Custom, Excise & Service Tax Tribunal
Malu Electrodes Pvt. Ltd vs Commissioner Of Central Excise, Nagpur on 6 August, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT No. I APPEAL Nos. E/751 to 766/07-Mum (Arising out of Order-in-Original No. 2-4/2007/C dated 6.3.2007 passed by Commissioner of Central Excise, Nagpur) For approval and signature: Honble Mr. P.K. Jain, Member (Technical) and Honble Mr. S.S. Garg, Member (Judicial) ======================================================
1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Seen of the Order?
4. Whether Order is to be circulated to the Departmental : Yes authorities?
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1. Malu Electrodes Pvt. Ltd. Appellants
2. Sunflame Fuels Pvt. Ltd.
3. Poonamchand R. Malu
4. Shrawan Kumar Ramlal Malu
5. Sanjay Malu
6. Mangalam Marketing
7. Century Marketing
8. Vidarbha Enterprises
9. Sushil Omprakash Soni
10. Purushottam Malu
11. T.K. Rajgopal
12. Shashibhushan Agarwal
13. Anil Singhal
14. Malu Electrodes Pvt. Ltd.
15. Raj Marketing
16. Kalpesh Trading Co.
Vs. Commissioner of Central Excise, Nagpur Respondent Appearance:
Shri V.S. Nankani, Sr. Advocate, and Shri Prithviraj Choudhary, Advocate, for appellants Shri V.K. Agrawal, Additional Commissioner (AR), for respondent CORAM:
Honble Mr. P.K. Jain, Member (Technical) Honble Mr. S.S. Garg, Member (Judicial) Dates of Hearing: 10.6.2015, 17.6.2015, 23.6.2015, 6.7.2015 and 9.7.2015 Date of Decision: 6.8.2015 ORDER NO Per: P.K. Jain Appellant No.1 is manufacturing welding electrodes and availing the benefit of SSI exemption. Appellant No.3 is the Managing Director and appellant No.4 is another Director of appellant No.1. For manufacture of welding electrodes, the main inputs are wire rods and flux. Manufacturer of electrodes also converts the wire rods purchased into the required size/diameter wire rods for purpose of manufacture of electrodes. Flux is normally manufactured in house by the manufacturer of welding electrodes but some time it is traded also. Flux is manufactured by mixing number of minerals in powder form in a predetermined fixed proportion. Thereafter potassium silicate is added to the mixture and it gets converted into the form of a paste. Such a paste is put on the wire rod and baked in the oven to the required temperature and period. Thereafter the welding electrodes are put in the boxes and number of boxes into cases.
1.1 Appellant No.2 is another private limited company with appellant No.3 and appellant No.4 being the Director of the said company. It is claimed by them that earlier they were in the manufacture of flux and later on they started manufacturing MS wires.
1.2 In brief the case of the Revenue is that appellant No.1 was not showing the entire production of welding electrodes in their books of account and other statutory records thereby evading payment of duty. It is the case of the Revenue that the wire rods being manufactured by appellant No.2 were being used by appellant No.1 for unaccounted production of welding electrodes. It also the case of the Revenue that for some period when appellant No.2 was manufacturing flux, almost the entire production of the flux was being used by appellant No.1 for unaccounted production. It is also the case of the Revenue that for selling the unaccounted production of welding electrodes, appellant No.1 was using the three marketing firms viz. appellant No.6, 7 & 8. Further, for the unaccounted production, raw materials and inputs were being purchased in the name of fictitious firms and payments for the same were being made in cash.
1.3 Appellant No.5 was the Manager and was looking after the production, marketing etc. of appellant No.1 and it is also claimed by him that he was also looking after the day-to-day working of appellant Nos. 6, 7 & 8. Appellant Nos. 6 & 7 are the proprietorship firms of appellant No.10 who is also one of the family members of appellants 3 & 4. Appellant No.9 is the proprietor of Appellant No.8.
1.4 One of the items used in the manufacture of flux for welding electrodes is rutile. Rutile is available from one source viz. Indian Rare Earths Ltd., a Government of India company under the Department of Atomic Energy. The said item is sold by Indian Rare Earths Ltd. on the basis of the licences granted by the Department of Atomic Energy and for the quantity allotted.
1.5 Appellant No. 11, 12 and 13 are Directors/proprietors of the three companies/firms viz. M/s. Rhodonite Welding Electrodes Pvt. Ltd., M/s. Sanjhi Foodco Industries Pvt. Ltd. and M/s. Ayush Enterprises. The claim of the Revenue is that these three companies/firms were allotted rutile by Indian Rare Earths Ltd. and a part of the rutile so allotted to them was purchased by appellant No.1 and used in the manufacture of unaccounted welding electrodes. The sale of rutile is not legally permitted and the rutile sold by these three companies/firms is unaccounted by appellant No.1.
1.6 Appellants 15 & 16 are trading concern dealing in the trading of welding electrodes and related items and were engaged in the selling of the welding electrodes manufactured by appellant No.1.
2. Based upon an intelligence that appellant No.1 was indulging in the manufacture and clandestine removal of welding electrodes, the factory of appellant No.1 was visited and simultaneously searches were conducted at appellant No.2s unit, office premises of appellant No.1, residential premises of appellant No.5, godown of appellant No.15, godown of appellant No.16, etc. Certain incriminating documents were recovered. In some places the goods were also seized. At appellants factory, excess of raw material (physical stock stock as per records) was found. At Wadi godown of appellant No.1, 340 boxes of welding electrodes valued at Rs.6,22,200/- were seized. Similarly, 202 boxes of welding electrodes valued at Rs.3,15,420/- from the godown of appellant No.15 were also seized. Similarly, 223 boxes and 13 packs of welding electrodes valued at Rs.2,50,000/- were seized from the godown of appellant No.16. On the day of the visit, statement of one Shri Pradeep D. Savarkar, Quality Control In-charge of appellant No.1, was recorded, wherein he explained the manufacturing process. Shri Pradeep Savarkar further stated that only part of the production is being recorded in the books and the remaining goods manufactured are cleared without paying any central excise duty or making invoices. It was also stated by Shri Savarkar that appellant No.1 is receiving wire rods from appellant No.2, N.R. Wires and D.M. Engineers, Bhilai, and rutile was received from Indian Rare Earth Ltd., Tamil Nadu and Orissa and other minerals from various companies. Shri Savarkar also stated that they are receiving the wire rods from appellant No.2 without cover of any documents. Similarly, rutile is being received from some other companies but the same is not being recorded in the books of account. Statement of appellant No.5 was also recorded on 21.8.2002 wherein he stated that he is the authorized signatory for central excise purposes and that they are manufacturing 200 cases of welding electrodes per day but showing only 60 to 70 cases per day in their books of account. He also stated in the statement that the raw materials are procured either without bill or in the name of another company for unaccounted production. Appellant No.5 also explained certain documents recovered from the factory which indicated that certain goods are received without bill or in the name of some other fictitious company. It was also stated by appellant No.5 that unrecorded production of welding electrodes are sold under the cover of three marketing companies viz. appellant Nos.6, 7 & 8 and also claimed that he looks after the three marketing companies. Another statement of appellant No.5 was recorded on 21.11.2002 wherein he stated that unrecorded production of welding electrodes are sold through appellant No. 6, 7 & 8. Further, appellants 6 & 7 are proprietorship firms of appellant No.10 while appellant No.8 is the proprietorship firm of appellant No.9. It was also claimed that in order to adjust the sale of welding