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2015 (9) TMI 1151 - DELHI HIGH COURT

2015 (9) TMI 1151 - DELHI HIGH COURT - 2016 (332) E.L.T. 416 (Del.) - Clandestine manufacture and removal of goods - Confiscation of goods - Whether the decision of the Customs, Excise and Service Tax Appellate Tribunal upholding demand of ₹ 58,54,825/- and confiscation of 24 air-conditioners along with duty and penalty demand of ₹ 3,16,800/- is perverse and contrary to the facts on record - Held that:- There is no attempt made by the Department to substantiate the allegation of manu .....

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r a fresh consideration by the CESTAT. In the first place, it must be remembered that the search operation in this case took place way back in 1992. The long drawn process of adjudication over a period of 12 years was followed by the judicial review process for another 10 years. Sending the case back to the CESTAT for a fresh determination would prolong the case interminably. The question of now producing persons whose statements were recorded 23 years after the event for cross-examination is im .....

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in favour of the Assessee and against the Revenue. - impugned majority order of the CESTAT as regards the issue of the clandestine removal of 24 ACs with the corresponding duty demand of ₹ 3,16,800 is hereby affirmed. - Decided partly in favour of assessee. - CEAC 6/2013 - Dated:- 17-9-2015 - S. Muralidhar And Vibhu Bakhru, JJ. For the Petitioner : Mr C. Hari Shanker, Senior Advocate with Mr Rajesh Mahna and Mr Ruchir Bhatia, Advocates For the Respondent : Mr Satish Kumar, Senior Standing .....

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d of ₹ 58,54,825/- and confiscation of 24 air-conditioners along with duty and penalty demand of ₹ 3,16,800/- is perverse and contrary to the facts on record? Background facts 3. The Appellant, a proprietory concern of which Mrs. Neera Khanna is the sole Proprietrix, was engaged in the manufacturing of air-conditioners. The Appellant is also stated to be engaged in the trading of compressors, water coolers, transformers etc. It was a small scale unit and registered as such with the C .....

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Department visited the residence of Mr. Pradeep Khanna, the husband of Mrs. Neera Khanna. He was the Proprietor of M/s Thermoking. The officers seized 24 ACs from the residence of Mr. Khanna. 6. According to the Appellant, immediately thereafter she appeared before the officers of the Department, produced the RG-1 Register and claimed that 36 ACs were duly accounted for therein. The Appellant states that on that very date the 36 ACs, 4 fan motors and 24 ACs seized were released provisionally on .....

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on the Appellant to show cause why: (a) 36 ACs valued at ₹ 7,92,000/-, 4 deep freezers valued at ₹ 41,500/- and four fan motors valued at ₹ 1,600/- seized from their factory premises should not be confiscated under the provisions of Rule 173Q and 226 of Central Excise Rules, 1944 (CE Rules). (b) Central excise duty amounting to ₹ 3,16,800/- on 24 ACs cleared by them on 27th February 1992 without payment of central excise duty should not be demanded and recovered from the .....

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in para 13 of the SCN should not be recovered and benefit of concessional rate of duty under Central Excise Notification No.75/87 dated 1st March 1987 as amended should not be denied. (e) Penalty should not be imposed on them under Rule 9 (2), 173Q and 226 of the CE Rules. 8. It was, inter alia, stated in para 17 of the SCN that 3 ACs had been found installed in the houses of various persons, the details of which were listed out in sub-paras (i) to (xx). Further in para 18, it was stated as unde .....

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xtra payments were reflected in the ledgers without corresponding bills. (iv) From point No.i, vii, viii, xi, xiv, xv, xiv, xx, it appears that they had been raising invoices but no corresponding excise gate passes were issued. (v) Point No. viii reveals that they even issued bills in triplicate sets bearing the same serial number. 9. The show cause notice also alleged that although the Appellant had supplied and installed ACs, in some instances, the invoices showed the sale of compressors. The .....

