Customs, Excise and Gold Tribunal - Delhi
New India Dyeing And Finishing Mills And ... vs Cce on 13 November, 2003
Equivalent citations: 2004(91)ECC661, 2004(165)ELT316(TRI-DEL)
JUDGMENT K.D. Mankar, Member (T)
1. The instant 8 appeals are directed against the Order-in-Original dated 10.2.2000 passed by the Commissioner of Central Excise, Chandigarh. The Commissioner vide the said order confirmed duty demand of Rs. 61,58,331.30 and imposed penalty of Rs. 62 lakhs against M/s. New India Dyeing & Finishing Mills, Batala, confirmed duty of Rs. 5,55,259.95 and imposed penalty of Rs. 6 lakhs against M/s. New India Printing Works, Batala, Amritsar. The Commissioner has also imposed penalties of Rs. 5 lakhs on M/s. J.D. Woollen and Silk Mills, Rs. 6 lakhs on M/s. Pahwa Silk Mills Pvt. Ltd., Rs. 3 lakhs on M/s. Chain Singh & Sons and Rs. 1 lakh on M/s. Devinder Singh Pahwa. He had further imposed penalty of Rs. 15 lakhs on appellant, Chain Singh, Partner of M/s. New India Dyeing & Finishing Mills, Rs. 15 lakhs on Devinder Singh, Manager of M/s. New India Printing Works, Batala and Rs. 2 lakhs on M/s. Vishnu Sahay Subhash Chand and of Rs. 3 lakhs on M/s. Dharam Pal Satish Kumar.
2. The allegations levelled against the manufacturing units is that, as against the recorded quantities of processed man made fabrics and processed man made knitted fabrics, the appellants/manufacturers have removed clandestinely large quantities of fabrics from their manufacturing premises to various customers, without discharging central excise duty thereon. The thrust of the allegations is based on the documentary evidence unearthed through searches carried out at various places namely business premises of various customers. It is claimed by the appellants that, about 86 premises were searched covering various customers and no excess material was seized. The allegation is based solely on the basis of the statements of the buyers who have claimed that they have purchased processed fabrics from the appellant's manufacturing units. However, through raids conducted on the premises of the buyers no unaccounted printed and knitted fabrics were found. It is claimed by the appellants that, the bills which have been collected do not indicate that the same pertain to the purchase of processed fabrics. The appellants claimed that the bills relate to the trading activity of the appellants or sister concerns who deal in trading of unprocessed fabrics. It was claimed that, the persons who had given the statements against the appellants, claiming to have purchased the processed fabrics, have not been made available for cross-examination. It is also pleaded that, the factory was subjected to surprise check by the officers of the department on 684 occasions (Appellants subsequently revised the figures to 640). The appellants claimed that none of the surprise checks brought out any irregularity in the factory of the manufacturing units.
3. Reliance was also placed by the appellants on Chapter Note 4 inserted under Chapter 60 of the Central Excise Tariff with effect from 16.3.1995. In terms of the said Chapter Note, processing of knitted fabric became subject to excise duty only from that date, whereby processing of knitted fabrics was deemed to be a process of manufacture. Therefore, it is pleaded that on that ground also, duty could not be collected on the processed "knitted fabrics" allegedly cleared in a clandestine manner by the appellants. Appellants also pleaded that, the manufacturing units were not capable of manufacturing the alleged excess quantities since they did not have the manufacturing capacity to undertake the manufacturing of the alleged unrecorded quantities. A certificate from the Chartered Engineer was furnished before the Adjudicating Authority to indicate the production capacity.
4. Learned Adjudicating Authority however, did not accept these submissions and held that the allegations levelled in the show cause notice are correct and, accordingly, he confirmed the duty as demanded except for dropping demands for small portions on the grounds indicated in the said order. He also imposed penalties, as indicated above. Before us, the same arguments have been reiterated by the appellants.
5. Learned DR supports the order of the Adjudicating Authority. He reiterates that, the certificates from experts need to be discarded being unreliable. He also pleads that, the statements of various persons who have purchased the goods from the appellants have to be accepted, as the same have not been retracted. Therefore sale bills in question have to be considered as the ones pertaining to sale of processed man made fabrics, liable to duty and should not be treated to be pertaining to grey fabrics, as claimed by the appellants.
6. We have given our anxious considerations to the various submissions canvassed before us. The allegation is basically of suppression of production. Consequently, the suppressed production is alleged to have been removed without payment of central excise duty leviable thereon. It is an admitted fact that, the manufacturing units do bring (i) man made fabrics, (ii) cotton/woven fabrics, and (iii) man made knitted fabrics in grey form in their factory for the purpose of processing. It is not in dispute that, they are required to pay duty only on the processed fabrics. It is also on record that, the manufacturers did pay central excise duty on processed man made knitted fabrics, though now in the instant proceedings (as well as during the post 16.3.95 de novo adjudication proceedings before the Commissioner) it has been claimed that, the said payment was not required, in the absence of Chapter Note 4 under Chapter-60, during the relevant period. Since the payment was made during the period from 5.9.88 to 28.10.88, it is belated for them to say after looking at the 1995 amendment that, the said payment was not authorised by law. This plea was not raised during the initial hearing before the Commissioner or the Tribunal. Therefore, taking this plea of non-liability to duty on the processed man made knitted fabrics at the stage of de novo adjudication before the Commissioner and also in the instant proceeding, and that too, only in respect of alleged clandestinely removed quantities, cannot be permited, when no such plea was ever raised in response to the show cause notice and no protest was ever raised while making the clearance on payment of duty on fabrics which have been accounted for. The appellants's plea on this ground is therefore rejected.
