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TMI Blog2011 (12) TMI 610X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.4 Appeal No.E/69/2008 is by TAG against demand of duty of ₹ 4,29,95,446/- along with interest and imposition of penalty of equal amount under Section 11AC and further penalty of ₹ 42 lakhs under Rule 25 of the Central Excise Rules, 2002 by the Order-in-Original No.14/2007 dated 28/9/2007 passed by the Commissioner. 1.5 Appeal No.E/70/2008 is by Shri H.S. Nataraj, Managing Director of TAG challenging the penalty of ₹ 5 lakhs imposed under Rule 26 of the Central Excise Rules 2002 by the order No. 14/2007 dated 28/9/2007 passed by the Commissioner. 1.6 All the above five appeals arise out of common investigation, involve common evidences and also a common appellant and therefore, are being disposed of by this common order. 2. Heard Shri K. Parameshwaran assisted by Ms. Amudha for the appellants and Shri P.R.V. Ramanan, Special Counsel for the Department. The matter was heard extensively on 8/9/2011, 14/9/2011 and 15/9/2011. Both sides have filed written submissions / additional submissions in the course of hearings. 3.1. TAG is a manufacturer of gutkha (with brand name Super Gem / Siddu ) falling under chapter sub-heading 2404.49 of Central Excise Tariff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. Embee Agencies. 3.7 In pursuance of show-cause notice dated 31/1/2007, duty of ₹ 4,29,95,446/- along with interest stands demanded and penalty of equal amount under Section 11AC and further penalty of ₹ 42 lakhs under Rule 25 of the Central Excise Rules, 2002 stand imposed. A penalty of ₹ 5 lakhs stands imposed on Shri H.S. Nataraj, Managing Director of TAG under Rule 26 of the Central Excise Rules 2002. 4. The learned Advocate for the appellants assails the orders of the Commissioner on various grounds. The important grounds can be summarized as follows:- a. Allegations that huge quantities of raw material were purchased form M/s. Sanjay Enterprises and the same were not accounted in the books of account of TAG are not correct. The bills recovered from Sanjay Enterprises, Pune were in the name of Shri Lingaraju, Ex. Director of the Company who relinquished as Director before the date on which bills were raised and in the name of Shri Amitbhai an employee of TAG. No statements of representative of M/s Sanjay Enterprises, Shri Lingaraju and Shri Amitbhai have been recorded. Under these circumstances, it is merely an assumption that the purchases made from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... samples without payment of duty cannot be treated as admission about the quantities arrived at by the Department as clandestinely removed based on assumptions and presumptions. h. The finding of unaccounted production based merely on one raw material or one packing material without letting in any evidence of procurement of other major raw materials required for production of gutkha cannot be sustained. i. The demand was proposed adopting 3 different methods as per the show-cause notice. However, the entire demand has been confirmed based on capacity of production and based on formula given by the Managing Director. Mere presence of pouching machines cannot lead to the conclusion that the same were actually put to use for manufacture of pouches of gutkha. j. TAG was selling their products only through M/s. Embee Agencies. Dealers were buying only from Embee Agencies and not directly from TAG. Seizure of goods from the dealers which were presumed to have been received without bills or not corresponding to particulars with bills produced cannot lead to a presumption that the said goods have been removed from the factory premises of TAG. There was no excess raw material or finishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (xiv) Chawla Enterprises Ltd. & Ors. Vs. CCE, New Delhi and Vice Versa [2004 (61) RLT 982 (CESTAT-Del.)] (xv) Commissioner of Customs, Kandla Vs. Dimple Overseas reported in 2005 (190) ELT 58 (Tri.- Mumbai)] 5.1 The learned Special Counsel supporting the orders of the Commissioner made the following submissions : (a) TAG was regularly purchasing raw materials like arecanut, tobacco pathi, khatar, lime, packing materials such as multilayer laminated plastic films and canvas bag and diesel for generation of electricity and was not accounting substantial quantities in the statutory records; for such unaccountal purchases, payments were made in cash. Such purchases are evident from documents recovered from M/s Sanjay Enterprises, Pune (from whom kimam, tobacco pathi, blend, methnol and mix blend were purchased), M/s Montage Enterprises, Jammu (from whom multilayer laminated plastics films were purchased), M/s Arun Agencies (from whom petroleum products were purchased), M/s Divya Enterprises (from whom canvas bags were purchased). Such unaccounted purchases were also evident from entries made in an Exercise Note Book titled Adike Pustaka and also entries made in one small note b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l [2008 (224) ELT (307)] (iv) Commissioner of C. Ex., Mumbai-V Vs. Champion Confectionery [2010 (262) ELT 865 (Tri.-Mumbai)] 6.1 We have carefully considered the submissions from both sides and perused the records. In this case, TAG has accounted during the period from 1.4.2002 to 19.6.2005 totally 32,25,500 pouches of gutkha. However, the department has treated the production as 13,41,48,000 pouches during this period and demanded duty over ₹ 4 crore on differential quantity of 13,09,22,500 pouches. 6.2 The production determined by the department is more than 40 times of the production accounted. Is it a case of evasion of unprecedented scale or is it a case of production arrived at by the department based on fanciful assumptions and presumptions? 