Custom, Excise & Service Tax Tribunal
Shri Santosh Textile Mills vs Commissioners Of Central Excise on 12 January, 2016
In The Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench At Ahmedabad
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Appeal No : E/1239-1240, 1326-1327/2007
(Arising out of OIO-23/MP/2007 Dated 22/08/2007 passed by Commissioners of Central Excise, Customs and Service Tax-SURAT-I)
1. Shri Santosh Textile Mills
2. Shri Sandeep Arunkumar Khaitan
3. Shri Mohan Lal Khaitan
4. Shri Koral Prints : Appellant (s)
Versus
Commissioners of Central Excise,
Customs and Service Tax-SURAT-I : Respondent (s)
Represented by:
For Appellant (s) : Shri Anand Nainawati, Advocate For Respondent (s): Shri J. Nagori, Authorised Representative For approval and signature:
Mr. P.K. Das, Honble Member (Judicial) Mr. P.M, Saleem, Honble Member (Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
No
2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
No
3.
Whether their Lordships wish to see the fair copy of the order?
Seen
4.
Whether order is to be circulated to the Departmental authorities?
Yes
CORAM:
Mr. P.K. Das, Honble Member (Judicial)
Mr. P.M, Saleem, Honble Member (Technical)
Date of Hearing/Decision: 12.01.2016
Order No. A/10091-10094/2016 Dated 12.01.2016
Per: P.K. Das
These appeals are arising out of a common order, and therefore, all are taken up together for disposal.
2. The relevant facts of the case, in brief, are that M/s. Santosh Textile Mills Prop. Mudra Prints Ltd. (hereinafter referred to as the assessee) were engaged in the manufacture of finished Man Made Fabric (Processed) [in short MMF(P)] classifiable under Chapter 54 of the Schedule to the Central Excise Tariff Act, 1985 and holding Central Excise Registration Certificates. The assessee was a job worker, received grey fabrics and processing in their factory returned MMF(P) to the principal. During the period 16.12.1999 to 31.03.2001, the assessee was paying duty as per determination of Annual Capacity of Production (in short ACP) under Rule 96 ZQ of the erstwhile Central Excise Rules, 1944 readwith Section 3A of the Central Excise Act, 1944. On 01.04.2001, Section 3A of the Act, 1944 was omitted on independent processors, and the assessee started to pay duty under Section 3 of the Act, 1944. On 26.11.2001, a team of Central Excise officers headed by the Superintendent, Central Excise, HPIU-IV, Surat-I visited the factory premises of the Assessee and conducted preventive checks in the presence of two independent Panchas and Shri Sandeep Arunkumar Khaitan, Director of the assessee company. The officers verified the physical stock of finished goods, Man Made Fabrics (Processed) and found the same tallied with the recorded balance of MMF (P) as entered in the Daily Stock Register (RG-1 Register). However, 4,82,220 L. Mtrs. Grey fabrics (accounted for in Lot Register) was not found either as such or at any stage of processing in the Mills. The Central Excise Officers recovered various records and documents from the factory premises of the assessee. They recorded the statements of various persons including Shri Sandeep Arunkumar Khaitan, and the employees of the Assessee, Transporter, and dealers.
3. A Show Cause Notice Dated 06.07.2006 was issued proposing demand of duty of Rs. 2,14,13,670.00 alongwith interest and to impose penalty on the ground that the Assessee cleared finished MMF(P) measuring 66,91,771.78 L.Mtrs., clandestinely during the period from 28.06.2001 to 25.11.2001 (in short material period). It has also proposed confiscation of the goods of MMF(P) 66,91,771.81 L.Mtrs though not physically available. It has also proposed to impose penalty on Director of the Assessee amongst others. By the impugned order, the Adjudicating Authority confirmed the demand of Central Excise duty of Rs.2,14,13,670.00 alongwith interest and imposed penalty equal amount of duty on 66,91,771.78 L.Mtrs and also confiscated the finished goods measuring 66,91,771.78 L.Mtrs. cleared during the material period, which are not available physically for confiscation and imposed redemption fine of Rs. One Crore in lieu of confiscation. The amount deposited by the Assessee during the investigation was appropriated. It has also imposed penalty of Rs. 50 Lakhs on Shri Sandeep Arunkumar Khaitan, Director of the assessee company, Rs.5 lakhs on Shri Mohan Lal Khaitan, Director of M/s Madhav Mukund Finance Ltd and Rs.50,000 on M/s Koral Prints, both buyers of the Assessee, amongst others. The Assessee and its Directors and others filed these appeals.
4. The Learned Advocate on behalf of the Appellants submits that the demand of duty of Rs. 14,65,949.00 is on the shortage of 48,2220 L.Mtrs detected on the basis of Lot Register. He submits that the officers had not carried out physical stock verification of the grey fabrics properly and the said goods were lying in the factory in semi-finished stage. The demand of duty of Rs.27,560.00 is not seriously contested by the Learned Advocate, being a small amount. The other demand of duty is Rs. 17,72,360.00 based on the job cards and after allowing shrinkage to the extent of 5% has alleged that 5,53,862.45 L.Mtrs of MMF(P) has been cleared without payment of duty. He submits that the demand of duty of Rs.17,72,360.00 is based on theoretical calculation of the job cards, which has no nexus with the physical verification of the stocks. The demand of duty of Rs.1,81,38,719.00 on 56,68,349.8 L.Mtrs alleged clandestine removal of processed fabrics, is on the basis of rough scribbling papers recovered from the factory of the assessee company, which has no relation to the receipt of the grey fabrics, manufacture and clearance of the MMF(P). He further submits no statement of the writer of the rough scribbling was recorded. It is submitted that the Central Excise Officers attempted to corroborate these rough scribbling termed as L.R. Challans, with the statements of the transporters and the statement dt.22.05.2006 of Shri Sandeep Khaitan. He drew the attention of the relevant portion of the statements of the employees of the transporters as reproduced in the Show Cause Notice. The employees of the transporter merely stated that process of issuing the transport documents. There is no admission by the transporters of delivery of the grey fabrics on the basis of the said rough scribbling.