7. The department's main thrust to allege suppression of production and clandestine removal generates from the recovered sale bills and recorded statements from the buyers. Not a single piece of fabric has been seized and is available as an evidence to show its linkage with the manufacturer as being a part of unaccounted production of the processed man made fabrics belonging to the manufacturers/appellants. It has come on record that, the bills per se do not reflect the transactions relating to the sale or purchase of the "processed" fabrics. It is not, as if the appellants do not sell processed fabrics. No comparison between the description figuring in the bills of transaction relating to recorded sale of processed fabrics and those which are alleged to be outside books of account i.e. recovered sale bills (on which SCN is issued) relating to clandestine sale has been made. It has not been either alleged or demonstrated that the description in the bills for legal sale and that appearing in the bills pertaining to illegal sale (i.e. in the recovered sale bills) is the same. Two hundies are part of the show cause notice where the clearance of "processed" fabrics is mentioned. Therefore, it has to be assumed (in the absence of proof to the contrary) that, whenever there is a legal transaction relating to processed fabrics, there is a clear cut mention of sale of "processed" fabrics.
8. The department is alleging that the sale transaction (reflected in recovered invoices) also pertains to the processed fabrics, though the nature of fabrics (whether grey or processed) is not amplied (sic) in the said bills. According to the department, the allegation is supported by the statements of various buyers who claimed that the purchased fabrics were "processed fabrics". The department has relied on the statements of the parties to claim that the sale was of processed fabrics only and, therefore, alleged duty evasion has been confirmed. However, the persons whose statements have been relied upon to level the said allegation, have not been made available to the appellants for cross-examination. Therefore, the statements have no evidential value being in the nature of one man's word against another. Even if the said persons were to confirm their version through the cross-examination even then, without a corroborative evidence of further sale from the premises of the said persons, showing the sale of "processed fabrics" would be necessary. None of the said persons have provided any documentary evidence to show that they actually sold the processed fabrics, nor did their records have been obtained to show receipt of "processed fabrics". The evidence generated through the said statements is therefore liable to be discarded as unreliable.
9. More importantly the show cause notice alleges massive quantum of evasion. For example, on going through the contents of the show cause notice, it is revealed that in respect of M/s. New India Printing Works, the actual sale of processed fabrics was 3410938 Sq. Mtrs. as against the recorded production of only 468202 Sq. Mtrs. In other words, show cause notice alleges that as against every 100 Sq. Mtrs. of dutiable man made fabrics cleared from the factory, only 13.72 Sq. Mtrs. has been recorded in the statutory books of accounts and the rest has been cleared clandestinely. The figure in respect of M/s. J.D. Woollen & Silk Mills works out to only 20.79 Sq. Mtrs. of recorded clearance out of every 100 Sq. Mtrs. dutiable man made fabrics allegedly cleared. The figure of recorded production in respect of M/s. Pawha Silk Mills (P) Ltd. works out to only 12.89 Sq. Mtrs. as against clearance of every 100 Sq. Mtrs. These percentages have been extracted above, in order to understand the gravity of the allegation made by the department. What it means is that, manufacturing of unaccounted production to the extent of over 80% went on unnoticed for several years (though demand has been raised only for 5 years) and the notice alleges that only on the date of the visit to the factory by the preventive staff on 29.10.88 that, this massive suppressed production could be unearthed and that too, not on the basis of any excess stock of either raw materials or finished goods observed during the said visit. On the date of the visit some discrepancy in the stock position in respect of the "material in process" was noticed, but since no duty is payable on the said in-process materials, the only action that was required, was to correct the records on the basis of the observations made by the visiting team. No contraband goods were noticed and there was no seizure on the date of visit or any time thereafter. If the department's version in the show cause notice is to be believed then, at any given point of time there could either be an accumulated stock of finished goods or of excess raw material. In order to carry out successful operation of evasion of this scale, it required that, not only about 80 to 85% raw material procurement has to be suppressed but also the finished goods manufactured therefrom have to be quickly removed from the factory, so as to eliminate all traces of clandestine removal. This was necessary because, in case, the quantity for eventual clandestine removal generated on a day-to-day basis was allowed to accumulate there was always a risk of accummulation of finished goods manufactured from the excess raw materials or accummulation of stock of excess raw material itself, within the factory, leading to the risk of detection. So, in order to successfully execute the plan of evasion, the manufacturer had to also make surreptions arrangements for super efficient transportation of the excess raw material in the factory and removal of excess finished goods outside the factory and also a super efficient manufacturing process to produce, on priority basis, finished goods meant for clandestine removal, and at the same time, according low priority to undertaking manufacture and clearance of legal production. The statistics as appearing in the show cause notice and as analysed by us above shows that, roughly out of every 5 Sq. Mtrs. of processed fabrics cleared, 4 Sq. Mtrs. were allegedly removed in a clandestine manner. Summing up, the show cause notice claims that clandestine activity was predominant against the legal activity. It is intriguing that such a clandestine operation involving several chains, starting from clandestine procurement of raw material, manufacture of finished goods and their sale and transportation could not be detected any time during the numerous visits and also not even at the time of visit on 29.10.88, by the concerned officers, despite the high probability of its occurrence (80% illegal: 20% legal).
