TMI Blog2015 (1) TMI 368X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. - the submission of the learned Special Counsel that the Superintendent of Central Excise was delegated power to issue the show-cause notice vide Office Order dated 18.7.2001 is not acceptable. - The action of Superintendent to issue notice demanding duty under Section 28(1) of the Act, 1962 vide Notice dated 26.3.2002 is contrary to the provisions of law. The adjudicating authority dropped the Show Cause Notices on merit. Taking into account of the overall facts and circumstances of this peculiar case, in our considered view, the show-cause notice cannot be dropped only on the jurisdiction point, when the assessee contested the demand on merit as well as availed the opportunity of cross-examination of various persons as prayed for. We make it clear that this order would not become a precedent that the Show Cause Notice issued beyond jurisdiction, would be held valid by the appellate authorities. Regarding the demand of Central Excise duty, it has further been alleged that the Assessee cleared carry bags sold to DTA without accounting and payment of central excise duty of ₹ 4,61,692/- and it is based on out-passes of the Assessee to its sister unit. This was supporte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : Shri P.R.V. Ramanan, Special Counsel and Shri M. Rammohan Rao, DC (AR) JUDGEMENT Per P.K. Das These appeals are arising out of a common order and therefore, all are taken up together for disposal. 2. M/s. Global Polybags Industries Pvt. Ltd. (hereinafter referred to as the Assessee ), has been granted Licence as 100% Export Oriented Unit (EOU) as per the letter of permission PER:282(1995)/EOA/367/95 dated 8.6.1995 issued by the Secretarial for Industrial Apparels, New Delhi, subject to the execution of legal undertaking before the Development Commissioner, MEPZ, Chennai, to the effect that the Assessee shall export the entire production excluding rejects for a period of 10 years. On the basis of the said permission, the Assistant Commissioner of Central Excise issued a Private Bonded Warehouse Licence No.1/95 for manufacture and export of Plastic Carry Bags classifiable under Chapter 39 of the First Schedule to the CETA, 1985 at the premises of 500A, Perali Road, Virudhunagar. The Assessee was permitted to import the raw materials namely HDPE/LDPE/LLDPE/PP granules (in short, plastic granules) duty-free in terms of Customs Notification No.53/97-Cus. dated 6.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so proposed to impose penalty to equal amount of duty under Section 114A of the Act, 1962 and penalty under Section 112/117 of the said Act. It was also proposed demand of central excise duty of ₹ 4,65,456/- under Section 11A of the Central Excise Act, 1944 (in short Act, 1944) along with interest and penalty equal amount of duty under Section 11AC of the Act, 1944 and penalty under Rule 209/210 of the erstwhile Central Excise Rules, 1944 on the ground that the Assessee sold Carry Bags into DTA without accounting and payment of duty. In the said show-cause notice, S/Shri Muralitharan, Mathiprakash and Yuvaraj were required to show cause as to why penalty should not be imposed on them under Section 112/117 of the Act, 1962 and separate penalty under Rule 209A of the erstwhile Central Excise Rules, 1944. There was also a proposal to impose penalty on high-sea seller of duty-free imported plastic granules to the Assessee, namely:- M/s. Alagendran Group Companies, Chennai, M/s. Ramya Polymer Agencies Pvt. Ltd., Madurai, M/s. Sri Lakosha Polymer (P) Ltd., Coimbatore and M/s. Seven Seas Polymers Pvt. Ltd., Karur, under Section 112 of the Customs Act, 1962. All the noticees were dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the adjudication order insofar as the preliminary objections raised by the Assessee were overruled. Again, Revenue filed 4 appeals (E/512 to 515/2012) against respondent Nos. 1 to 4 under Section 35B(1) of Central Excise Act, 1944 in respect of dropping of demand of central excise duty. Thereafter, respondent No.1 to 4 filed miscellaneous application No. E/Misc./450 to 453/2013 praying inter alia to direct the Revenue to take and stick to only one stand in filing appeals under Customs or Central Excise Act. The Assessee also filed appeal No. E/41562/2013 and another set of Appeal Nos. E/41845 to 41848/2013 by the Assessee and its three Directors under Section 35B(1) of Act, 1944 against appeals of the Revenue in respect of dropping of demand of central excise duty. 7. All these appeals were heard extensively on 29.6.2014, 23.7.2014, 24.7.2014 and 25.7.2014. Both sides argued at length and also filed written submissions with compilation of case laws. The learned Special Counsel appearing for Revenue reiterated written submission, also referred to grounds of appeal, earlier written submission and case laws filed by them. He explained the modus operandi of diversion of duty-fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner. Further, by Office Order dated 18.7.2001, 4 Superintendents were assigned the work of processing of proposals and concurrence in respect of specific Divisions including cases of Headquarters Preventive Unit. This work included issue of SCN and denovo notices. Such assignment is in line with the assignment contemplated under Section 2(34) of Customs Act, 1962. The learned Special Counsel placed a copy of the letter dated 8.3.2002 issued by the Additional Commissioner, O/o of Chief Commissioner of Central Excise, along with affidavit dated 18.7.2014 of the Chief Commissioner of Customs (Preventive), Tiruchirappalli stating that the Chief Commissioner of Central Excise, Chennai accorded approval of show-cause notice. The learned Special Counsel also filed a compilation of Statutory Provisions for Issue of SCN - Finance Act, 2000 - Commissioner Orders . 8. The learned Senior Advocate on behalf of the Assessee and other co-noticees submits that the entire proceeding suffers from gross illegality. It is submitted that show-cause notice dated 26.3.2002 was issued by the Superintendent of Central Excise (SPAC) in violation of 3rd proviso to Section 28(1) of the Act, 1962 as it st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y subject to fulfillment of the conditions as specified for 100% EOU and prescribed in the EXIM policy. 