TMI Blog2008 (9) TMI 355X X X X Extracts X X X X X X X X Extracts X X X X ..... anufactured by EOU or DTA - E/663-665/2007-Mum - A/786-788/2008-WZB/C-II/(EB) - Dated:- 16-9-2008 - Ms. Jyoti Balasundaram, Vice-President and Shri A.K. Srivastava, Member (T) Shri Devan V. Parekh, Advocate, for the Appellant. Shri P.K. Katiyar, SDR, for the Respondent. [Order per : A.K. Srivastava, Member (T)].- These appeals have been filed against the order dated 31-1-2007 passed by the Commissioner of Central Excise, Pune-II. The Commissioner, vide the impugned order, confirmed the demand of duty of Rs. 86,41,543/- together with interest and imposed equivalent penalty of Rs. 36,41,543/- each under Section 11AC of the Central Excise Act, 1944 and under Rule 25 of the Central Excise Rules, 2001/2002 respectively on the DTA unit; confirmed the demand of duty of Rs. 15,06,296/- together with interest and imposed equivalent penalty of Rs. 15,06,296/- each under Section 11AC of the Central Excise Act, 1944 and Rule 25 of the Central Excise Rules, 2001/2002 respectively on 100% EOU; imposed penalty of Rs. 25,00,000/- and Rs. 20,00,000/- on Shri Riad Murad Fyzee, Managing Director of 100% EOU/DTA and Shri Autar Krishan Kaul, Chief Operating Officer of 100% EOU/DTA respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oresaid, a further quantity of 17114 gears is sought to have been not accounted for by the DTA on the basis of calculations made in paras 7.5.1 of the SCN. A case is made out that out of one raw forging, one year would be made. The total forgings used in the year 2002-03, are 926671. Now, as per the contents of para 7.3, the gears actually manufactured as per the books of accounts, are 891052. This leads a balance of 35619 raw forgings unutilized. However, the closing balance is 18505 as per the books. The difference between 35619 and 18505 is 17114 which, according to the department, are raw-forgings, which have been made into gears and removed without payment of duty by DTA. 6. The aforesaid two quantities of 85138 and 17114, is the case of clandestine removal made out against DTA. Except for the aforesaid calculations made from the accounts and the statutory records maintained under Central Excise, there does not appear to be any other document, record etc. to support the case of the department. There does not appear to be any incriminating statements, accepting clearances of any such goods by DTA without payment of duty. The department seeks to rely upon the cost auditors' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of manufacture of all kinds of gears. It is, therefore, standard practice to get job work done outside by all gear manufacturers. In the case of the appellants, the DTA had in the year 2002-03, sent pieces of semi-finished gears to the EOU to be made into gears and to be exported there from. The department does not want to believe this movement of goods, though there are innumerable documents both statutory and private which show this movement of goods. These documents show precisely this quantity of 85138 semi-finished gears, being transferred to the EOU. This completely explains the difference between the books of accounts of the DTA and the excise records. It was submitted that when the EOU converts these goods into finished goods and exports the same, these exports are taken in the DTA books of accounts as exports of the DTA, which, therefore, show manufacture of 391052 pieces. However, as the final product i.e. complete gears were made by EOU, this quantity of 85138 did not find mention in the excise records of the DTA as fully manufactured goods. This was because these semi-finished forgings were sent to the EOU and were made into final gears only at the EOU and exported dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monthly extracts of the RG-1 of the DTA unit, these quantifies which are exported through the EOU are specifically mentioned month wise. The ARE-1 numbers of the EOU are also mentioned therein. These monthly records have also been verified by the department as per the officers' endorsements therein. 10. It was argued that this overwhelming evidence, exactly to the extent of 85138 pieces, was sought to be totally discounted and has not been fairly dealt with, in the Order-in-Original. There can be no question of not believing such extensive evidence which is not only private but also statutory. Furthermore, the challans therein tally totally with the difference of 85138 pieces. Hence, not only is there no evidence to show clandestine removal of goods, but the difference is also completely explained by the aforesaid documents. It was only with a view to confirm the demand that the aforesaid weighty evidence which concludes the issue, has not even been dealt with by the Commissioner. 11. In the aforesaid context, it was also submitted that as per para 9.5 of the SCN, Shri Kaul whose statement was recorded, also himself stated that what is alleged to be clandestine removal fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the DTA sales are correctly recorded. In this context, it was argued that if the clandestinely removed goods are over and above the DTA sales, then it is not explained from which material were these huge quantity of Rs. 4.00 crores worth of goods made. There is no proof of any raw-material unaccountedly coming in, nor is there any proof of any unaccounted clearances. The department's case is thus ex-facie unsustainable and absurd. He referred to the decision of the Honourable Tribunal, reported in 2006 (75) RLT (705), wherein it was held by the Tribunal that when goods are transferred to EOU, even if the procedure is not followed, unless it is shown that such goods had entered the domestic market, a demand can not be raised. He submitted that the principle, expounded in the said decision, applies with full force to the present case. He submitted that therefore, even if it is presumed that there might be some records which are not maintained, for transfer of goods to EOU, the same is not enough to make out a case that such goods must be deemed to have been cleared in the DTA clandestinely. 