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Ambika Steel Industries V/S Commissioner of Central Excise, Customs and Service Tax, Hyderabad-III

    Appeal No. E/30754/2016 (Arising out of Order-in-Appeal No. HYD-CEX-003-APP-002-16-17 dated 11.04.2016 passed by Commissioner of Customs & Central Excise (Appeals), Hyderabad) and Final Order No. 30010/2018

    Decided On, 22 January 2018

    At, Customs Excise Service Tax Appellate Tribunal Regional Bench Hyderabad

    By, MEMBER

    For Petitioner: Sudharshan Wellington, Advocate And For Respondents: Arun Kumar, Deputy Commissioner (AR)

Judgment Text

1. This appeal is directed against Order-in-Appeal No. HYD-CEX-003-APP-002-16-17 dt. 11.04.2016 passed by Commissioner (Appeals).

2. The relevant fact that arises for consideration are the appellant herein are engaged in manufacturer of MS Angles, MS Flats, MS Sq. Bars and MS Channels falling under chapter 72 of the Central Excise Tariff. They were issued show cause notice dt. 22.04.2013 alleging that during search at the factory premises on 18.01.2012 the officers recovered blank unnumbered invoice book signed by the authorized signatory alongwith numbering machine and two private notebooks showing day wise details of production and clearance from room of Supervisor Shri Kuldeep Saini. During physical verification a shortage of 29.775 Mts. was also found. The proprietor of the Unit accepted maintenance of note books and second set of invoice. Shri Kuldeep Saini in his statement dated 18.01.2012 stated that the note books recovered from them were maintained as per instructions of Shri Shiv Narayan Sharma, Proprietor, to enter daily production and details and it reflects actual production and clearances of finished goods and the details recorded in RG-1 register are not correct; un-numbered invoice book is being used for clearing unaccounted goods to evade payment of excise duty. Statement of Shri Bhomi Vasuna, proprietor of M/s. Bharat Dharam Kanta was recorded on 28.8.2012, who stated that they weigh the material of the appellant on credit basis, which is received in their own lorry bearing Regn. No. AP 22B-2324 or in any other lorries. In case of other lorries, the security personal of the appellant were accompanied the lorries and they maintain a long note book for the weighments made. On verification of the notebooks, it was found that the details of pr

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oduction and clearances are in excess of the entries made in RG-1 register.

2.1 That on examination of the electrical power consumption for the period from 5.8.2011 to 18.1.2012, it was found that there is huge gap in the electric power consumption and case of production per metric ton (PMT) ranging from Rs. 1972/- per M.T. during December 2011 to January 2012 to Rs. 2171/- per MT during August 2011. The cost of such power consumption is higher than the difference between the cost price of raw materials and selling price of finished goods, which means that the unit is selling goods consistently at loss during the year 2011-12. However, the financial statements are showing a gross profit of Rs. 5.88 lakh in corresponding period, which substantiates the clandestine activity of the appellant. The details entered in the two private note books are tallying with the entries made in the books of Dharam Kanta for both raw materials as well as finished goods. Accordingly, Show Cause Notice dtd. 22.4.2012 was issued to the appellant unit proposing demand of Rs. 4180498/- for the period November 2011 to January 2012. Further Rs. 106020/- was sought to be to be demanded on excisable goods found short during stock taking. Penalty u/s. 22AC was also proposed to be imposed.

3. The Adjudicating authority confirmed the demand, as proposed in the Show Cause Notice, and also imposed penalty u/s. 11AC for equivalent amount.

4. Being aggrieved, the Appellant filed appeal before the Commissioner (Appeals), who vide impugned order confirmed the demand to the extent of Rs. 41,84,918/-. He, however, set-aside the demand of Rs. 1,06,020/- on shortage holding that as the entries in the private note books are upto 17.01.2012, therefore, raising separate demand on shortages of stocks is not sustainable. Hence, the present appeal.