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(OEM) to enable them to use the said compressors to manufacture ACs. Reference was also made to statement of one Mr. Pradeep Bhargava who stated that he had joined M/s Thermoking in July, 1998 and had been looking after its accounts, excise, banking and other matters and had been reporting both to Mr Pradeep Khanna as well as Mrs Neera Khanna. Inter alia, a reference was also made to the statement recorded of Mr Shiv Prasad, Manager (Marketing) of KBL on 4th June, 1992 regarding supply of compre .....

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ies been referred to level allegations contained in para 18. In this regard, it is submitted that all these enquiries are misleading. This will be proven by us when each of the persons cited in para 17 is allowed to be cross-examined by us. Explanation against each sub-para under para 17 shall be submitted only after the cross-examination is over. We could have attempted to give explanations for each of sub-paras but let the true fact first emerge during the cross-examination. Therefore, we rese .....

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SU records showing that this house had not been allotted to anyone after 4.10.91. 12. The Appellant also asked for cross-examination of certain others including the officers of the Department including Mr. Subba Rao of SRR. A specific request to cross-examine Mr. Pradeep Bhargava was made in the subsequent reply dated 3rd February, 2002. 13. In the reply dated 3rd February 2002, the Appellant inter alia pointed out that apart from manufacturing ACs, washing machines and geysers, it was also trad .....

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he Appellant was allowed to retain the Central Excise registration for ACs and for other items which were exempt from payment of duty under Notification No. 175/87. The Appellant maintained separate 'simplified registers' for such items and those registers were pre-authenticated by the officers of the Department. The Appellant offered to produce such registers at the time of hearing. It was submitted that the figures appearing in the ledger for the year 1988-89 and 1989-90 accounted for .....

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s nothing on record to show if the statement of any worker or supervisor or any document recovered from the premises of the proprietor which could show clandestine clearance of 606 ACs as alleged in the SCN. Neither the raw material for manufacture of such a huge quantity was established by the Department nor any statement recorded of any worker or supervisor to confirm the monthly sale of such a large number of ACs for the years 1988-89 and 1989-90. It was further pointed out that as per the SC .....

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geysers, water coolers, washing machines and ACs. It was asserted that the figures mentioned were duly supported by the detailed statements prepared for each year showing reference of bill number, the person to whom goods sold, ledger folio number including the amount charged and also appearing in the ledger. The statements prepared and enclosed were said to completely tallying with the details of bills indicated in the ledger thus explaining the nexus between the entries and figures with the g .....

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sad, Manager (Marketing) of KBL and of Mr. K.V. Subba Rao, Deputy Manager (Marketing) of SRR did not establish that the compressors purchased by the Appellant had not been sold by it. It is pointed out that as far as Mr. Pradeep Bhargava was concerned, by his letter dated 2nd May 2002, he had retracted the statement earlier made by him. It was stated that Mr. Bhargava had been removed from service as he was caught for stealing ₹ 50,000 and for which an FIR was also registered in 1989. Ther .....

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Jass Kann and M/s. Thermoking and thereby denying the benefit of Notification No. 85/87. Adjudication order 18. The Commissioner of Central Excise ( CCE ) passed the adjudication order on 4th January 2014. According to the CCE, it transpired during investigation that the Appellant was not eligible for exemption under Notification No. 75/87 CE dated 1st March 1987 on the ACs as the aggregated value of clearances of all excisable goods from Thermoking, Jass Kann and Thermotech had exceeded the la .....

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es but no corresponding excise GPs were issued and the Appellant even issued bills in triplicate sets bearing the same serial number. Reference was made to the statements of Mr. Shiv Prasad of KBL, Mr. Subba Rao of SRR and Mr. Pradeep Bhargava. 20. The CEE concluded that the Appellant had contravened the provisions of Rules 9(1), 52A, 53, 173B, 173F, 173G and 226 in as much as it did not record the correct production of ACs in the excise records and cleared the same without payment of excise dut .....

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in the statutory records. The said records were not produced before the officers till they completed their operation i.e. upto 2000 hrs. on 28th February 1992. (iii) As regards the seized deep freezers, the statement that they were manufactured in the basement of the Appellant by M/s. Thermoking after informing the Central Excise Officer was factually incorrect and legally untenable. The 36 ACs and 4 deep freezers and 4 fan motors were, therefore, liable for confiscation. (iv) As regards the 24 .....

