billed amount of appellants. He had stated that statements given by him was not true, as recorded in the statement itself. They contend that he was representing various other manufacturers. Revenue has relied on certain slips seized from his premises which showed the thickness of plywood, bill rate, the rate he was asked to sell and from his statement it was alleged that there was huge difference between the bill price and the price at which it was sold to Sundaram Industries and TANSI and that amounts so taken by cash was passed on to the Directors and appellants. Appellants seriously challenged the slips recovered on the ground that these slips were never made available to them. The Commissioner has noted that during the hearing appellants were given an opportunity to take xerox copies and make their submissions. Appellant's main ground is that when the department is solely proceeding on the basis of statement of Sh. Venkatraman to prove the undervaluation, then his presence for cross examination was paramount and was fundamental to prove the undervaluation of principles of natural justice. Appellants claim that there was a serious violation in this respect. The Commissioner has noted that Shri Venkatraman and Ramachandran did not turn up and appellants had agreed to file their written submissions. The Commissioner in his order proceeded to hold that even if they had a right to cross examine him, even then his statement can be taken as corroborative and establishing the facts of undervaluation. We have considered this plea of the appellant. We are not in a position to accept the Commissioner's finding in the light of his own recording in para 57.3 that Shri Ramachandran and Venkatraman did not turn up for cross examination. It can be gathered from this paragraph that appellants had agreed to give their written submissions which, according to the appellant, was to mean that they did not give up the right to cross examine on witnesses not turning up. The Commissioner had asked them to proceed with the next stage which he was entitled to do so. We are inclined to accept this plea of appellant, because the claim being very enormous and huge, it cannot be said that appellants would have given up their valuable right to cross examine Mr. Venkatraman, who is the fulcrum of the entire case. The entire slips were recovered from him and slips have been relied as a basis to prove the undervaluation. It has been brought to our notice that appellants had, during 1989, 25 dealers and the dealers increased to 43 during 1981 (sic). The department had only conducted and taken statements of 19 persons and relied on 18 dealers. The cross examination was sought for 21 and only 10 of them turned up and in which only two i.e. Ganesh Timber Trading Co. and Vaitheshwaran Timber Trading Co. relied on their earlier statements. The commissioner has relied on these two pieces of evidence to uphold the charge of undervaluation. We have noticed that in the cross examination both the dealers did not produce any evidence of extra payment made or entries made in their registers for making payment in respect of each bill number. There is no discussion by the Commissioner with regard to 241 invoices relied and as to how in respect of each invoices there was extra payment. The question is whether the slip of the Venkatrarnan who has not been cross examined and the veracity of the slip not having been put to test can be taken as gospel truth to apply for all the transactions with respect to 241 invoices of 42 dealers. The appellant's case is also that they had made 26% of transaction to one particular dealer whose statement has not been recorded and there is no allegation pertaining to this 26% of sales in the SCN for undervaluation. For the purpose of proving undervaluation, the burden is on the Revenue to show that in each of the transaction, there was extra payment made. There is no doubt deposits had been made in the Vijaya Bank, but this has been explained to be not connected with each of the invoices or each transaction. The correlation between the transaction and invoices and extra payment is most important criteria for arriving at the figure of the exact amount of undervaluation. Such an exercise has not been done in the present case. The annexure to the show cause notice which was shown in the Court merely indicated a general figure. The corroborative evidence in respect of each of the invoice is required to be proved. What can be gathered from the entire order is that slips had been seized from the Venkatraman's residence. This alone cannot be the sole criteria for confirming the demands. Neither the answers given by witnesses from Ganesh Timber Trading Co., ACS Guruswamy Nadar & slips seized from Vaitheshwaran Timber Trading Co. can be considered to be corroborative for transaction with regard to other dealers. The reason being that the department has accepted the appellant's prayer for clearance of goods on invoice price under Rule 173C(11) of C.E. rules and evidence to this effect has been produced and there is no serious challenge by revenue that assessee was operating under the provisions of Rule 173C(11) of C.E. Rules, 1944. The Tribunal in its Larger Bench judgement rendered in the case of CCE Chandigarh v. Taparia Tools-Ltd. and Ors. (supra) have held that value of excisable goods is determined with reference to the normal price at which such goods are sold. Where the goods are not sold at the factory gate to any particular class of wholesale buyers, duty on the value of the goods sold to that class cannot be determined on the price at which the sale was effected to another class of buyers. When the price of the goods sold to such class is not ascertainable under Section 4(l)(a), then provision contained in Section (4)(b) have to be invoked. It has been held that as per that class, nearest ascertainable, equivalent price has to be ascertained by complying with the rules framed in that behalf. The result of that provision can be had only when normal price is incapable of being ascertained. In the light of the finding on the transaction value given in the Larger Bench judgement and of several Apex Court judgement, we have to clearly hold that department having permitted the appellants to follow the. procedure as per provisions of Rule 173C(11) of C.E. Rules, therefore each of the invoice price has to be taken as independent for the purpose of assessment. In that view of the matter, the evidence of the slip recovered from Venkataraman, who has not been cross examined and there being no corroborative independent evidence in respect of the dealers of separate payments made, therefore it is difficult to hold that department has established the case of undervaluation solely on the basis of two statements of admission given by Ganesh Timber Trading and Vaitheshwaran Timber Trading. The question now is as to whether the matter has to be allowed in party's favour or matter is required to be remitted back for re-determination.