9.1 A Private Bonded Warehouse Licence No. 1/95 was issued by the Assistant Commissioner of Central Excise, Virudhunagar Division to the Assessee in relation to manufacture and other operations and for storing duty-free imported materials and for carrying out in-bond manufacturing operations in the premises of 500A, Perali Road, about one kilometer distance from the Central Excise Division Office, Virudhunagar, in accordance with Section 58 of the Customs Act, 1962. It appears from the record that the Licence was renewed time to time and the last renewal was on 9.8.2002 (i.e. after visit of the officer on 12.1.2001) for the period from 23.8.2002 to 22.8.2007. The Superintendent of Customs, Tuticorin, permitted the Assessee to transact business with Customs House, Tuticorin as self-exporter / importer. 9.2 The main raw materials for manufacturing plastic carry bags are HDPE, LLDPE, LDPE and PP granules and master batches. They imported the plastic granules without payment of duty directly and also through High Sea Sellers under exemption Notification No.53/97-Cus. dated 6.3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since 1996 the Assessee received duty-free imported goods 11514.7 MTs and during the said period, they clandestinely removed duty-free plastic granules 8142.57 MTs from the private warehouse into DTA. It has also been alleged amongst others that there are evidences of export of bogus items. 10. The Assessee is a 100% EOU and the Notification No.53/97-Cus. extended the benefit to import the goods without payment of duty for the purpose of manufacture of articles of export out of India. So, it is appropriate to examine as to whether the Assessee had discharged the export obligation as per EXIM Policy. 10.1 The Revenue relied upon the various corroborative evidences and supporting evidence to establish that the Assessee exported bogus items and the imported goods were diverted in the local market. On the other hand, the Assessee placed various substantial evidences to establish that the goods exported were genuine. It has also refuted the allegations made in the show-cause notice. 10.2 Revenue in Grounds of Appeal contended as under:- (i) Evidences on inflated Weight, Value and Export of bogus items:- The modus adopted by the Assessee fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n why you added three item 900-50-60-10 when the total amount of the invoice is identical to our P.O) $116 added for resin)? I dont understand why you are complicating the invoicing . The fax message dated 8.4.2000 of M/s. Dart along with proforma invoice would show that the Assessee had supplied more items instead of one item ordered by M/s. Dart. (iv) Evidence on Role of Inspecting Agency:- Shri P.S. Nathan, Proprietor of M/s. Apporva Agency (Inspecting Agent of M/s. Dart) in his statement dated 6.9.2001 had clearly explained how the price had been fixed. It is obvious from the statement that Shri Nathan was fully aware of the price. As the inspection report was based on value of export goods the inspecting agency had to be aware of the basis on which price was fixed. Shri Nathan in his statement dated 15.5.2001, stated that he was not aware of the existence of the Singapore firm. Shri Govindarajan, employee of SGS Ltd. Teynampet, Chennai (another inspecting agency of M/s. Dart) in his statement dated 6.6.2001 stated that weight parameters were not tallying with the specifications of the buyer and in one case he had clearly stated that instead of 26 lakh pieces only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 of the Assessee to their customer seized from M/s. Apoorva Agency (Inspecting Agency) stated that their total capacity was 11 containers per month. It was stated by the Assessee in their letter to Mr. Eugune that their capacity, both printed and plain, was 10 containers per month. On reading of the fax message and the letter, it is clearly evident that in the year 2000, the production capacity was around 10 to 11 containers only. Even the other corroborative evidences with respect to the documents recovered from the Assessee and the job worker proved that they have not produced much quantity on job work basis and only intermediate process had been done on job work. 11. The Assessee in their reply to show-cause notice as well as cross-objection filed before the Tribunal and written submissions refuted the allegations, which are briefly as under:- (a) During the entire investigation at the factory or elsewhere i.e. the port of shipment, the Department did not find any material evidence in basing its estimations for excess weight or inflated invoice value. The Department at no point of time had recovered any cut waste being stocked as finished goods meant for export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a printed form and to achieve good printing quality company had to buy graver printing machines. (vi) They were insisting that both the handle width should be uniform and identical and in the process there is bound to be higher rejection which had to be costed to the product value. (f) M/s. Dart insisted that the Assessee should continue to issue proforma invoice for a lesser weight and value as this would enable them to settle lesser commission to the inspecting agencies and also facilitate them to enjoy certain benefits at the time of clearance by them. To this suggestion, the Assessee agreed to raise shipping documents and export invoices at the correct value and weight of export but it would give a proforma invoice at a reduced value and weight to suit Dart s convenience. This suggestion was not accepted by M/s.Dart. However, the Assessees were very clear that they cannot commit any infraction but was still interested to continue the business operations due to commercial compulsion. It was therefore suggested by M/s. Dart that goods can be sold to various merchant exporters at Singapore at the correct value and weight and the Assessee can con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was a last minute request from Nafla orally to add a few items and this was acceded to as a business request. The added items were