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he Appellant or M/s. Thermoking. Therefore, the contention that the ACs were manufactured on behalf of M/s. Thermoking was held not to be convincing. (v) As regards the clubbing of the Appellant with M/s. Jass Kann and M/s. Thermotech, the CCE held that since Ms. Neera Khanna was proprietor of the said two concerns there could not be any dispute about clubbing of the clearance of the excisable goods from the said two units. Therefore, the value of the goods cleared by the Appellant had been club .....

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v. C.C. Calcutta 1983 ELT 1486 (SC) to hold that there was no provision in the Central Excise law for providing opportunity to cross-examine a witness. It was held that if the Appellant s request for cross-examination of a large number of persons was granted it would have taken the case to an unending process. According to CCE, the Appellant had by its letter dated 3rd February 2002 shortlisted the number of persons and named specific witnesses for the cross-examination. It was held that under .....

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an independent case has been made out against Thermoking, which undoubtedly is not solely on Shri P. Bhargava s statement simply because it was retracted when the facts stated therein are corroborated by other evidence. 23. The statements of the representatives of KBL and SRR made it evident that the Appellant was registered with them as OEM and was not permitted to trade in compressor as that could have been against the overall marketing and distribution arrangement which could have adversely .....

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names/surnames of the persons whose very existence is, ex facie, doubtful. Hence, I am not inclined to give any credence to them or the arguments advanced on the basis of same. As regards the 606 ACs, the Appellant had not given any detail i.e. GPs, name of the parties and corresponding details as per the ledger to verify and adjudge its veracity. It could, therefore, be inferred that the entries in the ledger were not in respect of the ACs cleared over and above the ones in the statutory docume .....

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it was held that the case of the Department regarding clearance of the 36 ACs without payment of duty stood established and the duty demand was confirmed. The Appellant was held liable to pay ₹ 77,95,808 for contravening the statutory provisions as well as for penalty. Two dissenting opinions of the Members of CESTAT 26. In the appeal filed by the Appellant before the CESTAT there was a difference of opinion between Ms. Archana Wadhwa, Member (Judicial) and Mr. Rakesh Kumar, Member (Techni .....

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ppellant s factory. The mere fact of non-obtaining of a permission could not lead to a conclusion that the goods traded in the market were not compressors but the ACs which were manufactured and clandestinely removed by the Appellant. (ii) The list of buyers provided by the Appellants could not have been rejected merely because the details of the buyers addresses were not given or that the bills were in the names and surnames of persons. (iii) There was no evidence on record to establish that th .....

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dissenting opinion, Mr. Rakesh Kumar, Member (Technical) held as under: (i) Although Mr. Pradeep Khanna on 8th March 1992 retracted his statement made on 28th February 1992 in which he had claimed that 24 ACs had been manufactured by Thermoking through a contractor out of the compressors purchased from SRR and KBL, no evidence had been produced to show that his statement had been obtained under threat, coercion or inducement. Therefore, it could not be presumed that Mr. Khanna's statement w .....

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t traded the compressors received from both of them and this in turn pointed out the fact that they had been illicitly diverted by M/s. Thermoking to the Appellant who manufactured ACs and cleared them clandestinely. (iv) On two aspects, therefore, i.e. confiscation of 24 ACs and corresponding duty demand of ₹ 3,16,800 and the clearance of 606 ACs with the corresponding duty demand of ₹ 58,44,825, Mr. Rakesh Kumar, Member (Technical) differed with the Member (Judicial) and confirmed .....

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le. 30. The two issues on which there was a difference of opinion was, therefore, (i) regarding clandestine removal of 24 ACs with the duty demand of ₹ 3,16,800 and (ii) the duty demand of ₹ 58,44,825 for the clandestine clearance of 606 ACs. It was on the above two aspects that reference was made to the third Member. 31. At this stage it requires to be noticed that in the SCN as part of the charge concerning the clandestine removal of 606 ACs, the Department had also clubbed another .....

