TMI Blog2015 (10) TMI 2142X X X X Extracts X X X X X X X X Extracts X X X X ..... lped in arriving the correct and true factual position. No enquiries have been made with the buyers of welding electrodes of the three marketing companies. If enquiries were made at least with some buyers and it was found that the buyers have received the goods carrying the brand name of appellant No.1 alone, perhaps the case of the Revenue would have been on much stronger footing. - In the absence of these details, it cannot be concluded with certainty that all the goods that have been sold by the marketing companies were manufactured by appellant No.1 and appellant No.1 alone and were representing their unaccounted production. In the absence of details of procurement of these two critical inputs (wire rods and rutile) and input-output correlation as also the factors mentioned earlier, we are of the view that the Revenue has not discharged burden of proving the quantum of clandestine production and clearance of the final product. We may hasten to say here though we are of the view that there are pointers to indicate that the appellants have indeed indulged in the clandestine clearance of the goods without payment of duty, however, it is equally important to have a reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sanjhi Foodco and Ayush Enterprises. We find that no attempt has been made to find out which of these consignments of Rhodonite were sold to appellant No.1. Neither Shri T.K. Rajgopal has been asked these details. All that Shri Rajgopal stated that he sold about 400 MT of rutile to Shri Poonamchand Malu. We also note that Shri Poonamchand Malu in his statement has denied this part of the statement of Shri T.K. Rajgopal and he has stated that he has purchased few consignments through broker alone. Thus there is a vast difference between what is admitted purchase of rutile from Rhodonite as claimed by Shri Sanjay Malu or Shri Poonamchand Malu As far as the show cause notice dated 21.11.2003 is concerned, we set aside the demands covered by annexure-I, annexure-IV and annexure-V. The demands raised in annexure-II and annexure-III are upheld. Coming to the penalty amount, the penalty imposed under Section 11AC of the Central Excised Act, 1944 read with Rule 25 of the Central Excise Rules, 2002 is reduced to the duty amount covered by annexure-II and III - there is no evidence that the unit would have crossed SSI exemption limit, we reduce the fine in lieu of confiscation to ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant No.1 was not showing the entire production of welding electrodes in their books of account and other statutory records thereby evading payment of duty. It is the case of the Revenue that the wire rods being manufactured by appellant No.2 were being used by appellant No.1 for unaccounted production of welding electrodes. It also the case of the Revenue that for some period when appellant No.2 was manufacturing flux, almost the entire production of the flux was being used by appellant No.1 for unaccounted production. It is also the case of the Revenue that for selling the unaccounted production of welding electrodes, appellant No.1 was using the three marketing firms viz. appellant No.6, 7 8. Further, for the unaccounted production, raw materials and inputs were being purchased in the name of fictitious firms and payments for the same were being made in cash. 1.3 Appellant No.5 was the Manager and was looking after the production, marketing etc. of appellant No.1 and it is also claimed by him that he was also looking after the day-to-day working of appellant Nos. 6, 7 8. Appellant Nos. 6 7 are the proprietorship firms of appellant No.10 who is also one of the family m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the production is being recorded in the books and the remaining goods manufactured are cleared without paying any central excise duty or making invoices. It was also stated by Shri Savarkar that appellant No.1 is receiving wire rods from appellant No.2, N.R. Wires and D.M. Engineers, Bhilai, and rutile was received from Indian Rare Earth Ltd., Tamil Nadu and Orissa and other minerals from various companies. Shri Savarkar also stated that they are receiving the wire rods from appellant No.2 without cover of any documents. Similarly, rutile is being received from some other companies but the same is not being recorded in the books of account. Statement of appellant No.5 was also recorded on 21.8.2002 wherein he stated that he is the authorized signatory for central excise purposes and that they are manufacturing 200 cases of welding electrodes per day but showing only 60 to 70 cases per day in their books of account. He also stated in the statement that the raw materials are procured either without bill or in the name of another company for unaccounted production. Appellant No.5 also explained certain documents recovered from the factory which indicated that certain goods are rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details given by appellant No.3 and appellant No.5. Investigations were also taken up regarding procurement of raw material. During search on 20.8.2002, certain raw materials were found in excess in