electrodes, the said three marketing companies (appellants 6, 7 & 8) are purchasing bills of welding electrodes from 12 entities whose names were elaborated by appellant No.5. It was further stated that the purchases from these 12 companies/firms are only on paper. Further, the welding electrodes actually manufactured by appellant No.1 are sold through these three marketing companies for which no bills are raised as the marketing companies are owned by the family members of the Malus and, therefore, there is no question of making any payment by these marketing companies to appellant No.1. Further, the sale proceeds of the welding electrodes by the three marketing companies are used for purchase of unrecorded raw material and other inputs. Statement of one Shri Sanjay Baburao, Accountant of appellant No.1, was recorded on 26.11.2002 wherein he broadly stated that he had acted as per the direction of appellant No.5 and whatever is stated by appellant No.5 should be correct and he does not have precise knowledge of many things. Similarly, statements of various other persons were recorded. A statement of appellant No.3 who is the Director of appellant No.1 was recorded on 22.1.2003 wherein he stated the details given by appellant No.5 in his statement are true and correct. He also stated that the welding electrodes manufactured by appellant No.1 are sold in the name of appellant No. 6, 7 and 8 without accounting/payment of duty, the purchases done by the marketing firm are bogus. It was also stated that raw materials have been purchased in cash or in the name of other companies. Statement of appellant No.4 who is also the Director of appellant No.1, was also recorded on 21.2.2003, who confirmed the details given by appellant No.3 and appellant No.5. Investigations were also taken up regarding procurement of raw material. During search on 20.8.2002, certain raw materials were found in excess in appellant No.1s unit. Similarly, the manufacturing unit of appellant No.2 was also searched. However, in the manufacturing unit of appellant No.2, records were not updated but it was found that appellant No.2 has procured wire rods in the name of Malvi Wires Pvt. Ltd., Nagpur from D.M. Engineering Ltd., Bhilai and it was observed that even though the said invoices were in the name of Malvi Wires Pvt. Ltd., Nagpur, the goods have actually come to appellant No.2. Appellant No.5 in his statement dated 21.11.2002 also stated that wire rods are received by appellant No.2 in the name of third parties and the same are thereafter sold to appellant No.1. Enquiries with D.M. Engineering Ltd., Bhilai, indicated that MS wires sold to Malvi Wires Pvt. Ltd., Nagpur, are without any cenvatable invoices and transactions are done in cash and delivery of such goods are taken by the customers themselves and they also submitted the bills for the period April 2002 to 2.9.2002 in the name of Malvi Wires Pvt. Ltd., Nagpur, which indicates that 119.290 MT of wire rods have been purchased in the name of Malvi Wires Pvt. Ltd., Nagpur. One of the important input raw material used in the manufacture of welding electrodes is rutile/illmenite which are rare earth metals and the only supplier is Indian Rare Earth Ltd., a Government of India Undertaking. It was found that appellant No.2 had the requisite licence to procure rutile and has purchased the same to the tune of 369 MT during 1999-00 and 2000-01 and illmenite to the tune of 61.445 MT during 2000-01 and 2001-02. At the time of search, no flux was found in the premises of appellant No.2 and it was found that the said unit has only the wire drawing machines and there was no machinery to manufacture flux. Appellant No.5 in his statement dated 21.11.2002 stated that appellant No.2 had manufactured flux and the bills for the same are available in the record and it was stated that the said flux was manufactured with the help of a drum etc. in the factory, which have been sold since then. Enquiries were made with the indicated buyer of flux. It was found that the appellant No.2 has sold some flux to Samrat Cylinders and Heavy Engineering Co. Ltd., Jalna, during 2000-01. The said company confirmed that they have purchased only once, that also 5 MT. Other buyer was Vaibhav Traders, Indore. Enquiries with the said purported buyer indicated that the said buyer has closed down his business few years earlier. It was therefore concluded that the rutile and illmenite purchased by appellant No.2 was used by appellant No.1. Enquiries were made with Indian Rare Earth Ltd., Mumbai about various buyers of rutile in Nagpur, which led to investigation of one M/s. Rhodonite Welding Electrodes Pvt. Ltd. Shri T.K. Rajagopal, Managing Director of M/s. Rhodonite and appellant No.11, in his statement stated that due to financial difficulties he has sold rutile to appellant No.1 and for this purpose he got some premium. He also stated that appellant No.1 used to deposit cash in his bank account and later on he started getting demand drafts made themselves and sent them to Indian Rare Earth Ltd. Further investigation relating to payment of rutile led to the account of one Orange City Traders, Nagpur. Investigation revealed that there is a bank account in Dena Bank, Itwara Branch, Nagpur, which has been opend in the name of Orange City Traders and one Shri Sushil Soni has signed the application for opening the account as a proprietor of the said firm. It was also found that number of DDs were made from the said bank account in the name of Indian Rare Earth Ltd. and on checking up with Indian Rare Earth Ltd., it came out that these DDs are relating to purchase of rutile by M/s. Rhodonite, M/s. Sanjhi Foodco Ind., Nagpur and M/s. Ayush Enterprises, Meerut. Appellant No.12s statement was recorded on 30.9.2003 wherein he denied the sale of rutile to appellant No.1 but could not produce proof of payment etc. to Indian Rare Earth Ltd. Appellant No.13 did not turn up for investigation in spite of issuing summons. From the bank account of Orange City Traders, it was also realized that certain amounts have been paid to certain suppliers based in Bhilwara and Mumbai. Investigation with them revealed that they had supplied certain raw materials to appellant No.1.
2.1 Further investigations were done from various bank accounts etc. and after a detailed investigation, show cause notice dated 21.11.2003 was issued. During the course of investigation, two show cause notices in respect of the seized goods were also issued. After receipt of the reply from various noticees, the case was adjudicated. Aggrieved by the said order, various noticees had filed appeal before this Tribunal. This Tribunal had remanded the matter back vide order No. A/1287 -1300/WZB/2005/C-III dated 12.7.2005 and order No. A/316-322/WZB/2005/C-III dated 19.8.2005. Consequent to the said order of this Tribunal, the Commissioner allowed cross-examination of certain persons and after cross-examination, the impugned order is passed. In the impugned order, -
(i) In respect of show cause notice F.No. DGCEI/MZU/2004/30-74/2003/4905/1748 dated 21.11.2003, the Commissioner confirmed a demand of Rs.3,79,39,861/- as detailed in Annexure A-I, A-II, A-III, A-IV and A-V of the show cause notice, confirmed interest under Section 11AB and imposed equal amount of penalty under Section 11AC on appellant No.1 and also imposed penalties on appellant Nos. 2 to 13.
(ii) In respect of show cause notice F.No. DGCEI/PRU/INT/33/2002/236 dated 17.2.2003, the Commissioner confirmed a demand of Rs.1,63,810/-, interest under Section 11AB, equal amount of penalty under Section 11AC read with Rule 25, confiscation of various goods seized and imposition of redemption fine. Further, penalties were imposed on appellant Nos. 3, 4, 15 and 16.
(iii) In respect of show cause notice F.No. DGCEI/PRU/INT/33/2002/235 dated 17.2.2003, the Commissioner confiscated the goods seized in appellant No.2s premises, imposed redemption fine for the same and imposed penalty under Rule 26 on appellant No.2, penalty on appellant 3 and 4 under Rule 26 of the Central Excise Rules, 2002 and Rule 209A of the Central Exicise Rules, 1944.