duly invoiced and sale proceeds realized. Since proforma invoice was already sent to Dart, there was a difference between the documents and actual shipment and may be they had problems at the time of clearance and this is an outburst of such a situation. (i) Annexure C58 is a fax sent by the Assessee to M/s.Dart Import seeking an advice as to whether M/s.Dart Import had paid the bills as referred to in the letter. It is made clear that the invoices referred to are invoices raised on the merchant exporters at Singapore at its real value (which revenue has assumed it to be an exaggerated or inflated value). Advise is sought from M/s. Dart as to whether M/s.Dart has paid this value to Singapore supplier. Even though the consignment sold to merchant exporters would indicate always the correct value and weight and at the request of M/s. Dart, the Assessee furnished proforma invoice for lesser rate and value. Three parties were involved in the transaction. The Assessees are manufacturing exporter, Singapore buyers and the ultimate buyer M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... containers to hold the slippery plastic granule bags. The above fact is also supported by the seizure of 850 numbers of such paper board of different sizes at Priya Mills. The Assessee used simple tools (stapler and scissors) to convert inter-leaving partitions as corrugated sheets. With the availability of printing machines and stenciling all these were easily done in their premises. Since it was only for captive consumption and not meant for DTA sale the technical requirement of informing the Department was not done due to oversight. (m) In the present case, Mr. Ami Fried of M/s. Dart is not a party to the present proceedings. No investigation/examination was done with regard to him and no summons was issued requiring either Ami Fried or Singapore Firms to turn up for the investigation. In the absence of any notice to these parties, the Department cannot expect them to come on their own and implead themselves as party to the present proceedings. (n) It is a scanned copy of the letter of Bhagawathy Rajan dated 10.1.1998 and it could be inferred that the Assessee had four printed bags + six plain bags = ten container load bags production making capacity. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch Manager also said that ECGC policies were accepted as additional documents for discounting bills submitted by Global and he gave the ECGC limit for each of the overseas entities, namely Nafla, Oasis, Trinity, Trident, YSH Plastics and Oriole Polymers. He also explained in detail the method of getting the payments from overseas, like, the bills were sent to the foreign banks with the instructions to credit the amount in TMBs USD account with HSBC bank, USA, New York; the foreign banks would credit the amount in TMBs USD account after getting payments from buyers of Global; the details were checked by TMBs International Banking Division before being credited the account of Global; the proceeds in Singapore Dollar were credited to TMBs Singaopre Dollar account with Hong Kong Bank, Singapore; and there also details were checked before being credited to Global account. In the reply, Global took the stand that inasmuch as a premier financial institution owned by the Government of India like ECGC stands as a guarantor for default in payment and their banker TMB having furnished export bill-wise realization of sale proceeds coupled with a No Due Certificate, it is quite inappropriate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 18.38 MTs and no 12.578 MTs as stated by him. It was also said that the stuffing details referred by Shri P.S. Nathan would neither contain weight nor value. In the circumstances, the statements of Nathan cannot be held against Global. 97. the discussion and observations above shows that Global had in fact manufactured plastic carry bags and exported the same as shown and certified in the export documents filed with the Department. The question of using reprocessed granules received from the converters for manufacture of goods exported would not also arise since strict quality norms are required for goods meant for export. 12.2 Shri P.S. Nathan, Apoorva Agencies of inspecting agency during cross-examination stated that he might have introduced suppliers to M/s. Dart but he did not negotiate any contracts between them. It is further stated that he spoke to Mr. Fried, MD of M/s. Dart on telephone in the presence of investigating officers, who said that it is highly confidential and it appears he did not want to talk to him and was only willing to clarify with the official. This was informed to the senior officer who was investigating and he provided all the ph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shipping documents, realization of sale proceeds etc. unless it is proved not genuine, cannot be discarded on the basis of proforma invoice, fax message etc. 12.4 It may be noted that the Assessee in their reply to show-cause notice submitted that on 12.1.2001, the officers of the Headquarters Preventive Unit of the Commissionerate during their visit noticed the clearances of two export consignments on the same date under cover of AR4 Nos. 212 and 213 both dated 12.1.2001 in their premises, which was also lying in the port till 14.1.2001. Further, just one day before of the visit, two consignments of export of goods were cleared under AR4 Nos.209 211 both dated 11.1.2001 were also lying in the port till 16th / 18th of January 2001. None of the consignments was seized or detained by the officers as the goods were found as per declaration in AR4, packing list and export invoices. 