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
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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.