2017 (5) TMI 85 - AT - Central Excise

Clandestine removal - Clearance of goods for job-work - benefit of N/N s. 5/99-CE dated 28.02.1999 6/2000-CE dated 01.03.2000 and 3/2001-CE dated 01.03.2001 as amended - it was alleged against the assessee that thy cleared the goods to market in the guise of job-work transfer invoices were bogus and the dispatches were also bogus - Held that - even though Shri V. Ramakrishnan stated that they had indeed done the job work that assertion was untrue since only their source of income was a small tea-shop and that at the time of visit of officers Shri V. Ramakrishnan had informed that the machines had been dismantled in order to sell them for repayment of loan. He could also not able to produce any material evidence during cross examination as to how they made expenses towards wages power maintenance etc. in connection with the job work - there is no infirmity in the demand of Rs. 44, 22, 202/- confirmed by the adjudicating authority being duty on cotton yarn cleared by STL from its factory premises purportedly for conversion into hank yarn to RR. Reeling Unit-II. Revenue has thus has been able to satisfactorily established that there is no evidence for movement of hank yarn from the job worker to the factory of STL and that entries in RG-1 register to the contrary are doctored to cover up their actual modus. Extended period of limitation - Held that - there has been unaccounted/clandestine removal of cotton yarn y STL subterfuge suppression and wilful misstatement and collusion with BARU and RR Reeling Unit; with the sole intention of evading legitimate duty payable to the exchequer - invocation of extended period of limitation in the notice under proviso to section 11A of the Central Excise Act and its affirmation in the impugned order is very much in order. Appeal dismissed - decided against appellant.

Issues Involved:
1. Shortages in physical stock of finished goods at STL.
2. Duty on cotton yarn removed to M/s. RR Reeling Unit-II.
3. Duty on cotton yarn removed to Bannari Amman Reeling Unit (BARU).
4. Procedural lapses and compliance with exemption notifications.
5. Invocation of extended period of limitation.
6. Penalties imposed on STL and associated individuals.

Detailed Analysis:

1. Shortages in Physical Stock of Finished Goods at STL:
The central issue here was the discrepancy in the physical stock of finished goods at STL's factory premises during a surprise check on 21.09.2001. The officers recorded shortages in various types of yarn, which STL attempted to justify by issuing backdated invoices. However, investigations revealed that these invoices and the corresponding vehicle numbers were fictitious. The appellants did not dispute the shortages in their appeals, and the contention that shortages could be due to pilferage was dismissed as implausible. The demand of Rs. 10,42,361/- for these shortages was upheld.

2. Duty on Cotton Yarn Removed to M/s. RR Reeling Unit-II:
This issue revolved around the alleged diversion of cotton yarn to the local market without conversion into hank yarn. The proprietor of RR Reeling Unit-II initially admitted to fabricating records to show conversion, which he later retracted during cross-examination. However, the adjudicating authority found the retraction unconvincing, noting that the reeling machines were dismantled and there was no evidence of expenses related to job work. The demand of Rs. 44,22,202/- for duty on yarn purportedly sent for conversion but diverted was upheld.

3. Duty on Cotton Yarn Removed to Bannari Amman Reeling Unit (BARU):
The allegation was that BARU did not convert the yarn but sold it in cheese form. The proprietor of BARU admitted to fabricating documents and selling the yarn directly to customers, which he later retracted. The adjudicating authority found the retraction unconvincing, noting discrepancies in power consumption and lack of evidence for the claimed conversion. The demand of Rs. 27,09,840/- was upheld, as there was no proof of actual conversion or return of hank yarn to STL.

4. Procedural Lapses and Compliance with Exemption Notifications:
STL argued that they followed the procedure under Rule 96E and filed necessary returns and intimations, which were verified by officials. However, the investigation revealed that these clearances were a sham to create a paper trail for clandestine removals. The Board's Circular and Section 11C Notification cited by STL were found inapplicable as they pertained to legitimate conversions, not the fraudulent activities uncovered.

5. Invocation of Extended Period of Limitation:
The appellants contended that the demand was time-barred as the SCN was issued 18 months after the visit. However, the extended period was invoked due to the deliberate suppression of facts, misstatements, and subterfuge by STL. The investigation proved that the returns and records were manipulated to evade duty, justifying the extended period.

6. Penalties Imposed on STL and Associated Individuals:
The penalties imposed on STL and the proprietors of RR Reeling Unit-II and BARU were upheld. The adjudicating authority found that these individuals played significant roles in the scheme to evade duty. The penalty of Rs. 15,00,000/- imposed on STL under Rule 173Q/Rule 25 was set aside, but the equal penalty under Section 11AC was upheld. The penalties on the proprietors were deemed appropriate given their involvement.

Conclusion:
The appeals were largely dismissed, with the demands for duty and most penalties upheld. The only relief granted was the setting aside of the additional penalty of Rs. 15,00,000/- on STL. The adjudicating authority's findings on the fraudulent activities and the invocation of the extended period of limitation were affirmed.

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