6.3 To find answer to the above, we proceed to analyze whether the company had capacity to produce the quantity alleged to have been produced and cleared, whether there are evidences regarding procurement of unaccountal raw materials, suppression of production, and clandestine removal. If so, whether the duty demand has been correctly made with attendant consequences. Capacity of Production 7.1 An experiment conducted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve no hesitation to conclude that their capacity of production is manifold when compared to their accounted production. Procurement of raw materials/packing materials/consumables 8.1 Documents recovered form M/s Sanjay enterprises indicated supply of kimam, tobacco pathi, methnol and mix blend. It is claimed that the bills were in the names of Shri Lingaraju, Dirctor of TAG and Shri Amitbhai, a sales representative of TAG at Delhi. It is not disputed that TAG was purchasing these materials from M/s Sanjay Enterprises, Pune. In fact, it has been claimed on behalf of TAG that out of four consignments covered by four bills issued by M/s Sanjay Enterprises, three of them were found accounted and only 1750 Kgs of Tobacco pathi covered by an invoice dated 21.3.2004 was not accounted. This admission clearly shows that they were purchasing from M/s Sanjay Enterprises and not accounting the purchases fully and correctly. Shri Lingaraju, Director of the company might have resigned but, it is not disputed that the bills in the name of Shri Lingaraju contained the address of TAG below the name Shri Lingaraju. Further it is seen that some of the bills were in the name of Shri Amitbhai, sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e supplied to the factory of TAG. It has also been claimed that GMS stands for an abbreviation of G.M. Siddeshwar, Director of TAG. The TAG has not disputed they did not have power connection and that they had DG Set and that one of the Directors is by name Shri G.M. Siddeshwar. Further, M/s Arun Agencies is undisputedly, a firm run in the name of Aunt of one of the Directors of TAG by name Shri G. Arun Kumar. Further, no evidence has been produced to show that they have procured diesel from other resources and that the same was reflected in their accounts. 8.5 From the above, it is seen that TAG has involved in procuring different materials without bringing into accounts and such procurements are obviously for use in the production of unaccounted gutkha with a view to clear the same without payment of duty. Unaccounted clearances 9.1 The M.D. of TAG has clearly admitted that only production of two or three days was being accounted in a month as against production on 14 to 16 days. He also admitted that during certain period, they cleared samples without bringing to account and without preparing invoices and without payment of duty. He has also admitted that they resorted to thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Enterprises without invoices. * Arcanut purchased mentioned in the book maintained by staff may not have been totally accounted. Statement dated 2.12.2005 * The small bag, means one cotton canvas bag containing 3000 pouches. * They have not maintained account of free samples cleared by them. The department may take the number of bags cleared as free samples as 200 numbers comprising both the brands. * That the statement dated 5.9.2005 regarding purchase of 1500 to 2000 bags without invoices may be modified as only 150 to 200 bags cleared without invoices. * They do not account total purchase of katha. * The production is carried out with the power generated by DG set in other premises. Diesel purchased from the local petrol bunk on cash basis. 10.2 The dealers have admitted that accounted purchases were made from Embee Agencies. In particular, Shri Prakash Thakkur, partner of Prakash Stores has submitted that an average about 50 bags (containing 3500 pouches of Re. 1 each) received and sold every week. The purchase and sale of gutkha were not accounted anywhere including in Sales Tax accounts. Other dealers have also made similar admissions. Summary of the facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Case Laws Relied upon : 13. Several decisions have been relied upon on behalf of the appellants to contend that no allegation of clandestine removal can be sustained as held by the Commissioner. It would be appropriate to analyze the decisions as follows : (a) The Tribunal in the case of Radheshyam Kanoria Vs. Commissioner of Central Excise, Thane-II reported in 2006 (197) E.L.T. 130 (Tri.-Mumbai) has held that statements by some dealers about unaccountable purchase could be due ulterior motive. In the absence of admission by the assessee such statements not reliable. (b) The Tribunal in the case of Vidya Laminates Pvt Ltd. Vs. Commissioner C. Ex., Ahmedabad-II reported in 2006 (197) ELT 260 (Tri.-Mumbai) has held that in a case of clandestine manufacture and removal, Revenue has to prove the same by proper and cogent evidence and presumption cannot be raised against assessee. (c) The Tribunal in the case of Commissioner of C. Ex. Vs Vidya Laminates Pvt. Ltd. [2007 (211) ELT 382 (Guj.)] has held that the purchase bills are insufficient for proving the receipt of raw materials by the assessee and its subsequent use in manufacturing and illicit clearance. (d) The Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction and clandestine removal could not be sustained on the basis of discrepancy between the quantities of raw material in Form-IV Register, and private documents when such discrepancy has been satisfactorily explained. (m) The Tribunal in the case of T.G.L. Poshak Corporation Vs. Commissioner of C. Ex., Hyderabad [2002 (140) ELT 187 (Tri.