5. The main argument of the Learned Advocate in respect of demand of Rs.1,81,38,79.00 and Rs.17,72,360.00 (i.e. total Rs.1,99,11,979.00) on 62,22,212.25 L.Mtrs. is that just few months before the visit of the Central Excise Officers on 26.11.2005, they were paying duty as per determination of the Annual Capacity of Production (ACP) under Rule 96 ZQ of the erstwhile Central Excise Rules, 1944, read with Section 3A of the Act 1944, where the production capacity was determined about 96 Lakh Sq.Mtrs., in a year. It is submitted that in the present case, the actual clearance of MMF(P) during 6 months (28.06.2001 to 25.11.2001) was 41,21,000.00 L.Mtrs as per Monthly Return filed to the Department. It is submitted that the additional quantity of about 62 lakh Sq.Mtrs alleged clandestine removal, on which duty was demanded, are beyond the manufacturing capacity supported by ACP as determined by the Department. In this context, he relied upon the decision of the Tribunal in the case of Galaxy Indo Fab. Ltd. Vs Commissioner of Central Excise, Lucknow 2010 (258) E.L.T. 254 (Tri.-Del.). He further submits that they requested cross examination of the Central Excise Officers, who carried out the physical verification and the statement of the buyer, which are rejected. He further submits that the officers visited the factory on 26.11.2001 and the statements of the transporter were recorded on 22.05.2006, and therefore, the long delay of recording of the employees of transporters loose the evidentiary value. It is contended that Director of the Assessee retracted the statements very next and duly informed the Department. He drew the attention of the Bench to the letter dt.19.06.2007. He submits the entire case was made out on the basis of the theoretical calculation on input and output ratio and presumpted calculations to finished goods, which cannot be sustained. He relied upon the decision of the Tribunal in the case of Mahavir Metals Industries vs Commissioner of Central Excise & Customs, Daman, Vapi 2014 (313) E.L.T. 581 (Tri.-Ahmd.). He further relied upon the decisions of the Honble High Court and Tribunal as under:-
(a) Commissioner of Central Excise vs Gopi Synthics Pvt. Ltd 2014 (302) E.l.T. 435 (T)
(b) Commissioner of Central Excise vs Gopi Sunthics Pvt. Ltd 2014 (310) E.L.T. 299 (Guj.)
(c) AUM Aluminium Pvt. Ltd vs Commissioner of Central Excise 2014 (311) E.L.T. 354 (T)
(d) Suzuki Synthics Pvt. Ltd vs Commissioner of Central Excise 2015 (318) E.L.T. 487 (T)
(e) Hissar Pipes Pvt. Ltd vs Commissioner of Central Excise 2015 (317) E.L.T. 136 (Tri.-Del.)
(f) Vikram Cement Ltd. Vs Commissioner of Central Excise 2012 (286) E.L.T. 615 (Tri.- Del.) Commissioner vs Vikram Cement Ltd. 2014 (303) E.L.T. A82 (All.)
(g) Suntrek aluminium P. Ltd vs Commissioner of Central Excise 2013 (288) E.L.T. 500 (Guj.)
(h) Commissioner of Central Excise vs CMCM (India) 2010 (255) E.L.T. 224 (Guj.)
6. He further submits that the Adjudicating Authority relied upon the statement of the Directors, which are uncorroborative nature and contrary to the records and documents, retracted immediately, and therefore, such statements have no evidentiary value. He strongly relied upon the decision of the Tribunal in the case of Tejwal Dyestuff Industries vs Commissioner of Central Excise, 2007 (216) E.L.T. 310 (T), upheld by the Honble Gujarat High Court as reported in 2009 (234) E.L.T. 242 (Guj). The learned Advocate also submits that the demand is barred by limitation. He has also submitted Written Notes and compilation of case laws. The learned Advocate submits that the penalty imposed on the buyers cannot be sustained as there is no material available to impose penalty on them.
7. On the other hand, the Learned Authorised Representative on behalf of the Revenue reiterates the findings of the Adjudicating Authority. He submits that the Director of the assessee company in their statements accepted the clandestine removal of the goods, and therefore, there is no need to produce further evidences. He relied upon the decision of the Honble Supreme Court in the case of Commissioner of Central Excise, Mumbai, vs Kalvert Foods India Pvt. Ltd. 2011 (270) E.L.T. 643 (S.C.), and the decision of the Tribunal in the case of Shalini Steels Pvt. Ltd. Vs Commissioner of Central Excise, Hyderabad 2010 (258) E.L.T. 545 (Tri.-Bang.), which was upheld by the Honble Andhra Pradesh High Court as reported in 2011 (269) E.L.T. (A.P.). He further submits that the Central Excise officers during the visit of the factory detected the shortage of raw materials as evident from the Lot Register, which was accepted in the Panchnama by the Director of the Assessee. Hence, the demand of duty of Rs. 14,65,949.00 on 4,82,220.00 L. Mtrs., grey fabrics is liable to be upheld. He further submits that the shortage of the said quantity was accepted by the Director of the assessee company, and therefore, there is no need to place any further evidences for clandestine removal. The job cards were recovered from factory, would show unaccounted raw materials, which was accepted by the Director of the assessee company.