2.2 Aggrieved by the said order, the appellants are before this Tribunal.
3. The case was heard extensively on 10.6.2015, 17.6.2015, 23.6.2015, 6.7.2015 and 9.7.2015.
4. The learned senior counsel for the appellants submitted that the case is based upon assumptions and presumptions and there is no concrete evidence for alleged clandestine removal. It was submitted that in the five years for which the demand is raised, there has not been a single case of illicit removal where the goods have been detained or apprehended. The whole case is based upon weak circumstantial evidence and it is a settled law that in case of circumstantial evidence, every link in the chain must be established pointing to the guilt of the accused, as held by the Honble Supreme Court in the case of Jian Mahtani vs. State of Maharashtra reported in 1999 (110) ELT 400 (SC). It was further submitted that relying on one bank statement of one vendor ignoring the affidavits filed by eight others to the contrary and not cross-examining them, relying on one sales tax return and inferring the same in case of balance 11 dealers and barring a few sporadic and random transactions relating to some inputs of insignificant quantity for which appellant No.1 has provided a complete answer, there is no evidence from where the steel wires which constitute 72% of the raw material consumption was procured. Even for balance flux, there is no evidence of the corresponding raw material consumption. Learned senior counsel made submissions relating to various statements. He submitted that Shri Pradeep Savarkars statement admitting unaccounted purchase of raw material, production of finished goods is completely baseless. During the search, no rutile was found in the factory and rutile is a major raw material and constitutes almost 14% by weight of the final product. Annual production was stated by Shri Pradeep Savarkar keeping in view the maximum capacity of the plant and not taking into account the number of days the factory works and various problems that occur into day-to-day running of the factory. The demand raised by the department is based only on the turnover of three marketing companies and no efforts have been taken to match the same with the alleged annual production as claimed by Shri Savarkar. It was further submitted that the statement of Shri Sanjay Malu recording unaccounted purchase of raw material production of finished goods is again baseless. As per his statement, 14.5 MT of unaccounted illemnite was procured on 3.8.2002. However, at the time of search on 20.8.2002, not a drop of illemnite was found and the quantity of 14.5 MT cannot be consumed in 17 days and it would take about 4 to 5 months to consume that much of the quantity. Similar is the position related to silicate. It was further submitted that the purchases made by the three marketing firms were not bogus as affidavits were filed by proprietors of eight out of these 12 entities. Further, no cross-examination was conducted with respect to the proprietors of these alleged bogus companies whose affidavits were filed as required in the case of Kulbhushan Jain vs. CC, Delhi reported in 1999 (111) ELT 906 (T). It was further submitted that all the 12 entities had the bank accounts and were filing sales tax returns and it cannot be said that these 12 entities were bogus as the cheques were realized in the accounts of these 12 entities, which proves the existence of these entities. It was also submitted that from Shri Sanjay Dhamres statement, he had no knowledge as he has only stated that whatever Shri Sanjay Malu states must be true. It was further submitted that statement of Shri Sushil Soni can in no manner be led to conclude the alleged clandestine removal undertaken by appellant No.1. It was submitted that Shri Sushil Soni has stated in his statement that he is in charge of the operations of Vidarbha Enterprises (appellant No.8) and Shri Sanjay Malu is in no manner connected with the procurement of electrodes from various purchasers and he denied the contents of the statement of Shri Sanjay Malu. Shri Sushil Soni also mentioned the details of various brand names of electrodes other than the brands owned by appellant No.1, which itself corroborates that the purchases were made from genuine companies. It was also submitted that the department made no enquiries with the buyers who purchased electrodes from Vidarbha Enterprises which could have explained the origin of welding electrodes. The learned senior counsel also submitted that Orange City Traders was engaged in the business of bill financing and it cannot be considered that demand drafts were issued to such third parties for further procurement of raw materials on behalf of appellant No.1. It was also submitted by the learned senior counsel that strangely enough the department has not recorded any statement of appellant No.10 who was the proprietor of appellant No. 7 and 8 firms. It was also submitted that during adjudication proceedings, appellant No.10 has filed an affidavit and still the department did not either record his statement or cross-examine him and the learned senior counsel again relied upon the judgment of this Tribunal in the case of Kulbhushan Jain (supra). It was submitted that the statement of Shri T.K. Rajagopal cannot be relied upon as the department has not conducted thorough investigation of the facts stated therein. No enquiries were conducted with the UCO Bank account of Rhodonite wherein it has been alleged that appellant No.1 had made cash deposit for unaccounted procurement of rutile. It was also submitted that Shri Rajagopal himself has submitted that he was carrying on the job work for Ramson Industries and the rutile procured by Rhodonite was used for job work purposes. It was submitted that rutile is used in the job work activities for Ramson Industries and it cannot be said that the same has been procured on behalf of appellant No.1. It was also submitted that Shri Rajagopal failed to appear for cross-examination which has been acknolwledged in the impugned order and therefore his statement loses its evidentiary value and cannot be relied upon to arrive at the conclusion of clandestine procurement of rutile. The learned senior counsel relied upon the following judgments:-
(i) Arsh Castings Pvt. Ltd. vs. CCE, Chandigarh reported in 1996 (81) ELT 276 (T),
(ii) L. Chandrasekar vs. CC reported in 1990 (48) ELT 289 (T).
4.1 It was also submitted that Orange City Traders was engaged in the activity of bill financing and just because the demand drafts were issued to third parties, it cannot be concluded that rutile was procured on behalf of appellant No.1. It was submitted that similar drafts were issued in the name of Sanjhi Food Co. and appellant No.12 of Sanjhi Food Co. has denied sale of rutile to appellant No.1. Further, no statement of appellant No.13 was recorded. Under the circumstances, it cannot be said that the rutile was purchased by appellant No.1. It was further submitted that the Revenue has erroneously concluded that rutile procured by appellant No.2 has been diverted to appellant No.1. The genuine transactions carried by appellant No.2 were totally ignored by the department. Even during investigation, one of the buyers, Samrat Cylinders, has acknowledged the purchase of flux from appellant No.2 and the sale of flux is evident from the ledger maintained by appellant No.2. Further, the reliance on LRs of Kerala Transport Corporation to conclude that one Shri Rathod, an employee of appellant No.1, acknowledged the receipt of unaccounted rutile, is erroneous as a careful scrutiny of LRs would reveal that the acknowledgement on LR of Rhodonite was not of Shri Rathod and was not similar in manner to the acknowledgement given by Shri Rathod. Learned senior counsel further submitted that the steel comprises 72% by weight of the final product. There is no allegation of unaccounted procurement of steel by appellant No.1. It was submitted that unaccounted quantity of steel was recovered from the premises of appellant No.2 and the same cannot in any manner be relied upon to conclude that such huge quantities of steel has been diverted by appellant No.2 to appellant No.1. It was also submitted that no action has been taken against appellant No.2 for removal of unaccounted steel. The senior counsel also submitted this Tribunals decision in the case of Lily Foam Industries (P) Ltd. vs. CCE reported in 1990 (46) ELT 462. The learned senior counsel also submitted that the Revenue has wrongly relied upon the letter of RECASIL Industries to conclude procurement of unaccounted silicate in the name of third parties. The said letter only mentions list of parties to whom silicate has been sold by RECASIL and there is no evidence that these parties have diverted the same to appellant No.1. It was also submitted that there is no corroborative evidence which proves that appellant No.1 has procured ferro manganese/lubricant. Just because some payments have been made through Dena Bank account of Orange City Traders, it cannot be concluded that these materials were procured by appellant No.1. It was further submitted that the Revenue has not been able to establish procurement of requisite quantity of raw material. Learned senior counsel also submitted the judgment of Honble Supreme Court in the case of Oudh Sugar Mills vs. UOI reported in 1978 (2) ELT J172 (SC) and the case of Hindustan Coca Cola Beverages Pvt. Ltd. vs. CCE, Thane-I reported in 2006 (205) ELT 700 (Tri.