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Mathew John. In his order dated 15th November 2002 Mr. John agreed with Mr. Rakesh Kumar, Member (Technical) and disagreed with Ms. Wadhwa, Member (Judicial). 33. The resultant position was that by a majority of 2:1, two issues were decided against the Appellant viz., the clandestine removal of 606 ACs with a corresponding duty demand of ₹ 58,44,825 and the clandestine removal of 24 ACs with a corresponding duty demand of ₹ 3,16,800. Preliminary objection as to maintainability 34. At .....

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n to the rate of duty of excise. He accordingly submitted that the present appeal also had to be dismissed likewise. He also relied on an order dated 28th January 2015 passed by this Court in CEAC No. 106/2014 (Commissioner of Central Excise v. Vijay Kumar Arora). 35. The Court finds that the two issues that arise for determination in the present appeal do not touch upon the aspect of any grant of exemption having a bearing on the rate of duty or value of goods. Moreover when the appeal was admi .....

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ion framed by the Court concerning the alleged clandestine clearance of 606 ACs with the corresponding duty demand of ₹ 58,44,825. He stated that the Appellant was not pressing the appeal as regards the clandestine removal of 24 ACs and the corresponding duty demand. 37. Consequently, while affirming the impugned order of the CCE as regards the duty demand of ₹ 3,16,800 corresponding to the clandestine removal of 24 ACs, the Court proceeds to examine the appeal only as regards the is .....

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ith the Court in overturning the impugned order of the CCE rendered by a majority of 2:1 on the issue of the alleged clandestine removal of 606 ACs by the Appellant without payment of duty, are set out hereafter. 40. The main pieces of evidence relied upon by the Excise Department to support the demand of excise duty in respect of the alleged clandestine removal of the 606 ACs are as under: (a) The statements made by some of the persons to whom the compressors were sold as listed out in para 17 .....

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rejected by the CCE on the ground that it would undoubtedly delay the adjudicating process and on an incorrect understanding that it was not the requirement of the law. A reference was also made to Rule 9D of the CE Act. 42. It is settled law that the denial of an opportunity of cross-examination of a witness whose statements have been relied upon in the adjudication order would vitiate the order of adjudication. In Basudev Garg v. Commissioner of Customs 2013 (294) ELT 353 (Del), this Court re .....

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f the way by adverse party or whose presence cannot be obtained without an amount of delay or expense which, under the circumstances, the Court considers unreasonable. It was held by the Court in Basudev Garg (supra) that it is clear that unless such circumstances exist the noticee would have a right to cross-examine the person whose statements are being relied upon even in quasi judicial proceedings. 43. In the present case, the Court finds that despite a specific request made by the Appellant .....

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he above fact the CCE in the order-in-original dated 14th January 2004 observed that hence no purpose was going to be served by sending a fresh summons to him. 44. To say the least, this was the most perfunctory way of dealing with the request, particularly since the statements made by Mr. Pradeep Bhargava, a former employee of M/s. Thermoking, to the effect that 1022 compressors had been diverted by M/s. Thermoking to the Appellant, formed one of the strong pieces of evidence with the Departmen .....

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d in para 36 that if the request made by the Appellant in the letter dated 31st January 1985 for cross-examination of such a large number of persons was granted it would have take the case to a non-ending process. This cannot be a justified reason within the meaning of Section 9D of the Act to deny that opportunity to the Appellant. Further the CCE proceeds to observe that in their reply dated 3rd February 2002 the Appellant had somehow shortened the list of persons it wanted to cross-examine. T .....

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e effect that when a statement is used against an Assessee an opportunity of cross-examining the persons who made those statements ought to be given to the Assessee. 47. In GTC Industries Limited v. Collector of Central Excise, New Delhi 1997 (94) ELT 9 (SC), the Supreme Court has frowned upon the practice of the adjudicating authority looking into allegations contained in another SCN to return a finding against the Assessee. In the present case, the CCE has opined that Mr. Pradeep Bhargava s st .....