12.5 The adjudicating authority had taken into consideration of these facts in favour of the Assessee. Revenue in their appeal stated that if the Assessee was a bonafide exporter, they should have informed the senior officer to examine these containers with reference to the value and weight whereas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as in-charge of the assessee-company during the period between September 1998 and May 1999. He narrated the procedure for verification of the goods in respect of import and export in the assessees factory as under:- a) Assessees will intimate the arrival of imported goods and he will visit the factory. b) Check the seals and then allow them to be broken c) Verify the consignments and see whether it matches with the Bill of Entry details. The same will be permitted to be unloaded in the bonded warehouse and then assessee will be asked to enter the details in the Raw Material Register and after verification, he shall sign. d) They will intimate and file FORM AR 4 for export assignment and he will visit the factory and verify the container and ask for the TSA details e) After ensuring the correctness and the container is received empty, he will proceed to the factory premises for giving clearance of export consignments. Southern Area is ear-marked as finished goods area. f) The goods to be exported will be identified which are normally earmarked separately. At random, he opened the cartons and verify the contents and verify it with AR 4 / Packing list and then the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that he had never seen the cut waste in the carton meant for export. He examined the number of cartons by resorting the file and column counting. They were examining the empty containers and only after this, other procedures are followed loading of the goods into the containers and sealing was done. There are two seals. First one is the customs seal and the other one they have a piler in the Range. By using the lead they put a marking with the help of the piler. It is stated that the description in AR4 and other documents as indicated had been physically exported. Regarding the sale of rejects, they sent a requisition and based on that quantity, the officers quantified the waste for sale, after signing the TR.6 challans for payment of appropriate customs duty. They had drawn samples of export goods. Regarding sale of Rejects, the Assessee sent requisitions and based on that they quantified waste for sale on payment of appropriate duty. (V) Shri M. Chandrasekaran, Superintendent of Central Excise, in his deposition dated 23.9.2003 stated that he was Superintendent of Central Excise of the assessee-factory during the period from May 1999 to May 2001. It is stated that the office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cross-examination, who had a role in these affairs, lacked credibility. Moreover, the entire activity of the EOU had not taken place under the physical supervision of the officers. Hence the adjudicating authority had erred in relying the statements of the officers given during the cross-examination. 12.9 It is seen from the deposition of the Central Excise Officers that the Superintendent deputed the Inspector to carry out the export formalities in accordance with Rule 187 of the erstwhile Central Excise Rules, 1944. The Superintendent also used to visit and supervise the sealing and countersigned the AR4. The officers at random opened the cartons and verified the contents with AR4/packing list and drawn the samples of goods and the same will be weighed. The officers also supervised loading process and after completing the loading process, the container will be sealed with two seals, i.e. lead and wireseal and one time carton seal. They have also seen the production activities. The verification of export consignment would take time between 1 to 3 hours. The officers also confirmed the signature in the documents. They visited the manufacturing hall, where the export consignmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering evidentiary values of such statement tested in cross-examination. In the present case, Revenue has heavily relied on the statement of Shri P.S. Nathan of Inspecting Agency and documents recovered from their premises of Inspecting Agency. Shri P.S. Nathan during cross-examination clarified the documents and also stated that after going through the entire facts, the expression manipulated or fabricated should not have been used by him. Particularly, Shri Nathan had given the telephone number of M/s. Dart for verification of the contents of the said documents and the contents of the documents like fax message, purchase order, proforma invoice recovered from the premises of Apoorva Agency were not verified with the buyers. It cannot be accepted that in view of the confessional statement all other substantive evidences should be discarded. The goods exported accompanied with Form AR4, packing list, invoice etc. under the supervision of Central Excise officers at the factory of the Assessee and the customs officers at the Tuticorin Port and evidence of realization of sale proceed would be given preference to documentary proof and it cannot be treated as export of bogus consign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asses for removal of imported virgin granules from their premises and prepared invoices for the sister units. Shri Alagendran, Chairman of M/s. Alagendran Exports Ltd. and M/s. Alagendran Polymers Pvt. Ltd. in his statement dated 24.5.2001 had admitted that they have maintained the stock and purchase registers according to the brand name of the imported granules received from the Assessee and payments of difference amounts between the high sea sale amount plus re-sale from the value would be deposited by way of cheque or telephonic transfer into the accounts of trading firms. The fax message dated 15.12.2000 (2 pages) showing calculation of commission reproduced in the Grounds of Appeal, recovered by the Department from the computer of the Assessee, was admitted by Shri Alagendran in his statement. Vide his letter dated 15.6.2002, he reiterated that what he had deposed in his statement was correct and genuine. (b) Shri S.K. Sridhar, Director of Sri Lakosha Polymers Pvt. Ltd. in his statement dated 16.5.2002, had admitted that initially two containers were sold to the Assessee on high sea sale basis and after import, the same granules were resold to him under the bills o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessee claimed that 3555.2 MTs of rejects and 721.8 MTs waste were physically cleared to M/s. Priya Mills. The Table as mentioned in the grounds of appeal would show that the Assessee had affected the sale of rejects to DTA even before the permission from the Assistant Commissioner. It is categorically stated by the Revenue that the actual percentage of clearance of waste, whether the rejects had been cleared in the guise of waste, usage of rejects as waste by the Assessee, for manufacture of reprocessed granules etc should have been examined. 