-Mumbai), to support his contention that the demand in Annexure A-I is without any merits and unsustainable in law. As far as the demand in Annexure A-II is concerned, the learned senior counsel submitted that the office premises of Vidarbha Enterprises (appellant No.8) and appellant No.1 are one and the same and, therefore, certain invoices of appellant No.8 have been recovered from the office of appellant No.1 and this in no manner can be said to be indicative of the fact that appellant No.1 has been clandestinely clearing the goods under the garb of appellant No.8. It was submitted that invoices of appellant No.8 are genuine transactions and no efforts have been made to verify from the buyers of the said transactions. It was submitted that multiple invoices bearing same serial number existed in the file because the orders pertaining to those invoices were cancelled and the subsequent new invoices were not renumbered. It was also submitted that the demand on transactions for which no invoice was recovered has been based on invoice No.87 from which average per ton price has been computed. It was submitted that this is erroneous as appellant No.1 manufactured electrodes of different sizes and shape which are sold at different rates and adopting a uniform price for all of the same is highly unjustified. As far as the demand under Annexure A-III is concerned, learned counsel submitted that this is based upon handwritten chit of Shri Chunilal Sahu, which has not been verified/authenticated and is, therefore, unsustainable. He relied upon the decision of this Tribunal in the case of Mahesh Silk Mills vs. CCE, Mumbai reported in 2014 (304) 703 (Tri.-Ahmd.), wherein it is held that charge of clandestine removal cannot be sustained based on private records without corroborative evidence. It was submitted that during the course of examination of Shri Chunilal Sahu, he was unable to substantiate the factual details stated by him in the statement. It was further submitted that the demand has been computed based upon invoice No.87 from which the highest per unit price has been taken by the department. Adoption of such highest per unit rate is contrary to statement of Shri Chunilal Sahu. As far as the demand under Annexure A-IV is concerned, the learned senior counsel submitted that this demand is based upon merely handwritten chits of the transporter and is not even based upon LRs of the transporter and the said chits have not been verified/authenticated by the Revenue. It was also submitted that the LR transport document alone cannot be relied upon for sustaining charge of clandestine removal as has been held in the cases of Kothari Pouches vs. CCE, New Delhi reported in 2001 (135) ELT 531 (Tri.-Del.) and Modern Ex-Servicemen Engg. Co. Pvt. Ltd. vs. CCE, Panchkula reported in 2014 (304) ELT 298 (Tri.-Del.). It was submitted that this demand is not based upon any other piece of evidence and, therefore, is required to be set aside. It was also submitted that during the cross-examination of the transporter, it was evident that the transporter had no personal knowledge of the alleged removal of the unaccounted finished goods by appellant No.1 and statement given by such individuals were mainly based on hearsay evidence and since there has been no corroborative evidence, the demands are unsustainable. It was also submitted that the demand in Annexure A-IV is based upon invoice No.87 from which average per ton price has been computed and such a generalization adopted by the department is erroneous as the electrodes of different size and shape are sold at different rates and adopting uniform price for all of the same is highly unjustifiable. As far as the demand pertaining to Annexure A-V is concerned, learned senior counsel submitted that there is no allegation of clandestine removal against Orange City Traders and consequently the demand raised based on the deposits made in Orange City Traders bank account cannot be said to be the sale proceeds of the clandestine removal of goods in any manner. Even if it is assumed that these are sale proceeds of clandestinely removed goods, the said amounts are already covered under Annexure A-I and the duty cannot be demanded twice. The learned senior counsel submitted the following case laws in support of different propositions:-
(i) Ganga Rubber Industries vs. CCE reported in 1989 (39) ELT 650 (T);
(ii) Kuber Tobacco Products vs. CCE, Delhi reported in 2013 (290) ELT 545 (Tri.-Del.) as maintained by the Honble Supreme Court reported in 2015 (317) ELT A159 (SC);
(iii) Ashwin Vanaspati Industries vs. CCE reported in 1992 (59) ELT 175 (T) statements of various parties taken at the time of investigation are not reliable as the deponents have not been produced for cross-examination.
(iv) Globe Synthetics vs. CCE, New Delhi reported in 2003 (159) ELT 228 (Tri.-Del.);
(v) Rama Shyama Papers Ltd. vs. CCE, Lucknow reported in 2004 (168) ELT 494 (Tri.-Del.) statement of Shri Sanjay Malu has to be read while keeping in mind the contents of cross-examination.
(vi) Sanket Food Products Pvt. Ltd. vs. CCE, Aurangabad reported in 2005 (188) ELT 107 (Tri.-Del.) Mere allegation of common directors and common control between appellant No.2 and appellant No.1 not enough to sustain charge of clandestine removal of unaccounted steel/drawn wire rods.
(vii) CCE, Chennai-IV vs. B.K. Office Needs (P) Ltd. reported in 2015 (318) ELT 288 (Tri.-Chennai).
5. The learned AR reiterated various findings in the impugned order. He took us through the various statements particularly the two statements of Shri Sanjay Malu as also the statement of Shri Poonamchand R. Malu and Shrawankumar R. Malu. He further submitted that these statements are claimed to be retracted. However, no such retraction was filed before the investigating officer or any officer of the department. The retraction was in the form of affidavits which were produced only at the time of adjudication. Such a retraction cannot be taken into consideration. It was also submitted that Shri Sanjay Malu in his second statement has confirmed the contents of the first statement and similar is the position about other statement. It was further submitted that the details provided in the statement can only be provided by a person who is in the total know how of the things and cannot be provided by an officer and the officer cannot ask any such thing to be written. It was further submitted that in the affidavit filed, they have not elaborated what is wrong in those statements and what part of the statements is incorrect. Learned AR took us through these statements particularly that of Shri Sanjay Malu where he has explained the whole of the modus operandi. Learned AR submitted the following case laws in support of his contention that such retractions are of no consequence and the statements can be relied upon:-
(i) CC(P), Mumbai vs. Shamsuddin M.A. Kadar reported in 2010 (259) ELT 44 (Bom.) (paras 7, 10);
(ii) Saif Electronics Ltd. vs. CCE, Vapi reported in 2006 (205) ELT 676 (Tri.-Mumbai) (para 6);
(iii) P. Ramasamy vs. CCE, Salem reported in 2006 (199) ELT 279 (Tri.-Chennai);
(iv) Bayir Extracts Pvt. Ltd. vs. CC, Bangalore reported in 2012 (285) ELT 97 (Tri.-Bang.) (para 4.1);
(v) K.P. Abdul Majeed vs. CC, Cochin reported in 2014 (299) ELT 108 (Tri.-Bang.) (paras 6, 7.1, 7.2, 7.3, 8);
(vi) P. Alavikutty vs. Director, Enforcement Directorate reported in 2013 (294) ELT 172 (ATFE);
(vii) Asia World Exports vs. CC, Mumbai reported in 2011 (274) ELT 225 (Tri.-Mumbai) (para 26.3);
(viii) Pundole Shahrukh & Co. vs. CC, Mumbai reported in 2014 (313) ELT 573 (Tri.-Mumbai);
(ix) Sidhharth Shankar Roy vs. CC, Mumbai reported in 2013 (291) ELT (Tri.-Mumbai);
(x) P.B. Nair C&F Pvt. Ltd. vs. CC, Mumbai reported in 2015 (318) ELT 437 (Tri.-Mumbai);
(xi) ACC, Madras-1 vs. Govindasamy Ragupathy reported in 1998 (98) ELT 50 (Mad.);
(xii) Zaki Ishrati vs. CC&CE, Kanpur reported in 2013 (291) ELT 161 (All.);
(xiii) Shaikh Anwar Shaikh Ismail vs. CC, Mumbai reported in 2015 (315) ELT 229 (Tri.-Mumbai);
(xiv) Telestar Travels Pvt. Ltd. vs. Special Director of Enforcement reported in 2013 (289) ELT 3 (SC);
5.1 Learned AR further submitted that the demand in the case is from December 1998 to August 2002 which is roughly 3 years 9 months and on an average the duty per ton of electrodes works out to Rs.5,087.50. The total central excise duty demanded in this show cause notice is Rs.3,79,39,861/- which will work out to clandestine clearance of 7459 tons. If we divide the figure by 45, it will amount to clandestine clearance of 165.76 tons. Shri Pradeep Savarkar, Quality Control Manager, has indicated the capacity as 226.83 per month and in view of this fact, the alleged clandestine clearance broadly correlates.