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e Assessee in the replies to the SCN. The Court s attention has also been drawn to the detailed submissions made by the Assessee in writing on 28th December 2003 before the CCE. On the aspect of clandestine removal of 606 ACs, in para 19-B(iii) of the submissions, the Appellant offered the following explanation: "The sale figures in respect of compressors for the year 1988-89 is ₹ 14,81,300/- and towards other goods ₹ 23,25,256/-. For the year 1988-89 the total sale value comes .....

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377; 38,06,556/- divided by 356 and this brings the figure on an average to be Rs .10,692/- per air conditioner, as per the show cause notice. 49. Likewise a detailed explanation was offered by the Appellant for each of the sales figures in the ledger accounts. These were not discussed in any of the above orders except that of the Member (Judicial). The non-consideration of the Appellant s plausible explanation also seriously vitiates the said orders. 50. The Court also finds that no attempt has .....

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nt. It was pointed out that in the factory where the turnover was considerable and the operations conducted involved a human element in a significant way it would not be right to base the conclusions only on surmises. 51. In Commissioner of Central Excise v. Shakti Zarda Factory (I) Ltd. 2015 (321) ELT 438 (Del), this Court declined to frame a question of law in a reference made to it from an order of a Tribunal on the issue of clandestine removal. In that case it was found that the CCE had reli .....

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16th August 2004. 52. In Commissioner of C. Ex., Customs and Service Tax v. Vishwa Traders P. Ltd 2013 (287) ELT 243 (Guj.), the High Court dealt with the case of an alleged clandestine removal. The Court again insisted that there should be tenable evidence to show that there was large scale manufacture of the commodity in order to substantiate the allegation of clandestine removal. The Court in para 7 referred to the findings of the Tribunal in the said case as under: 7. The Tribunal in Paragr .....

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s as under:- 12. Be that as it may be, it is to be noted that there is no dispute that to manufacture of said final product 'Frit' requires the use of Quartz, Feldspar, Zinc, Borax Power, Calcium and Dolomite as inputs/raw material. On the date of visit of the officers to the factory premises of the appellant, it is undisputed that the stock of raw materials as well as finished goods was tallying with recorded balances. This conclusion can be reached from perusal of records, as there is .....

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there is any statement of the suppliers of other raw materials, which would indicate that the appellant had received unaccounted raw material from the suppliers of these raw materials. There is a solitary evidence in the form of statement of supplier of one of the raw material i.e. Borax Powder, who indicated that the appellant had procured Borax Powder and not accounted the same in his record; and the said entries and information were deduced from the documents of the premises of Shri Anil jad .....

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stigation has not proceeded further to bring on record unaccounted purchases of all the raw materials required for manufacturing of 'Frit'. 16. In the absence of any tangible evidence which would indicate that there was clandestine manufacture and clearance of the goods from the factory premises of M/s. VTPL, in the peculiar facts and circumstances of this case, we hold that the impugned order which confirms the demand on the appellant M/s. VTPL and imposes penalty on them is not sustain .....

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at there was nothing to bank upon except the bare confessional statements of the proprietor and of some of the persons connected with the manufacturing activities and such statements were retracted within no time of their recording. The Tribunal also noted the fact that the requisite opportunity of cross examination was also not made available so as to bring to the fore the true picture and therefore, it concluded against the Revenue observing that not permitting the cross examination of a perso .....

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of the CESTAT in Arya Fibres Pvt. Ltd. v. CCE, Ahmedabad-II 2014 (311) ELT 529 (Tri.-Ahmd.) where the entire law concerning clandestine removal has been discussed and the legal position has been summarised as under: (i) There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions; (ii) Evidence in support thereof should be of: (a) raw materials, in excess of that contained as per the statutory records; (b)instances of actual rem .....

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atements of buyers with some details of illicit manufacture and clearance; (h) proof of actual transportation of goods, cleared without payment of duty; (i) links between the documents recovered during the search and activities being carried on in the factory of production; etc. 56. In the present case, there is no attempt made by the Department to substantiate the allegation of manufacture of as many as 606 ACs by the Appellant. No evidence has been produced to show that the basic raw materials .....

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