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TMI Blog2009 (12) TMI 838X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal No. E/1102/98, which also we take up for disposal. 2. The findings of clandestine clearances and liability to duty of VPSL is found on the basis of the statements of raw material and finished goods in stock furnished by VPSL periodically to the State Bank of India, Yellareddyguda and statements recorded from its Manager. SBI, Yellareddyguda whch had advanced loan to VPSL. Facts are that on the basis of intelligence gathered, the officers of Central Excise, Anti Evasion, Hyderabad tentatively found that VPSL was engaged in clandestine manufacture and clearance of laminated HDPE/LDPE fabrics and sacks falling under CSH 3926.90 without maintaining statutory records in relation to such production and clearances. They furnished the actual quantities produced to its bank viz. State Bank of India (SBI), Yellareddyguda Branch as transpired from the statements recorded from the Branch Manager, SBI, Yellareddyguda Branch. Accordingly show cause notice was issued to VPSL. 3. Para 2 & 3 of the show cause notice read as follows :- "2. On comparison of the stock statements submitted to the bank, with the statutory Central Excise records v. RG1 & Form IV seized under Panchnama dt. 1-7-19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tements submitted to the bank, being the actual stocks or the above goods were far in excess to that of the stocks show in the statutory central excise records viz. Form IV and RG1 registers. This is more clear from the fact that the assessee was maintaining stocks registers and this is confirmed by the statement of the bank manager and further the assessee was bluffing that the stock registers were all seized by the Department which is not correct. The fact that the assess was maintaining a stock register is established form the fact that a stock register w.e.f. 1-6-1991 was seized by the Department. The fact of excess stocks over and above the book balances as depicted in Central Excise records is established from the fact that excess stocks was found to the tune of Rs. 6.2 lakhs as regards raw materialover the Form IV balances and also finished goods i.e. branded laminated HDPE sacks to the tune of Rs. 7.4 lakhs in their dummy sister concern M/s. Vijetha Sacks Factory on the day of the officers visit i.e. 1-7-1994. The differences in the stocks are as detailed in Annexure-I, II & III enclosed to this show cause notice." Shri Hanumantha Rao, Chief Manager, SBI, Yellareddyguda Br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther submitted in response to a query that he saw the stocks in the factory except sacks and he had arranged through his field officers to find out where the sacks had been kept as shown in the stock statements. The bank manager had not categorically stated that he had verified the stock position of granules and fabrics as declared in the statements. To a further query regarding excess granules of 88.76 MTs as detailed in annexure to the SCN, he had asked for monthly particulars. On perusing the statements furnished to bank by the appellant, he said that during the material time, he was not in the branch of the bank. In this background, his statements did not carry any weight. 4.2 None of the bank statements carried endorsement of verification of stock by the bank officers. The aggregate quantity of fabrics recorded in the RG-1 was more than the fabric shown in the bank statements. As regards the sacks, it was proved beyond doubt that no sacks had been manufactured. 4.3 As reflected in the statutory records maintained by the appellant, the factory had often been visited by the departmental officers. No discrepancy was ever noticed by the department during the material period. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal advanced by it was secured. In confirming the demand of duty against VPSL based on the bank statements, the Commissioner relied on the following judgments of different High Courts. (a) 95 ITR (375) Madras (b) 146 ITR (368) Bombay (c) 180 ITR (651) Ahmedabad (d) 201 ITR (192) Gujarat The Commissioner recorded the following findings based on the above judgments :- "In these cases the courts have refused to recognize the practice said to be adopted any many companies who might have boosted the stocks for the purposes of availing hire loans. The courts have also held that the companies could not go back on their own sworn statements given to the bank as to the stocks held or hypothecated by them. Even though these cases are in respect of IT matters, I am of the view that the ratio of these judgments are squarely applicable to the present case and will have to be followed." 7. We find that the entire case of the Revenue is built on the statements furnished by the assessee to the bank which had advanced credit to it. The consistent claim of the appellants has been that the statements furnished to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which was disputed and not corroborated by any other evidence. The Commissioner has not been able to effectively rebut the claim of the assessee that it had not manufactured sacks in the absence of machinery, yet proceeded to confirm the demand finding that the assessee had been registered for manufacture of sacks. We find that the authorities have not investigated the allegations against VPSL and gathered any evidence. It was incumbent on the authorities to verify the stock of goods physically by visiting its manufacturing premises and check if the bank statements reflected the true state of affairs. We find considerable force also in the submission of the assessee that the departmental officers had visited its factory on several days during the material period as seen from the endorsements on the statutory registers and that on no occasion any irregularity on the part of the assessee had been noticed. The Commissioner relied on case laws in income tax matters wherein the High Courts had held that particulars of stocks reflected in the sworn statements furnished to the bank could be included in the income for determining the liability to income tax of the assessee concerned. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance on disputed bank statements following the ratio of judgments of the High Courts dealing with assets or income declared to the bank in income tax cases. In central excise cases duty is demanded for the .manufacture of excisable goods. It is essential that manufacture and clearance without payment of duty of excisable goods is established in order to find evasion of duty. In the instant case, no investigation whatsoever was made or any evidence gathered to support a finding of clandestine manufacture and clearance. ' 8. Shri Ramachandra Reddy, Accounts Officer, who had prepared bank statements had furnished affidavit before the adjudicating authority explaining the contents of the statements. This was not accepted by the adjudicating authority. We find that in the circumstances of the case, it was important that the Commissioner examined Shri Ramachandra Reddy before rejecting the affidavit without assigning a valid reason for such rejection. 9. In Premium Packaging Pvt. Ltd. v. CCE, Kanpur case (supra) cited by the appellant, the Tribunal held that statements filed with bank for purpose of financial accommodation, loan, etc. were not tangible proof of clandestine receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e discussed, we find that the Commissioner confirmed the demand against the assessee without any evidence. He relied on the ratio of judgments of High Courts which had held the sworn statements furnished by the income tax assessees to banks as acceptable evidence for computing taxable income. We find that these judicial authorities were not reliable or adequate to find clandestine removal of excisable goods. In the circumstances, we set aside the demand raised on the assessee and the penalty imposed on it. Appeal No. E/1102/98 12. This appeal has been filed by Shri M. Lakshmikar Reddy, Managing Director of VPSL seeking to vacate the penalty of Rs. 25 lakhs imposed on him on a finding that he was responsible for mis-declaration of the actual quantity of sacks recorded in the central excise documents. In the view we have taken on the charges of clandestine production and clearance by VPSL, we find that Shri Lakshmikar Reddy was not guilty of the charge found against him and he was not liable to the penalty imposed on him. In the circumstances, the penalty imposed on him is vacated. 13. The appeals are allowed. (Operative portion of this order pronounced on conclusion of the heari ..... X X X X Extracts X X X X X X X X Extracts X X X X
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