8. The main contention of the Learned Authorised Representative in respect of demand of duty of Rs. 1,81,38,719.00 is that the documents in the nature of Private Delivery Challans, LR. etc., were recovered from the premises of the assessee company. The Director of the assessee company accepted that after receipt of the LRs they collected the raw material from the transport company, which is corroborated by the statements of the transporter. He further submits that the submission of the appellants is that they are not able to manufacture huge quantity, cannot be accepted for the reason that ACP determined under Compounded Levy Scheme has no relation to this case. He strongly relied upon the decision of the Tribunal in the case of M/s. Salasar Ispat Pvt. Ltd. Vs Commissioner of Central Excise & Customs, Nasik 2015-Tiol-2108-CESTAT-MUM and particularly relied upon the observation of the Learned Third Member. He further submits that the statements were retracted and again it was reiterated the earlier statement. He also submits that the Director of the assessee company had not given the buyers name and the name of writer of the slips recovered from the factory. He also relied upon the decision of the Tribunal in the case of M/s. Krishna Screen Art vs. Commissioner of Central Excise, Ahmedabad-I 2014-TIOL-650-CESTAT-AHM. He further submits since the buyers arranged the transport of the finished goods, the Department could not collect the evidence regarding supply of the finished goods.
9. Heard both the sides and perused the records.
10. The main contention of the learned Advocate on behalf of the Appellants is that they were having 2 Stenter machines of different make with 4 chambers each (i.e. total 8 chambers). They were working under Compounded Levy Scheme under Rule 96ZQ of the erstwhile Central Excise Act, 1944 upto 28.02.2001. With effect from 01.03.2001, Section 3A of the Act, 1944 was omitted for levy of Central Excise duty on the basis of Annual Capacity of Production (in short ACP). Notification No.19/2000-CE, dt.01.03.2000, issued in exercise of powers conferred by Section 3A(3) of the Act, 1944, in supersession of the earlier Notification No.36/98-CE, dt.10.12.1998 specified the rate of Excise duty on processed textile fabrics under various headings/sub-headings as mentioned in the notification, manufactured or produced by an independent process with the aid of hot-air stenter on the basis of ACP. The Appellant by letter dt.31.03.2000, in terms of Notification No.19/2000-CE (supra), declared the total quantity of processed fabrics produced or manufactured in the preceding financial year 1998-1999 was 54,51,127.00 L.Mtrs. A Trade Notice No.17/2000, dt.03.03.2000 was issued by the Surat-I Commissionerate, determined the production capacity of a chamber in terms of quantity shall be deemed to be 1 lakh Sq.Mtrs per chamber per month. In view of the said Trade notice dt.03.03.2000, the production capacity of the Appellant would be 8 Lakhs Sq.Mtrs out of 8 chambers per month and ACP would be 96 lakhs Sq.Mtrs. After 01.03.2001, as the Section 3A of the Act, 1944 was omitted on levy of Excise duty on ACP basis, the Assessee started payment of duty under Section 3 of the Act, 1944.
11. On 26.11.2001, the Central Excise officers headed by the Superintendent of Central Excise, Surat-I, visited the Appellants factory and prepared Panchnama dt.26.11.2001. The relevant portion of the said Panchnama dt.26.11.2001 is reproduced below:-
Shri Khetan had also stated that his Mill has also got registration of the Department of Central Excise Duty and the registration number is BRL/CH-34/01/96 and in order to have production work, they get Grey MMF from different parties and thereafter, they are doing processing and dyeing work on the said MMF in the Mill and they again returned the said processed goods to the parties. They are doing this work on job-work basis. Shri Khetan has further stated that there are two Stentor machines having four chambers in each machine in the Mill. There are also 14 Jet Dyeing machines and 15 Zigger machines in the Mill.
12. On perusal of the above Panchnama, it is evident that on 26.11.2001, the Appellant was having two Stentor machines of four chambers in each machine in the mill. Thus, there was no change of machinery after 01.03.2001, till 26.11.2001. So, the annual capacity of production would be 96 lakhs Sq.Mtrs as per Trade Notification No.17/2000 (supra). In this context, the learned Advocate strongly opposed the demand of duty of Rs.1,99,11,079.00 on 62,22,212.25 L.Mtrs on alleged clandestine removal of goods on the basis of scribbling papers, job cards and statements of transporters. It is submitted that during the relevant period of 6 months, the appellant manufactured and cleared about 41 lakhs Sq.Mtrs on payment of duty as evident from the monthly return out of capacity of 48 L.Mtrs. Hence, the allegation of clandestine manufacture and clearance of about 62 lakhs Sq.Mtrs in addition to about 41 lakhs Sq.Mtrs are beyond the manufacturing capacity of 8 chambers.
