TMI Blog2017 (11) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... ge clandestine removal of the goods. There is positive observations of the adjudicating authority in favour of the appellants have not been controverted by the Revenue have not been challenged the same in the appeal before us. But the appellant have heavily relied on the observations made by the adjudicating authority in the impugned order and controvered the observations of the adjudicating authority in para 3.16 in the impugned order that the appellants were given many opportunities but never explained the sources of large amount of cash that was recovered in the house. The explanation is coming at a late stage, therefore the same is afterthought - the adjudicating authority has made observations on the basis of documentary evidence, the documentary evidence cannot be denied by merely saying that it is an afterthought. Therefore, the said finding of the adjudicating authority is not tenable. Reliance on private/internal records maintained for internal control cannot be the sole basis for demand. There should be corroborative evidence by way of statements of purchasers, distributors or dealers, record of unaccounted raw material purchased or consumed and not merely the recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd. Shanu is also procuring (approx) 1% of its turnover of auto parts from M/s.Vira and 99% of auto parts procured from the open market and are sold under the brand name Vira which means that few clearance made by Shanu which were manufactured by M/s.Veera. 3. On 30.6.2005, the official of DGCEI visited the factory premises of M/s.Vira, residence of the proprietor, premises of various dealers across the country dealing with goods supplied by M/s.Vira and Shanu and few of the transporters transporting goods supplied by M/s.Vira and Shanu. They also visited and searched another premises in Ludhiana occupied by Shri Darshan Lal and his sons Shri Sanjay Sharma and Shri Naveen Sharma which is registered premises of M/s. Lakhnapal Auto under the proprietorship of Sh. Naveen Sharma, engaged in the trading of auto parts, similar to what are manufactured by the Appellant or traded by Shanu. The documents were recovered from Naveen Sharma in form of loose papers, kachaparchis and note pads. During the search Sh. Naveen Sharma categorically mentioned that said documents are prepared and maintained by his brother Sh. Sanjay Sharma, who is employee of Shanu. The documents recovered from Nave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot propose any clubbing of clearances of M/s.Vira and Shanu. (iv) Not even a single live consignment was seized from any transporter or any dealer across the country under invoices related to M/s.Vira. All such goods were under the invoice of Shanu. (v) All the dealers have retracted from their statements either through affidavit or during cross-examination. (vi) Technical reports by two different authorities were not questioned by the department and stand affirmed. (vi) Cash of ₹ 65.70 Lakh recovered from Mr. Rajneesh Jain was duly justified and same was duly acknowledged by the Adjudicating Authority. (vii) No Investigation or show causes notice to allegedly key people/entities namely, Sh. Naveen Sharma proprietor of M/s. Lakhanpal Auto, transporter and dealers of the goods. 6. He further submitted that the allegation of clandestine removal is not proved. He also submitted that an unaccounted amount of ₹ 62.40 lakh in cash was recovered from the residential premises of Sh. Ravinder Jain, which was alleged to be sale proceeds of clandestinely manufactured and sold auto parts. To counter this allegation, Appellant has explained cash of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as failed to prove that the private records maintained by Sh. Sanjay Sharma wee supported with corroborative evidence. Therefore, it is a settle proposition of law that private records of third party cannot be relied to confirm the demand on the charge of clandestine manufacture in view of the Tribunal in the case of Bearing Manufacturing Company- 2000(123) ELT 1148 wherein it has been held that charges of clandestine removal based only private records of an employee made for his own purpose are not sustainable unless corroborative evidences are found. He also relied on the decision of the Tribunal in the case of Savitri Concast Vs. CCE, Jaipur, 2015 (329) ELTT2 13(Tri. DEL), Someshwara Cement Chem Ltd. Vs. CCE, Hyderabad, 2005(191) E.L.T.1062 and Andhra Cement Ltd. Vs. CCE, Guntur, 2005(191) ELT 1046. 10. He further submits that the department has made no efforts to test and confirm the electricity consumption of M/s.Vira. On the contrary, M/s.Vira has produced two technical test reports to support their case, which were not doubted by the department. He also submitted that the Commissioner has rightly addressed the issues and held that lack of evidence and incomplete chain, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry records, it has 99% purchases from sources other than M/s.Vira. As Shanu is legally using the Vira brand, it cannot be alleged that all the goods under brand of Vira one manufactured by M/s.Vira. Therefore, the Revenue s appeal is not sustainable. 14. He further submits that no specific role of Co-noticees has been explained in the show cause notice or in the impugned order, therefore, the penalty is not sustainable. Moreover, as the demand is not sustainable, the penalties are not imposable. 15. In these terms, he prayed the impugned order quo demanding duty on account of clandestine removal on the basis of resumed records having reference VI is to be set aside. Consequently, the penalties are also set aside. He also prayed that the appeal filed by the Revenue is to be dismissed. 