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2019 (11) TMI 175

..... 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 - preponderance of probability. HELD THAT:- We find that Department alleges that purchase of phenol is not found mentioned under Glue register. We also find that Shri Ramesh Shetty vide affidavit dated 27.09.2006 has retracted his statement dated 26.09.2006. However, he did not choose to appear before the Deputy Director of DGCEI to put forth evidence in support of his claim. We also find that Shri Hajee Ibrahim, who has 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 investiga .....

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..... ppellants of being heard - the penalty imposable under Section 11AC of the Central Excise Act shall be equal to such duty re-quantified. Appeal allowed by way of remand. - E/183/2008-DB; E/263/2008 - Final Order Nos. 20986 -20987/2019 - 1-11-2019 - SHRI S.S GARG, JUDICIAL MEMBER AND SHRI P. ANJANI KUMAR, TECHNICAL MEMBER For the Appellant : Mr. N. Anand, Advocate For the Respondent : Mr. P. R. V. Ramanan, Special Counsel ORDER Briefly stated the facts of the case are that the Appellant, M/s Kammadi Plywoods and Block Boards, Puttur, is a partnership engaged in manufacture of different varieties, quality and grades of plywood, block boards, veneers and panels falling under Chapter 44 of the Central Excise Tariff Act, 1985. The Appellant was registered with the Department in 1996 and later surrendered registration but had been filing 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. .....

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..... s from other dealers and independent customers but generalized the issue. Investigation ignored the fact that the products were different, the descriptions, dimensions and grades were different and took the approach that the same one shoe fits all for a period of five years. The demand is not tenable. The Appellant produced before the Respondent certificates and declarations from its dealers and suppliers (24 dealers and suppliers in total at pp.306 - 329); majority of the dealers and suppliers have certified the fact that they purchase goods from/supplied goods to the Appellant and paid consideration only by cheque or DD and never paid any cash. This material fact has been ignored by the Respondent, who has applied averages as alleged in the notice and demanded duty wrongly. Investigation has taken a solitary instance of a purchase 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 f .....

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..... ept 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 of the Act which provides for transaction value for each removal of excisable goods. Further, the excisable goods manufactured and cleared by the Appellant are of different types, grades, quality, dimensions, specifications, etc. There cannot be any question of applying averages while computing the transaction value ignoring the assessment of each removal of excisable goods as envisaged in section 4 read with Valuation Rules, 2000 and also Rule 5 of the CER, 2002. 2.5. The Learned Counsel further submits that the entire adjudication demand was barred by limitation as the Appellant was duly registered under the Central 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 withi .....

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..... rmed. 4. Learned special Counsel highlighted the findings in OIO, particularly in Paragraphs 51-64 and submitted that the evidence led by the Revenue and their probative value are discussed in detail. He enumerated the records recovered, mostly private as below (References are to pages in Volume-I). (i). Shri Ramesh Shetty, Manager at Kanmadi's in his statement dated 16/1/06 accepted that 77 entries showing details of sales were actual realization of value from 2/4/2004 to 31/3/05; Managing Partner accepted that this statement was prepared by Shri Shetty. (ii). Shri Hajee Ibrahim, Partner, confirmed the fact in his statement of 23/ 1/06 that Slip at page 17 of seized file No.22 (Page 405) refers to Bill of purchase of veneers from National Veneers, wherein the amount shown was ₹ 80,507, whereas the actual amount paid 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 .....

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..... ate duty' time and again both Tribunals and Courts have adopted 'preponderance of probability' as the standard. Thus, the appropriate and correct application of the principle of 'preponderance of probability' has considerable significance for the present Appeals. It is widely accepted that 'Preponderance of probability' is met if the proposition is more likely to be true than not true. Effectively, the standard is satisfied if there is greater than 50% chance that the proposition is true. He submits that 5.1. Lord Denning in Miller Vs Minister of Pensions described it simply as "more probable than not". 5.2. P. Ramanatha Aiyar's "Advanced Law Lexicon", 3rd Edition, page 3688, - "By preponderance of evidence is not meant a preponderance in point of numbers of witnesses, but 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 d .....

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..... its primary burden." In the case of Gulabchand Silk Mills Vs CCE, Hyderabad -II, Hon'ble Tribunal observed that clandestine activity can at best be established only by circumstantial evidence and it would be humanly impossible to establish every link in the chain of clandestine activity without any break. 5.6. He submitted that with reference to the present Appeals of Kanmadi and others, the evidence produced by the Revenue to establish undervaluation is similar to the evidence led in the following cases: (i) CERA Boards and Doo₹ 12010 (249) ELI' 550- I'- Bang] (ii) Hero Plywood and Boards [2009 (248) ELI' (205) - I'- Bang] (iii) Noble Plywood [2009 (248) ELT (440) - I'- Bang] (iv) Prestige Boards Pvt. Ltd. [2009 (248) ELT (313) - T- Bang] (v) Thumbay Holdings [2011(272) ELI' (225) - T- Bang] (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 'prepon .....