-Chennai)] has held that charge of clandestine removal based merely on note books maintained by workers and other private accounts, not sustainable unless supported by corroborative evidence with regard to purchase of raw materials, manufacture of final goods, flow back of money, or any seizure or statements from purchasers. (n) The Tribunal in the case of Chawla Enterprises Ltd. & Ors. Vs. CCE, New Delhi and Vice Versa [2004 (61) RLT 982 (CESTAT-Del.)] has held that wastage cannot be uniform. (o) The Tribunal in the case of Commissioner of Customs, Kandla Vs. Dimple Overseas reported in 2005 (190) ELT 58 (Tri.- Mumbai)] has held that piecemeal adjudication investigators cannot be allowed to proceed on to build up case piece by piece. 14. The above decisions were rendered in the facts and circumstances of each of the said cases. As alread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s involved in systematic manipulation of records relating to raw materials procured, suppressing the production of excisable goods in their statutory records and clearance of the same without payment of duty and, therefore, there is evasion of excise duty. Now, we proceed to consider whether the Commissioner has adopted correct methods in arriving at the duty demand. 15.2 TAG has manipulated the statutory records relating to procurement and use of raw materials. The private records were available only in bits and pieces. For example, evidences of unaccounted purchase of arcanut for three months for the period 31.12.2004 to 31.3.2005 and unaccounted purchase of cotton canvas bag for the period August 2004 to January 2005 were available. Evidence for unaccounted purchase of materials like kimam unbranded, tobacco pathi, methanol, mix blend from Sanjay Enterprises were available for 2002-03 and also in respect of one consignment relating to 2003-04. The M.D. himself had admitted that the private records have been destroyed/lost during shifting of the factory. In other words, TAG having planned the evasion, has taken precautions to systematically destroy the records. The M.D. has admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 89,600 46,94,800 28,16,880 4. 9/7 - 31/7/04 8,33,150 4,16,575 2,54,944 5. 8/04-2/05 6,63,70,500 3,31,85,620 2,03,09,373 6. 3/2005 94,81,500 47,40,750 31,85,784 7. 4/05-5/05 1,48,97,140 74,48,570 50,05,439 Total 13,90,48,635 6,95,43,318 4,29,95,443 16.1 The demand of duty of ₹ 9,66,224/- for the year 2002-03 based on unaccounted tobacco pathi applying the formula provided by the director of TAG is reasonable and does not warrant interference. Incidentally, it is to be noted that the demand is for a quantity which is below the production figures estimated based on production capacity. 16.2 The demand of ₹ 1,35,28,624/- relating to the period of 16 months from 1.4.2003 to 31.7.2004 has been arrived at by adopting the capacity of each machine as 70 pouches per minute based on experiment conducted on 30.12.2005. The number of hours the machine is supposed to work on a day has been taken only as 5 hours (a very conservative estimate!). It has been further assumed that the factory has worked only for 14 days in a month (a very conservative estimate!). This method, in the facts and circumstances of the case cannot be held arbitrary or unreasonable a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show-cause notice dated 31.1.2007 was not justified. In this regard decision of the Supreme Court in the case of Nizam Sugar Factory as well as other decisions have been relied upon. It is to be noted that there were seizure of goods on 20.6.2005 at various places and the show cause notice dated 17.12.2005 has been issued basically for proposing confiscation of the seized goods and obviously to meet the statutory dead line of six months from the date of seizure for issuance of the show cause notice. The duty demand in the said show cause notice was limited to ₹ 2,85,634/- which was the duty involved in the seized goods. The claim that no further investigation was undertaken is without any basis. The seized records require to be gone through and the evidence require to be evaluated and the basis of the demand to be proposed should be firmed up. Further, it is noticed that an experiment was conducted in the presence of M.D. of the company on 30.12.2005 and the results of the said experiment has been relied upon to demand duty for certain period. Further, the demand of duty by show-cause notice dated 31.1.2007 is also based on evaluation of evidence relating to procurement of u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow cause notice has been served within a period of five years therefrom Penalties 18.1 TAG has indulged in manipulation of records relating to procurement of raw materials; they procured unaccounted raw materials; they admittedly entered abysmally low quantity of the production and cleared the same without preparing invoices and payment of duty. Under these circumstances imposition of penalty under Section 11AC is fully justified. However, having imposed penalty under section 11AC, separate penalty under Rule 25 is neither justified nor warranted and the same is liable to be set aside. 18.2 The role of the appellant s Director in clandestine removal of the goods is evident. He merely stated that they resorted to the clearances without preparing invoices in view of the stiff competition and in view of high duty structure. His statements reveal his knowledge of manipulation with intention to evade payment of duty. Therefore penalty on him is justified. The penalty imposed on him is also not excessive. 18.3 Confiscation of goods admittedly received either without bills or not corresponding with particulars in the bills are liable for confiscation. The redemption fine imposed i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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