16. On the other hand, learned AR submits that the adjudicating authority has examined the issue and on the basis of evidence on record confirmed the demand with reference of VI and without assigning the reason dropped the part of the demand as proposed in the show cause notice. As no specific reason assigned by the adjudicating authority , therefore, the impugned order quo dropping duty deman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved as under: 3.15 First of all, the show cause notice has alleged that a sum of ₹ 62.40 lacs unaccounted cash (sale proceeds of clandestinely manufactured and sold auto parts) was recovered during search operations at the residential premises of Sh Ravinder Jain and the same was subsequently deposited as Central Excise Liability by the Noticee vide TR-6 challan No. 1/2005-06 dated 5.7.2005. In this regard the Noticee has pleaded that out of the said amount, ₹ 47.40 lacs belonged to M/s Dr R. C. Jain Charitable Trust with its office at 164-G, Bhai Randhir Singh, Nagar, Ludhiana. Late Dr R.C. Jain was father of Shri Ravinder Jain. The trust is duly registered under the Indian Trust Act, 1862 and Income Tax Act, 1961. The said cash ₹ 47.40 lacs had been collected through donation to undertake construction of a school. The cash was duly reflected in the income expenditure account/ balance sheet of the trust for the year 2005-06. The Noticee produced copies of registration under the Indian Trust Act, 1862 (dated 26.02.2002) and Income Tax Act, 1961, cash-book, income expenditure account and balance sheet for the year 2005-06. I observe that the registrations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed manufacture for purpose of leviability of excise duty on auto parts has become operative for the first time vide Notification No. 12/2006 w.e.f. 29.5.2006. As per these facts, I observe that M/s Shanu Auto Traders were using brand VIRA as per provisions of the prevalent Central Excise law and this during period prior to 29.5.2006 did not invite levy of Central Excise duty. 3.18 The next point to be examined is the provisions of Central Excise law applicable and authority to collect government duties. Collection of Central Excise duties is a tax levied on production and clearance. It implies that some product specified in the First Schedule of the CETA must be manufactured for enabling the tax enforcing authorities to levy and collect Central Excise duties. The basic five parameters of production are being examined considered in succeeding paras in context of provisions of Central Excise Law.: 3.19 PROCUREMENT OF RAW MATERIAL : As per SCN, the basis of evidence of purchase of raw material has been taken as Statement of Sh Ravinder Jain that, the unaccounted goods were being manufactured out of un accounted quantity of raw materials, the purchase of which was being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve evidence has been placed on record to substantiated the charge of unaccounted purchase of raw materials. Sh.Sanjay Sharma, hwo claimed to have managed all the transactions of M/s.Vira Industries, did not threw any light on the operations connected with procurement of unaccounted raw material or the sources of supply of unaccounted raw materials. From the proceedings, it appears that Mr.Sanjay Sharma was fully co-operating with the investigating officer, then it is strange that the investigating officer never questioned him about the source of raw materials which VIRA used in the manufacture of unaccounted finished goods. If Mr.Sanjay Sharma was closely associated with the functioning of VIRA then he must have been aware of this vital aspect of manufacturing process. It also transpires that Mr.Sanjay Sharma was also willing to reveal all the details which investigating officers questioned him. But investigating officer did not make any efforts to unravel truth about procurement of raw materials. Not even a single source of inputs has been identified. For manufacturing such a large quantity of goods, there has to be a multiple number of units/persons brokers, transporters who migh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tic sale) and ₹ 3,43,248/- (export sale). Surprisingly, the investigating agency has not taken into account the export sale while appointing the expenditure towards production. For a total production and sale of auto parts collectively valued at ₹ 4,35,83,668/- the proportionate sale for seven months comes to ₹ 41.58 lacs is not excessive but rational. Since procurement of unaccounted raw material is not established, consumption of alleged unaccounted raw material has not also been substantiated in the show cause notice. I observe that excess consumption of raw material or other inputs is not substantiated. 3.22 PACKING MATERIAL: The show cause notice has not alleged excess clandestine purchase of packing material by the Noticee No.1. It is admitted that the auto parts cannot be sold all over India without proper packing. The packing has to be quite elaborate. First of all the auto parts are wrapped and packed in corrugated boxes. Such boxes are further packed in wooden boxes for safety of auto parts. The Noticee No 1 has worked out details of volume of packing as per Cubic meters (CBM). A working of total CBM of corrugated boxes used for packing of number o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od. From the descriptive details given in the show cause notice, I find that packing was an important step in dispatch and transportation of manufactured auto parts. To pack auto parts valued at ₹ 35.64 crores, a large number of packers were required in M/s.Vira Industries. Evidence regarding sufficient number of packers working in M/s.Vira Industries is also not available. 