TMI Blog2008 (7) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... s recovered several incriminating documents, three CPUs and seized 94 pieces of 'fully assembled photocopiers'. Scrutiny of the documents revealed that CFI had imported second-hand photocopier sub-assemblies condition from countries such as Sri Lanka, Singapore and Australia. Imports were also made in the names of several dummy units created by CFI. The Managing Director of CFI admitted that the other importers (firms) were his creation. All the related Bills of Entry for import of photocopier sub-assemblies were seen to have been assessed under CSH 9009.90 i.e. photocopier parts/components. The brands included Canon, Modi Xerox and Agfa. Printouts of data retrieved from the CPUs seized from CFI premises showed details of transactions in photocopier parts and photocopiers by CFI during 2001-02 and 2002-03 (12/01 to 1/03). The data showed transactions by CFI in the names of dummies also. Various statements recorded from Shri K.A. Shabu, Managing Director of CFI revealed that CFI had thus imported subassemblies and components of second-hand photocopiers of various brands through Chennai port. The photocopiers were assembled in the godowns of CFI at Saidapet and Anna Salai. The photoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n containers. Shri D. Padmarajan, deposed in his statement dated 7-3-2002 that he had helped Shri K.A. Shabu, in the clearance of goods in the name of CFI and others (the dummies). Shri K.A. Shabu had imported photocopier sub-assemblies in several names in addition to CFL Shri K.A. Shabu would hand over import documents such as Bill of Lading, Import Invoice, Packing List, Cargo Arrival Notice and necessary funds for meeting expenses towards clearance of the imported goods. He would be funds which were deposited in his name and his wife's name in banks for obtaining DDs in various firms' names towards duty on the goods imported and for making payments to Steamer Agents. After completing investigation, a Show Cause Notice was issued proposing to confiscate the seized photocopiers and another (No. 3/06 dated 24-1-06) proposing to demand duty of Rs. 9,84,39,315/- for the period 1/2001 to 12/2002 under Section 11A(1) of Central Excise Act, 1944 (CEA), the interest thereon in terms of provisions of Section 11AB of CEA and imposing penalties. The above Show Cause Notice was addressed to CFI SCN was issued to Shri K.A. Shabu proposing to penalize him under Rule 209A of the CER '44/ Rule 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to imports by CFI and other concerns were stored in the CPU of CFI showed that all the imports of sub-assemblies were on account of CFI. The Commissioner found records/registers for common accountal of receipts of sub- assemblies and deployment of personnel for various items of work related to assembling of photocopiers. On the date of search several photocopiers ready for dispatch as well as at different stages of assembly were found. The computer printouts showed transactions of various concerns recorded in a systematic and meticulous manner. Shri D.Padmarajan had in his statement (though retracted in cross-examination) admitted that all impugned imports were for CFI. Import documents showed that goods imported were parts of photocopier machines falling under CSH 9009.99. All the goods had been stored in CFI premises also at Saidapet and Madhavaram. Officers seized two containers of photocopier machines in packed condition without proper transport documents and without proper invoices. The imported goods were stored in a common pool. However, receipts of imports made by CFI were accounted separately in their books of accounts maintained under the heading "Copier Force India P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transactions were on behalf of CFI. CFI had manufactured a new product different from the inputs, imported sub-assemblies and indigenous parts and sold them under brand names not owned by them. Therefore, excise duty was payable on the seized goods and the clandestine removals. In computing the clearance value transactions in the names of various concerns accounted in the computer records were taken into account. The Commissioner found sufficient evidence to hold that all the transactions were conducted at the behest of Shri K.A. Shabu by the employees of CFI. CPUs were seized from the CFI premises. The data could be accessed only with the password known to Ms. Radha, who was an Accounts Assistant of CFI. Statements of the staff of CFI confirmed transactions under fictitious names like Abci, RAM, RAD which were actual transactions of CFI. They agreed that 'Gears' represented assembled photocopiers. CPUs were operated and printouts taken in the presence of CFI staff under mahazar. Corroborations of transactions by buyers lent authenticity to the transactions found in the computer records. 6. Shri S. Krishnakumar, Accountant and Ms. Radha, Accounts Assistant who handled electr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emanded duty of Rs. 2,19,380/- under Section 11A(1) of the Act. (iii) Demanded duty of Rs. 9,84,39,315/- for the period January, 2001 to December 2002 under Section 11A(1) of the Act. (iv) Ordered recovery of interest under Section 11AB of the Act. (v) Imposed penalty equal to Rs. 9,86,58,695/- on CFI. (vi) Imposed penalty of Rs. 2,50,000/- on CFI under Rule 173Q read with Rule 25 of CER (No. 2) Rules, 2001 and Rule 25 of CER, 2002. (vii) Appropriated Rs. 17 lakhs towards the duty due of Rs. 9,84,39,315/- (viii) Imposed penalty of Rs. 80 lakhs each on S/Shri Mujib Rahim, M.A. Nishad and P.D. Jobin and Rs. 90 lakhs on Shri K.A. Shabu under Rule 209A of the CER, 2004, Rule 26 of CER (No. 2), 2001/Rule 26 of CER, 2002. 