13. The matter was heard by us on several dates. The Adjudicating authority observed that the plea regarding not having capacity of production is also of not much use to them in the light of recovery of documents from their premises. By Interim Order No. 573-576/2015 dated 13.11.2015, the Tribunal directed to the Learned Authorised Representative for the Revenue to take instructions from the Commissionerate as to how the demand of duty on huge quantity of MMF(P) for 6 months was raised on alleged clandestine removal of goods, appears to be contrary to the Annual Capacity of Production as determined by the Commissioner, which was applicable just before few months. The Learned Authorised Representative produced the letter F. No. V(Misc)2-58/RC/2014-15, dt.26.11.2015 of the Additional Commissioner, Central Excise, Customs & Service Tax, Surat-I addressed to the Additional Commissioner (AR). It has been stated in the said letter that the average production of the assessee company for 3 months is about 6.5 Lakhs per month and accordingly, the annual production capacity of the unit would be at least 78 Lakhs L. Mtrs (approx.). Therefore it is very much possible that the production capacity of the unit may be more than 50 Lakhs L. Mtrs per annum. On perusal of the said letter, we find that the annual capacity of the unit would be at least 78 Lakhs L. Mtrs (approx.). So, the demand of duty on about 62 Lakhs L. Mtrs MMF(P) for 6 months in addition to about 41 Lakhs L.Mtrs, which was cleared on payment of duty, is beyond the manufacturing of capacity. It is apparent from the records that the Assessee was not capable to manufacture huge quantity of finished MMF(P), as supported by the ACP fixed by the Commissioner earlier, and the alleged manufacture and clandestine removal of MMF(P) worked out as about 62 Lakhs L. Mtrs for 6 months is not sustainable.
14. The Tribunal in the case of Galaxy Indo Fab. Ltd. (supra) on the identical situation, set-aside the impugned order. In that case, the appellant company was engaged in the manufacture of processed fabrics, Pillows, Cushions and quilted fabrics classifiable under Chapters 52,54,55,58 and 84 of the Schedule to the Central Excise Tariff Act, 1985.
The Commissioner held that the grey fabrics received by the appellants from the resumed grey challans were not at all entered in the Form-IV register, whereas only the grey fabrics received under resumed grey purchase invoices were entered in the statutory records and this fact was admitted by Shri Deepak Srivastava, Excise Assistant, and Shri B.P. Singh, Folding Master, of the appellants. Further, the Commissioner has held that, the statements recorded of the Director of the appellants as well as the employees of the appellants established the clandestine removal of finished fabrics without complying with the statutory provisions and payment of excise duty. It has confirmed the demand of duty of Rs.2,96,08,491.00 alongwith interest and imposed penalty. The appellants had raised the issue of the impossibility of the production capacity from the appellants factory to the extent of demand made by the Department. The demand was raised for the period June 1998 to August 1998 and in December 1998. The Commissioner of Central Excise determined the Annual Capacity of Production under Section 3A of the Act, 1944 was less than the quantity as determined in the Show Cause Notice. The relevant portion in the case of Galaxy Indo Fab Ltd (supra) are reproduced below:-
9.?Perusal of records apparently disclose that the appellants had specifically raised the point relating to the impossibility of production capacity from the appellants factory to the extent of demand made by the Department. However, the adjudicating authority seems to have totally ignored the said specific ground of defence that the installed capacity could not permit production of huge quantity of processed fabrics as has been calculated by the Department. The records clearly disclose that as per the Department the total quantity of processed PB fabrics during the period from 1-6-1998 to 16-11-1998 was 7794848 mtrs. against the declared quantity of 1207490 mtrs. in the records maintained by the appellants. Curiously, the competent authority had under its order dated 18th December, 1998, few days after the raid by the Department had fixed the annual capacity of the production by the appellants unit and had determined their monthly liability to the tune of Rs. 15 lacs and the same was communicated to the appellants under letter dated 18th December, 1998. This point was specifically raised by the appellants but has not at all been considered by the adjudicating authority, though the fact that the said point had been raised in defence was clearly recorded in the order itself.
10.?The said point in relation to the total capacity of production in the appellants unit goes to the root of the matter. If the competent authority after taking into consideration the production capacity of the appellants unit was convinced in December, 1998 of monthly liability of the appellants to be Rs. 15 lacs, one fails to understand as to how the calculations regarding production of the goods worth Rs. 15,01,18,759/- warranting the duty liability of Rs. 2,96,08,491/- for a period of 51/2 months during the period from August to November, 1998, and that too without any documentary or other cogent materials in support thereto, can be accepted as true and correct calculations of the production from the appellants factory and corresponding duty liability of the appellants. It is nobodys case that subsequent to the day of raid, the appellants had reduced their production capacity. At the same time, undisputedly, the Department had not verified in the course of the investigation the production capacity of the appellants factory. Even the electricity consumption record in respect of the appellants factory was not checked. In these circumstances, it will be absurd to believe the claim of the Department about the possibility of huge production and clearance thereof without payment of duty by the appellants from their factory during the relevant period.
