w w w . L a w y e r S e r v i c e s . i n



SMR Cotton Mills Pvt. Ltd V/S Commissioner of Central Excise, Salem


Company & Directors' Information:- SMR INDIA PRIVATE LIMITED [Active] CIN = U17290DL2012PTC237165

Company & Directors' Information:- CENTRAL COTTON MILLS LTD [Strike Off] CIN = U17118WB1956PLC022864

    Appeal No. E/559/2007 (Arising out of Order-in-Appeal No. 40/2007-CE (SLM) dated 18.4.2007 passed by the Commissioner of Central Excise (Appeals), Salem) and Final Order No. 40243/2018

    Decided On, 31 January 2018

    At, Customs Excise Service Tax Appellate Tribunal South Zonal Bench At Chennai

    By, THE HONORABLE JUSTICE: SULEKHA BEEVI C.S.
    By, MEMBER AND THE HONORABLE JUSTICE: B. RAVICHANDRAN
    By, MEMBER

    For Petitioner: Minchu Mariam Punnoose, Advocate And For Respondents: R. Subramaniam, AC (AC)



Judgment Text


1. The facts in brief are that the appellants are manufacturers of viscose staple fibre yarn and are registered with the Central Excise Department. The officers gathered some documents on their visit to M/s. Kothari Trading Corporation (M/s. KTC, for short) who was one of the brokers through whom the appellant used to sell their manufactured yarn. During search of the premises of M/s. KTC, the officers noticed certain account books of yarn business conducted by M/s. KTC for the appellant. Based on such documents, the officers visited the premises of the appellant-factory and recovered documents under a mahazar and statements were also recorded. Show cause notice was issued alleging that M/s. KTC had sold yarn which was received from the appellant at a higher price than that was mentioned in the Central Excise invoice of the appellant and thus resulted in undervaluation of the yarn. Demand of Rs. 7,55,548/- was raised for the differential duty along with interest and also for imposition of penalty. After due process of law, the original authority dropped the proposal for demand of Rs. 3,56,507/- being the amount which did not represent the sale through M/s. KTC and confirmed the demand to the extent of Rs. 3,99,041/-. In appeal, Commissioner (Appeals) upheld the same. Hence this appeal.

2. On behalf of the appellant, ld. counsel Ms. Minchu Mariam Punnoose submitted that the entire case is based on third party documents. The main document upon which the department has alleged undervaluation is the ledger maintained by M/s. KTC. It is the case of the department that in the Roker Ledger maintained by M/s. KTC the yarn cleared from appellant was shown to have sold at a higher price than that was shown in the invoice issued by the appellant. She submitted that the appellant has not received any amount over and above the invoice value. The accounts maintained by the appellant tallied with the invoice details shown in the Roker Ledger of M/s. KTC and there was no discrepancy in this regard. This would go to show that appellant has not received any amount high than the invoice value. The broker M/s. KTC has collected his commission from the customers which was never paid to the appellant. The department has concluded that the appellant has received a higher value merely upon surmises. She adverted to para 6.11 of the impugned order and submitted that the first appellate authority has accepted the view of the original authority without application of judicial mind. In para 29 of original order, the adjudicating authority observed that the invoice details etc. of appellant is correctly mentioned in pages 131 to 133 of the Roker Ledger and therefore the comments mentioned in page 130 regarding receipt of higher value also has to be correct. Thus authorities below have presumed that the entries in page 130 of the same ledger under the caption SMR can be relied to confirm the demand, without any further evidence. When there is no evidence to show that the appellant has received any amount over and above the invoice value from M/s. KTC, the entries made in page 130 in the ledger maintained by M/s. KTC cannot be made the basis for demand against the appellant. The appellant is not aware of whether M/s. KTC collected any higher amount from the customers. Further, M/s. KTC was acting as a broker not only for appellant but to various other yarn manufacturers. The other evidence relied is the statement of the Director Shri R. Pari. There is nothing in the statement of the Director to show that the appellant has received any higher amount from M/s. KTC. This statement is not supported by any documentary evidence. That no incriminating documents were recovered from the premises of the appellant. The appellant cannot be saddled with liability on documents recovered from the premises of third party and not to have been groomed by any independent evidence. The appellant has not suppressed any fact and has declared the true and correct details of clearances in the ER1 returns and therefore the show cause notice issued invoking extended period is not sustainable.