7. In the captioned appeals filed against the impugned order, the individuals challenge the penalty imposed on them as not justified. In the appeal of CFI, grounds are discussed under the following three major headings. (a) Illegality of Show Cause Notice (b) Admissibility of evidence (c) Denial of manufacture. (a) Illegality of Show Cause Notice : No Show Cause Notice had been issued to any of the alleged dummy units whose value of clearanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depositions before DGCEI officers that they had dealt with Shri K.A. Shabu. Shri K.A. Shabu had retracted his depositions during cross-examination and denied that he was Managing Director of CFI during the material period. Shri D. Padmarajan, during the cross-examination deposed that individual importers would approach him to take clearance of goods and for import documentation. He denied that goods imported by others had been sent to Shri Shabu's godowns. (c) Denial of Manufacture Shri S. Krishnakumar deposed during cross-examination that he did not have any computer knowledge and that one Ms. Rathi had entered data using Tally Computer Software. Investigation did not collect evidence from Ms. Rathi. Therefore computer printouts could not be relied on. All the sub-assemblies imported by various dummy units came to the godowns of CFI was a finding based on the statement of Shri D. Padmarajan, who had retracted the same. Shri G. Somasundaram who had given a statement to the effect that CFI had engaged in assembling/manufacturing photocopiers could not be produced for cross-examination by the authorities. Several case law were cited to the effect that failure of witnesses to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment's case rested on imported 5338 sub-assemblies. Out of this, 1346 sub-assemblies were not imported during the material period reducing the relevant number of sub-assemblies to 3992. There were discrepancies in the IE codes (addresses) and the importing concerns. As per the bank records imports attributable to these concerns were totally 755. When such imports were deducted, the material imports came down to 3237. Many of the concerns were owned by parties not related to CFI. Their imports worked out to 586. Reducing this number, the material imported worked out to 2651. They had submitted a certificate dated 17-2-08 of M/s. Moody International (I) (P) Ltd., Chartered Engineers who certified that 14 numbers of various sub-assemblies and parts were required to make a complete photocopier. Therefore, with 2651 sub-assemblies, only 189 photocopiers could be assembled. 8.2 There was no evidence to show that the seized photocopiers had been assembled out of the sub-assemblies imported by the various concerns. Those photocopiers were not shown in the name of any fictitious concerns. There was no evidence of manufacture of photocopiers by the appellants. The Commissioner found t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 94 pieces of photocopiers could be demanded only when they were cleared. 8.6 It was submitted by Shri N. Rajagopalan, the Spl. Consultant for the department that Shri K.A. Shabu gave nine confessional statements claiming himself to be the MD of CFI before the authorities. His letters dated 5-5-03 and 12-6-03, showed that he was an authorised signatory of CFI. His retraction after three and a half years in cross-examination was not acceptable. Shri K.A. Shabu had to be accepted as a person in charge of all activities of CFI. Appellants did not dispute the modus operandi followed. Show cause notice was not issued to the various firms as they were not involved in the case as manufacturers. Assembly of photocopiers took place at Saidapet and Anna Salai where CFI office was located. Sale proceeds were realised mostly in cash. Whenever sale proceeds were realised by DDs or cheques, Shri K.A. Shabu instructed to take them in the name of other firms. Further, ld. Spl. Consultant submitted that CFI and other firms imported only components of photocopiers (CSH 9009.90) and they did not import full machines. The goods imported by CFI were brought to Saidapet for manufacture. He further su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank and the amounts were not entered in full in the computer. On comparison with the bank records it was seen that only one per cent of each payment was entered in the computer accounts against each transaction. Accounts were all in the names of employees of CFI. They had been introduced to the bank by another CFI employee. Shri Dhanaraj, who cleared photocopier parts imported by CFI and its employees from Customs, had deposed that all clearances were taken delivery and transported to CFI. This position was evidenced also by the tally for unloading cargo from trucks at Saidapet godown of CFI. Copy of the tally sheets recovered was submitted to us by the Sr. Counsel at the time of hearing. It showed registration number of vehicles, number of containers and the tally sheet for unloading units of certain cargo which had been admitted to be sub-assemblies of photocopiers by appellants. All the nine statements given by Shri K.A. Shabu were given as MD of CFI. He had also given statement to Sales Tax authorities as MD, CFI. In a couple of letters addressed to DGCEI Shri K.A. Shabu described himself as authorised signatory of CFI. He presented himself for examination by DGCEI in respons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re and clearance of photocopiers without following Central Excise formalities and evasion of massive amounts of duty by fraud in which CFI was fully involved. 