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2016 (2) TMI 330 - CESTAT NEW DELHI

2016 (2) TMI 330 - CESTAT NEW DELHI - TMI - Area based exemption - misuse of the scheme - manufacturer of menthol located in Jammu & Kathua - notification no. 56/2002-CE - Revenue contended that these units are actually manufacturing menthol flakes i.e. (terpene /menthol / DMO) only in small quantities but were showing their production in huge quantities. Thereafter, only invoices showing payment of excise duty were issued without actually manufacturing and clearing the goods. For the clearances .....

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BR>
With regard to the goods contained in samples mentioned as 2H to 2S there is a mis-declaration alleged by the Revenue that M/s. Sharp has mis declared the goods. We find that M/s. Sharp has declared residue / terpene and as per the report of IIT, these goods they were found rejects. The Adjudicating authority failed to answer the questions what is the difference between residue and reject and have not analyzed the same. In these circumstances, we hold that charge of mis declaration is n .....

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t the following order-in-original dated 15.5.2008 of Commissioner of Central Excise, New Delhi. The operative portion of the impugned order reads as under: i) I order confiscation of finished excisable goods of 2486 drums containing 447840 kgs. Valued at ₹ 3,75,53,400/- and as detailed at Sl. No. 1 & 5 of the table appended to Para 17 of Show cause notice under Rule 25 (i) of central Excise Rules 2002. However, I impose redemption fine of ₹ 75,00,222/- in lieu of confiscation. ii .....

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s are arising from a common order, therefore, both the appeals are taken together for disposal and are being disposed of by a common order. 4. The facts of the case are that M/s. Sharp is engaged in manufacture and export of menthol crystals and essential oils. The basic raw material used in the manufacture of goods is menthol, demetholised oil, spearmint oil, mentha oil and menth piperita oil. The crude mentha oil has been processed to manufacture menthol and dementholised oil by chilling and C .....

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in huge quantities. Thereafter, only invoices showing payment of excise duty were issued without actually manufacturing and clearing the goods. For the clearances, movements of trucks were being manipulated to show many trips thereof across the J & K border. The buyers of these Menthol etc. shown in most of the invoices were the companies of Sharp Group only. It was also gathered that M/s. Sharp Group actually procured non duty paid inputs (Mentha Piperita oil, Spearmint oil, Basil Oil etc. .....

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wn to have been procured from J & K Unit. In this background, a search were conducted by DGCEI at the factory premises in Jammu & Kathua, traders / suppliers of unprocessed menthol oil and piperita oil in UP, transporters in Jammu, Delhi and UP unit, premises of Sharp Menthol India Ltd. and Sharp Aromatics India (P) ltd. Bhiwadi and their registered offices as well as residential premises of the officials of Sharp group. On investigation, it revealed that a huge quantity of unaccounted m .....

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pt one leaking drum. There was one more godown marked no. 2 in the same premises. The stock taking was conducted and it revealed that 1629 filled steel drums, contents of which could not be ascertained and no documentary evidences of all three godowns could be produced, therefore, goods lying in godowns were seized under section 110 of the Customs Act. The said godown were sealed and the panchnama was drawn. The statement of Shri Kamal Kumar and Shri Balwant Singh Rana were recorded. Shri Ram Ra .....

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es marked 1A, 16D and 16E seems to represent unprocessed menthe piperita oil. Samples marked 2F & 2G found to be natural spearmint oil samples marked 2F to 2S found to be terpenoidal rejects usually encountered in Menthol industry. These terpenes are normally observed in residues in procedures involving menthol crystalisation from natural raw materials. On the basis of these investigations, a show cause notice was issued alleging that the claim of goods contained in 1938 drums seized from .....

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s residue / terpene. The rest of the goods contained in 1302 drums were also not tallied with the claim of M/s. Sharp as terpene. As IIT report suggested that these goods were nothing but terpenoidal rejects which were generally left after fractionation of terpene from residue. Therefore, the said goods have been derived upon fractionation of crude mentha oil which is manufactured in the factory of M/s. Sharp. In these set of facts Central Excise duty was proposed to be demanded on these goods a .....

