2010 (10) TMI 645 - AT - Central Excise

Evasion of duty - Notification No. 211/83-C.E. dated 4-8-83 up to 24-3-85 and under Notification No. 100/85-C.E - misdeclaration of the adjusted sale price in relation to manufacture of Panama brand cigarette of the respective description for which protection of revenue was warranted - Revenue was of the opinion that there was no difference between two brands i.e. Panama Viriginia G manufactured by NETCO and Panama Virigina (Special) manufactured by GTC in its various factories - The recorded statement examined by the Authority brought to record shows that there was realisation of excess sale price and the price marked on the packets were lower than the actual price realised from sale of cigarettes - There was no disclaimer of the materials recovered in the course of search and statements recorded on the basis of such materials from deponents proved proximity and intimate connection thereof with the trade of appellants and persons connected thereto - It is well known that it is very difficult for Revenue to prove every link in respect of the commission of the offence under the Act by direct evidence - An admission is the best evidence that an opposing party can rely upon and though not conclusive is decisive of the matter unless successfully withdrawn or proved erroneous - Held that the declaration filed before the authorities were full proof of suppression of fact when all connected evidence proved realisation of higher MRP. Accordingly the Excise authorities having discharged their burden of proof the appellants had no right to call for cross-examination on flimsy plea Regarding penalty - Having noticed that both the appellants had pre-meditated design through the joint venture approach to undervalue the goods resulting in loss of Revenue and been intimately connected with such loss causing evasion of Revenue levy of penalty on both of them was justified - Appeals are dismissed

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

(a) Whether the cigarettes manufactured by NETCO and marketed by GTC were sold to consumers at prices exceeding the maximum retail price (MRP) marked on the packets, and if so, the implications thereof.

(b) Whether excise duty was leviable on the actual sale price realized by retailers or only on the basis of the MRP marked on the cigarette packets as per the relevant notifications.

(d) Whether the extended period of limitation under Section 11A(1) of the Central Excise Act, 1944 was invocable, considering allegations of suppression, misstatement, and fraud.

(e) Whether there was a "flow back" of excess sale proceeds from distributors and retailers to GTC, and the evidentiary basis for such flow back.

(f) Whether the appellants were denied natural justice, particularly with respect to the refusal to allow cross-examination of witnesses and non-return of un-relied upon documents.

(g) Whether penalty was imposable on the appellants for the alleged contraventions.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) - Sale Price in Excess of MRP Marked on Packets

The relevant legal framework involved the Central Excise Act, 1944, and Notifications No. 211/83-C.E. and No. 100/85-C.E. which prescribed levy of excise duty on "adjusted sale price" determinable with reference to MRP marked on cigarette packets. The investigation revealed that NETCO manufactured cigarettes under the "Panama Virginia" brand on behalf of GTC, with MRP embossed (not printed) on packets in a barely visible manner.

The Court noted that despite the declared MRP, the actual sale price realized by distributors and retailers was significantly higher. Evidence included statements recorded under Section 14 of the Central Excise Act, documents seized during search, chemical examination reports establishing that deceptively similar brands manufactured by NETCO and GTC were identical in quality, and bank drafts indicating flow of excess money to GTC.

The Court found that the practice of embossing rather than printing MRP was a dubious method to conceal the actual higher sale price, thereby causing evasion of duty. The excess sale price was not accounted for in books, and the higher price proceeds were remitted to GTC through conduits. The Court concluded that cigarettes were not sold at the marked price but at higher prices, resulting in duty evasion.

Competing arguments by appellants challenged the credibility of statements and documents, alleging coercion, lack of cross-examination, and absence of direct evidence linking excess price realization to GTC. The Court rejected these, holding that the evidence was cogent and un-retracted, and the appellants' delay tactics did not justify dismissal of the case.

Issue (b) - Basis of Levy: Actual Sale Price or Marked Price

The Court examined the relevant notifications and the factual matrix. The notifications prescribed duty on adjusted sale price linked to MRP. However, the Court held that where the marked price was fictitious and a scheme existed to realize higher prices, the actual sale price realized was the correct basis for levy.

The Court relied on evidence of higher prices realized and flow back of excess proceeds to GTC, concluding that the adjusted sale price must be determined with reference to the actual sale price rather than the artificially low embossed MRP.