13.1 The Assessee in their reply to show-cause notice, cross-objection filed before the Tribunal and written submission refuted the charges as under:- (i) Revenue seeks to suggest the quantities purchased from M/s. Alagendran had been resold through Priya, Rajalakshmi and Gowsalya Traders. Since materials were made available in bulk by these dealers, as a business venture Priya and Rajalakshmi who in fact reprocessed the rejects and waste of the Assessee agreed to sell reprocessed granules. These dealers were requesting for more quantities. Therefore, it is a case of sheer business coincidence and cannot be assumed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es (c) These parties have sold other raw materials including master batches etc. to the Assessee (d) Therefore, monies due from the Assessee to the third parties are also adjusted from Priya. Therefore, instead of paying Priya who had to later settle it to the Assessee, upon instructions third parties have settled the payment directly to the Assessee and the same commercially possible. (vi) Department has not chose to refer the number of machines available for production during the disputed period. The Assessee had as many as 24 machines and had given sequence order in alphabetical sequence. This has been stated by Murali in his deposition. When the factory was visited on 12.1.2001 the Central Excise officers chose to draw a mahazar. However, for reasons best known, they have chosen not to record the number of machines available and their capacity. The physical stocks of raw material and finished goods were also verified and compared with the statutory register and revenue found no discrepancy and for reasons best known they have not brought out these facts in the mahazar. (vii) Even during the invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven though they are of an inferior grade or variety. It was therefore promised to them that the reprocessed granules would be sold to them by M/s.Priya, M/s. Rajalakshmi etc. Taking into consideration the volume of purchase and the commitment, the traders agreed to source imported granules at their own and as a compensating factor the sister units of the Assessee agreed to supply reprocessed granules. This venture is again absolutely commercial and there is no prohibition in carrying out such an operation under the laws of the country. As a part of business strategy, it was therefore agreed that the waste and rejects would be sold to M/s. Priya or M/s. Rajalakshmi by stuffing the same in the imported outer bags which originally contain the imported granules. After reprocessing, the sister concerns were selling the reprocessed granules again in the same used packing materials, which would save the extra packing cost. In other words, what were sold only reprocessed granules but the packing materials used were original import of virgin granules. Traders were also insisted on this, since they were able to command a better price if reprocessed granules are sold in outer cover bags with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery same security persons would have made entries of incoming vehicles from sister concerns into the Assessees premises and also the clearances of wastes and rejects from the Assessees premises to sister concerns in the outward register. 14. It has been alleged in the show-cause notice that since 1996 the Assessee imported granules 11514.1 MT and this appears to be solid evidence for diversion of 8,142.57 MTs during the period September 1998 to 12.1.2001 involving customs duty of ₹ 16,13,10,303/-. The details of diversion of goods are as under:- Details Qty. in MTs Annx. No. To Sri Lakosha Polymers - On High Sea Sale 225.25 D-1 To Ramya Polymers - On High Sea Sale 606.75 D-2 To Alagendran Group - On High Sea Sale 1834.00 D-3 To Alagendran Group - On Direct Sale 360.75 D-4 To Seven Seas Polymers - On High Sea Sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their statements. 14.2 Shri Alagendran, Chairman of the Alagendran Group Companies had not appeared in the cross-examination before the adjudicating authority. The Assessee disputed the documents recovered from the premises of M/s. Alagendran. It appears from the Table as above that there was allegation of diversion of imported virgin granules to M/s. Seven Seas Polymers (P) Ltd. on high sea sale and direct sale. It is stated by Revenue that such diversion of goods is not only based on statement but also through register, accounts etc. of HSS. We find that Shri Arun Thangam, Director of M/s. Seven Seas Polymers (P) Ltd. made a deposition on 23.9.2003 before the Commissioner of Central Excise, Madurai during cross-examination that he introduced Shri Muralidharan of the Assessee to M/s. Shyam Plastic, consultants who supplied imported plastic granules by way of high sea sales. He was maintaining reconciliation statement of transaction of supplies of Shyam Plastics in his memory pad of computer as he introduced them in his business interest for calculation of commission in his personal capacity in transaction of Shyam Plastic. They have 1200 buyers/dealers in their role. It is sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in cross-examination may create a doubt. In this situation, it may be noted that the Assessee took a definite stand that they cleared waste and reject materials to their sister units, who after due processing cleared reprocessed plastic granules packed in their used bags of imported materials, bearing with different brand names as mentioned in the outward passes. On perusal of the records, it is seen that the investigating officers got the opportunity to verify the contents of the packed materials on several occasions. On 12.1.2001, the investigating officers seized 996 bags of plastic granules of foreign origin as alleged at the premises of M/s. Priya, which was claimed as reprocessed plastic granules by the Assessee and samples were drawn and at the time of hearing before the Tribunal, it