11.?According to the respondents own case, no records pertaining to the alleged clandestine removal of the goods by the appellants were available and the allegations in that regard are made solely on the basis of the calculations done by the Department on the basis of certain statements by the employees of the appellants and the information gathered from the Directors of the Company in the course of the investigation. As rightly pointed out by the learned advocate for the appellants such calculations are not corroborated by any cogent and independent material on record. The statements of the employees were stated to have been received under coercion and duress. During the investigation no material could be gathered to justify the allegation of any clandestine removal of the goods for the period prior to the said investigation. No inquiry of whatsoever nature was made with any of the transporters or the suppliers of the raw-materials or the purchasers and/or transporters of the clandestinely removed materials. Not a single piece of clandestinely removed product could be apprehended. No verification of the capacity of the total production of the factory was ascertained and/or verified. Not even an attempt in that regard was ever made. No records regarding the electricity consumption were either checked or even perused. No records regarding the staffing pattern and the labour employment was ever gathered. No measurements of the space available for stocks or for stocking the raw-materials and the final product was verified. No account books and bank records of the appellants were checked to ascertain about the flow back of money particularly in relation to the alleged clandestinely removed material. The accounts record also could not lend any support to the allegations of any consideration having been received by the appellants from the alleged clandestinely removed goods. In short, no investigation in relation to the relevant aspects of the matter was carried out by the Department either before the issuance of the show cause notice or even thereafter. Entire investigation appears to be lopsided, half-hearted and half-backed. In the present case, it is revealed from the Panchnama dt.26.11.2001 that there were only two stentor machines having four chambers in each machine installed in the factory, which are capable to manufacture 8 lakhs L.Mtrs per month. It is on record that during the six months in dispute, the Appellant cleared about 41 lakhs L.Mtrs on payment of duty and allegation of additional clandestine clearance of about 62 lakhs L.Mtrs is impossible. The Central Excise officers had not examined the production capacity, electricity consumption, accounts books, records on staffing or labour employment etc. It has given importance on recording of statements of the employees of the transporter and others. So, the decision of the Tribunal in the case of Galaxy Indo Fab Ltd (supra) is applicable in the present case.
15. The Learned Authorised Representative on behalf of the Revenue strongly relied upon the decision of the Tribunal in the case of M/s. Salasar Ispat Pvt. Ltd. (supra). In that case, the assessee was engaged in the manufacture of TMT/CTD bars. On 18.12.2006, the DGCEI officers conducted a raid in the factory of the appellant. The appellant took a stand that the production capacity was fixed in the year 1998 under the scheme of compounded of levy and the production capacity was fixed at the rate of 4441 MT per year and thereafter, there is no change in pattern of production. The Learned third Member observed that as far as the determination of annual production capacity as per the compounded levy scheme, which was introduced in 1998 and 2-3 years, not much credence can be given. The Learned Member Technical has tabulated the production shown by the appellant themselves which indicates that the production from month to month varies. We find that Section 3A of the Act 1944 was omitted on 01.03.2001 and in the said case, the officers visited the appellants factory on 18.12.2006 and there is no material available that no machinery was changed. But, in the present case, the officers visited the assesses factory on 26.11.2001 just after few months of withdrawal of compounded levy scheme. It is evident from the Panchnama dt.26.11.2001, as quoted above that there was no change of machineries. Hence, the decision as relied upon by the Learned Authorised Representative cannot be applicable in this case.
16. The Adjudicating authority proceeded on the basis of rough scribbling recovered from the factory premises of the assessee. The Learned Authorised Representative heavily relied upon the statements of employees of the transporters. Shri Rajiv Sharma, Manager of M/s Kanhaia Cargo, Surat, in his statement dated 26.05.2006 stated that each LR is prepared in four copies (i) consignee copy (ii) consignor copy (iii) Lorry copy (iv) office copy. He confirmed that grey fabrics covered under LR were delivered from their godown situated at Saroli, Surat to the person who produced copy of LR/letter pad. On being further asked, he stated that such consignee copy of LR/Letter pad/bond were not available with them. Similarly, Shri Harandra D. Kotwala Accountant of M/s. South Gujarat Transport Service, Surat in his statement dated 29.05.2006 stated that they do not have consignee copy or letter pad on the basis of which delivery of grey fabrics were made in year 2001-02. It is seen from the Show Cause Notice that all the employees of the transporters in their statements categorically stated that the copy of LRs or letter pad as shown to them were not available with them. So, it is evident from the statements of the employees of transporters that they could not produce copy of the LRs as relied upon by the Department. It is stated by the employees of transporter that they retained the office copy of the LRs in their record, but, they could not produce them. So, it is difficult to accept that these LRs were issued by the transporters. It is noted that the Adjudicating Authority also rejected the opportunity of the cross examination to the employees of transporter. In any event, the statements of the transporter are not corroborative with any evidence, and therefore, the said statements has no evidentiary value. The Tribunal in the case of Tejwal Dyestuff Industries (supra) observed that recording of confessional statement would not put an end to investigation particularly when such strategic confessional statement retracted. The relevant portion in the case of Tejwal Dyestuff Industries (supra) is reproduced below:-