13. Reference was made to the certificate of overall quantity issued by the Chartered A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the basic case of the department that the installed capacity is only 45,000 gears is clearly erroneous and incorrect. It may be due to some other mistake that the installed capacity is shown as 45,000 gears. However, the balance sheet of the Company which is accepted by the Cost Auditors itself shows the installed capacity to be of 12 lakh gears. Reference was made to the balance sheet figures to show that the unit price per gear is between 300 to 400 Rupees. In this context, reference was made to para 5 of the SCN to contend that if the export obligation is almost Rs. 180.00 crores, within 5 years, it would be impossible for a unit making 45,000 gears to meet such huge export obligations. This was thus a pure mistake to write 45000 gears. However, the installed capacity is more than 12 lakh gears. In this regard, he referred to Chartered Accountants' certificate to demonstrate that sixty machines valued at Rs. 12.00 crores were already installed on or before 31-3-02. It was only 18 machines valued at Rs. 3.77 crores which were installed upto November, 2002. Further the new machines were also repetition of the old machines. Thus, it is absurd to suggest that the Unit did not h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he DTA unit. Thus, when the capacity of manufacture of the EOU is itself proved, the entire case of the department falls on this very count. He, therefore, submitted that the goods said to have been manufactured by the EOU, during this period, is only 53254 gears. It can hardly be suggested that a unit having an installed capacity of 12.00 lakhs units, could not have manufactured this small amount of gears. It is irrelevant in this regard whether for the purpose of accounts; this is treated as test production or commercial production. The fact is that these goods are produced and exported. On this very ground alone, it was submitted that the department's case must fail. 17. It was submitted that a reference to para d(ii) of the notification shows that the only thing required to be shown is that the goods are proved to the satisfaction of the Assistant Commissioner to be used in connection with production of export goods. It is submitted that this condition is clearly satisfied. It is nobody's case that the forgings obtained by the EOU are not used in the export goods. As a matter of fact, the aforesaid documents would show that such forgings were used in the EOU itself on their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon and exported. Instead of entering into a debate, the DTA paid the duty and claimed rebate. In any view of the matter, the Cenvat credit has never been used as the inputs are not duty paid. Thus, the demand is ex facie absurd. 22. Against the aforesaid submissions, the D.R. reiterated the findings contained in the Order-in-Original. He submitted that there is clandestine removal of goods and that EOU had no capacity to manufacture the goods as is clear from the declaration in the LOP. He stated that commercial production only started in June '03. He further submitted that the difference between the accounted quantity and the RG-1 quantity is clandestinely removed as the same is not correct in the RG-1. On question from the Bench as to why such quantity which is semi-finished is required to be mentioned in the RG-1 there was no satisfactory reply, it is clear that RG-1 is only concerned with accounting of fully manufactured goods and not of semi-finished goods which can not be sold in the market. He further submitted that if such goods were cleared by DTA, then CT-3 certificates ought to have been issued, which are not issued in this case. It was clarified by the appellants t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... work basis as per specific design and do not have general marketability, such a case cannot readily be believed. There is no investigation at the premises of the purchasers. There is no proof of transportation. There is no proof of receiving extra consideration. There is also no proof of raw-material required, energy consumed etc. to make such goods which are alleged to be clandestinely removed. In such circumstances, it is clear that either there was no investigation or the investigation did not find any other evidence to substantiate the aforesaid issues. 24. The aforesaid aspects are fundamental to a charge of clandestine removal and can not lightly be brushed away. In the absence of any evidence, as suggested above, the charge of clandestine removal cannot be fastened on the DTA. We also find that there does not appear to be any evidence, even in the form of statements forthcoming, which unconditionally shows or accepts any clandestine removal. 25. As against the aforesaid, we find that there are innumerable documents in the form of statutory challans under Cenvat Credit Rules, letters of transfer, permissions obtained from the Assistant Commissioner, different types o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged primarily on the ground that the EOU did not have manufacturing capacity at the relevant time nor had it commenced commercial production during the said period. In this regard, we find that the department ought to have at least inspected the machinery which was installed and could have taken relevant certification as to the installed capacity. The department has failed to do so. As against this, the appellants have produced certificates of Chartered Engineers as well as Chartered Accountants to show that even during 2002-03, the installed capacity was 10 lakh units. We find that the installed capacity even as per the balance sheet is 12 lakh units. There is substantial force in the argument of the appellants that they could never have been able to meet their export obligation with a production of only 45000 units when the unit price of a gear is only Rs. 300/- to Rs. 400/-. Again, there is evidence on record with regard to heavy consumption of electricity and labour employed. There would have been no need to employ such a lot of labour and there is no explanation for consumption of such a vast quantity of electricity, if there was no production. The possibility of the capa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e NFEP is not met. Even the SCN does not aver that if the earnings of 53,000 pieces made by EOU are taken out, the NFEP would not be met. To the contrary, the certificate produced by the appellant-unit shows that the NFEP of 53,000 units would be irrelevant in the light of the huge margin between the NFEP achieved and the NFEP required to be achieved. 32. With regard to the goods being used for the purpose specified in clause (a) to (c) of the notification, we find that in terms of condition "e" of the notification, it is the Development Commissioner who is required to be satisfied in this regard. We, however, find that when the EOU is exporting its goods to meet its obligations, there is nothing on record to show that the inputs used are not used for making such exports. On the contrary, the Annexure "A" challans show that the inputs, after partial processing have been transferred to the DTA and then received back by the EOU and then exported. In such circumstances, even condition "e" can not be held to be violated. 33. We also accept the submissions made on the basis of the decision reported in 2006 (75) RLT (705) that even if it is presumed that the documentation of move ..... X X X X Extracts X X X X X X X X Extracts X X X X
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