appellant No.1s unit. Similarly, the manufacturing unit of appellant No.2 was also searched. However, in the manufacturing unit of appellant No.2, records were not updated but it was found that appellant No.2 has procured wire rods in the name of Malvi Wires Pvt. Ltd., Nagpur from D.M. Engineering Ltd., Bhilai and it was observed that even though the said invoices were in the name of Malvi Wires Pvt. Ltd., Nagpur, the goods have actually come to appellant No.2. Appellant No.5 in his statement dated 21.11.2002 also stated that wire rods are received by appellant No.2 in the name of third parties and the same are thereafter sold to appellant No.1. Enquiries with D.M. Engineering Ltd., Bhilai, indicated that MS wires sold to Malvi Wires Pvt. Ltd., Nagpur, are without any cenvatable invoices and transactions are done in cash and delivery of such goods are taken by the customers themselves and they also submitted the bills for the period April 2002 to 2.9.2002 in the name of Malvi Wires Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and one Shri Sushil Soni has signed the application for opening the account as a proprietor of the said firm. It was also found that number of DDs were made from the said bank account in the name of Indian Rare Earth Ltd. and on checking up with Indian Rare Earth Ltd., it came out that these DDs are relating to purchase of rutile by M/s. Rhodonite, M/s. Sanjhi Foodco Ind., Nagpur and M/s. Ayush Enterprises, Meerut. Appellant No.12 s statement was recorded on 30.9.2003 wherein he denied the sale of rutile to appellant No.1 but could not produce proof of payment etc. to Indian Rare Earth Ltd. Appellant No.13 did not turn up for investigation in spite of issuing summons. From the bank account of Orange City Traders, it was also realized that certain amounts have been paid to certain suppliers based in Bhilwara and Mumbai. Investigation with them revealed that they had supplied certain raw materials to appellant No.1. 2.1 Further investigations were done from various bank accounts etc. and after a detailed investigation, show cause notice dated 21.11.2003 was issued. During the course of investigation, two show cause notices in respect of the seized goods were also issued. After r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the accused, as held by the Hon ble Supreme Court in the case of Jian Mahtani vs. State of Maharashtra reported in 1999 (110) ELT 400 (SC). It was further submitted that relying on one bank statement of one vendor ignoring the affidavits filed by eight others to the contrary and not cross-examining them, relying on one sales tax return and inferring the same in case of balance 11 dealers and barring a few sporadic and random transactions relating to some inputs of insignificant quantity for which appellant No.1 has provided a complete answer, there is no evidence from where the steel wires which constitute 72% of the raw material consumption was procured. Even for balance flux, there is no evidence of the corresponding raw material consumption. Learned senior counsel made submissions relating to various statements. He submitted that Shri Pradeep Savarkars statement admitting unaccounted purchase of raw material, production of finished goods is completely baseless. During the search, no rutile was found in the factory and rutile is a major raw material and constitutes almost 14% by weight of the final product. Annual production was stated by Shri Pradeep Savarkar keeping in vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also submitted that the department made no enquiries with the buyers who purchased electrodes from Vidarbha Enterprises which could have explained the origin of welding electrodes. The learned senior counsel also submitted that Orange City Traders was engaged in the business of bill financing and it cannot be considered that demand drafts were issued to such third parties for further procurement of raw materials on behalf of appellant No.1. It was also submitted by the learned senior counsel that strangely enough the department has not recorded any statement of appellant No.10 who was the proprietor of appellant No. 7 and 8 firms. It was also submitted that during adjudication proceedings, appellant No.10 has filed an affidavit and still the department did not either record his statement or cross-examine him and the learned senior counsel again relied upon the judgment of this Tribunal in the case of Kulbhushan Jain (supra). It was submitted that the statement of Shri T.K. Rajagopal cannot be relied upon as the department has not conducted thorough investigation of the facts stated therein. No enquiries were conducted with the UCO Bank account of Rhodonite wherein it has been alle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... product. There is no allegation of unaccounted procurement of steel by appellant No.1. It was submitted that unaccounted quantity of steel was recovered from the premises of appellant No.2 and the same cannot in any manner be relied upon to conclude that such huge quantities of steel has been diverted by appellant No.2 to appellant No.1. It was also submitted that no action has been taken against appellant No.2 for removal of unaccounted steel. The