54. It appears that, having obtained? confessional statements the Revenue Officers did not carry out the detailed investigation into the relevant aspects of the case, particularly, the Bank accounts of Bhimanis and the working of the assessees factory. Recording of the confessional statement would not put an end to the investigation and the Revenue Officers should be careful to ensure that they are not tricked out of a regular and detailed investigation by making strategic confessions which are retracted by preparing affidavits soon after they are made and which affidavits are again strategically withheld from the Revenue Officers, so that they become complacent and do not carry out a fuller investigation. It appears that the Revenue Officers in the present case have fallen victim to this type of strategic confessional statements which have been retracted soon after they were made in the affidavits which were withheld by the deponents till the proceedings came up before the Commissioner, by which time the damage of not a making fuller investigation, thinking that the confessional statements are made and not retracted, was already done. The Revenue Officers have not even cared to investigate into the types of final products manufactured by the appellants despite detailed declarations which were on record with them, which showed that all these inputs, particularly LAB and Soda Ash were being used by them for their final products. Some of these declarations which are on record as Annexure A (Collectively) show that at least for seven final products, LAB and Soda Ash were used as inputs, besides other inputs enumerated in the description of inputs in the declarations dated 22-2-1999, 3-4-2000, 12-4-2000, and 12-6-2000. It is not disputed that the returns were regularly filed and the fact that these inputs were used for the final products was mentioned from the very inception in the declarations made and the returns filed by the assessee before the Revenue authorities. The copies of monthly returns filed under Rule 7 of the Cenvat Credit Rules, 2001, which are on record, show the use of these inputs in the final products manufactured by the assessee. The receipt of these inputs in the factory premises of the assessee having been established, coupled with the fact that, as per the declarations and returns and other statutory record, the inputs were in fact used in the final products by the assessee, the lethargy of the Revenue Officers in not verifying the relevant statutory records and invoices, as to what exact quantity of raw material was used in the final products, and that in how many final products such inputs could have been used, existence of the particulars in the RG-23 Register reflecting the invoices and the existence of octroi receipts as also the expert opinion in respect of LAB having been used in the final product, altogether create a doubt as to the correctness of the contents of the statements of Naresh, Hitesh and Ilesh. The pre-ponderance of probabilities in the context of all other evidence vis-a-vis the confessional statements does not lead to the conclusion of inadmissibility of Modvat/Cenvat credit as reached by the Commissioner. The storage capacity in the factory of the assessee included two tanks of 15 MT capacity, 250 mild steel drums of 250 kg capacity and 45 carboys of 60 kg. capacity. It is not even ascertained by the Revenue as to what storage capacity was available at different times of the receipt of LAB. Adequacy of storage capacity can be judged with reference to the quantity of inputs received at a particular point of time and not with reference to the total inputs received over the period of two years. It is difficult to come to the conclusion, in the face of the evidence that has come on record that, the transactions of inputs covered under the invoices in question, were not genuine. The demand of Rs. 1,09,35,008/-confirmed against the appellant, M/s. Tejal Dyestuff Industries as well as penalty imposed on it and recovery of interest ordered to be recovered cannot, therefore, be sustained. However, the demand of Rs. 55,163/- for the shortage of finished goods and raw material has been correctly confirmed and the liability in respect of this amount is not being disputed, as stated by the learned counsel for the assessee. The Commissioner did not deal with the explanation given by the assessee for not entering the goods which were found in excess in RG-1 Register. According to the assessee, there was a system of checking the real weight of the product prior to the stage of clearance, and that the real weight of the product was taken only at the time of despatch. This is why ONCBS, which was a product, which was not yet tested and the real weight of which was yet to be ascertained, was not entered in RG-1 Register. Since the explanation of the assessee was plausible, the confiscation of the excess goods cannot be sustained.
17. The other aspect in respect of demand of duty on about 62 lakhs L.Mtrs that the appellant received grey fabrics from the principles for job work. It is presumed by theoretical input output calculation that the appellant processed the grey fabrics and cleared clandestinely. The Central Excise Officers merely proceeded on the basis of the statement and had not examined the other aspects namely electricity consumption, use of the other raw materials. It is noticed that the Central Excise Officers obtained the statements of employees of various transporters and none of them placed iota of evidence of supply of grey fabrics and delivery of the finished goods. The Tribunal in the case of M/s. Mahavir Metal Industries (supra) observed the allegation of clandestine removal cannot be sustained in the absence of evidence of clandestine manufacturing. The statements were uncorroborative nature and could not be made sole basis for holding against the assessee. Their veracity has to be gauged from accompanying circumstances and corroborated by independent evidences. In that case, the Tribunal following the decision of the Honble Gujarat High Court, set-aside the demand of duty. The relevant portion in the case of M/s Mahavir Metal Industries (supra) is reproduced below:-
16.?On perusal of the Order-in-Original and Order-in-Appeal, I find that the appellant has taken a consistent stand before both the lower authorities that the burden of proof as regards allegation of clandestine removal is on the Department. It is seen from the records that the entire charge of clandestine removal of the finished goods is based upon the theoretical working of calculating the consumption of inputs and presumptive clearance of the finished goods from the factory premises of the appellant. The assumptions which have been considered by the Revenue authorities are totally faulty inasmuch as that the charge of clandestine removal is first to be established based upon the clandestine manufacture and removal of the goods. In the instant case, except for the statements of the partners that there was clandestine removal of the finished goods, there is nothing on record to indicate that the appellant assessee had, in fact, manufactured the final products out of the inputs detected short on the calculation of input-output ratio. I find that as correctly pointed out by the ld. Counsel that this Bench in the case of Suzlon Fibres Pvt. Ltd. (supra), in Para 3 has categorically stated as under:
3.?We agree with the above contention of the ld. Advocate, apart from the input-output ratio, there is no evidence on record to show clandestine manufacture and clearance of the goods. Such cases are required to be established beyond doubt on the basis of concrete and positive evidences. We accordingly set aside the impugned order and appeals are allowed with consequential relief.
17.?My view as regards there cannot be allegation of clandestine removal unless there is an evidence to indicate that there was clandestine manufacturing, is fortified by the judgment of Honble High Court of Gujarat in the case of Nissan Thermoware Pvt. Ltd., wherein their Lordship have held as under :
7.?Thus, on the basis of findings of fact recorded by the Tribunal upon appreciation of the evidence on record, it is apparent that except for the shortage in raw material viz., HD which was disputed by the assessee and the statement of the Director, there was no other evidence on record to indicate clandestine manufacture and removal of final products. On behalf of the revenue, except for placing reliance upon the statement of the Director recorded during the course of the search proceedings, no evidence has been pointed out which corroborates the fact of clandestine manufacture and removal of final products. In the circumstances, on the basis of the material available on record, it is not possible to state that the Tribunal has committed any legal error in giving benefit of doubt to the assessee.
