Full Judgment
Manmohan Singh, J.
1. These appeals have been filed by Department against the Order-in-Appeal No32-33/CE/CHD/2006 dated 31.1.2006 passed by the Commissioner (Appeals), Chandigarh. wherein the Commissioner (Appeals) dropped the demand allowing the appeals of the respondents-assessee, setting aside the order of adjudicating authority confirming demand of Rs.16,39,289/- also equal amount of penalty under section 11AC and also personal penalty of Rs.15 lakh imposed on Shri Ramesh Gupta under Rule 26 of Central Excise Rules, 2002 read with Section 11AC.
2. The Brief facts of the case are that M/s.Swati Pvt.Ltd., Plot No.44-45, Sector-i, Industrial Area, Parwanoo, H.P. are engaged in the manufacture of water storage tanks, plastic pipes and non dutiable product i.e. sprinkler and drip irrigation systems falling under chapter 39 and 84 respectively of the first Schedule to the Central Excise Tariff Act, 1985.
3. The appellants availed benefit of Notification No.49-50/2003 dated 10/6/2003 as amended by Notification No.76/2003-CE dated 5.11.2003. The respondent claimed that they have undertaken expansion in installed capacity and its capacity was now more than 25% of the existing capacity in the state of Himachal Pradesh under area based exemption scheme. In this case, two machines were received by the respondents from M/s.R.S.Engineers, Faridabad indicating them as new machines. However, later it was found that second hand machines were used for showing expansion of installed capacity by 25% which was requirement of the notification.
4. On investigation undertaken by the department, it was found that the machines were not new and these were old one and it was misdeclared by the respondent. This was detected on the basis of enquiry conducted from the seller situated at Faridabad and it was found that the manufacture/supplier of Faridabad did not have capacity to manufacture impugned machines. On enquiry, the supplier in their statement stated that there was no supply of machines but actually these were supply of old dies. The supplier also admitted that although the value shown in the invoices was Rs.25 lakhs but actually Rs.one lakh has been paid against the sale of old dies. There was no movement of the goods. He further admitted that the bills were fake as these bills were prepared with machine on some old and un-used un-numbered bills lying with him. On comparison of these bills with ones available in the sale book, resumed under panchnama, it was noticed that these were entirely different. Further, on 4.8.2005, Assistant Commissioner (AE), Faridabad informed that M/s.R.S. Engineers, Faridabad have filed the sales tax return and have shown the amount against bill no.271 and 272 as Rs.11,000/- and Rs.10,500/- respectively and paid the sale tax @ 10% of value of amounting to Rs.21,500/-only.
5. Department in their memo of appeal pointed out that Commissioner (Appeals) has not appreciated the matter and have given the benefit for machines which were installed in the factory were old and used at the time of inspection by the department. The other points have been taken by the department in their memo of appeal are as under:-
(i). That is an undisputed fact that for availing exemption from payment of duty, under Notification No.49-50/2003-CE dated 10.6.03, the existing units were required to undergo 25% or more expansion in installed capacity. It is also undisputed that respondent had effected the clearances at nil rate of duty from 15.9.2004 and the value of clearances of plastic tanks is Rs.78,48,233/-, Rs.39,66,031/- of pipes and Rs.70,818/- of scrap by availing said exemption.
(ii). That the Commissioner (Appeals) has not taken into account the fact that M/s.R.S.Engineers, Faridabad has no capacity/machinery to manufacture the machines in question. Therefore, the question of supply of these machines to the respondent No.1 does not arise.
(iii). That Commissioner (Appeals) ignored the fact incorporated in the statement of Shri Rajbal Singh, Proprietor of M/s.R.S.Engineers, Faridabad that under the bills in question, he has despatched only dies as mentioned in his original bills, entries of which was reflected in his Sales Tax Returns filed with the jurisdictional Sales Tax authorities.
(iv). That the Commissioner (Appeals) has ignored the fact that the annual turn over of M/s.R.S.Engineers was Rs.25 lakh which cannot be possible.
(v). That the Commissioner has ignored the fact that M/s.R.S. Engineers had received Rs.1 lakh only whereas the value of the machinery is Rs.25 lakh approximately.
