TMI Blog2018 (6) TMI 764X X X X Extracts X X X X X X X X Extracts X X X X ..... manner, especially when the stock of hank yarn on both dates of stock taking is shown to be ‘nil’. All these evidences leads to the strong inference that appellant company was not manufacturing hank yarn during the period of dispute. Though in RG-1 the appellant accounted production in respect of cone yarn and hank yarn, the diary showed details of production of cone yarn only. Again, there were no packing labels or materials purchased by appellant for packing hank yarn. The purchase of packing materials showed purchase of labels for cone yarn only. The appellants have not been able to counter these evidences, with satisfactory explanation. The evidence unearthed by department being voluminous, it is not possible to detail each and every piece of evidence in this order. From the records, it is found that the strong probability is that appellants have indulged in clandestine clearance of yarn without payment of duty. Department has been able to establish with both documentary and oral evidence that appellant company was not manufacturing or clearing any hank yarn and was clearing cone yarn clandestinely. The appellant has not put forward even slightest evidence to establish th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Trading firm called KPK Exports engaged in sale of yarn (procured from ETM) and fabric (manufactured on job work basis). Perusal of invoices seized and comparison with accounts showed that entire invoices were not accounted. Invoices raised for sale of cone yarn by ETM KPK were not accounted and instead invoices as if hank yarn were sold was accounted. It was found that ETM was using one set of invoice for safe transportation of cone yarn and after delivery, these invoices are collected by the staff of administrative office and then they issued another set of invoices showing the sale of hank yarn which was being accounted. In this way ETM evaded payment of excise duty, by clearing cone yarn in the guise of hank yarn. Cone yarn was also cleared without proper invoices and proper accounting and thus ETM was indulging in clandestine clearance of cone yarn. 1.2 From the evidences gathered it appeared to the department that:- i. ETM were not engaged in the manufacture of hank yarn. ii. during the years 1999-2000, 2000-2001 and 2001-02 (upto February 2002) ETM manufactured and cleared cotton yarn on cones without payment of duty in the guise of hank yarn and grey hosiery cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpose a penalty of Rs.1,15,87,369/- on M/s.ETM under Section 11AC of CEA 1944. d. I impose a penalty of Rs.50,00,000/- (Rupees Fifty Lakhs only) on M/s.ETM under Rule 25 of erstwhile CE (no.2) Rules 2001 and Rule 25 of CER 2002. e. I impose a penalty of Rs.2,000/- (Rupees Two Thousand) and ₹ 1000/- (Rupees One thousand only) on M/s.ETM respectively under Rule 9(2) and 52A of Central Excise rules 1944 read with Section 38A of CEA, 1944. f. I impose a penalty of Rs.50,00,000/- (Rupees Fifty Lakhs only) on M/s.ETM under Rule 173Q of erstwhile CER 1944 enforceable under Section 38A of the CEA 1944. g. I confiscate the cotton yarn cone of 10 bags (500 Kgs) seized on 18.06.2002, to the Government of India under Rule 25 of CER 2002. However the same is liable to be redeemed on payment of fine of Rs.5000/- (Rupees Five Thousand only) h. I also demand interest at appropriate rates on the duty demanded in clause (a) above under Section 11 AB of the CEA, 1944. i. I impose a penalty of Rs.10,00,000/- (Rupees Ten Lakhs only) on Shri.K.Periyasamy MD of M/s.ETM under Rule 209A of the erstwhile CER 1944, Rule 26 of the erstwhile CE (No.2) Rules 2001, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these were operated by use of generator. (ii) The department has relied on the personal diary recovered from the residence of Managing Director Sh.Periasamy and fax messages send from the factory to the MD. It is alleged that there was no packing materials for hank yarn seen in the factory and the invoices for clearing cone yarn, seized at the time of search were not accounted. He submitted that in the private diary, the quantity of yarn was mentioned as bags, and the production of cone yarn and hank yarn was clearly mentioned therein. Merely as it was mentioned as bags, the department has wrongly assumed that such references in the diary represents only cone yarn. Again, only because as there was no exclusive purchases of packing materials for packing hank yarn, the department assumed that hank yarn