5.2 Learned AR further submitted that it is not possible in the case of clandestine clearance to find every link as these links are in the knowledge of the assessee. Further, in the present case, Shri Sanjay Malu has admitted that they were not keeping the record of the clandestine clearance or purchase of unaccounted raw material and as soon as the transactions were complete, the relevant documents were destroyed by them. Under the circumstances, it is not practically possible for the department to unearth such documents. He further submitted the following case laws in support of his various contentions including relating to admission of clandestine clearance etc.:-
(i) Lucky Dyeing Mills P. Ltd. vs. CCE, Surat reported in 2008 (222) ELT 543 (Tri.-Ahmd.) (paras 9, 12, 13);
(ii) CC, Madras vs. D. Bhoormull reported in 1983 (13) ELT 1546 (SC) (paras 30, 31, 32);
(iii) Ahmednagar Rolling Mills Pvt. Ltd. vs. CCE, Aurangabad reported in 2014 (300) ELT 119 (Tri.-Mumbai) (para 5.1);
(iv) Gulabchand Silk Mills Pvt. Ltd. vs. CCE, Hyderabad-II reported in 2005 (184) ELT 263 (Tri.-Bang) (para 10);
(v) National Boards vs. CCE, Calicut reported in 2014 (313) ELT 113 (Tri.-Bang.) (paras 19, 24, 29);
(vi) CCE, Delhi vs. Ganpati Rolling Pvt. Ltd. reported in 2014 (303) ELT 240 (Tri.-Del.);
(vii) UOI vs. Playworld Electronics Pvt. Ltd. reported in 1989 (41) ELT 368 (SC) (para 11);
(viii) Calcutta Choromotype Ltd. vs. CCE, Calcutta reported in 1998 (99) ELT 202 (SC).
5.3 Learned Additional Commissioner further submitted that in this case the department has been able to produce evidence regarding procurement of raw material which was not accounted, purchase of raw material in third partys name and purchase of wire rods through Sunflame Fuels Pvt. Ltd. Further, the department has been able to bring evidence regarding the sales of the goods inasmuch as the three marketing companies were used for the sale of the unaccounted production. He further submitted that even on the finance side, the department is able to unearth the account of Orange City Traders. Thus there are evidences from all the sides and in view of these facts, all the demands are required to be upheld.
6. In rebuttal to the propositions relied upon by the learned AR, it was submitted that burden of that the statements have been recorded under duress/coercion lies on the assessee is erroneous and in support of this, he relied upon the judgment of the Honble Supreme Court in the case of Vinod Solanki vs. UOI reported in 2009 (233) ELT 157 (SC) and the judgment of the Honble Delhi High Court in the case of Vinod Kumar Sahadev vs. UOI reported in 2014 (304) ELT 335 (Del.). It was further submitted that the learned ARs contention that the retraction cannot be relied upon as the retraction letter has been submitted only at the time of adjudication and the retraction aspect has not been mentioned in the subsequent statement of some deponents. It was submitted that this aspect has been dealt by the Tribunal in the case of Opel Alloys (P) Ltd. vs. CCE, Ghaziabad reported in 2005 (182) ELT 64 (Tri.-Del.), wherein the Tribunal has held that charge of clandestine removal cannot be based on retracted statement even if retraction is intimated at the time of adjudication. It was submitted that the various judgments quoted by the learned AR are distinguishable in the facts of the present case as the retraction has been submitted before the same authority who had relied upon the statement. It was also submitted that the contention of the learned AR that burden of proof of clandestine removal is discharged by the Revenue by adducing insufficient circumstantial evidence leading to a probability of such alleged offence is erroneous and for this purpose, the learned senior counsel relied upon this Tribunals decision in the case of Aum Aluminium Pvt. Ltd. vs. CCE, Vadodara reported in 2014 (311) ELT 354 (Tri.-Ahmd.). The learned senior counsel submitted that in view of these contentions, the demands do not hold good and the demands are required to be set aside and consequently penalties and redemption fine imposed are also required to be set aside.
7. We have gone through the submissions made by both the sides. We have also gone through the various statements and other records adduced during the course of hearing. We find in this case at the time of search on 20.8.2002, statement of Shri Pradeep Savarkar who was Quality Control In-charge and appears to be looking after the actual production of the goods, was recorded wherein he has indicated that they are not recording all the production in their statutory records and part of the goods are cleared without payment of duty. Shri Sanjay Malu who was the Manager and appears to be looking after all the work and in the know how of the things, has explained the modus operandi followed by appellant No.1, which elaborates that a part of the production is not being accounted. Further, the raw material required for unaccounted production to be purchased in cash or in the name of third parties and destruction of records after the transactions are complete. Directors of appellant No.1 are also the Directors in another firm with appellant No.2. It appears that wire rods were being drawn in the manufacturing unit i.e. appellant No.2 and some work of drawing was also being done in appellant No.1s unit. During the arguments, learned senior counsel for the appellant has claimed that appellant No.2 was manufacturing flux till some time back and switched over to only wire drawing thereafter. In the light of above modus operandi, detailed investigations have been undertaken by the Revenue. In the impugned order, based upon the investigations, the allegations have been upheld. While keeping in view the statements given by Shri Sanjay Malu and Shri Poonamchand R. Malu, T.K. Rajgopal etc. and also the results of the investigation, we do not have much doubt that appellant No.1 was engaged in unaccounted production of welding electrodes and was clearing the same without payment of duty. However, how much and what are the evidences to support that quantum are equally important issues.