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..... el submitted that in the present case the duty demand is in respect of clearances after 1/7/2000. As per Section 4 (1) (a) as at present, the value for the purpose of assessment on each removal of the goods shall in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer are not related, and the price is the sole consideration for the sale, be the transaction value;" By definition, a necessary concomitant of the transaction value is that the price should be the sole consideration for the sale. Thus, where additional consideration by way of cash flowed from the buyer to the assessee and the same was required to be paid by the buyer to the assessee, over and above the price shown on the invoice at the time of removal from the factory, one of the necessary 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 ( .....

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..... only shown 43.24% of the actual value in their invoices and suppressed the balance percentage and have recovered cash over and above the invoiced amount; they have also purchased raw-materials by paying in cash and by describing their raw-materials in different names. The Department came to the conclusion that the appellants have made clearances worth ₹ 2,15,35,646/- during the year 2004-05 whereas they have only shown the value of clearances in the invoices for ₹ 93,12,383/-. 7. Per contra, the appellant submit that the allegation made by the Department is based on 4 slips of paper; on the basis of this, the Department has quantified the undervaluation supposed to have been made by the appellants for a total of 1749 days; moreover the said sheets of paper did not relate to the entire period; the demand is on averages 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 i .....

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..... representatives and the amount shown in the invoice was paid by cheque or DD as per instructions given by either Shri. Ramesh Shetty, the Manager or Shri. Hajee Ibrahim, the Managing Partner. We also find that the suppliers of raw-material to the appellants also accepted purchases in cash in addition to the fact that the item procures from them was variously describes as formaldehyde , Urea , Caustic Soda , Formic Acid , Phenol , MUF Glue and PF Blue . We find that Department alleges that purchase of phenol is not found mentioned under Glue register. We also find that Shri Ramesh Shetty vide affidavit dated 27.09.2006 has retracted his statement dated 26.09.2006. However, he did not choose to appear before the Deputy Director of DGCEI to put forth evidence in support of his claim. We also find that Shri Hajee Ibrahim, who has 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 circum .....

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..... e gauged from facts anti circumstances in a given case. The standard of proof is the same both in civil cases and domestic enquiries." 11. Having upheld the fact of undervaluation resorted to by the appellants we do not find that the ratio of the cases, which were under CrPC or cases pertaining to clandestine removal, relied upon by the appellants cannot be applied. Now we turn our discussion to the quantification of the duty evasion. It is now settled principle that cases of this nature need not be proved with mathematical precision. At the same time, a single piece of evidence cannot be accepted to encompass the whole gamut of transactions. Acceptance of the principle of preponderance cannot be a License to demand duty on the basis of assumptions/presumptions/ vague imputations. Inability to investigate and establish evasion 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 i .....

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..... fact that the goods sold by the appellants are of different varieties and sizes. Shri Milap Chand Jain has furnished the actual and invoice price goods sold by M/s. Kammadi for different descriptions of goods such as plywood 6mm, plywood 8/9mm, plywood 12mm, plywood 18mm, block board 19mm and block board 25mm. on going through the prices, it is seen that the undervaluation varies from product to product. Moreover, in a typical business atmosphere it cannot be said that all the goods are sold at a uniformly undervalued price. It is also possible that at times the prices indicated may be actual and at times the goods may be sold at a loss. 13. Therefore, extrapolating the figure arrived for one year to all the years in dispute is stretching things too far. As we have observed above, the principle of preponderance of probability 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 alleg .....

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..... egal and proper and hence, merits approval. However, we find that the show-cause notice has not invoked Rule 11 of Central Excise (Valuation) Rules, 2000. Commissioner in the impugned order simply mentions the Valuation Rules, but does not discuss the applicability of Rule 11. Therefore, we are not inclined to accept the submissions of the Special Counsel. We also find that the facts of the case cited by Special Counsel are different. 15. We find that DGCEI has made a series of cases against manufacturers of Veneers and Plywood across South India. Some cases have travelled up to the Tribunal on adjudication. CERA Boards and Doors 2010 (249) ELT 550 (Tri. Bang) was one such case. This Bench observed that: 11.5 As regards the allegation of under invoicing is concerned, we find that the investigation done is very extensive. They 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 ev .....

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