senior counsel also submitted this Tribunal s decision in the case of Lily Foam Industries (P) Ltd. vs. CCE reported in 1990 (46) ELT 462. The learned senior counsel also submitted that the Revenue has wrongly relied upon the letter of RECASIL Industries to conclude procurement of unaccounted silicate in the name of third parties. The said letter only mentions list of parties to whom silicate has been sold by RECASIL and there is no evidence that these parties have diverted the same to appellant No.1. It was also submitted that there is no corroborative evidence which proves that appellant No.1 has procured ferro manganese/lubricant. Just because some payments have been made through Dena Bank account of Orange City Traders, it cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im in the statement. It was further submitted that the demand has been computed based upon invoice No.87 from which the highest per unit price has been taken by the department. Adoption of such highest per unit rate is contrary to statement of Shri Chunilal Sahu. As far as the demand under Annexure A-IV is concerned, the learned senior counsel submitted that this demand is based upon merely handwritten chits of the transporter and is not even based upon LRs of the transporter and the said chits have not been verified/authenticated by the Revenue. It was also submitted that the LR transport document alone cannot be relied upon for sustaining charge of clandestine removal as has been held in the cases of Kothari Pouches vs. CCE, New Delhi reported in 2001 (135) ELT 531 (Tri.-Del.) and Modern Ex-Servicemen Engg. Co. Pvt. Ltd. vs. CCE, Panchkula reported in 2014 (304) ELT 298 (Tri.-Del.). It was submitted that this demand is not based upon any other piece of evidence and, therefore, is required to be set aside. It was also submitted that during the cross-examination of the transporter, it was evident that the transporter had no personal knowledge of the alleged removal of the unaccount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed order. He took us through the various statements particularly the two statements of Shri Sanjay Malu as also the statement of Shri Poonamchand R. Malu and Shrawankumar R. Malu. He further submitted that these statements are claimed to be retracted. However, no such retraction was filed before the investigating officer or any officer of the department. The retraction was in the form of affidavits which were produced only at the time of adjudication. Such a retraction cannot be taken into consideration. It was also submitted that Shri Sanjay Malu in his second statement has confirmed the contents of the first statement and similar is the position about other statement. It was further submitted that the details provided in the statement can only be provided by a person who is in the total know how of the things and cannot be provided by an officer and the officer cannot ask any such thing to be written. It was further submitted that in the affidavit filed, they have not elaborated what is wrong in those statements and what part of the statements is incorrect. Learned AR took us through these statements particularly that of Shri Sanjay Malu where he has explained the whole of the mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t they were not keeping the record of the clandestine clearance or purchase of unaccounted raw material and as soon as the transactions were complete, the relevant documents were destroyed by them. Under the circumstances, it is not practically possible for the department to unearth such documents. He further submitted the following case laws in support of his various contentions including relating to admission of clandestine clearance etc.:- (i) Lucky Dyeing Mills P. Ltd. vs. CCE, Surat reported in 2008 (222) ELT 543 (Tri.-Ahmd.) (paras 9, 12, 13); (ii) CC, Madras vs. D. Bhoormull reported in 1983 (13) ELT 1546 (SC) (paras 30, 31, 32); (iii) Ahmednagar Rolling Mills Pvt. Ltd. vs. CCE, Aurangabad reported in 2014 (300) ELT 119 (Tri.-Mumbai) (para 5.1); (iv) Gulabchand Silk Mills Pvt. Ltd. vs. CCE, Hyderabad-II reported in 2005 (184) ELT 263 (Tri.-Bang) (para 10); (v) National Boards vs. CCE, Calicut reported in 2014 (313) ELT 113 (Tri.-Bang.) (paras 19, 24, 29); (vi) CCE, Delhi vs. Ganpati Rolling Pvt. Ltd. reported in 2014 (303) ELT 240 (Tri.-Del.); (vii) UOI vs. Playworld Electronics Pvt. Ltd. reported in 1989 (41) ELT 368 (SC) (para 11); (v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon this Tribunal s decision in the case of Aum Aluminium Pvt. Ltd. vs. CCE, Vadodara reported in 2014 (311) ELT 354 (Tri.-Ahmd.). The learned senior counsel submitted that in view of these contentions, the demands do not hold good and the demands are required to be set aside and consequently penalties and redemption fine imposed are also required to be set aside. 