18.?In view of the foregoing and there being no concrete evidence (as agreed by both the Members) of clandestine removal of the goods, the appeals are required to be allowed as held by Honble Member (Judicial). I have concurred with her views.
18. The Honble Gujarat High Court in the case of Commissioner of Central Excise, Ahmedabad-I Vs Gopi Synthics Pvt. Ltd. 2014 (302) E.L.T. 299 (Guj.) dismissed the appeal filed by the Revenue. It has observed that the Department failed to discharge onus to prove clandestine removal of the goods, despite, sufficient time being available with the investigating agency. In the present case, we find that the Central Excise Officers visited the assessee factory on 2001 and no initiative was taken for verification of the records, electricity consumption etc. The statements of the employees of the transporters were recorded in 2006, which are uncorroborative nature. In the case of Aum Aluminium Pvt. Ltd. (supra), the Tribunal held as under:-
60.?I have considered the submissions made by both sides and perused the records.
60.1?The allegation against the assessee is of clandestine removal. It is necessary to ascertain whether in the peculiar facts of the case, there was sufficient cogent, unimpeachable, relevant and credible material evidence so as to establish the case against the appellant company applying the test of preponderance of probability. Although every link of the process is not required to be proved for the said purpose, however the Revenue is not relieved altogether of the burden of producing some credible evidence in respect of the fact in issue.
60.2?Plethora of case law has been cited by both the sides, and ratio of these case laws has been duly considered by me. To arrive at a finding as to whether there has been clandestine removal and undervaluation, essentially peculiar facts of the case and the evidence relied upon in the background facts, have been seen.
60.3?As rightly observed by the Honble Member (J), it should not be forgotten that the charge of clandestine removal of goods connotes accusation of serious nature and therefore is required to be established with cogent evidence, and while the evidence obtained cannot be discarded totally but should be scrutinized and examined carefully and what weight should be attached to such material should be decided depending upon facts of each case.
60.4?The ld. Representative for the Revenue have taken me through the findings and the material which the ld. Member (Technical) has considered in support of the charges in the two show cause notices.
60.5?As per the Revenue, the above evidence is sufficient to sustain the charge. I find that at first blush, it may appear to be sufficient, however a deeper scrutiny reveals to the contrary. The above evidence is not relevant and credible material evidence, sufficient to establish the case against the appellant company even applying the test of preponderance of probability and requires too many assumptions and presumptions to uphold the allegation of clandestine removal and undervaluation.
60.6?It would be necessary to analyze whether the evidences, other than the oral evidences, are credible for being used as corroborative evidence. The Honble Supreme Court in case of Sitaram Sao v. State of Jharkhand - (2007) 12 SCC 630, pithily encapsulated the idea of corroborative evidence, in the following words :
34.?The word corroboration means not mere evidence tending to confirm other evidence. In DPP v. Hester - (1972) 3 All ER 10.16, Lord Morris said :
The purpose of corroboration is not to give validity or credence to evidence which is deficient or suspect or incredible but only to confirm and support that which as evidence is sufficient and satisfactory and credible; and corroborative evidence will only fill its role if it itself is completely credible There can be, therefore, no corroboration of evidence, which is itself unworthy of credence.
60.7?In the entire records of proceedings, there is no evidence to indicate that there was clandestine manufacturing. There is no independent tangible evidence on record of any clandestine purchases or receipt of the raw materials required for the manufacturing of the alleged quantity of finished goods for its clandestine removal from the factory. In the entire notice and the order there is no satisfactory and reliable independent evidence as regards the unaccounted manufacture and or receipt of the huge quantities of raw materials. There is also no cogent evidence about any freight payment for any such movement.
60.8?I do not find cogent evidence of disproportionate and unaccounted receipt and consumption of the raw materials required for manufacturing alleged quantity of unaccounted finished goods. I do not find tangible proof of unauthorized payment for procuring such unaccounted raw material and packing material. I do not find cogent evidence of disproportionate power consumption, capacity utilization and labour employed, or any cogent evidence of clandestine manufacture of unaccounted quantity alleged as clandestinely removed. I find that unaccounted production in the factory of the appellant company has not been established. In Ruby Chlorates (P) Ltd. v. Commissioner of C. Ex., Trichy - 2006 (204) E.L.T. 607 (Tri.-Chennai), it was held that :-
21 The settled legal position is that when several raw materials are involved, when a case of clandestine production and clearance is built on clandestine use of raw materials, the same should be proven with reference to unaccounted use of all such major raw matei1als.
22.?In a case of clandestine removal the department should produce positive evidence to establish the same. In the absence of corroborative evidence, a finding cannot be based on the contents of loose chits of uncertain authorship. Department has not produced evidence of use of inputs to prove that there was manufacture of unaccounted finished product. ... Moreover, in the case of Atlas Conductors [2008 (221) E.L.T. 231 (Tri.-Mum.)], this Tribunal has taken a clear view that the demand cannot be on presumption of manufacture but on the basis of actual manufacture which is the basis to come to conclusion, and I notice that the findings of the adjudicating authority are without any evidence and is not correct view and is liable to be set aside.