3. The ld. AR Shri R. Subramaniam reiterated the findings in the impugned order. He submitted that on scrutiny of the Roker Ledger recovered from M/s. KTC pages 131 to 133, showed details of the challans of the yarn cleared from the appellant under various invoices for the period from April 1997 to August 1997. Page 130 of this ledger showed the actual rate at which the yarn was sold during the said period. It was also seen that the sale proceeds was collected by M/s. KTC from the buyers and subsequently paid to the appellant. Though the appellant disputes the entries made in this register maintained by M/s. KTC, page 131 to 133 shows date-wise, invoice number and party name and quantity of yarn dispatched by appellant which are procured by M/s. KTC. These particulars maintained by M/s. KTC tallies with the invoice raised by appellant. Therefore, the particulars in page 130 which mentioned the brokerage is also genuine and reliable. Further, the Director in his statement has accepted the fact that they were receiving amount over and above the invoice value in certain instances. This statement along with the Roker Ledger would prove that the appellant has been receiving higher value from the customer through broker M/s. KTC than the value in the central excise invoice. Thus, the demand raised is legal and proper.

4. Heard both sides.

5. The allegation against the appellant is that they have received price higher than that mentioned in the Central Excise invoice while clearing the yarn and thus have evaded payment of excise duty. The main evidence relied by department is the Roker Ledger recovered from M/s. KTC and the statement of Shri R. Pari. The said Roker Ledger was maintained by M/s. KTC only. Further, the said M/s. KTC was acting as broker for several other yarn manufacturer. In this ledger M/s. KTC is said to have noted that the yarn was sold at higher price to various buyers. They have received commission from buyers. The department alleges that the yarn was sold by M/s. KTC at higher price and the same was paid to appellant. The Roker Ledger which is a third party document shows only receipt of money by M/s. KTC. There is no evidence to show that the higher price was paid by M/s. KTC to appellant. Needless to say that these are third party documents and have to be corroborated by independent evidence. The discussion made by the authorities below in respect of the said ledger is worthwhile reproducing, which is as follows:-

6.11 As regards the contention of the appellant that there is no correlation between the accounts of M/s. KTC and the accounts of the appellant and hence the accounts of M/s. KTC is not reliable, I find the lower authority in para 29 has held that the entries in M/s. KTC main ledger tallied with the invoice details of the appellant. The para 29 is scanned for the sake of perusal overleaf:-

In this connection, in page No. 131 to 133 of the main ledger under the caption SMR, M/s. KTC had maintained date-wise, invoice No. party name, count and quantity of yarn dispatched by M/s. SMR which was brokered by them. The above particulars maintained by M/s. KTC tallies with the invoice raised by M/s. SMR in total. Therefore, the particulars in page No. 131 to 133 is genuine and authentic. When entries in page No. 131 to 133 are authentic, the particulars in page No. 130 of the same ledger under the caption SMR can also be taken reliable. The rate at which payment was made by M/s. KTC to M/s. SMR is authentic.

The main ledger of M/s. KTC was also matched by the lower authority with the Roker Ledger of M/s. KTC vide para 30 of the impugned order. Hence, I find no force in the contention of the appellant. Therefore, I discard the same as devoid of any merit.