was informed that the said samples were not sent to chemical test. Further, the investigating officers detained the plastic granules packed in bags bearing foreign marking from the premises of M/s. Alagendran Polymers (P) Ltd. Chennai vide mahazar dated 19.1.2001, M/s. Alegandran Exports Ltd, Chennai vide mahazar dated 19.1.2001 and M/s. Lakosha Poly Packs Industries, Virdhunagar vide mahaz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntained some loose bags; the seizure was done on the belief that the imported goods were illegally removed from a 100% EOU; the facts regarding origin and ownership of the goods were as stated by Shri David; and representative samples of the seized goods were drawn on 17.1.2001 under test memos. The statements given by Murali and various other functionaries were relied as evidence for the action proposed. The notice also proposed to penalize the Directors of Global and partners of Priya. xxxxx xxxxxxx xxxxx xxx In this connection, I would like to observe that even as per the version of officers who effected seizure of the impugned goods that they were made aware of the foreign origin of the granules only by the foreign markings on the bags in which the granules were packed. Thus, the officers were not sure as to whether the contents were of foreign origin or not. Secondly, the offending nature of the goods was as told and admitted by one Shri David who was a security. To my mind, nay, even to a person of reasonable disposition, evidence of such incriminating nature cannot be vouched by a security staff. Thirdly, neither Shri Muralidharan nor any other staff admitted to the of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of India - 2009 (223) ELT 157 (SC). In both the cases, there is no observation that cross-examination is not permissible. It was strongly relied upon the decision of the Honble Supreme Court in the case of Commissioner of Customs, Madras Vs. D. Bhoormul - 1983 (13) ELT 1546 (SC). In that case, the issue involved is that the effect of application of Section 106 of Evidence Act to cases under Section 167(8) of the Sea Customs Act which relates to discharge of burden of proof. We have already stated that after considering the evidences, in the present case, the investigating officers had failed to establish the alleged clandestine removal of plastic granules, by adducing sufficient and cogent evidences. In view of the decision of the Honble Kerala High Court in the case of P.V. Vargheese (supra), the third party statement should be tested in cross-examination and as such we are unable to accept the contention of Revenue that the adjudicating authority should not allow the cross-examination. Apart from that, the purpose of cross-examination is to find out the truth and detection of falsehood in human testimony. It is well settled that the adverse party have a right to cross-exami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 2001, which are on record, show the use of these inputs in the final products manufactured by the assessee. The receipt of these inputs in the factory premises of the assessee having been established, coupled with the fact that, as per the declarations and returns and other statutory record, the inputs were in fact used in the final products by the assessee, the lethargy of the Revenue Officers in not verifying the relevant statutory records and invoices, as to what exact quantity of raw material was used in the final products, and that in how many final products such inputs could have been used, existence of the particulars in the RG-23 Register reflecting the invoices and the existence of octroi receipts as also the expert opinion in respect of LAB having been used in the final product, altogether create a doubt as to the correctness of the contents of the statements of Naresh, Hitesh and Ilesh. The pre-ponderance of probabilities in the context of all other evidence vis-a-vis the confessional statements does not lead to the conclusion of inadmissibility of Modvat/Cenvat credit as reached by the Commissioner. 14.10 In the present appeal, the main thrust of the Revenue is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir onus and the preponderance of probability, would be applicable on both sides. The learned Counsel submitted that the Revenue proceeded on the basis of corroborative evidence and supporting evidence gathered during the investigation. The learned Senior Advocate heavily relied on substantive evidences of the statements of the Central Excise officers before the Adjudicating authority along with cross-examination of various persons amongst other materials, to contradict the corroborating evidences placed by the Revenue, which would be more reliable than the corroborative evidence of the third party statements and documents recovered from their premises. Revenue contended that the Department had a strong and meritorious case had the adjudicating authority chose to apply the standard proof of preponderance of probability, which the adjudicating authority failed to do so. Revenue relied on the decision of the Hon ble Madras High Court in the case of Santhanam Vs. Collector of Customs, Madurai - 1995 (79) ELT 564 (Mad.) and the decision of the Hon ble Supreme Court in the case of Collector of Customs, Madras Others Vs. D. Bhoormull - 1983 (13) ELT 1546 (SC). In the case of Santhanam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nior Advocate relied upon the following case laws:- (a) LML Ltd. Vs. Collector of Central Excise - 1991 (51) ELT 434 (b) Balkrishnan Industries Vs. Commissioner of Central Excise, Aurangabad - 2001 (135) ELT 368 (c) Leather Chemicals Industries Ltd. Calcutta Vs. Collector of Central Excise, Calcutta - 1984 (15) ELT 451 (d) Reliance Industries Ltd. Vs. Collector of Central Excise, Mumbai - 1999 (112) ELT 653 (e) A. Rathinam Proprietor, Michael Match Works Vs. Collector of Central Excise - 1992 (60) ELT 451 (f) Kale Khan Mohd. Hanif Vs. Collector of Central Excise, Nagpur - 2001 (132) ELT 374 In all these cases, the Tribunal had observed that the Central Excise officers visited the factory of the Assessee as it was in physical control by the Department. So, it cannot be concluded that there has been deliberate suppression of facts with