13.23 In paara 35 (ii) (vi) of the show cause notice, it is also mentioned that M/s.Vira Industries employed 58 persons during the period and record of overtime payments, 58 employees handling 105 machines in the unit of Noticee No.1 appears quite reasonable. Out of these some were looking after office work, packing operations, loading/unloading, electrical operations and outside work of the factory. The Noticee No.1 has contended that they are registered with PF and ESI authorities and regularly filed returns of employees. There are period checks exercised by those departments. As per their records, they had not paid any overtime in their unit. The loose papers recovered from the residence of Sh.Sanjay Sharma show overtime payments. The notice No.1 has not entered those overtime payments in their re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Electivity Bill amount (Rs.) 2002-03 16,75,571/- 2003-04 22,26,512/- 2004-05 24,26,792/- 3.26 They worked out of details of material used and electricity consumed for manufacture of each auto part. The electricity consumed per part in relation to total electricity consumed was used to work out total possible production in the unit. The conclusion drawn by the report is that the sales made by Vira Industries during the year 2004-05 can safely be taken as their actual production with expected variation ranging from 3 to 4%. The unit of the Noticee consumes electricity on regular basis, as all the machines are dependent upon electricity motors. The electricity consumption by the Noticee No.1 could have been an important indication of scale of production. I observe that this aspect has not been touched upon in the show cause notice except for the 7 month s electricity expenses details of ₹ 14,08,158/-. The evidence regarding capacity of generator installed in the factory premises of M/s.Vira Industries and the quantity of die ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and sale of domestic clearances worth ₹ 29,56,75,747 during the period 1.4.2002 to 30.6.2005. In addition to this if their recorded production and sale figures of exports ₹ 6,08,14,282/- are added then the total production and clearances during the ;period come to ₹ 35,64,90,029/-. Keeping in view the conclusion of the studies conducted to determine the production capacity of the manufacturing unit, the alleged total production and sale of goods worth ₹ 35.64 crores is not feasible. The alleged production and sales of auto parts worth ₹ 35.64 crores during the relevant period required purchase of raw materials, adequate installed machinery, manpower, proof of electricity consumption or generator expenses, other consumables and packing materials. The Noticee pleaded that these factors have not been taken into consideration before creating tax liability against them. 3.31 No production records (pacca or kacha), slips, pads, register etc. were resumed/recovered during search operations. I observe that the investigation has not even got the production capacity of the unit assessed through some technical agency/prsn. It is a matter of common knowledg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of goods therein, security gate records, transporter s documents, such as LR, statements of lorry drivers, entries at different check posts, forms of Commercial Tax Department and the receipt by the consignees; (v) Amount received form the consignees, statement of the consignees, receipt of sale proceeds by the consignor and its disposal. 25. Further, we find that in the case of Arya Fibres Pvt.Ltd. time and again, the Tribunal has observed as under: 40. After having very carefully considered the law laid down by this Tribunal in the matter of clandestine manufacture and clearance, and the submissions made before us, it is clear that the law is well-settled that, in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenue which mainly are the following : (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 removal of unaccounted finished goods (not inferential or assum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5-8-2013 (after hearings in the present appeals were concluded), once again reiterated the same principles, after considering the entire case-law on the subject [Hindustan Machines v. CCE [2013 (294) E.L.T. 43]. Members of Bench having hearing initially differed, the matter was referred to a third Member, who held that clandestine manufacture and clearances were not established by the Revenue. We are not going into it in detail, since the learned Counsels on either side may not have had the opportunity of examining the decision in the light of the facts of the present case. Suffice it to say that the said decision has also tabulated the entire case-law, including most of the decisions cited before us now, considered them, and come to the above conclusion. In yet another decision of a co-ordinate Bench of the Tribunal [Pan Parag India v. CCE, 2013 (291) E.L.T. 81], it has been held that the theory of preponderance of probability would be applicable only when there are strong evidences heading only to one and only one conclusion of clandestine activities. The said theory, cannot be adopted in cases of weak evidences of a doubtful nature. Where to manufacture huge quantities of final ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that charge of clandestine removal is not sustainable in the absence of any corroborative evidence to the statement of Shri Baldev Singh, Managing Director. 30. Admittedly in this case, no documents have been recovered from M/s.Vira and a case has been made out on the basis of the statement of Shri Sanjay Sharma and the documents recovered from him and there is inculpatory statement of Shri Ravinder Jain, in the absence of any positive evidence, the charge clandestine removal is not sustainable on the basis of the third party evidence. 31. Further, we find in the case of Bearing Manufacturing Co. (supra), this Tribunal has already held that the charge of clandestine removal based only on private records maintained by their worker for his own purpose is not sustainable when the consumption of raw material to allege clandestine removal not actually proved and fact of clandestine removal is not otherwise established. Admittedly, the case is based on the documents recovered from Shri Sanjay Sharma and on the basis of his statement but there is no evidence of excess consumption of raw material, and manufacturing of excess goods therefore, the charge of clandestine removal is n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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