8. We find that the demand is divided into five annexures and the basis of each annexure is totally different. Demand in each annexure is based upon different circumstantial evidences and not on direct evidence. The first annexure demands duty based upon the sales of three marketing firms. In respect of Mangalam Marketing (appellant No.6) sales figures from 1st December 1998 to 31st March 1999 were taken. For the years 1999-00, 2000-01, 2001-02, the sales figures have been lifted from the balance sheet. As far as the period 1.1.2002 to 19.8.2002 is concerned, invoices were available and the demand from April 2002 onwards is based upon invoices. It would thus be seen that annexure A-I demand is based upon the assumption that all the sales made by the three marketing companies are of welding electrodes alone and nothing else. Further, in respect of three years, the figures have been taken from the balance sheets and not from the sales invoices. For April 2002 onwards it is based upon the invoices. It is further presumed that all the sales are based upon the welding electrodes manufactured by appellant No.1. As far as annexure-II is concerned, it is based upon certain documents recovered during the search operation on 20th August 2002 from the office premises of appellant No.1 where the offices of three marketing companies viz. appellant No.6, 7 and 8 also operated. The set of documents relating to annexure-II gives the details of transportation, invoice details, value, purchaser etc. The demand in annexure-III is based upon a document recovered during the search. The said document was maintained by one Shri Chunilal Sahu. The document indicated the clearance of welding electrodes cleared clandestinely during certain periods prior to the search. The document indicated specification of the welding electrodes, quantity etc. Annexure-IV demand is based upon certain LRs/chits recovered from offices of three transporters. As per the documents, certain vehicles were engaged by Malu Electrodes Pvt. Ltd. on certain dates. The demand is based upon assumption that the goods transported are welding electrodes, the quantity or weight is assumed. Only the destination city was mentioned in the documents. Annexure-V demand is based upon certain bank records of Orange City Traders. The demand is based upon the amounts deposited. It is presumed that the amounts deposited are nothing but sales proceeds of the clandestinely cleared goods by appellant No.1. It is not the case of the Revenue that Orange City Traders was engaged in the sale or marketing of welding electrodes. We are, therefore, of the view that in respect of each annexure, it is necessary to examine the evidences available as also the missing links etc. so as to judge the overall sufficiency or otherwise of the evidence to support that part and quantum of demand.
8.1 Annexure A-I is the demand which has been computed based upon adding the turnover of the three marketing companies. We find that in the initial statement itself, Shri Sanjay Malu had indicated that the proprietor of Mangalam Marketing and Century Marketing is Shri Purushottam Malu (appellant No.10) while that of Vidarbha Enterprises, one Shri Sushil Omprakash Soni (appellant No.9). Shri Sanjay Malu also has claimed that he is looking after the work of all the three marketing firms. The said statement has been reaffirmed by Shri Poonamchand R. Malu as also Shri Shrawan Kumar R. Malu, the Directors in appellant No.1 and 2 companies. We note that the proprietor of Vidarbha Enterprises (appellant No.8) Shri Sushil Omprakash Soni (appellant No.9) in his statement has denied that Shri Sanjay Malu looks after the day-to-day work of the said marketing company. On the contrary, he stated that he looks after the said marketing company. (Thus statement of Shri Sanjay Malu and Shri Sushil Soni are contradictory). During the statement, he identified certain records pertaining to the said marketing company wherein his signature and documents were in his handwriting. To our mind, this clearly shows that Shri Sushil Soni who is legally the proprietor was also looking after or doing some work in the said firm. We also note that as a proprietor, in his statement he has claimed that he has actually purchased the goods i.e. welding electrodes from the 12 firms. Thus we find that the statement of Shri Sanjay Malu is contradictory to the statement of Shri Sushil Soni. We also note that during the course of cross-examination, Shri Sanjay Malu has stated that the statement was given under duress and he backed out from his statement. As far as other two marketing firms are concerned, we find it strange that no statement of the proprietor Shri Purushottam Malu was recorded. This was particularly necessary as in respect of Vidarbha Enterprises, statement of Shri Sanjay Malu was contradicted by Shri Omprakash Soni. It is not the case of the Revenue that Shri Purushottam Malu was not available. We also note that Shri Purushottam Malu has been made a co-noticee and had replied to the show cause notice and also submitted an affidavit. However, during adjudication proceedings, the adjudicating authority did not examine him. Be that is it may be, we note that even if we take the say of Shri Sanjay Malu, it was incumbent on the part of the Revenue to call the proprietors, partners or authorized persons from these 12 firms from whom electrodes are purported to have been purchased by the three marketing firms, to find out the truth and also to find out whether the electrodes purchased were the ones manufactured by appellant No.1 and were cleared by appellant No.1 without payment of duty, or part or whole of these were purchased from some other manufacturer and resold to various customers. From the investigation we find that a feeble attempt was made in this direction inasmuch as the summons were posted which came back due to insufficient address. Summons could not be served through the Assistant Commissioner (P) of the Nagpur Commissionerate. Later on, the summons were given to Shri Sanjay Malu who received on behalf of these firms. From the records it is not coming out whether Shri Sanjay Malu had any position in the said 12 supplying firms or was their authorized signatory or in what capacity he could have received these summons. We also note that the Revenue did not make any efforts to find out the complete address either from Shri Sanjay Malu or the proprietors of the three firms i.e. Shri Sushil Soni or Shri Purushottam Malu. Shri Sushil Soni in his statement has claimed that purchases from 12 marketing companies are genuine, it should have been possible to ask Shri Soni to provide complete details of these 12 companies/firms and thereafter question the concerned person. It is an admitted fact that all the 12 companies had bank accounts and transactions were made through cheques/DDs. It is not coming out from the show cause notice or the impugned order whether any effort was made through the banks to find out the precise address and the persons behind them who has withdrawn the money given to these 12 companies/firms. We also note that all these firms were registered with the Sales Tax department and also had filed the sales tax return. It is stated in the show cause notice that these firms were mainly engaged in the trading of coal. In our view, if the department had been able to find out that these 12 companies were involved in the trading of coal, it should have been possible for the department to locate the companies and record the statements of the proprietors to find out from whom the said supplier companies have purchased the welding electrodes. Results of such investigation could have helped in arriving the correct and true factual position.
8.2 We also note that no enquiries have been made with the buyers of welding electrodes of the three marketing companies. If enquiries were made at least with some buyers and it was found that the buyers have received the goods carrying the brand name of appellant No.1 alone, perhaps the case of the Revenue would have been on much stronger footing.
8.3 In the absence of these details, it cannot be concluded with certainty that all the goods that have been sold by the marketing companies were manufactured by appellant No.1 and appellant No.1 alone and were representing their unaccounted production.
8.4 We note that investigations relating to procurement of rutile particularly by appellant No.2 and also M/s. Rhodonite Pvt. Ltd. suggest that appellant No.1 did get the said critical material indirectly from sources other than Indian Rare Earth Ltd. directly, but the question is how much of the unauthorized rutile was received by appellant No.1 and whether this quantity of rutile received would correspond to the alleged production of welding electrodes in the name of three marketing companies. We do not find any correlation or any attempt to correlate the procurement of rutile from unauthorized sources and the production of unaccounted welding electrodes. There is a statement of Shri T.K. Rajgopal which is contradicted by Shri Punamchand Malu in his statement. Similarly, we note that investigation in the case has not brought out even broad correlation about the procurement of wire rods. Only about 100 odd MT of wire rods appeared to have been procured in the third party name by appellant No.2 or appellant No.1. Learned senior counsels argument that wire rods constitute 72% of the weight of the final product and is the main input is not disputed and is factually correct. There are no concrete evidences about the purchase of unaccounted wire rods.. In the absence of details of procurement of these two critical inputs (wire rods and rutile) and input-output correlation as also the factors mentioned earlier, we are of the view that the Revenue has not discharged burden of proving the quantum of clandestine production and clearance of the final product. We may hasten to say here though we are of the view that there are pointers to indicate that the appellants have indeed indulged in the clandestine clearance of the goods without payment of duty, however, it is equally important to have a reasonable if not correct quantity and value of the goods clandestinely cleared. Sometimes it may be difficult to have the correct figures but in such cases the estimation has to be based upon a very very reasonable basis. In view of the above analysis, we are of the view that the demand raised in annexure-I of the demand notice does not survive and we accordingly set aside.