intent to evade payment of duty. In the present case, after considering the deposition of the Central Excise officers, as stated above, that the Departmental officers were in a position to have sufficient k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange for master batches sold, other corroborating documents, etc. which have to be tested on the touch stone of admissibility as evidence by in-depth inquiry, including by way of cross-examination. This could be achieved only at a regular, adjudication forum, and not at the Settlement Commission, whose wherewithal is very limited. As a result, the Bench is not persuaded to accept the liability of ₹ 71,63,397.27 as full and true liability of the main applicant-company, for admission of this application. This is, as already stated above, without any prejudice to the legal validity and the correctness of the pleas raised by the applicant against the allegations in the SCN and their plea that the notice has not adduced adequate and acceptable evidence in support of the said allegations, on all of which the Bench refrains from any view. In view of the above, we are unable to accept the contention of the Revenue that the adjudicating authority had not considered the observation of the Settlement Commission. In other words, the adjudicating authority tested the case on the touch stone of admissibility as evidence by in-depth inquiry, including by way of cross-examination as obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is a non-speaking order. 17.2 On perusal of the records, we find that the Assessee in their reply to show-cause notice and written submission before the Tribunal attempted to refute the charges by para-wise comments. The adjudicating authority had also considered the depositions made during cross-examination. The decision of the Hon ble Supreme Court in the case of Vinod Solanki (supra) though relied upon by the Revenue, would help the Assessee. In that case, the Hon ble Supreme Court observed as under:- In the instant case, the Investigating Officers did not examine themselves. The authorities under the Act as also the Tribunal did not arrive at a finding upon application of their mind to the retraction and rejected the same upon assigning cogent and valid reasons therefor. Whereas mere retraction of a confession may not be sufficient to make the confessional statement irrelevant for the purpose of a proceeding in a criminal case or a quasi criminal case but there cannot be any doubt whatsoever that the court is obligated to take into consideration the pros and cons of both the confession and retraction made by the accused. It is one thing to say that a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosed in the show-cause notice and even in the appeal before the Tribunal, and such burden cannot be shifted on the Assessee. In this context, it must be noted that there may be error of appreciation of facts and law by the adjudicating authority, which would be cured by the appellate forum as per our legal system and therefore such expression towards the Adjudicating authority who passed the adjudication order in exercise of quasi-judicial power is not proper. The Tribunal in the case of Indian Petrochemicals Ltd. Vs. Collector of Central Excise - 1992 (61) ELT 138 (T) observed as under:- In the face of the officials having physical control and the records being checked and scrutinised every day and in that event to hold that there is a calculated fraud with connivance of the officials of the Department does not behold to the status of the learned Collector. It is now well settled that the adjudicating officers or Appellate Court should use temperate language and as held in the case of Iswari Prasad Misra v. Mohammad Isa as reported in AIR 1963 S.C. 1728 and it has also been held that use of unduly strong words in expressing conclusions or adopting of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority issuing the charge-sheet, cannot, instead of telling him the charges, confront him with definite conclusions of his alleged guilt. xxxx xxxx xxxxx xxxxx xxxx xxxxx 33. The principle that justice must not only be done but it must eminently appear to be done as well is equally applicable to quasi judicial proceeding if such a proceeding has to inspire confidence in the mind of those who are subject to it. There is no doubt that the Revenue would defend the allegations made in the show cause. On the other hand, the exercise of quasi-judicial power of the adjudicating authority must not be arbitrary and vague, but legal and regular. It is important, in this context, the adjudicating authority entrusted to exercise quasi-judicial power in a rational and reasonable manner and not merely to defend the allegation of show-cause notice as held by the Hon ble Supreme Court in the above case. 19. The Assessee filed cross-objection aggrieved with the impugned order insofar as the adjudicating authority overruled the preliminary objection of the Assessee on validity of Show Cause Notice dated 26/3/2002 issued by the Superintendent of Central Excise (SPAC) p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch has not been levied or has been short-levied or erroneously refunded or the interest payable has not been paid, part paid or erroneously refunded is one crore rupees or less, a notice under this sub-section shall be served by the Commissioner of Customs or with his prior approval by any officer subordinate to him : Provided also that where the amount of duty which has not been levied or has been short-levied or erroneously refunded or the interest payable thereon has not been paid, part paid or erroneously refunded is more than one crore rupees, no notice under this sub-section shall be served except with the prior approval of the Chief Commissioner of Customs. 