7. We have gone through the submissions made by both the sides. We have also gone through the various statements and other records adduced during the course of hearing. We find in this case at the time of search on 20.8.2002, statement of Shri Pradeep Savarkar who was Quality Control In-charge and appears to be looking after the actual production of the goods, was recorded wherein he has indicated that they are not recording all the production in their statutory records and part of the goods are cleared without payment of duty. Shri Sanjay Malu who was the Manager and appears to be looking after all the work and in the know how of the things, has explained the modus operandi followed by appellant No.1, which elaborates that a part of the production is not being accounted. Further, the raw material required for unac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peration on 20th August 2002 from the office premises of appellant No.1 where the offices of three marketing companies viz. appellant No.6, 7 and 8 also operated. The set of documents relating to annexure-II gives the details of transportation, invoice details, value, purchaser etc. The demand in annexure-III is based upon a document recovered during the search. The said document was maintained by one Shri Chunilal Sahu. The document indicated the clearance of welding electrodes cleared clandestinely during certain periods prior to the search. The document indicated specification of the welding electrodes, quantity etc. Annexure-IV demand is based upon certain LRs/chits recovered from offices of three transporters. As per the documents, certain vehicles were engaged by Malu Electrodes Pvt. Ltd. on certain dates. The demand is based upon assumption that the goods transported are welding electrodes, the quantity or weight is assumed. Only the destination city was mentioned in the documents. Annexure-V demand is based upon certain bank records of Orange City Traders. The demand is based upon the amounts deposited. It is presumed that the amounts deposited are nothing but sales proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of Shri Sanjay Malu was contradicted by Shri Omprakash Soni. It is not the case of the Revenue that Shri Purushottam Malu was not available. We also note that Shri Purushottam Malu has been made a co-noticee and had replied to the show cause notice and also submitted an affidavit. However, during adjudication proceedings, the adjudicating authority did not examine him. Be that is it may be, we note that even if we take the say of Shri Sanjay Malu, it was incumbent on the part of the Revenue to call the proprietors, partners or authorized persons from these 12 firms from whom electrodes are purported to have been purchased by the three marketing firms, to find out the truth and also to find out whether the electrodes purchased were the ones manufactured by appellant No.1 and were cleared by appellant No.1 without payment of duty, or part or whole of these were purchased from some other manufacturer and resold to various customers. From the investigation we find that a feeble attempt was made in this direction inasmuch as the summons were posted which came back due to insufficient address. Summons could not be served through the Assistant Commissioner (P) of the Nagpur Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lating to procurement of rutile particularly by appellant No.2 and also M/s. Rhodonite Pvt. Ltd. suggest that appellant No.1 did get the said critical material indirectly from sources other than Indian Rare Earth Ltd. directly, but the question is how much of the unauthorized rutile was received by appellant No.1 and whether this quantity of rutile received would correspond to the alleged production of welding electrodes in the name of three marketing companies. We do not find any correlation or any attempt to correlate the procurement of rutile from unauthorized sources and the production of unaccounted welding electrodes. There is a statement of Shri T.K. Rajgopal which is contradicted by Shri Punamchand Malu in his statement. Similarly, we note that investigation in the case has not brought out even broad correlation about the procurement of wire rods. Only about 100 odd MT of wire rods appeared to have been procured in the third party name by appellant No.2 or appellant No.1. Learned senior counsels argument that wire rods constitute 72% of the weight of the final product and is the main input is not disputed and is factually correct. There are no concrete evidences about the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any proof of transportation or even admission in their statements, in our view, it will not be appropriate to assume that rutile/illmenite covered by the cases listed in the show cause notice had come to the factory of appellant No.1 and thereafter used in the production of welding electrodes which were cleared clandestinely. There are number of other raw materials and there are few evidences which indicate that some other raw materials had come to appellant No.1. However, these are few stray cases and do not account in substantial way to the clandestine clearance of quantity alleged in the show cause notice. These observations are applicable for demands covered by annexure-I as also annexure-V 8.6 As far as Annexure-II is concerned, we find that this part of the demand is based upon the details recovered during search of the office of appellant No.1 on 20.8.2002. The documents were recovered from file title Sales Bills not accounted in the books of M/s. Malu Electrodes. Invoices recovered give the details like invoice number, date, quantity etc. We also note that some of the sales were shown in the name of appellant No.1 while others are shown in the name of appellant No.8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are, therefore, of the view that the demand made in this annexure is required to be upheld and we accordingly uphold this part of the demand. 