5. Ld. Counsel appearing on behalf of the appellant, submitted that the proprietor has retracted from the statement before the Adjudicating authority. There is no evidence of any clandestine removal of any goods by the Appellant. That no directions were given by the proprietor to Shri Kuldeep Saini, Supervisor for maintenance of private notebooks or second set of invoices which were seized from the room where Shri Kuldeep Saini was residing and therefore the statement of Shri Kulkeep Saini cannot be relied upon to fasten the duty liability against the Appellant. There is no evidence on record to show that the alleged short found goods were cleared to any party. He submitted that no investigation was conducted at the end of the alleged buyers who have been purchased alleged clandestinely cleared goods. The officers relied upon the entries made in the note books but did not investigate the matter further to establish whether there was procurement of raw material and sale/dispatch of finished goods by the Appellant. The main raw material of the Appellant is MS Ingots & Billets, which are procured from big Ingots & Billet factories and transportation has to be done through lorries. During the course of travel, the lorries pass through a number of state operated check-posts. The Department has not shown any procurement of excess raw material by the Appellant except relying upon the entries in the note books and statement of employees of the appellant company. He relied upon the judgment in case of CCE, Haldia v/s. Lords Chemicals Ltd. : 2010 (278) E.L.T. 48 (Cal) in support of his statement to support his contention. He submits that the four invoices of the second set were prepared with fake information by the employee without any knowledge on part of Appellant. The investigation did not bring-out or establish any removal/transportation of the goods nor receipt of any sale proceeds in these transactions. He relies upon the case of CCE, Chennai Vs. Dhanvilas (Madras) Snuff Co. : 2003 (153) ELT 437 that mere entries in private note books are not sufficient to hold the charge of clandestine removal without cogent, sufficient and corroborative evidence. As regard the contention of the Department regarding excess consumption of electricity, he submits that there factory was new set up and during the initial production in the factory, there were unscheduled power cuts and also agitation for separate Telangana State were going on and the agitators used to demand closure/shut down of the production. Due to which power supply had to be shut-down, which resulted into losses of heat and subsequently more power was used to schedule the production again. He submits that the demand based on electricity is not tenable in the light of orders in case of CCE V/s. R.A. Casting reported at : 2011 (269) E.L.T. 337 (All.- HC) as upheld by the Hon'ble Supreme Court in case of Commissioner V/s. RA Casting - 2011 (269) E.L.T. A 108 (SC). He submits that though the Commissioner (Appeals) has set aside the demand on shortage of demands but the same has been set aside on the ground that the same is covered by the demand made out on the basis of clearances found in note books. He submits that the demand is not sustainable on merits. The shortages arrived on the basis of physical verification of stocks is not correct as no physical weighment of the stock was carried-out by the visiting officers. The officers randomly selected angles and weighed, thus arrived at the total weight of the finished goods. This method way of weighing is not correct and cannot be basis to allege clandestine removal against the Appellant. The Department did not undertake actual weighment of the angles lying in the factory. In the absence of any corroborate evidence, the shortage cannot be termed as clearance without payment of duty. He also relied upon the Tribunals order in case of Fact Paper Mills Ltd. Vs. Commissioner 2014 (314) ELT 449 (TRI) and Vishwa Traders Pvt. Ltd. Vs. Comm. : 2012 (278) ELT 362 (TRI). He also submits that though the weighment notebooks has been relied upon to allege that the details of the same were matching with the quantity mentioned in Notebook found from room of Shri Kuldeep Saini but the facts remains that no investigation were conducted from any of the alleged buyer to ascertain as to whether the Appellant has cleared any goods to them nor the details of raw material allege to have been received by the Appellant was verified from the alleged supplier of raw material. That even though the scan has stated numbers of vehicles used for transportation but no statement of transporter or their records has been relied upon. That in absence of any records/statement of any raw material supplier or finished goods buyer and corroborative evidences in the form of transporter, payment of freight, amount alleged to have been received towards clandestine removal of goods. Hence the demand is not sustainable.

6. Ld. Departmental Representative on the other hand reiterates the allegation made in show cause notice and relies upon the findings of the impugned order.

7. I have considered the submissions made by both sides and perused the records.

8. I find that the demand is based upon the private note book and invoice books recovered from the room of Shri Kuldeep Saini, the Supervisor of the Appellant Company. Further that the Proprietor of the Appellant Unit in his statement alleged to have accepted the clearances of goods mentioned in note book and four invoice copies. The register of weighbridge of M/s. Bharath Dharam Kanta is allegedly containing details of goods which match with some of the consignments alleged to have been cleared by the Appellant and raw material received. I find that though the visiting officers has recorded statement of Proprietor of the Appellant Unit who accepted the clearance of goods shown in private note book but no further investigation has been made by the revenue. The officers has not been able to find single buyer of the said goods shown to have received the goods from the Appellant. There is no corroboration with goods having been received by any single person. Even not a single statement of transporter or driver of vehicle has been recorded to show that the goods allegedly were removed from the Appellant factory without payment of duty. No investigation has been undertaken from the raw material supplier as whether any goods were received by the Appellant in clandestine manner. Though the show cause notice has relied upon the statement of weighbridge owner to allege that the clandestinely cleared goods by the Appellant were weighed at the said weighbridge, however even the vehicle owner or drivers were not questioned whose vehicle numbers were mentioned in the weighbridge register. I also find that no evidence in the form of receipt of amount towards consideration of such alleged clandestine clearance has been brought on record. The Tribunal in case of CCE, Chennai Vs. Dhanvilas (Madras) Snuff Co. : 2003 (153) ELT 437 wherein the Tribunal in identical circumstances held as under:

5. On the other hand, ld. Counsel points out that the despatches were made to 65 customers. The department had examined only 5 customers. Only two of them had turned up for cross examination and had clearly stated that they had received the goods under invoices. Likewise, two of the customers, who had initially stated that they had received the goods, later resiled and also pleaded that those receipt of goods were against invoices. The other customers also had clearly stated that they received the goods under invoices. He submits that the representative dealers, who were examined, have all stated that the goods were received under invoices and as the department has not corroborated the charge, the revenues appeal cannot be allowed. He relied on large number of judgments to say that entries made in the private note book cannot be considered as conclusive proof of manufacture and clearance of goods clandestinely. He referred to the judgment of this Bench rendered in the case of Krishna Bottler - 1999 (32) RLT 845. He submits that this judgment has clearly laid down that private note books cannot be relied unless it is fully corroborated. He submits that this judgment is based on large number of judgments including the Apex Court judgment rendered in the case of Triveni Plastics : 1994 (73) E.L.T. 7 (S.C.); Oudh Sugar Mills v. UOI, 1978 (2) E.L.T. J (172). He has also filed copies of large number of citations to prove the point in support of the judgments given by the Commissioner.