19.2 During the course of hearing before the Tribunal, the learned Special Counsel on behalf of Revenue placed a compilation of the Statutory Provisions for Issue of Show Cause Notice- Finance Act, 2000 - Commissioner Order dated 20.7.2011 , as under:- (a) By letter C.No. IV/16/4/2000-Adjn. dated 27.6.2000, the Commissioner of Customs and Central Excise, Madurai addressed to the Assistant/Deputy Commissioner of Central Excise, in-charge of Divisions issued instruction in respect of issue of SCN under the amended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter C.No. V/39/15/6/MDU/2002-CZO dt. 08.03.2002 issued by the Additional Commissioner (CCO), O/o the Chief Commissioner of Central Excise, Chennai. The relevant portion of the said letter is reproduced below:- The Chief Commissioner, after careful consideration of the proposal and after satisfying that there exist a prima facie case for issue of show-cause notice to M/s. Global Poly Bags Industries (P) Ltd. Virudhunagar, accorded necessary approval for the same under third proviso to Section 11A(1) of the Central Excise Act, 1944. 19.4 In addition to that, the learned Special Counsel placed affidavit dated 18.7.2014 of the Chief Commissioner of Customs (Preventive), Trichy confirming the fact that the Chief Commissioner of Central Excise, Chennai, after careful consideration of the proposals and satisfying himself that there existed a prima facie case for issue of notice to M/s. Global Polybags Industries P. Ltd and accorded his approval for issue of notice and the same was communicated vide C. No. V/39/15/6/MDU/2002-CZO dated 8.3.2002. The affidavit of the Chief Commissioner is only to confirm the letter dated 8.3.2002 of the Additional Commissioner of Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the notice could not be issued. The notices were thus invalid. (e) Relied on in the case of Gujarat State Fertilizer Vs Union of India 1988 (34) ELT 442 (Guj.) wherein the High Court was pleased to hold that show cause notice under the extended period of limitation can be issued only by the Jurisdictional Commissioner and not by the Superintendent of Central Excise. (f) The Larger Bench of the Tribunal in the case of H.Guru Instruments Vs Collector of Central Excise - 1989 (40) ELT 180 (T) following the Gujarat High Court decision held that show cause notices issued by any officer other than the Commissioner would be illegal and the proceedings untenable. He also relied on the Larger Bench, in the case of LML Ltd. Vs Collector of Central Excise - 1991 (51) ELT 434 (T). 21. On a plain reading of 3rd proviso to Section 28(1) of the Customs Act, 1962, as it stood during the relevant time, we find that it is mandatory that where the amount of demand of duty is more than Rs. One crore, no notice under this sub-section shall be served except with the prior approval of the Chief Commissioner of Customs. In the present case the demand of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired to be examined. We find that show-cause notice was issued on 20.6.2002. The Assessee was allowed to cross-examine various persons in the year 2003. It is seen that the assessee cross-examined various persons and also filed reply to show-cause notice and attended personal hearing before the adjudicating authority. They have contested the show-cause notice on merit and the preliminary issue as stated above. The adjudicating authority dropped the Show Cause Notices on merit. Taking into account of the overall facts and circumstances of this peculiar case, in our considered view, the show-cause notice cannot be dropped only on the jurisdiction point, when the assessee contested the demand on merit as well as availed the opportunity of cross-examination of various persons as prayed for. We make it clear that this order would not become a precedent that the Show Cause Notice issued beyond jurisdiction, would be held valid by the appellate authorities. 22. Regarding the demand of Central Excise duty, it has further been alleged that the Assessee cleared carry bags sold to DTA without accounting and payment of central excise duty of ₹ 4,61,692/- and it is based on out-passes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gation and achieving net positive foreign exchange earning. We find that on this very issue, the Tribunal in the case of Vishal Footwear Ltd. v. CC, New Delhi reported in 1999(114) E.L.T. 60, relying upon the Board s circular No. 29/95-Cus dated 10-3-95 has held that it is only when the Board of Approval or Development Commissioner arrives at a find that the EOU has failed to fulfil export obligation that duty demand can be confirmed by the customs authorities and when no such conclusion has been arrived at by the Development Commissioner, the Customs Commissioners order confirming the duty demand on the capital goods is not sustainable. The Board s circular No. 29/95-Cus., which has been relied upon in this order is reproduced below:- Issue of show cause notice for recovery of customs duty on goods imported by 100% EOU : A number of instances have come to the notice of the Board where 100% EOUs had imported capital goods, raw materials and other permissible items under Notification No. 13/81-Cus/ dated 9-2-81 but have failed to export any goods or have closed down after exporting a few consignments. A question has been raised as to the stage at which the customs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e export obligation and achieving the NFEP. The appeals are disposed of in the above terms 24. In view of the above discussions, the appeal filed by the Revenue against the Assessee under the Customs Act to confirm the demand of customs duty along with interest and penalty on 8142.57 MTs of imported Plastic Granules, we hold that, out of which the quantity used in the manufacture and export of 6662.36 MT is not sustainable, as rightly dropped by the adjudicating authority and the demand of duty on the differential quantity, cleared as Waste and Rejects as claimed by the Assessee, would be adjudicated by the Commissioner after ascertaining the finding of the Development Commissioner / Board of Approval as per EXIM Policy and the impugned order is modified accordingly. The appeals filed by the Revenue against the Assessee under the Customs Act are disposed of in the above terms. The other appeals filed by the Revenue are rejected. The appeals filed by the Assessee are disposed of with the observation as above. The Miscellaneous Application and the Cross-Objection filed by the Revenue and the Assessee are also disposed of. (Pronounced in open court on 28.10.2014) - - TaxTMI ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