10. Appellants have claimed that during the period in question, the officers conducted 640 surprise checks and no adverse observations were ever recorded. On the basis of our analysis above, we hold that the basic foundation of the case that the recovered sale bills relate to processed fabrics, lacks support and the material gathered during the investigation has no evidential value. It is undisputed fact that, the appellants through their inter-connecting units also carried out the business of trading in grey fabrics. Therefore, the evidence of recovered sale bills and connecting statements of the buyers cannot be accepted to be relating to the transaction of sale of processed fabrics when an alternative possibility of the said sale bills pertaining to sale of grey fabrics cannot be ruled out. The evidence emanating from recovered sale bills, itself does not lead to the conclusion that the sale pertains to "processed fabrics". It only becomes a circumstantial evidence. Department has only tried to back it up through statements of customers, which we have held to be not reliable in the absence of seizure of goods or any other collateral evidence. Besides, as observed by us, the clandestine activity of this magnitute, it if were to exist, could not have remained undetected for several years particularly so, when on 29.10.1988, the date of surprise visit of the preventive staff, on the basis of which, this case is made, no such activity was detected, leave alone the non-detection on the earlier occasions. If the version in the show cause notice were to be believed, then every 4 out of 5 Sq. Mtrs. of production was removed in a clandestine manner making evasion as a rule rather than an exception. This could not have remained undetected. This therefore leads us to believe that, there is a strong probability that the recovered bills relate to the transactions in grey fabrics. The allegations levelled in the show cause notice, therefore, must collapse and the conclusions drawn thereupon are accordingly set aside,
11. In the impugned order, there is also a reference to 2 hundies against which the customer has stated that he has not received the goods and he admitted that hundies have been signed in respect of sale bills presented by the bank as these were only "accommodation" bills and that they have not made any payment against these bills to the bank. Even the bank manager states that they had not received payment but he further stated that since hundies had been accepted by the consignee party, the goods covered by the outstanding bills should have been received by the consignee as normally acceptance of hundies is given only after they receive the goods. This is merely an interpretation of the bank manager of the transactions. However, there is clear admission of the party (appellants) that no payment has been received and admission also of the customers that no goods has been received. Hence, there cannot be any duty liability based on the Hundies in question.
12. In the Adjudication order, it has been mentioned that the department is not required to prove the case with mathematical precision (Collector of Customs, Madras v. D. Bhoormull, 2003 (90) ECC 347 (SC) ; 1983 ELT 1546 (SC). From the Commissioner's order we quote;
".......Department is not required to prove its case with mathematical precision to a demonstrable degree; for, in all human affairs absolute certainty is a myth, and as Prof. Brett felicitiously puts it -- "all exactness is a fake". El Dorado of absolute Proof being unattainable, the law, accepts for it, probability as a working substitute in this work-a-day world, The law does not require the prosecution to prove the impossible. All that it requires is the establishment of such a degree of probability that a prudent man may, on the basis, believe in the existence of the fact in issue. Thus, legal proof is not necessarily perfect proof often it is nothing more than a prudent man's estimate as to the probabilities of the case." (cited above).
13. While we agree that the department is not to prove the case with mathematical precision, it has to make out a case atleast on the basis of "preponderance of probabilities". As analysised by us above, the figures of evasion as alleged in the show cause notice suggest that illicit manufacture and clandestine removal were far in excess than legally recorded production and clearances (1 Sq. Mtrs. legal; 4 Sq. Mtrs, illegal). Probability of detection of such a massive evasion, if it were to be happening for over the years, would have been certain and yet the fact is that in none of the 640 surprise visits to the manufacturing premises, even a single Sq. Mtrs. of excess finished goods or raw materials has been found or any transportation of clandestine nature noticed. The collected evidence cannot be considered even of a "circumstantial nature". The law in respect of acceptance of circumstantial evidence is very clear. The circumstantial evidence must be of a conclusive nature and cannot be capable of duality and form a complete chain so as to rule out all probabilities and lead to an inescapable conclusion. The analysis we have made out clearly rules out the probability of existence of alleged evasion. Therefore, we have no hesitation in holding that, the allegations in the show cause notice are baseless.
14. Accordingly, we hold that the impugned order is not sustainable and the same is, therefore, set aside. The appeals of the appellants are allowed with consequential relief in accordance with law.