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2019 (11) TMI 175

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..... uation in the trade of plywood and veneers, has not retracted his statement. The records maintained by Shri Ramesh Shetty in the factory of the appellants cannot be brushed aside as nobody would note down such entries just for fun. Ongoing through the entirety of the circumstances of the case, we find that the Department has undertaken a wide investigation and has established the fact that the appellants were indulging in undervaluation. We find that as this is a case of tax evasion and not a criminal offence to be proved beyond reasonable doubt. We hold that the investigation could establish to set the principles of preponderance of probability in motion for a proper appreciation of the case. Tax evasion - HELD THAT:- The principle of pre-ponderance of probability has precedence over proof beyond doubt. It is widely accepted that 'Preponderance of probability' is met when a proposition is more likely to be understood by people of reasonable intelligence to be true than to be not true. Effectively, the standard is satisfied if at least there is 50% or more chance that the given proposition is believable by a reasonably prudent to be true. Acceptance of the principle of prep .....

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..... iling declarations annually. The Appellant had during the period in dispute, every year over 20 dealers spread across the country and also had individual customers to whom goods were sold. The goods are all liable to duty ad-valorem and assessable under section 4 on the basis of transaction value. DGCEI, Bangalore the Appellant and show cause notices dated 11.12.2006and 19.7.2007 were issued. The allegation was that the Appellant was indulging in undervaluation of goods; were showing a lesser price/value than the actual selling price of the final product and collecting the excess sale price in cash and were procuring raw materials and paid cash without accounting the same in their books of account and showing wrong description to suppress the value of such raw materials. Commissioner of central Excise, vide OIO No17/2007dated 7.12.2007, confirmed the demand of duty of ₹ 66, 06,964/- with interest and imposed equal penalty on the Appellant. Hence, appeal No E/183/2008. Revenue has filed appeal No E/263/2008 pleading that Personal penalty on Shri Haji Ibrahim, Partner may be upheld. 2. The Learned counsel for the appellants reiterates the grounds of appeal and submits that the .....

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..... rchase invoice of M/s. National Veneer Products, Kasargod to allege that the Appellant has been using the excess cash collected without recording such payments, relying on the ledger extracts of two suppliers namely INA India Limited, Bangalore and Rehmaniya Furniture, Kasargod (at Annexure C.1.5 & C.1.6 of the notice). The Department s case is disproved from Annexure C.1.5 & C.1.6 itself since it is clear from said Annexures that the Appellant had made payment to these two suppliers only by cheque, except for one transaction, in the case of INA India Limited, for which consideration was paid in cash. 2.2. The Learned Counsel submits that the impugned order is contrary to the decision of the Supreme Court in the case of Oudh Sugar Mills Limited v. UOI, 1978 (2) ELT 172 (SC). The demand being on averages and not on evidence is liable to be set aside. Respondent has ignored the record of cross-examination of the department s witness whose veracity has been questioned and impeached by the Appellant. Non-consideration of cross-examination record is as good as not granting cross-examination. Hence, the impugned order is therefore vitiated in law and liable to be annulled being v .....

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..... l Excise law since 1996 but surrendered being well within the SSI exemption limit and annual declarations were filed. It is submitted that when the Appellant was registered and were regularly filing periodical returns, declarations under the CE Rules, and in the light of regular correspondence with the department, departmental visits, etc, the facts were within the knowledge of the department. The Appellant has been victimized merely because of an industry practice that was prevalent in resorting to undervaluation, which cannot be the basis for justifying invoking the extended period of limitation. The Learned Counsel further submits that the question of invoking extended period on a question such as valuation, which is subject matter of dispute, in the case of a registered assessee would not arise and there was no suppression of facts or other ingredient to invoke the extended period of limitation. 2.6. The Appellant submits that Respondent has under the facade of best judgment assessment resorted to estimates and guesstimates and proceeded to demand duty and impose penalty on a specious basis. The Appellant submits that in the light of the above, when there is no duty liability, .....