19. In the case of Suzuki Synthics Pvt. Ltd. (supra) the demand was raised on the basis of chits recovered from finished goods Department from the clerk table, the Tribunal held as under:-
9.?As per the settled law on the issue, clandestine removal is required to be established by production of tangible and positive evidences. As such, the chits in question were required to be corroborated by other evidence indicating clandestine activity on the part of the appellant. As already observed, neither of the statements accepted any clandestine removal. Further, the appellants have strongly contended that the payments made to folding clerk by way of cheques also matches with the RG-1 register entries. The electricity consumption has not been shown to be on the higher side. No buyers of the fabrics have been identified and their statements recorded. My learned brother has discussed the various decisions produced before us by learned advocate and has distinguished the same. However, I find that such distinction is on the basis of minor factual differences. In fact, the demand raised on the basis of notebook, etc., was set aside by Tribunal in precedent decisions, even if there were inculpatory statements of various persons admitting clandestine removal on the ground that the allegations of clandestine removal requires sufficient and strong evidence, which must corroborate.
20. In the case of Vikram Cement (P) Ltd. (supra) the Tribunal held that evidentiary value of the statement of the Director, in the absence of any other evidence cannot be established the guilt of the assessee. The burden of proof is on Revenue and it is required to be discharged effectively. Half-hearted investigation by Revenue cannot be established their case. The clandestine removal of goods cannot be presumed merely on the recovered of some loose papers. This decision of the Tribunal was upheld by the Honble Allahabad High Court as reported in 2014 (303) E.L.T. A 182 (Allah.)
21. In the case of Suntrek Aluminium P. Ltd. (supra) the Honble Gujarat High court allowed the appeal of the assessee. It has been observed that a statement recorded by the Customs Officer under Section 108 of the Customs Act, 1962, though admissible in evidence, the Court has to test whether the inculpating portions were made voluntarily or whether it is vitiated on account of any of the premises envisaged in Section 24 of the Evidence Act. The relevant portion of the said decision is reproduced below:-
6.7?More importantly the statement in question was too weak to be relied on as evidence on law, in absence of any corroboration thereof by cogent evidence. The show cause notice mentioned the details of different firms such as Paresh Metals, Rajkot, M/s. Mangalm Metals, Ahmedabad, M/s. Krishna Metals, Ahmedabad, M/s. Sunil Metals, Ahmedabad, M/s. Harish Metals etc., to allege that the raw materials were received by the appellant from those firms. However, statement of none of the above parties was recorded which could have corroborated the statement relied on, except that the statement of the proprietor of M/s. Harish Metals, Morbi was recorded who stated that the scrape was sold to the appellant as per the credit practice and competition without bills. The solitary statement could not be said to be a cogent and convincing piece of evidence which validly corroborate the confessional statement in the statement of the Director, more particularly when the said statement of M/s. Harish Metals was not referred to and discussed in the show cause. Therefore, it was the sole statement of the Director Sandip bhai which was uncorroborated, and which was taken as base for the action against the appellant, when no evidentiary value could have been attached in light of what is stated above. Moreover, the confessional statement was retracted within reasonable time. Therefore also, the said confession could not have been used as a piece of evidence and there was no basis for inference and conclusion about clandestine removal of goods thereof.
22. In view of the above discussion and in the facts and circumstances of the case, the demand of duty of Rs.1,99,11,979.00 on 62,22,212.00 L.Mtrs cannot be sustained. But, we find force in the submission of the Learned Authorised Representative for the Revenue in respect of demand of duty of Rs. 14,65,949.00 on 4,82,220.00 L. Mtrs of grey fabrics. It is seen that there was shortage of 4,82,220,00 L. Mtrs of grey fabrics during the physical stock verification. The appellants failed to give a proper reason. Thus, the demand of duty on the shortage of the raw material is justified. The Learned Authorised Representative cited various decisions on this issue. We agree with the submission of the Learned Authorised Representative. The demand of duty of Rs. 27,560.00, the Learned Advocate had not contested, and therefore, it is required to be upheld.
23. Regarding imposition of penalty on Shri Sandeep Arunkumar Khaitan Director of the assessee company, we find that he has accepted the removal of finished goods to the quantity of 4,82,220.00 L. Mtrs, and therefore, the imposition of penalty is warranted. However, the quantum of the penalty is required to be reduced. We do not find any material against imposition of penalty on Shri Mohan Lal Khaitan and M/s Koral Prints. There is no material available of involvement of Shri Mohan Lal Khaitan, and M/s Koral Prints and therefore, imposition of penalty on them are not justified. It is well settled by serious of decisions that if the goods are not available, confiscation of goods and imposition of redemption fine cannot be warranted.
24. In view of the above discussion, the impugned order is modified to the extent the demand of duty of Rs. 14,65,949.00 and Rs. 27,560.00 alongwith interest and the imposition of penalty of equal amount of duty are upheld. The demand of duty of the balance amount alongwith interest and penalty is set-aside. The penalty on Shri Sandeep Arunkumar Khaitan is reduced to Rs.2,00,000.00 (Rupeees Two Lakhs only). Confiscation and Redemption Fine are set-aside. The penalty on Shri Mohan Lal Khaitan and M/s Koral Prints are set-aside. The assessee is entitled to option to pay penalty 25% of duty alongwith entire amount of duty and interest within 30 days from the date of communication of this order as provided under Section 11AC of the Act, 1944. The appeals filed by the M/s. Santosh Textile Mills and Shri Sandeep Arunkumar Khaitan are disposed of in the above terms. The appeals filed by Shri Mohan Lal Khaitan and M/s Koral Prints are allowed.
(Dictated & Pronounced in open Court)
(P.M.Saleem) (P.K. Das)
Member (Technical) Member (Judicial)
G.Y.
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