Issue (c) - Liability for Payment of Differential Duty

The Court analyzed the relationship between NETCO and GTC. NETCO was a joint venture promoted by Assam Industrial Development Corporation (51%) and GTC (49%), manufacturing cigarettes on job work basis under GTC's control. GTC controlled raw materials, pricing, marketing, and distribution.

Applying precedents including the Apex Court's decision in Empire Industries Ltd., the Court held that the event of levy is manufacture, and liability for duty lies primarily with the manufacturer. Since NETCO manufactured the goods, it was liable for duty. However, GTC could not be absolved because it exercised effective control and benefited from the evasion through flow back of excess sale price.

The Court found that NETCO acted in complicity with GTC, acquiescing in undervaluation and misdeclaration, and thus both were liable for duty and penalty.

Issue (d) - Invocability of Extended Period of Limitation

Section 11A(1) of the Central Excise Act provides for extended limitation period where there is suppression of facts or fraud. The Court found that the appellants deliberately misdeclared the MRP and concealed the actual sale price, constituting suppression and fraud.

Reliance was placed on Apex Court decisions affirming that fraud nullifies limitation and that deliberate misrepresentation to evade duty attracts extended limitation. The Court held that the proceedings were not barred by limitation.

Issue (e) - Flow Back of Excess Sale Proceeds to GTC

The Court considered evidence from statements of persons connected with trade, bank drafts in fictitious names, recovered chits and documents, and the modus operandi of the marketing network controlled by GTC. The evidence established that excess sale price realized over the embossed MRP was remitted to GTC after deduction of expenses.

The Court found that the flow back was a well-designed scheme to evade duty and that GTC was the ultimate beneficiary. The appellants' contentions disputing flow back were rejected for lack of credible evidence.

Issue (f) - Alleged Violation of Natural Justice

The appellants contended that denial of cross-examination of witnesses and non-return of un-relied upon documents violated principles of natural justice. They argued that statements were recorded under duress and were inadmissible.

The Court analyzed the law on natural justice in quasi-judicial proceedings, noting that strict rules of evidence do not apply. It held that statements recorded under Section 14 of the Central Excise Act are admissible unless successfully impeached. The Court found no evidence of coercion or retraction and observed that the appellants delayed adjudication by not filing replies to show cause notices, making cross-examination premature and unwarranted.

The Court relied on precedents holding that cross-examination is not an absolute right in such proceedings and that denial of cross-examination under these circumstances does not vitiate the adjudication.

Issue (g) - Imposition of Penalty

Given the findings of deliberate undervaluation, suppression, fraud, and evasion, the Court held that penalty was justified on both appellants. The penalty was imposed under relevant provisions of the Central Excise Rules, 1944.

3. SIGNIFICANT HOLDINGS

"The cigarettes in question were not being sold to consumers at the price marked by embossing the same on packets for retail sale, but those were sold at much higher price, and duty, on such higher price realised was not paid. Thus there was evasion."

"Where the marked price is fictitious and a scheme exists to realize higher prices, the actual sale price realized must be the basis for levy of excise duty."

"The event of levy being manufacture, liability for payment of duty lies primarily with the manufacturer, here NETCO, but GTC cannot be absolved as it exercised control and benefited from the evasion."

"Suppression of material facts and deliberate misdeclaration constitute fraud attracting extended period of limitation under Section 11A(1) of the Central Excise Act."

"Statements recorded under Section 14 of the Central Excise Act, 1944, when not retracted and not shown to be under duress, are admissible evidence in adjudication proceedings."

"Denial of cross-examination in circumstances where the appellant has delayed filing replies and cross-examination is premature does not amount to violation of natural justice."

"Penalty is justified where there is a premeditated design to evade duty causing loss to Revenue."

The Tribunal concluded that there was a well-conceived scheme involving manufacture of deceptively similar brands with understated MRP, realization of higher sale price, flow back of excess proceeds to GTC, and evasion of excise duty. NETCO, as the manufacturer, was primarily liable for duty, with GTC also liable due to control and benefit derived. The extended limitation period applied due to fraud and suppression. The appellants' pleas of natural justice violation were rejected, and penalty was upheld. The appeals were dismissed except for modification that NETCO shall be liable for duty imposed.

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