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..... was ₹ 1, 92, 759; difference was paid in cash. (iii). Purchase Ledgers revealed that payments in cash made in respect of 6 consignments, of wooden planks from M/s Safwan Wood products, were not accounted for by Kammadi. (iv). Purchases ₹ 1, 06, 596 from M/s INA India Ltd in 10 instances and of 18,736 from M/s Rehmania Furniture in 7 instances were not accounted for in the records of Kammadi. Verification from suppliers confirmed that the amounts were paid in cash. (v). "Glue Register' showed that it was maintained in respect of purchases of raw materials for making UF and PF glue; however, while receipts of Phenol were found recorded therein, no purchase documents were found for Phenol. (vi). purchases of Phenol (used for the manufacture of PF glue) from M/s Bhanu Enterprises was shown as 'Formaldehyde'. Excess over invoiced amounts for such purchases was made in cash. (vii). Shri Hajee Ibrahim, Managing Partner of Kammadi, admitted that as existed in the plywood industry some amount was collected in cash from their dealers and this cash amount was paid to the suppliers of veneers, timbers etc; the products of their company were sold almost at the same .....

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..... ut a preponderance of facts and circumstances that are convincing to the jury." 5.3. Supreme Court in the case of Maharashtra State Board of Secondary and Higher Education v K. S. Gandhi & Others (1991) 2 SCC 716 1 held that It is thus well settled law that strict rules of the Evidence Act, and the standard of proof envisaged therein do not apply to departmental proceedings or domestic tribunal. It is open to the authorities to receive and place on record all the necessary facts though not proved strictly in conformity with the Evidence Act .The evidence must be germane and relevant to the facts in issue. In grave cases like forgery, fraud, conspiracy, misappropriation, etc. seldom direct evidence would be available. Only the circumstantial evidence would furnish the proof. There must be evidence direct or circumstantial to deduce necessary inferences in proof of the facts in issue. There can be no inferences unless there are objective facts, direct or circumstantial from which to infer the other fact which it is sought to establish. The standard of proof is not proof beyond reasonable doubt 'but' the preponderance of probabilities tending to draw an inference that .....

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..... ang] (vi) National Boards and Others Final OrderNo670-687 dated 1/4/2010- T-Bang 5.7. He submitted that in all the above cases, the modus operandi followed by the assessees was absolutely identical. The Hon ble Tribunal came to the conclusion in all the aforesaid cases that the allegation of undervaluation was established based on the principles of 'preponderance of probability'. However, on the issues of quantification of duty demand and penalties the cases were remanded to the original authority with directions to decide the 'normal price' in respect of each type of goods and compute the differential duty for the period before 1/7/2000 and to determine the value based on each transaction and confining the differential duty to the evidences on record for the period after 1/7/2000. Furthermore, in all the above cases, statements of only a few dealers were recorded. In the instant case, a significant factor is that the purchases of the 4 dealers together accounted for more than 77% of the total sales of Kanmadi during 2002-2003 to 2005-2006. The adjudicating authority has extensively dealt (Para 65) with this aspect. Four dealers (Milan Plywood, Vinod Plywood, Amar G .....

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..... y conditions for the existence of a 'transaction value' at the factory gate is not satisfied. Further, the price indicated on the invoice is not the price actually paid for each transaction, as established by the evidence lent by Revenue. In the light of decision of Supreme Court in the case of CCE, Mumbai vs. Fiat India Pvt. Ltd. [2012 283) ELT 0161 (SC) and directions of the Hon'ble Tribunal in the six cases cited above, requires reconsideration. The formula adopted in the 0I0, applying the provisions of Rule 11 of the Central Excise Valuation Rules,2000, is in the facts and circumstances of the case, legal and proper and hence, merits approval. The re-determination of the actual sales values for the period from October, 2001 to 31/3/2006 has been done by applying this percentage. The details are set out in Annexure 'D' appended to the SCN. 5.10. Learned special Counsel submitted, with reference to revenue appeal against the impugned OIO, that the adjudicating authority has erred in refraining from imposing a penalty on the partner of the Appellant firm, when it has been clearly established that the partner was not only actively involved in under invoicing the .....

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..... ages built on conjectures and surmises, would haves and could haves and not the actual facts; the adjudication order did not take note of Section 4 and Rules framed thereunder; the appellants had 20 dealers spread across the country and are also selling goods to independent customers; the investigation did not ascertain the sale prices from other dealers and independent customers; the adjudicating authority confirmed the demand entirely on assumptions and presumption which are sweeping using a thumb rule formula; though the appellant produced before the adjudicating authority certificate of 24 dealers who categorically stated that they have paid the consideration only in cheque and cash and that no consideration over and above the invoice amount was paid in cash. 8. Countering this learned special counsel for the Department submits that it is not just a matter of 4 slips and 4 dealers; the 4 dealers i.e. Milan Plywood Suppliers, Vinod Plywood Suppliers, Aman Glass and Plywoods and National who are examined accounted for 73.58% of the total sales in 2002-03, 89.96% in 2003-04, 74.62% in 2004-05 and 73.06% in 2005-06. The learned Special Counsel submits that the dealers questioned co .....