was not produced. The packing materials purchased for cone yarn was being used by appellant to pack hank yarn. The production of hank yarn was accounted and clearance of hank yarn was intimated to the department in their ER-1/RT-12 returns and there was no suppression at all. Annual stock taking was done by department on 11-11-2000 in which it was certified that during the period 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Company on the basis of such note book cannot sustain. (v) The diary recovered from the residence of Managing Director, Sh.Periasamy cannot be admitted in evidence. The description of yarn, whether it is cone or hank is not mentioned in this diary/document. Instead, it was mentioned only as bags. Merely for this reason, the department has assumed that the same were cone yarn and not hank yarn. That department has failed to establish wilful suppression or clandestine removal with intent to evade payment of duty. The SCN issued invoking extended period is therefore not legal or proper. (vi) Without prejudice, the Ld.Counsel pleaded to set aside the penalties imposed. He argued that department miserably failed to prove that hank yarn was not manufactured in the factory. Therefore the allegation that appellant cleared cone yarn in the guise of hank yarn and evaded duty cannot sustain. The evidences relied to conclude that cone yarn was removed clandestinely are not admissible. That the equal penalty imposed under 11AC is highly harsh as there is no suppression on the part of appellant. The department having failed to establish any role or positive act on the part of the othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to show that there was no hank yarn at all in the factory. The clearances of hank yarn shown in the report are merely figures adopted from the accounts of appellant. (iii) During the search different invoices with same Sl.Nos with different dates for clearance of cone yarn was recovered. Some were not accounted. For eg. there was double invoice with Sl.No.459. One invoice was dated 30/1/2002, whereas, with same Sl.No. another invoice is dt.31/1/2002. On scrutiny it was seen that both invoices with sl.No.459 for cone yarn was not accounted by ETM. Instead another invoice with same Sl.No.459/31.1.2002 was used to account as if 4991 kgs of hank yarn was cleared. This is supported by statements. Sh.G.Senthilkumar deposed that he loaded only cone yarn bags in his vehicle. The buyers such as Sh.L.Rajendran, Proprietor of Sri Sonakaruppan Yarns, Sh.K.L.S.Nataraj, Proprietor of M/s.Mariamman Yarn Stores have stated that they did not purchase hank yarn from ETM/KPK. (iv) Searches were also conducted at the premises of M/s.Saranya Impex / Saranya Garments on 18/6/2002. The officers noticed 10 bags of ETM cone yarn at the premises which was not covered by any invoice and these goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... showed that no invoices were issued for consignments noted against H . The diary also showed particulars of cash/cheque received and paid. The made up file seized from residence of Sh.Periasamy alongwith his diary and documents seized from KPK on comparison established that appellants cleared cone yarn without invoices and without payment of duty and also cleared cone yarn in the guise of hank yarn. The sum total of the evidences would establish clandestine clearance on the part of appellant. The Managing Director Sh.Periasamy had active role in such activities which is clear from his personal diary. He had noted H against the consignments for which invoices were not issued. The diary also showed that the yarn broker Sh.C.Elango and Sh.Ganesan, Proprietor of GS Tex, had meetings together to arrange for clearances of cone yarn in the guise of hank yarn and also for clearing cone yarn without payment of duty. The appellant is guilty of suppression of facts and wilful mis-statement as they have not disclosed the entire production of cone yarn in their ER-1/RT-12 returns. They mis-stated that hank yarn was produced and evaded duty. The evidence bring out that extended period has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent stock taking is nil. This would only prove that stock taking was conducted there was no hank yarn at all. Appellants have merely showed in their accounts that hank yarn was cleared and these figures have been adopted in the report which was endorsed by the officer. The report certifies that it is based on figures in stock register. Thus, we do not think that this document will support the appellant in any manner, especially when the stock of hank yarn on both dates of stock taking is shown to be nil . All these evidences leads to the strong inference that appellant company was not manufacturing hank yarn during the period of dispute. 