9.1 As regards the certificate to be given in terms of Sub-section 2(d) of Sec. 36B, it is admitted that Shri Krishnakumar, Manager (Accounts) CFI and his Assistants Ms. Radha, and Ms. Rathi entered the data on a daily basis. This has been admitted by Shri S. Krishnakumar, in his statement dated 29-1-03. This will meet the requirement of certification in terms of Sub-section 2(d) Section 36B of the Act. They cannot later say that no enquiry was made with the person stipulated u/s 36B(2)(d). Revenue has argued that once the printout is taken in presence of responsible persons who dealt with the data entry in the CPU and retrieval, printouts of such data do not need to comply with the safeguards enlisted u/s 36B(2) of the Act. While this is a reasonable stand, we find that the data retrieved are proved by the bank statements and oral evidence of employees of CFI. Thus the computer printouts are not solely relied on as evidence and the non-fulfilment of conditions under 36B(2) alleged does not affect the printouts being used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver that period as mentioned in clause (a) of sub-section (2) was regularly performed by computers, whether — (a) by a combination of computers operating over that period; or (b) by different computers operating in succession over that period; or (c) by different combinations of computers operating in succession over that period; or (d) in any other manner involving the successive operation over that period, in whatever order, of one or more computers and one or more combinations of computers, all the computers used for that purpose during that period shall be treated for the purposes of this section as constituting a single computer; and references in this section to a computer shall be construed accordingly. (4) In any proceedings under this Act and the rules made there under where it is desired to give a statement in evidence by virtue of this section, a certificate doing any of the following things, that is to say, — (a) identifying the document containing the statement and describing the manner in which it was produced; (b) giving such particulars of any device involved in the production of that document as may be appropriate for the purpose of showing that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable or correct. In any case, the revenue's case is not that the slips contained complete account of sub-assemblies received by CFI. 9.4 The impugned order has been challenged on three main grounds. First is validity of the show cause notice, second admissibility of computer printouts as evidence and third is lack of evidence as regards process of manufacture. From the analysis of the evidence, we find that the CFI manufactured and cleared photocopiers from sub-assemblies/components imported and indigenously sourced without following the statutory formalities prescribed in the Central Excise law. From the evidences gathered it is obvious that CFI was a corporate facade behind which a few individuals perpetrated a commercial fraud of illicit manufacture and clearance of photocopiers and massive evasion of central excise duty. As rightly argued by the special consultant for the department, when the printouts of data are taken from the assessee's computer in regular use in presence of its employees who operated the said computer, it is reasonable to infer that the requirements prescribed under Section 36B(2) have been met. In any case, the computer printouts are not stand alone e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CE v. Maganlal Nandlal Sons - 1999 (113) E.L.T. 597 7. K.R. Balachandran v. Commr. - 2003 (151) E.L.T. 68 8. Velmurugan Engg. v. CCE - 2005 (187) E.L.T. 371 9. Poly Resins v. CCE [2003 (161) E.L.T. 1136 Vide the Tribunal's decision in the case of CCE v. Sethia Foods (supra), it has been held that when show cause notice is not issued to the dummy unit, clubbing is not permissible. Therefore the demand of duty from CFI and related penalties are not sustainable to the extent it relates to photocopiers relatable to dummy units. 9.7 In view of the infringement of central excise law relating to assembly, unauthorized manufacture contravening statutory provisions contained in the Central Excise Act and Central Excise Rules, 94 pieces of photocopiers seized were rightly confiscated by the Commissioner. The confiscation is upheld. However the fine imposed is in excess of that authorized by law. The same is set aside. Duty due on these machines has to be paid. The demand of duty on CFI and penalties imposed on all the appellants are set aside. These shall be decided in a fresh proceeding following principles of natural justice. The appeals are thus allowed in part ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