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..... accepted the statement of Shri. Ramesh Shetty and also the fact of existence of undervaluation in the trade of plywood and veneers, has not retracted his statement. The records maintained by Shri Ramesh Shetty in the factory of the appellants cannot be brushed aside as nobody would note down such entries just for fun. Ongoing through the entirety of the circumstances of the case, we find that the Department has undertaken a wide investigation and has established the fact that the appellants were indulging in undervaluation. We find that as this is a case of tax evasion and not a criminal offence to be proved beyond reasonable doubt. We hold that the investigation could establish to set the principles of preponderance of probability in motion for a proper appreciation of the case. 10. Understandably, we are dealing with a case of tax-evasion and not a criminal case wherein the degree and standard of evidence is much higher and more precise. As far as the tax-evasion cases are concerned, we find that the principle of pre-ponderance of probability has precedence over proof beyond doubt. It is widely accepted that 'Preponderance of probability' is met when a proposition is more .....

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..... asion cannot be covered up by mere citing of the principle. A fine line of distinction requires to be drawn. Therefore, while accepting the fact that there was under-valuation resorted to by these companies, we find that the methodology adopted to quantify the duty evaded should be sustainable on the evidence available and quantum thereof, need to be arrived in a logical, rational and legally appropriate manner. We find that in the instant case the Department has some sort of corroborative evidence in the form of slips recovered from Shri. Ramesh Shetty, Manager, which is supported by the statements of Shri Ramesh Shetty and Shri Hajee Ibrahim. We find that the show-cause notice discusses this evidence at para 20, as reproduced as below: 20. It is seen from the page No. 18 & 19 of file 22 seized vide mahazar dated 16.12006 drawn at the factory of M/s. Kammadi that the actual sale value in respect of the year 2004-05 have been recorded therein, which has been confirmed by Shri. Ramesh Shetty, Manager, M/s. Kammadi in his statements dated 16.012006 and 26.09.2006. As per the said document the total sale value for the year 2004-05 is ₹ 2,26,84,036/-, whereas the value of cle .....

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..... can at best be a confirmation of a fact but at the same time it may not be used to confirm a figure. We find that the principle cannot be used for quantification of evasion of duty over a period of time particularly in the absence of corroborative evidence. We find that the principle of preponderance of probability should not be misused to make sweeping allegations and arriving at imaginary figures. Therefore, we find that the allegation of duty evasion can be held to be sustainable only where corroborative evidence other than the statements recorded. In the instant case, the statements are retracted though in a belated manner. Only statements which are supported by corroborative evidence are not vitiated by retractions. Therefore, we find that in the instant case the allegation of duty evasion is sustainable only for the year 2004-05, as discussed in the show-cause notice at Para No. 20. 14. Learned Counsel also submitted that the impugned order is contrary to the concept and definition of transaction value in Section 4 of the Act and none of the valuation rules have been cited or resorted to for demanding duty. Further, the Respondent has overlooked the provisions of Section 4 o .....

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..... have confronted the officials of the assessee-company at their depot in Bangalore. They had also contacted certain dealers. They had collected a lot of incriminating documents. We do not want to list them again. They have elsewhere in this order, been enumerated. All these things have been discussed by the Commissioner in his order. Therefore, as far as the evidence for under-invoicing is concerned, we have to say that there is overwhelming evidence for under-invoicing. We cannot accept the learned Advocate s contention that there is no under invoicing or corroboration and the entire demand is made on presumptions and assumptions. The depot officials themselves have accepted that cash in excess of the invoice value is being separately collected. In fact, according to the Revenue, 30% of the actual value only is mentioned in the invoice and the remaining 70% is collected as cash. This is the main charge. We cannot say that this charge is baseless because the dealers from whom statements have been recorded have accepted that excess cash is being collected. Therefore, one thing is very clear that the price mentioned in the invoice is not the correct price. There is evidence that the a .....

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