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uty were confirmed along with interest and penalty on M/s. Sharp was also imposed. Aggrieved from the said order, M/s. Sharp has filed appeal for confirming duty demand along with interest and imposing penalty and Revenue is in appeal against the order dropping demand for samples no. 1A, 16D, 16F, 2F and 2G. 7. Shri C. Harishankar Sr. Advocate, Ld. Counsel for M/s. Sharp appeared before us and submitted that the manner in which the department has proceeded to segregate the contents of the drum c .....

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1127 drums in godown no.2 were divided into 7 groups of 159, 159, 159, 160, 160, 160 and 160 drums each and in each case one drum from the group was tested and assumed to be representative of that group. The said method is totally illogical and in fact practically obsolete. Therefore, the tax liability cannot be fastened by resorting to such random sampling as contents of any one group of 453 cannot be basis for presuming that remaining 452 to contain the same item for raising tax demand. Quite .....

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random sampling permits such segregation provided that there is something to distinguish three groups from one another. But it is not permissible to divide in 3 groups without any difference among the groups, select 1 drum from each group, and assume that drum represents the said group. Such an approach defies logic, as it would amount, in fact to picking three drums out of 1360, testing them and then extrapolating the test report, randomly, to 453, 453 and 454 drums without testing a single ot .....

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them to terpene or residue whereas the drum at sl. No. 8, 11, 13 to 19 were found to be contained terponoidal rejects and drums at Sl. No. 9, 10 & 12 were found to contain material containing L-menthol in various percentages. However, the show cause notice while pointing out this difference in terminology and nomenclature does not explain how in fact the items were different. There is nothing in show cause notice which explains how terponoidal rejects could not come within the ambit of the .....

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or credible material. The copies of the test report were made available to M/s. Sharp only at the time of issuance of show cause notice and no retest was sought and no cross examination of Chemist of IIT Delhi was afforded to M/s. Sharp and the request in this respect has not been considered by the Adjudicating Authority in the impugned order. He further submits that M/s. Sharp has contended that drums mentioned at Sl. No. 2 and 3 of the table above is menthe piperita oil is purchased from trade .....

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o make them export worthy. The Honble High Court vide its order dated 14.08.2007 granted permission to M/.s Sharp to distill said mentha piperita oil in its factory under supervision of responsible Custom Officer. The said order reveals that the Counsel appearing for the Revenue never disputed the fact that goods in these 1938 drums is mentha piperita oil. In fact, mentha piperita oil in 1938 drums was distilled and subsequently exported as per the export documents. Bank realization cheque also .....

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/s. Sharp to its godown for onward supply to its end users. The said allegation was replied by M/s. Sharp that the goods were terpene / residue produced in 1998 much before M/s. Sharp had obtained central excise registration. Consequent to a fire in their factory in 1998, it has stored the said goods in its godown in 1999 having no place to store them in the gutted factory. It is also contended by M/s. Sharp that since then they have been lying in their godown as the said stock is not intended f .....

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l. No. 8-19 were mentha piperita oil or spearmint oil. So there is no shift in stand. Further, the onus is on the Revenue to prove clandestine removal. The said onus has not been discharged in this case in the light of the decision of the Hon ble High Court of Delhi in the case of Flevel International in Central Excise Appeal in Civil No. 6/2003 dated 17.09.2015. In the impugned order the Adjudicating Authority refers to un-retracted statements to support the case of revenue without identifying .....

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uch other manufacturing unit or the source of the value relied upon is not revealed in the show cause notice or in the impugned order. Therefore, demand on these grounds is also not sustainable. 7.5 With regard to the appeal filed by the Revenue in respect of Sl. No. 1A, 16D, 16E, 2F & 2G the ground taken by the Revenue is that as per the statement of persons from M/s. Vishal Chemicals and M/s. Krishan Flavour that these goods have not been purchased from them. In the reply to the show cause .....

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dismissed. 8. On the other hand, Ld. AR in support of the appeal of the Revenue submits that goods mentioned at Sl. No. 1,4,5, 6 & 7 are the goods intended to be used by M/s. Sharp in their manufacturing activity and received clandestinely and also removed clandestinely from their factory to their undeclared godown. Therefore, the adjudicating authority committed an error by dropping the demand against M/s. Sharp. Therefore, impugned order qua dropping demand against M/s. Sharp is to be set .....