8.5 We also note that appellant No.12 viz. Shri Shashibhushan Agarwal, Director of Sanjhi Foodco, has denied outrightly selling any rutile to appellant No.1 and the Revenue has not been able to find out any evidence to contradict the statement. Similarly, there is no admission from Shri Sanjay Malu or Shri Poonamchand Malu or Shri Shrawan Kumar Malu that they have purchased any rutile from Sanjhi Foodco. In case of Ayush Enterprises, no statement of Shri Anil Singhal (appellant No.13) could be recorded. It is not as if Shri Anil Singhal was not available. He did not respond to the summons. In our view, perhaps the statement could have been recorded either by the local Commissionerate or the nearest unit of the Central Excise Intelligence to understand his version. In the absence of any statement from Shri Anil Singhal or any admission on the part of Directors of appellant No.1 or Shri Sanjay Malu, one cannot conclude that all the rutile/illmenite purchased by Ayush Enterprises was diverted to the appellant. We note that the very fact that the drafts were made from the account of Orange City Traders, Nagpur, the least that was expected is to question Shri Omprakash Soni about these transactions. However, nobody seems to have been confronted about these transactions. Moreover, there are no evidences to indicate that all these consignments indeed have come to Nagpur and that also to appellant No.1. In the absence of any proof of transportation or even admission in their statements, in our view, it will not be appropriate to assume that rutile/illmenite covered by the cases listed in the show cause notice had come to the factory of appellant No.1 and thereafter used in the production of welding electrodes which were cleared clandestinely. There are number of other raw materials and there are few evidences which indicate that some other raw materials had come to appellant No.1. However, these are few stray cases and do not account in substantial way to the clandestine clearance of quantity alleged in the show cause notice. These observations are applicable for demands covered by annexure-I as also annexure-V 8.6 As far as Annexure-II is concerned, we find that this part of the demand is based upon the details recovered during search of the office of appellant No.1 on 20.8.2002. The documents were recovered from file title Sales Bills not accounted in the books of M/s. Malu Electrodes. Invoices recovered give the details like invoice number, date, quantity etc. We also note that some of the sales were shown in the name of appellant No.1 while others are shown in the name of appellant No.8. There can be no doubt that the consignment which has been shown as in the name of appellant No.1 was clandestinely cleared from the factory without accounting in any of the records. Even in respect of the consignments which are shown in the name of appellant No.8, we do not see any reason why such precise details will be available in a file relating to Malu Electrodes. We also note that it is not the case that appellant No.1 is claiming that the said goods have been sold to appellant No.8. The only conclusion that can be drawn in these cases is that these consignments were manufactured and cleared clandestinely to various buyers. More than one consignment have been sent with same invoice number. We do not find the explanation tendered by the learned senior counsel have any strength. We also note that Shri Sanjay Malu in his statement dated 21.8.2002 had confessed that the documents placed in file No.57 are showing despatches of welding electrodes manufactured by appellant No.1 and none of the said despatches are recorded in the statutory records. He also confirmed that the four invoices bearing the same invoice No.76 were signed by him and raised in the name of different parties in respect of sales of welding electrodes manufactured by appellant No.1. He also confirmed that none of the four invoices are recorded in the statutory records and in fact there is a fifth invoice bearing the same number under which certain number cases of welding electrodes were dispatched by appellant No.1 and that invoice is recorded in the statutory records. Shri Sanjay Malu also accepted similar position in respect of other invoices. He also confirmed that the welding electrodes manufactured by appellant No.1 were manufactured under the cover of documents of Vidarbha Enterprises and the said sale is not accounted for in the statutory records of appellant No.1. It was also observed that the documents of Vidarbha Enterprises were also having the same serial number and the said documents are also not recorded in the books of account of either Vidarbha Enterprises or appellant No.1. We also note that in the statements, the Directors have admitted that they had clandestinely cleared the goods in the name of marketing agency and as noted earlier, there are indications that the appellants had received the unaccounted raw material and manufactured and cleared the goods unaccounted. We are, therefore, of the view that the demand made in this annexure is required to be upheld and we accordingly uphold this part of the demand.
8.7 Another demand is covered by Annexure-III. This part of the demand is based upon a paper recovered from one Shri Chunilal L. Sahu who was the production supervisor. The said document indicates datewise the details of clandestinely cleared goods. Shri Chunilal Sahu in his statement has confirmed that the goods covered by the said document were produced and cleared without accounting in the books of account. We do not find any valid explanation coming forward from appellant No.1 to contradict the same as in the case of Annexure-II. In our view, the goods covered by the said document are clandestinely produced and cleared by the appellant and, therefore, the demand covered by Annexure-III is upheld.
8.8 We note that the demand in Annexure-IV is based upon the documents recovered from Sainath Mahalaxmi Transporter, Nagpur, Siddheshwar Transport, Nagpur and Ashapura Roadways, Nagpur. We note that the documents recovered indicate the LR number, date and the vehicle number as also the destination city. From annexure-IV attached to the show cause notice, it appears to us that the weight of the goods as also the description of the goods being transported was not available in the LR or the said documents, even though the documents indicated that the consignment has originated from Malu Electrodes Pvt. Ltd., Nagpur i.e. appellant No.1. We also note that there are no indications that only the welding electrodes were transported. Further, it is not clear on what basis the quantity of the goods has been taken in annexure-IV to the show cause notice as it appears from all the entries that certain round figures like 17 MT or 16 MT or 10 MT have been taken. We note that during the investigation, Shri Sanjay Malu or any other person was not asked the name of the dealer or purchaser of the goods and no investigation has been made at the dealer end so as to be sure that the goods transported are welding electrodes and the quantity indicated in annexure-IV is the correct quantity or the value of the goods. In the absence of any such detail, we are of the view that the benefit of doubt will have to go to the appellant, even though it is possible that some welding electrodes might have been transported through these LRs. However, we are of the view that during investigation, attempt should have been made to know the name of the buyer and statement of the buyers should have been recorded which would have indicated the correct quantity, value as also the goods. From the buyers invoices should have been obtained. If these were found to be unaccounted, demand could have sustained. In view of this position, in our view, the demand based upon only the LR which does not give the details of description, quantity, value etc. and also in the absence of any corroborative evidence, the demand in annexure-IV is not sustainable. We therefore set aside the demand covered by annexure-IV.
8.9 We find that the demand in Annexure-V is based upon amount deposited in Orange City Traderss account. What Revenue has done is that all the cheques which have been deposited in the said account has been assumed to be sale proceeds of the welding electrodes cleared unaccounted by appellant No.1. We find from the investigation that the said firm is a proprietorship firm of Shri Sushil Omprakash Soni. There is no evidence that the said firm was actually engaged in the trading of any goods. Neither any of the Directors of appellant No.1 or Shri Sanjay Malu or any other person has at any point of time in any statement has admitted that the amount deposited in the account of Orange City Traders are nothing but the sale proceeds of the goods manufactured and cleared clandestinely by appellant No.1. Even Shri Sushil Soni has not said anything of this type in his statement. In fact we find that the Revenue has not confronted either the proprietor of Orange City Traders or the Directors of appellant No.1 or Shri Sanjay Malu or any other official of appellant No.1 about the account of Orange City Traders and the deposits in the said account. We also note that all the amounts that had been deposited have come through cheques/drafts. Revenue has not made any attempt to find out whose drafts these were and these payments are made for what purpose. The proprietor of Orange City Traders was not even confronted. The persons who have sent the drafts have not been asked what they have purchased and from whom, for which they have made these payments were welding electrodes or something else. In the absence of any correlation whatsoever about the amount deposited in the account of Orange City Traders through cheques and drafts, it cannot be presumed that the amount deposited is the sale proceeds of the welding electrodes manufactured by appellant No.1 which have been cleared clandestinely without payment of duty. Since no connection whatsoever has been brought between the welding electrodes manufactured by appellant No.1 and the amount deposited in the account of Orange City Traders, in our view, the demand raised in Annexure-V does not survive and we accordingly hold so.