5. Shri Bipin Garg, learned Advocate appeared on behalf of respondent. He submitted that the machines in question were financed from the Punjab National Bank. Payment has been made by banker and banker had made payment through bank draft in favour of supplier after verification of the machinery. Supplier as well as department checked payment of Rs.one lakkh from the bank account. It was contended that payment of Rs.one lakh was advance money and not payment of machinery. Balance payment was made by the banker through bank drafts. They were entitled to exemption under Notification No.49-50/2003-CE. They also submitted that Commissioner (Appeals) has rightly concluded that demand was not sustainable and allowed their appeals.6. Heard both sides and also perused the grounds of appeals submitted by the Revenue. And also examined records.
7. I observe that learned Advocate for the respondent has insisted that their transaction was proper and machines were received from the Faridabad in their factory and they have undertaken expansion of the factory as referred in Notification No.49-50/03. On the other hand, from the perusal of the grounds of appeal filed by the department, it comes out that Revenue has made elaborate investigations from the supplier of machines namjely M/s. R.S. Engineers, Faridabad regarding supply of two machines to the respondent. During investigation, they have found that the respondent did not have capacity to manufacture machines mentioned in Bill No.271 and 272. It has also came out that impugned bills were prepared at the instance of Sh.Ramesh Gupta, partner of M/s.Swati Storewell. Shri Rajbal Singh, proprietor of R.S. Engineers in his statement admitted that under these bills, he has despatched dies and not machines. He also admitted that he was paid an amount of Rs.one lakh which was against sale of old dies which he has deposited in their current account No.60055 maintained with State Bank of Patiala. He also confessed that bills were fake and these were prepared on old and unused un-numbered bills lying with them. He also informed that annual sale of his unit was Rs.25 lakhs only. It was also informed by the Assistant Commissioner (AE), Faridabad vide their letter dated 4.8.2005 that M/s.R.S. Engineers in their sales tax return filed with sales tax department had showed amount of Rs.11,00/- and Rs.10,500/- against bill No.271 and 272 and have paid sales tax @ 10% of total value of Rs.21,500 /- only.
8. Above investigation undertaken by the department exposing fraudulent act of M/s.Swati Storewell and their partner of Shri Ramesh Gupta who have organized procurement of fake invoices to purchase of machines which were never supplied. In fact records were manipulated in such a way to show receipt of two machines and subsequent installation so that they became entitled to claim area based exemption under Notification No.49-50/03 dated 10.6.03. I do not find force in the submission made by learned Counsel of the respondent that payments of Rs. one lakh to M/s.R.S. Engineers was only advance money and not payment of machine. When overwhelming incriminating evidence relating to bank transaction as well as filing of return with sales tax department showing actual value of dies clearly indicated committal of fraud. Mere saying that they have given advance and machines were procured have no legs to stand in the face of detail enqury conducted by revenue exposing clearcut evidence.
9. It is also noticed that Range staff of Parwanoo-II have visited unit on 28.6.2005 and 30.6.2005 for verification of machines and it was found that no marking or other features showing the manufacturer on the two machines. It has also come on record that Respondents have tried to manipulate bank account as they have taken bank loan showing purchase from M/s.R.S.Engineers which was proved to be fake transaction. Connivance with bank authorities is also revealed.
10. It is also observed that Commissioner (Appeals) has not appreciated finding of adjudicating authority where investigations conducted by department have clearly brought out that fake transaction had been undertaken with the sole motive of showing procurement of machines and subsequently to show 25% expansion of existing capacity which was requirement of for eligibility for availment of exemption under Notification no..49-50/03 as amended. Above transaction could not be possible without Shri Ramesh Gupta who organized paper transaction with sole motive to avail benefit of area based exemption. I have no hesitation to hold that findings of Commissioner (Appeals) are erroneous as the Commissioner (Appeals) held that no doubt two machines actually supplied which were found installed in the factory. These observations are without any evidence and contrary to the investigations reported above. His basis for saying that no action has been taken against supplier for mis-declaration cannot ipso-facto result in granting unintended and fraudulent benefit to the respondent.
11. In view of above finding, I find that the Revenue has clearly made out a case for non grant of exemption under Notification No.49-50/03 against the respondent. In view of above, I uphold the findings of the adjudicating authority and set aside the order of the Commissioner (Appeals).
12. In the result, both appeals filed by the department are allowed.