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Sharp to their undisclosed godown without payment of duty, therefore M/s. Sharp is liable to pay duty. 10. In these circumstances, he submits that adjudicating authority has rightly demanded duty and held liable for confiscation the goods. Interest and penalty is rightly been imposed. For the rest of the part of the order he reiterated the findings of the impugned order. Therefore, he submits that the Revenue s appeal be allowed and M/s. Sharp s appeal be dismissed. 11. Heard the parties. Noted .....

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ther the Ld. Commissioner is correct to demand duty on the goods contained in samples in Sl. No. 1B, 1C & 2H to 2S helding that goods are found to be mis-declared by the M/s. Sharp . Consequently, these goods are liable for confiscation and consequence thereof. d) Whether the goods mentioned at Sl. No. 2H-2S are clandestinely removed by the appellant and consequently are liable to pay duty thereon and consequence thereof. 13. We deal the issues as under:- Issue No. a) a) To deal with the iss .....

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groups. 13.1) We find that in this case, the samples were drawn on random basis and groups were made by the inspecting team without identifying any plausible reason to decide into different groups and the samples were drawn from one drum of the said group. The method of segregating the sample is totally illogical as tax liability cannot be fastened on the basis of random sampling. Moreover, if the goods in one drum of the said group is not found to be as declared then it is the duty of the inve .....

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egation of the drums into different group is only on the basis of assumption and presumption. The tax liability cannot be fastened on the basis of assumption and presumption. We also note that in the case of Mithu & Co. (Supra) the Honble High Court observed as under: Yet another complaint that is raised by the petitioner is regarding the method of sampling followed by the respondents. As already noticed, petitioner has a case that out of the 7,000 bags that was imported, the samples were d .....

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ore, we hold that the demands on the ground of mis-declaration is not sustainable as the method of drawing the samples is not correct. Issue No. b) 14. We find that the adjudicating authority has dropped the demand against M/s. Sharp on the basis of test report of IIT Delhi for the goods contained in group of sample No. 1A, 16D, 16E, 2F & 2G on the ground that these are inputs procured by M/s. Sharp and found to be as declared. The Adjudicating Authority has rightly held that these are menth .....

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dicating authority has found that these are inputs. In these circumstances, the grounds taken by the Revenue deserves no merits. In these circumstances we hold that adjudicating authority has rightly dropped the demand against M/s. Sharp on the drums of marking samples 1A, 16D, 16E, 2F & 2G. With these terms, we hold that the appeal filed by Revenue deserves no merits, hence the same is dismissed. Issue No. c) 15. We find that the Adjudicating authority with regard to sample No. 1B & 1C .....

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on to M/s. Sharp to distill the said goods in their factory under the supervision of responsible Central Excise officer and the said goods after distillation were exported. The BRCs were also produced to show the evidence of realization of payment against such exports. These facts are not disputed by the revenue. Moreover, before the Hon ble High Court also the Ld. Counsel appearing on behalf of the Revenue has not disputed the fact that the goods mentioned at sample No. 1B & 1C are mentha p .....

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ioned as 2H to 2S there is a mis-declaration alleged by the Revenue that M/s. Sharp has mis declared the goods. We find that M/s. Sharp has declared residue / terpene and as per the report of IIT, these goods they were found rejects. The Adjudicating authority failed to answer the questions what is the difference between residue and reject and have not analyzed the same. In these circumstances, we hold that charge of mis declaration is not sustainable. Consequently, allegation of mis declaration .....

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tion to derive the assessable value as per the value of similar goods without identifying from where he have taken the value of similar goods and why those values have been adopted, therefore, the value adopted by the adjudicating authority is held to be not correct. 16.2 Moreover, the claim of M/s. Sharp is that these goods were manufactured by them during the period 1998 before obtaining Central Excise Registration. Therefore, the same are not liable to pay duty. It is also the contention of t .....

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dmitted that the appellant has not produced any evidence to that effect whether M/s. Sharp has filed any claim of insurance or not. Moreover, merely saying that fire took place in their factory does not absolve them from the liability of payment of duty. Therefore, the fact is to be ascertained whether fire took place in 1998 by adducing evidence with regard to the same. As M/s. Sharp have not produced the evidence of filing of insurance claim for loss of fire in their factory before the adjudic .....

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