6. I have carefully? considered the submissions made. As has been held in large number of judgments of the Tribunal based on the Apex Court judgment that the Revenue is required to prove the charge of clandestine removal with cogent and sufficient, corroborative evidence. It has also been now well laid down that mere entries made in the private note book are not sufficient to hold the charge of clandestine removal. In the present case, the Commissioner has scrutinized the entries made in the note book and found that in the note book there are entries made with regard to goods cleared under the invoices and also with regard to amounts received from them. He has also noted that there is no deletion made in the note book in respect of goods despatched under proper invoices. He also noted that there is no clandestine removal to prove that entries in the parcel note book show the actual quantities of goods manufactured. In the grounds of appeal, revenue is relying on the statement of the accountant and the entries. Revenue has only examined 5 customers out of 65 customers to whom the goods were supplied. Out of these 5 customers, two of them had given statements initially in favour of the Revenue. However, same has been resiled and they have clearly stated that they had received the goods under invoices. Likewise two other witnesses did not appear for cross examination and the one who appeared clearly stated that he had received the goods under invoices and against full payment. In a circumstance like this, it is not possible to hold that Revenue has produced sufficient evidence with regard to manufacture and clearance of goods clandestinely. Revenue ought to have produced the evidence of purchase of raw material, manufacture and clearance of goods clandestinely by examining the workers and also those who have received the goods without payment of duty. In view of lack of evidence, the Commissioner has rightly dropped the proceedings with regard to the charge pertaining to clandestine removal. However, he has upheld the charge pertaining to certain other charges and has confirmed duty and penalties. The partys appeals have already come up before the Tribunal and the Tribunal has upheld that charge and the findings recorded by the Commissioner except for giving benefit of reduction in penalties. On a total examination of facts and circumstances and in the light of the judgments cited before me, I am satisfied that the order passed by the Commissioner was just and proper and it does not require any interference. For lack of evidence, the Commissioner has dropped the proceedings as before him there was no concrete evidence shown which has escaped the notice of the Commissioner while recording the order. As there is no merit in the appeal, the same is rejected. Also in case of T.G.L. Poshak Corporation : 2002 (140) E.L.T. 187, the Tribunal held as under.

6. We have carefully considered the submission and perused the impugned order. Insofar as the assessees appeal is concerned, we notice from the extracted portion of the Commissioners order that Revenue is solely relying on the exercise note books mainly balance sheets. The Tribunal in large number of cases which have already been noted above in the tabulated list of citations furnished by the Counsel has held that unless there is clinching evidence on the nature of purchase of raw materials, use of electricity, sale, clandestine removals, the mode and flow back of funds, demands cannot be confirmed solely on the basis of note books maintained by some workers. The facts in the case of Aswin Vanaspati Industries would be identical to the facts herein as in that case also the allegation was with regard to removal of Vanaspati based on the inputs maintained. The Tribunal went in great detail and have clearly laid down that unless department produces evidence, which should be clinching, in the nature of purchase of inputs and sale of the final product demands cannot be confirmed based on some note books. A similar view was expressed by the Tribunal in the other judgments noted supra. The citations placed would directly apply to the facts of this case. Hence, following the ratio of the cited Judgments, the assessees appeal is allowed.

In the above cases the Tribunal held that the charge of clandestine manufacture and removal has to be proved beyond doubt. However in the present case in absence of any evidence of removal of goods and absence of corroborative evidence such as production, absence of buyers, transportation and receipt of consideration the charges of clandestinely removal of goods are not sustainable against the Appellant.

9. Further the revenue has alleged that the looking to the power consumption it shows that the Appellant had manufactured and cleared the goods without payment of duty. I find that only on the basis of electricity consumption without showing commensurate quantity of raw material consumed, source of procurement of excess raw material, payment made to raw material supplier, excess labour involved, clearance of finished goods its transportation and receipt of consideration of finished goods, the demand cannot be made. In the case of RA Castings case supra the Hon'ble High Court was of the same view and the orders was upheld by the Hon'ble Supreme Court. I find that the ratio of said judgment is absolutely applicable to the present case and demands are not sustainable.

10. In view of the foregoing on merits, I find that the impugned order is unsustainable and liable to be set aside. I therefore set aside the impugned order and allow the appeal with consequential relief, if any