8.7 Another demand is covered by Annexure-III. This part of the demand is based upon a paper recovered from one Shri Chunilal L. Sahu who was the production supervisor. The said document indicates datewise the details of clandestinely cleared goods. Shri Chunilal Sahu in his statement has confirmed that the goods covered by the said document were produced and cleared without accounting in the books of account. We do not find any valid explanation coming forward from appellant No.1 to contradict the same as in the case of Annexure-II. In our view, the goods covered by the said document are clandestinely produced and cleared by the appellant and, therefore, the demand covered by Annexure-III is upheld. 8.8 We note that the demand in Annexure-IV is based upon the documents recovered from Sainath Mahalaxmi Transporter, Nagpur, Siddheshwar Transport, Nagpur and Ashapura Roadways, Nagpur. We note that the documents recovered indicate the LR number, date and the vehicle number as also the destination city. From annexure-IV attached to the show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Shri Sanjay Malu or any other person has at any point of time in any statement has admitted that the amount deposited in the account of Orange City Traders are nothing but the sale proceeds of the goods manufactured and cleared clandestinely by appellant No.1. Even Shri Sushil Soni has not said anything of this type in his statement. In fact we find that the Revenue has not confronted either the proprietor of Orange City Traders or the Directors of appellant No.1 or Shri Sanjay Malu or any other official of appellant No.1 about the account of Orange City Traders and the deposits in the said account. We also note that all the amounts that had been deposited have come through cheques/drafts. Revenue has not made any attempt to find out whose drafts these were and these payments are made for what purpose. The proprietor of Orange City Traders was not even confronted. The persons who have sent the drafts have not been asked what they have purchased and from whom, for which they have made these payments were welding electrodes or something else. In the absence of any correlation whatsoever about the amount deposited in the account of Orange City Traders through cheques and drafts, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods involved are welding electrodes. Appellant No.2 is not concerned with either with the manufacture, sale or any other activity of the welding electrodes. Even as per the Revenues contention, appellant No.2 was involved in either diverting the rutile/illmenite or flux or wire rods to appellant No.1. In view of the said position, the penalty imposed on appellant No.2 is set aside. (ii) As far as appellant No.2, 3 and 4 are concerned, in view of the substantial reduction in the demand as above, the penalty imposed is reduced to ₹ 2,00,000/-, ₹ 1,00,000/- and ₹ 2,00,000/- on appellant No.3, 4 and 5. (iii) As far as appellant No.6, 7 and 8 are concerned, the demand made corresponding to the goods sold by them is set aside. The penalty is also set aside. (iv) Appellant No. 9 and 10 are the proprietors of appellant No.8, 6 and 7. Since the penalty on proprietorship firm is already set aside, the penalty on them is also set aside. (v) No concrete evidence could be produced against appellant No.12 and 13 that they diverted the raw material to appellant No.1. Moreover, they are not concerned with any excisable goods, leave alone liable to confiscati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above show cause notice is upheld and the appeals as far as these relate to the above show cause notice are rejected. 10. In respect of show cause notice F.No. DGCEI/PRU/INT/33/2002/235 dated 17.2.2003, this show cause notice is relating to appellant No.2. As mentioned earlier. Appellant No.2 is a private limited company and the two Directors of this company are Shri Poonamchand Malu and Shrawankumar R. Malu who are also the Directors of appellant No.1. The said unit is not registered with the Excise department. From the investigation it appears that they were receiving MS wires which were being drawn to the required size. At the time of visit to the said unit, certain raw materials were seized as also certain drawn wire rods were seized on the grounds that these are not accounted and the records were not updated. We note that in this case though there are statements that appellant No.1 was receiving the wire rods in the name of third parties and these were being redrawn in the manufacturing unit at appellant No.2 and thereafter were sent to appellant No.1 for further manufacture of welding electrodes. However, investigations have not brought out any concrete example in quantit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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