31. We have carefully examined this aspect of the matter and given our serious consideration. The law as it stands on this aspect of the matter has been examined by us. We note that it is for the Revenue to establish the aspect pertaining to under-invoicing and undervaluation. The criteria to be followed is that extra payment had been made and extra consideration received has been established. The departmental having relied on Venkatraman's statement ought to have produced him for cross examination. Even if his statement is disregarded, then also Revenue can proceed on the basis of corroborative evidence, if available, to show that the appellants have indulged in undervaluation. In the written submissions filed by the Dy. Commissioner before us to the queries raised by the Tribunal, the Revenue in this case have clearly admitted that out of 21 witnesses sought to be cross examined, only 10 were produced. The Commissioner states that officers were not cross-examined. Hence the statements are deemed to be proved. We are not in a position to accept this finding as appellants plea for cross examination of officers continued till the case was closed and the Commissioner ought to have produced all the officers including the Venkatraman and Ramachandran for the purpose of Cross Examination. The failure to produce these persons for cross examination has resulted in failure of principles of natural justice as noted in large number of judgements. We have noticed that even the Hon'ble Apex Court has remanded the matters in similar cases to give opportunity to either side to establish their case. It will be, in our humble opinion, unfair on the part of Revenue in not giving opportunity to establish their case merely because the Commissioner was in a hurry to close the case. We note that the Commissioner had proceeded on general premise and on assumptions and presumptions to establish undervaluation. The relevant findings have been recorded. These findings do not show that each of the 241 invoices have been examined and corroboration with regard to undervaluation, in respect of each of the transaction has been noted and findings recorded. Appellant's having permitted to function under Rule 173C(11) of C.E. Rules, therefore, the department and the Commissioner should show that each of the transaction was colourable and in each of the transaction there was extra consideration received except Venkatraman's statement and two witnesses. There is presently nothing on record to come to that finding. Even the admission of two dealers cannot be generalised as being the case of undervaluation in respect of other dealers were independent. Appellants have established that they have in all 41 dealers and 26% of transaction are to a single dealer, who has not been examined in the matter. When this be the case, the burden was heavy on the Revenue to establish as to how undervaluation has taken place and in the present case, we notice that such a conclusion is not forthcoming from the finding of the Commissioner, although show cause notice and allegation is enormous and weighty. We are of the considered opinion that the matter has to go back for dc novo consideration. Sh. Venkatraman has not been produced by Revenue for cross examination to establish Revenue's case. However, in the interest of justice, we direct the Revenue to summon him for cross examination. In case, if he fails to turn up, then his evidence as has been noted in cited judgement cannot be relied upon except wherever corroboratory evidence is available; which can be culled out and shown that it is material evidence to establish the case of undervaluation. Therefore, the findings on undervaluation, in the impugned order is set aside and matter remanded for de novo consideration.
32. As regards the charge of clubbing of clearances of BGP with those of BGS and VE, we notice that there has been admittedly a separate licence taken out by both the concerns. The department has taken a view that it is only on paper and while in fact the entire work was done by BGP. This is seriously denied and the letter given by the AC and other documents have been produced as evidence and shown by appellants' Counsel to prove that they are separate entities. We have examined the finding and note that the Commissioner has not looked into the evidence produced by the parties to show them to be independent. They contend that they have separate transactions and machineries have been set up by each of the unit. That the raw material were supplied by BGS and VE for job work purpose to BGP and the same was received back and finishing was being done by BGS. All these aspects are required to be re-examined in the light of the evidence shown and the judgement cited by the appellants.
33. As regards the mis-declaration and clearance of goods as marine plywood, the Commissioner has overlooked the chapter note 3(2) of chapter 44 which clearly lays down that item has satisfied the I.S. 710 of 1986. The Commissioner has noted that samples were taken however same was not sent for test but still he upholds the charge of mis-declaration solely on the basis of advertising material. Appellants have shown through citations which are already noted that advertising material cannot be the criteria for the purpose of classification. Where a chapter note specifically lays down that a product has to satisfy the I.S. 710 of 1986, then it was incumbent on the part of Revenue to prove through samples drawn and through test reports that it satisfies the criteria laid down in the chapter note. The other corroborative evidence shall be subject to satisfaction of chapter note and section note. When the primary criteria of chapter and section notes for classification has not been established then in that vent the Commissioner cannot rely on the other materials seized from appellants' premises describing the goods as "marine plywood" and solely on the basis of same advertising material; the item cannot be classified as such. Therefore, on this charge, Revenue fails and the duty liability on this ground is set aside.
34. In the result, the aspect pertaining to under valuation and clandestine removal is remanded back to the Commissioner for de novo consideration. The Commissioner shall grant full opportunity to the appellants to plead their case and to cross examine the witnesses. The Commissioner shall give a clear cut finding on evasion in respect of each of the invoices and arrive at a finding of under valuation on the basis of evidence, which should be tested through cross examination. The Commissioner shall take into consideration the law laid down on this aspect of the matter.
35. Appeals are allowed by way of remand on the above terms and to be decided in the light of the findings expeditiously.
(Pronounced in open Court on 13.3.2001).