8.10 One of the critical item in the manufacture of welding electrodes is rutile. We find that the Revenue has gone by the statement of Shri T.K. Rajgopal who has stated that he has sold about 400 MT of rutile to appellant No.1. We find that the Revenue has not found the details from the bank account of Rhodonite that in how many cases the drafts were made by depositing the cash amount by Shri Sanjay Malu. Further, on number of occasions drafts have been made from the account of Orange City Traders for which the goods were supplied by Indian Rare Earths Ltd. to Rhodonite, Sanjhi Foodco and Ayush Enterprises. We find that no attempt has been made to find out which of these consignments of Rhodonite were sold to appellant No.1. Neither Shri T.K. Rajgopal has been asked these details. All that Shri Rajgopal stated that he sold about 400 MT of rutile to Shri Poonamchand Malu. We also note that Shri Poonamchand Malu in his statement has denied this part of the statement of Shri T.K. Rajgopal and he has stated that he has purchased few consignments through broker alone. Thus there is a vast difference between what is admitted purchase of rutile from Rhodonite as claimed by Shri Sanjay Malu or Shri Poonamchand Malu (and as claimed by Shri T.K. Rajgopal).
8.11 To sum up, as far as the show cause notice dated 21.11.2003 is concerned, we set aside the demands covered by annexure-I, annexure-IV and annexure-V. The demands raised in annexure-II and annexure-III are upheld. Coming to the penalty amount, the penalty imposed under Section 11AC of the Central Excised Act, 1944 read with Rule 25 of the Central Excise Rules, 2002 is reduced to the duty amount covered by annexure-II and III. As far as the other noticees are concerned, our observations are as under:-
(i) Penalty under Rule 26 read with Rule 209A has been imposed on appellant No.2. Penalty under Rule 26 is imposable on the excisable goods. In this case the goods involved are welding electrodes. Appellant No.2 is not concerned with either with the manufacture, sale or any other activity of the welding electrodes. Even as per the Revenues contention, appellant No.2 was involved in either diverting the rutile/illmenite or flux or wire rods to appellant No.1. In view of the said position, the penalty imposed on appellant No.2 is set aside.
(ii) As far as appellant No.2, 3 and 4 are concerned, in view of the substantial reduction in the demand as above, the penalty imposed is reduced to Rs.2,00,000/-, Rs.1,00,000/- and Rs.2,00,000/- on appellant No.3, 4 and 5.
(iii) As far as appellant No.6, 7 and 8 are concerned, the demand made corresponding to the goods sold by them is set aside. The penalty is also set aside.
(iv) Appellant No. 9 and 10 are the proprietors of appellant No.8, 6 and 7. Since the penalty on proprietorship firm is already set aside, the penalty on them is also set aside.
(v) No concrete evidence could be produced against appellant No.12 and 13 that they diverted the raw material to appellant No.1. Moreover, they are not concerned with any excisable goods, leave alone liable to confiscation. Hence the penalty on them is also set aside.
(vi) As far as appellant No.11 is concerned, he is again concerned with the raw material and the allegation is diversion of that raw material to appellant No.1. The said facts have also not been corroborated and are disputed by appellant No.3. He is also not concerned with any excisable goods, leave alone liable to confiscation. In view of this position, the penalty against appellant No.11 is also set aside.
9. In respect of show cause notice F.No. DGCEI/PRU/INT/33/2002/236 dated 17.2.2003, this show cause notice is pertaining to duty demand, confiscation of the goods removed without payment of duty and seized from godown of appellant No.1 as also premises of appellant No.15 and 16. The show cause notice also covers confiscation of the raw materials in excess than what was recorded in the statutory records. Similarly, certain electrodes i.e. the final product, were found in the factory, which were not recorded in the statutory records. We have gone through the submissions of both the sides. There is no dispute about the factual aspect relating to the seizure of the goods. Certain goods which were manufactured by appellant No.1 were removed without payment of duty and were found in their godown at Block No.101, Sheela Complex, Amravati Road, Nagpur. Further, some goods were seized at two dealers premises viz. Raj Marketing, Nagpur (appellant No.15) and also Kalpesh Trading Co., Pune (appellant No.16). Since these goods have been removed from appellant No.1s factory, these goods have been correctly seized under Rule 25 and the duty demanded is in order. The redemption fine imposed also is correct and is not on the higher side. Penalties imposed on appellant No.1, 15 and 16 are also not on the higher side. Similarly, the raw materials are finished goods which were found in excess of what was recorded in the statutory records and are confiscable under Rule 25(1)(b) and Rule 25(1)(a). The redemption fine imposed in lieu of confiscation is in order and is not on the higher side. Penalties have also been imposed on appellant No.3 who is the Director of appellant No.1, 2, penalty on appellant No. 5, who was supervising the work and similarly penalties have been imposed on appellant No.15 and 16 under Rule 209A/26. Penalties imposed are not on the higher side. The order of the Commissioner in respect of the above show cause notice is upheld and the appeals as far as these relate to the above show cause notice are rejected.
10. In respect of show cause notice F.No. DGCEI/PRU/INT/33/2002/235 dated 17.2.2003, this show cause notice is relating to appellant No.2. As mentioned earlier. Appellant No.2 is a private limited company and the two Directors of this company are Shri Poonamchand Malu and Shrawankumar R. Malu who are also the Directors of appellant No.1. The said unit is not registered with the Excise department. From the investigation it appears that they were receiving MS wires which were being drawn to the required size. At the time of visit to the said unit, certain raw materials were seized as also certain drawn wire rods were seized on the grounds that these are not accounted and the records were not updated. We note that in this case though there are statements that appellant No.1 was receiving the wire rods in the name of third parties and these were being redrawn in the manufacturing unit at appellant No.2 and thereafter were sent to appellant No.1 for further manufacture of welding electrodes. However, investigations have not brought out any concrete example in quantitative details either in the form of statement or any documentary evidence to indicate the quantum and whether the said unit will continue to be within the exemption limit or it will be beyond the exemption limit. As far as confiscation of raw material is concerned, we note that it is not disputed that the same is duty paid. It has been confiscated only on the grounds that these are not recorded though technically there is a violation of Rule 25(1). In our view, keeping in view the fact that there is no evidence that the unit would have crossed SSI exemption limit, we reduce the fine in lieu of confiscation to Rs.1,00,000/-. The unaccounted drawn wire rods were also not recorded in any books of account. The confiscation is in order and the fine imposed is not on the higher side and the same is upheld. As far as penalty under Rule 26 on appellant No.2 is concerned, in our view, without any evidence whether the turnover of appellant No.2 would cross the SSI exemption limit and also keeping in view the duty involved on the goods seized, we reduce the penalty imposed to Rs.1,00,000/- under Rule 26. Penalties have also been imposed on appellant No.3 and 5 under Rule 26 read with Rule 209A of the Central Excise Rules, 1944. Keeping in view the overall facts of the modus operandi etc. and their active involvement, the penalty imposed on them is reasonable and is, therefore, upheld.
11. Both sides have quoted large number of case laws. The present case is based upon appreciation of evidences. We have gone through these case laws but do not consider it necessary to discuss.
12. All the appeals are disposed of in above terms.
(Pronounced in Court on 6.8.2015) (S.S. Garg) Member (Judicial) (P.K. Jain) Member (Technical) tvu 1 50