6. The finding of the adjudicating authority has been blanketly accepted by the first appellate authority to uphold the demand. It is clear from the discussion in para 29 of the order in original that the adjudicating authority has merely presumed the entries in page 130 also to be genuine and reliable without support of any evidence to show the flow of money from M/s. KTC to appellant. Interestingly M/s. KTC is not a co-noticee to the proceedings. There is no independent evidence forthcoming to connect the appellant with the entries in page 130 of the Roker Ledger. Again, the statement of the Director has been relied by the authorities below by picking and choosing the sentence. The deposition as a whole has to be considered. Even though M/s. KTC who is a yarn broker might have received extra consideration or commission, there is no cogent evidence to establish that the appellant have received consideration over and above the invoice value. In the case of Santosh tobacco Vs. Commissioner of Central Excise, Delhi I as reported in : 2014 (311) ELT 465 (Tri. Del.), the Tribunal has held as under:-

65. In view of the ratio of the above decisions, that the charges of clandestine removal cannot be proved on the basis of third party documents without there being any positive evidence on record to link the third party documents with the assessee. When we apply ratio of law laid down in the above decisions to the facts of the present case, we find that though the appellant's factory was visited and searched by the officers, nothing incriminating was recovered from the same except the allegations of the shortages of menthol and gunny bags with which we have already dealt with. To confirm such a huge demand of duty on the allegation of clandestine manufacture, the Revenue is expected to prove the procurement of such a huge quantity of raw materials along with the packing materials and the capacity of the assessee to manufacture such a huge quantity. After all to manufacture such a huge quantum of pan masala or gutka, the appellant admittedly needed lot of raw materials. There is no evidence on record as regards procurement of such huge raw materials neither source of the same has been identified by Revenue. Similarly, we find that the Revenue has not bothere

Please Login To View The Full Judgment!

d to record the statements of the workers of the appellant, who are engaged in the actual manufacture and packing of the gutka/pan masala. In most of the cases, no buyers stand identified and where the buyers were identified either no inquiry was conducted with them (the cases of M/s. Santosh Tobacco and M/s. Gupta Chemical Works) or if inquiry was conducted, they have denied having received the consignments of gutka through the transporters mentioned above. As such, we are of the view that confirmation of demand of duty based upon the half written ambiguous records of the third party is neither justified nor warranted nor is in accordance with law. 7. From the above discussions, we find that the material placed before us are insufficient to hold that the appellants have received higher consideration as alleged by the department. The Courts in several decisions have held that the demand cannot be based merely on third party documents or statements recorded. 8. In the result, we hold that the impugned order cannot sustain and the same is set aside and the appeal is allowed with consequential relief, if any.
O R