5.2 The personal diary of Managing Director, Sh.K.Periasamy which was seized from his residence is another important evidence relied by department. The appellant has countered this document stating that the department has assumed that there is clearance of cone yarn in the guise of hank yarn and also unaccounted clearance of cone yarn merely because, the quantity of yarn was noted in the diary as bags. The evidence from the diary discussed in para 2.7 of the Order-in-Original would bring out the nature and reliability of this document and is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o tally. For example, production of 50 bags and clearance of 60 bags on 16.2.2000 and production of 50 bags on 17.02.2000 tallies with RG1 register. Hank yarn production is shown to have been started from 18.02.2000. RG1 shows production of 1650 kgs of 30s hosiery cone yarn and 877 kgs of DHPR yarn on 18.02.2000 which totals to 2527 kgs, i.e., 50.54 bags (50 kgs each). As seen from perusal of the diary, 51 bags (same quantity) were produced on 18.02.2000. Again production of 1650 kgs of 30s hosiery cone yarn and 1028 kgs of DHPR yarn on 19.02.2000 was accounted in RG1 which totals to 2678 kgs i.e., 53.56 bags. The diary also mentions a production of 54 bags on the said date. When dispatch details shown in the diary were verified with RG1, it was noticed that even though 80 bags were dispatched on 18.02.2000 as per the diary entry, no such entry was available in RG1. The dispatch of 60 bags mentioned in the diary on 19.02.2000, tallies with RG1. From the above, it appears that the daily production of yarn in ETM was being accounted in their RG1 either as cone yarn or hank yarn. The diary seized at the residence of Shri.K.Periyasamy, MD of ETM clearly indicates clearance of cone yarn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ie voucher it was seen that as per Invoice No.469/23.2.2002, 12 bags were delivered at RVR. But the Invoice No.468/26.02.2002 is accounted by appellant, as sale of 348 bundles of hank yarn to KPK Exports, and Invoice number 469/26.02.2002 as sale of 348 bundles to KPK. 5.5 The modus operandi by raising such parallel invoices with same serial number is clear from the statement of Sh.N.Suresh who is a clerk of Everwin Export Corporation a group company of appellant who was taking care of accounts of all the units including appellant. He has deposed to the effect that by such invoices though raised in the name of KPK and not accounted the goods were directly sent to parties. After delivery, the invoices which were in the name of KPK was taken back by their staff. All invoices issued by ETM in the name of KPK were mere invoices, meant to cover delivery of goods made directly to parties and no goods were physically received at KPK. At KPK, the hank invoices are adjusted by way of creating sales to few fictitious parties and to Mariyamman Yarns and Sri Sonakaruppan Yarn etc. The cone yarn invoices taken back were destroyed immediately. The statement of the Managing Director, Sh.K.Peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod is not without grounds. The arguement of appellant on limitation also fails. 5.8 Having found that the invocation of extended period is legal and proper, the penalty imposed under Section 11AC equal to the duty demand is attracted. The Hon ble Supreme Court in the case of UOI Vs Dharmendra Textiles Processor Ors 2008 (231) ELT 3 (S.C.) followed by UOI Vs Rajasthan Spinning and Weaving Mills (2009) 238 ELT 3 (S.C.) has held that when contumacious conduct of the assessee in evading duty is established the penalty under 11AC will have to be imposed. From the totality of facts, evidence and the case laws, we are of the considered opinion that department has been able to establish case laws a strong case in their favour. We therefore find no grounds to interfere with the duty demand, confiscation or the penalty imposed under 11AC of Central Excise Act, 1944. However, we are of the view, that since equal penalty under 11AC is imposed, a further penalty of ₹ 50 Lakhs on the appellant company, each under Rule 25 and Rule 173Q is unwarranted and requires to be set aside which we hereby do. So also the personal penalties imposed on the parties being on the higher side and to ..... 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