Judgements of Similar Parties

02-01-2020 S.M.R. Nagarajan Versus N. Navamani High Court of Judicature at Madras
27-09-2019 Tiara Advertising, SMR Majestic Versus Union of India Ministry of Finance Department of Revenue High Court of for the State of Telangana
08-01-2018 M/s. Ben Foundation Pvt. Ltd., Represented by its Managing Director, Chennai Versus The Deputy Commissioner (SMR), Office of the Principal Secretary, Commissioner of Commercial Taxes, Chennai & Another High Court of Judicature at Madras
02-06-2017 M/s.IND 237, Manamadurai Steel & Furniture Makers Industrial Coop. Society Ltd., Rep.by its Secretary L. Vadivelan Versus The Joint Commissioner-III (SMR), Office of the Commissioner of Commercial Taxes, Chennai & Others Before the Madurai Bench of Madras High Court
19-05-2017 Prakash Cotton Mills Pvt. Ltd V/S Commissioner of Central Excise, Mumbai-IV Customs Excise Service Tax Appellate Tribunal West Zonal Bench At Mumbai
10-07-2015 Cauvery Traders Versus The Joint Commissioner, C.T. SMR Office of the Special Commissioner & Commissioner of Commercial Taxes Before the Madurai Bench of Madras High Court
10-07-2015 K. Thirumalaisami Versus The Joint Commissioner III (SMR) Commercial Taxes, Madras High Court of Judicature at Madras
17-02-2015 Heritage Printers Versus The Joint Commisioner (SMR) of Commissioner Taxes, Chennai & Another High Court of Judicature at Madras
10-12-2014 K.G. Products Salem Versus The Joint Commissioner (CT) (SMR) Office of the Special Commissioner & Commissioner of Commercial Taxes Chennai High Court of Judicature at Madras
11-07-2014 The Commissioner of Central Excise Versus M/s. Ranga Balaji Cotton Mills & Another High Court of Judicature at Madras
06-12-2013 Ambika Cotton Mills Limited, Kanniyapuram P.O. Versus The Assistant Commissioner of Central Excise, Dindigul & Another Before the Madurai Bench of Madras High Court
08-11-2013 Tvl. Daspan Sales Corporation Versus The State of Tamil Nadu rep. by its Joint Commissioner(CT) SMR High Court of Judicature at Madras
28-09-2012 M/s. Vijayaranga Trading Co. Versus The State of Tamil Nadu rep. by Joint Commissioner (SMR) High Court of Judicature at Madras
16-12-2011 M/s. Tamil Nadu Traders, Erode Versus Joint commissioner (SMR) Office of the Special Commissioner & Commissioner of Commercial Taxes, Chennai High Court of Judicature at Madras
16-12-2011 M/s. Tamil Nadu Traders, Erode Versus Joint commissioner (SMR) Office of the Special Commissioner & Commissioner of Commercial Taxes, Chennai High Court of Judicature at Madras
13-12-2011 The Balan Fine Arts, Sivakasi rep. by its Proprietor, A. Salaimal Versus The Joint Commissioner III (SMR) of Commercial Taxes Chennai & Others High Court of Judicature at Madras
24-06-2011 M/s. M M P M Syed Mohamed rep. By legal heir Versus The State of Tamil Nadu represented by the Joint Commissioner (CT)(SMR) High Court of Judicature at Madras
20-04-2011 Tharangini Sound Technics, Chennai Versus The State of Tamil Nadu Rep by the Joint Commissioner (SMR), Chennai High Court of Judicature at Madras
18-01-2011 M/S. New Prakash Metals rep. By its Proprietrix Savitha Ramesh Kumar Versus The Joint Commissioner-III (SMR) Commercial Taxes & Others Before the Madurai Bench of Madras High Court
25-08-2010 A. Neduncheliyan Versus The Joint Commissioner (SMR) Commercial Taxes, Chennai High Court of Judicature at Madras
26-02-2010 S.M.R. BalasubramaniamVersus The Commissioner, Hindu Religious & Charitable Endowments (Administration) Department, Nungambakkam High Court of Judicature at Madras
16-12-2009 Tvl.Growell Pharmaceuticals 109, GST Road Chengalpattu Versus The State of Tamil Nadu rep.by the Joint Commissioner (SMR) Office of the Special Commissioner and Commissioner of Commercial Taxes Chennai High Court of Judicature at Madras
03-12-2009 Lakshmi Trading Co. Versus Joint Commissioner (CT), (SMR) Office of the Special Commissioner & Commissionerof Commercial Taxes High Court of Judicature at Madras
03-12-2009 R. Chellappa Versus The State of Tamilnadu rep. By The Joint Commissioner (CT) (SMR) Chennai High Court of Judicature at Madras
30-10-2009 M/s.Ambika Cotton Mills Ltd. Versus Commissioner of Central Excise, Madurai Customs Excise Service Tax Appellate Tribunal South Zonal Bench At Chennai
23-06-2009 SMR Universal Softech Ltd. Presently known as Asia Hr Technologies Limited Versus Securities and Exchange Board of India SEBI Securities Exchange Board of India Securities Appellate Tribunal
21-05-2009 Commissioner of Central Excise, Coimbatore Versus Best Cotton Mills Ltd. Customs Excise Service Tax Appellate Tribunal South Zonal Bench At Chennai
30-04-2009 P.T. Rajan & Co. Versus The State of Tamil Nadu, represented by its Joint Commissioner (CT) SMR High Court of Judicature at Madras
09-02-2009 The State of Tamil Nadu, rep. by the Joint Commissioner (CT)(SMR) Versus M/s Sun Paper Mill Ltd & Another High Court of Judicature at Madras
05-04-2007 MGS Pharma Versus SMR Pan Transport & Carrier Ltd. & Another Tamil Nadu State Consumer Disputes Redressal Commission Chennai
22-03-2001 M/s. SMR Parcel Service, Rep. by its Administrative Manager, Mr. V.O. Krishnan, Chennai Versus M/s PLC Lakshmanan & Brothers & Another Tamil Nadu State Consumer Disputes Redressal Commission Chennai
15-12-2000 Collector of Customs and Central Excise, Guntur etc. Versus M/s. Surendra Cotton Oil Mills and Fert. Co. Etc. Supreme Court of India
03-11-1999 Swadeshi Cotton Mills Versus Asst Labour Commissioner (Central) and Controlling Authority under Payment of Gratuity Act, Allahabad High Court of Judicature at Allahabad
30-01-1999 Swadeshi Cotton Mills Company Limited and Another Versus Commissioner, Central Provident Fund, New Delhi and Others High Court of Judicature at Madras
04-03-1998 J. K. Cotton Spinning and Weaving Mills Company Limited Versus Collector of Central Excise Supreme Court of India
29-09-1997 Ram Oxygen Private Limited Versus Joint Commissioner (Smr) of Commercial Taxes High Court of Judicature at Madras
19-02-1997 Collector of Central Excise, Calcutta Versus Bowreah Cotton Mills Company Limited, Howrah Supreme Court of India
05-02-1997 Collector of Central Excise, Kanpur Versus J. K. Cotton Spg. & Wvg. Mills Co. Ltd. Supreme Court of India
08-10-1996 Jiyajeerao Cotton Mills Limited Versus Collector of Central Excise, Indore Supreme Court of India
28-08-1995 CHAIRMAN, CENTRAL BOARD OF EXCISE AND CUSTOMS, NORTH BLOCK, NEW DELHI VERSUS DAVANGERE COTTON MILLS LIMITED, DAVANGERE High Court of Karnataka
28-02-1995 Sri Easwari Extractions Versus Joint Commissioner-Iii (Smr) of Comml. Taxes, Madras High Court of Judicature at Madras
03-02-1994 S. Durai Versus Joint Commissioner (Smr) of Commercial Taxes, Chepauk, Madras High Court of Judicature at Madras
11-01-1994 T. Shyamala Versus S.M.R. Finance High Court of Judicature at Madras
06-04-1993 Prakash Cotton Mills Private Limited Versus Commissioner of Income Tax (Central) Bombay Supreme Court of India
23-01-1992 Central Excise S. C. Limited and Others Versus Bowrech Cotton Mills Company Limited and Others Supreme Court of India
25-03-1991 DAVANAGERE COTTON MILLS LIMITED. VERSUS CHAIRMAN, CENTRAL BOARD OF DIRECT TAXES High Court of Karnataka
08-09-1986 M/s.M.R. Bhansali and Co. Versus Union of India High Court of Gujarat At Ahmedabad
25-01-1984 Commissioner of Income Tax, (Central) Madras Versus Alagappa Cotton Mills High Court of Judicature at Madras
07-11-1978 Commissioner of Income Tax (Central), New Delhi Versus Bijli Cotton Mills Private Limited Supreme Court of India
17-03-1976 Prakash Cotton Mills Pvt. Ltd. Versus S. M. Bhardwaj, Assistant Collector Of Central Excise, Bombay Division High Court of Judicature at Bombay
20-11-1970 Union of India through the General Manager, Central Railway, Bombay Versus L. R. Cotton Mills Ltd. & Others High Court of Judicature at Allahabad
28-09-1970 The Managing Director, Messrs. S.M.R. Transports (P) Ltd. Rasipuram Versus A.M. Sabramaniam & Another High Court of Judicature at Madras
18-07-1967 Commissioner of Income-Tax Central Calcutta Versus Rampooria Cotton Mills Ltd High Court of Judicature at Calcutta
24-11-1965 Kesoram Industries and Cotton Mills Limited Versus Commissioner of Wealth Tax (Central), Calcutta Supreme Court of India
30-11-1937 S.M.R. Shanmugham Chettiar (died) & another Versus The Official Receiver, West Tanjore High Court of Judicature at Madras