1. Both these appeals arise from Order-in-Original No. 7/2000, dated 27-10-2000 by which the Commissioner, on remand by CEGAT vide its final order Nos. 567-568/99, dated 11-3-99, has re-confirmed the duty and penalties in terms of his order. While the CEGAT remanding the matter had already confirmed penalty on shortages found in the premises and for non-maintenance of F-4 Registers. Penalty on Shri Rajagopal, the Partner of the firm was confirmed for not maintaining the registers and on the allegation of shortages. However, on the question of clandestine removal and on the question of the quantum of duty confirmed in terms of one single notebook recovered from the appellants' premises, the matter was remanded for de novo consideration and to re-consider all the pleas in the light of the submissions made before the Tribunal and also in the light of the settled law that a mere seizure of notebook without examining its scribe cannot be the criteria for confirming the demands without any corroborative evidence. The Commissioner has again re-confirmed the demands and on the point of scribe of the notebook not having been examined and statements recorded at the time of seizure when he was present in the company at the time of raid, the Commissioner notes in Para 16 of his order as follows : 16. Now I proceed to discuss the above infirmities in the light of the evidence on hand. Firstly, the Accountant who maintained the notebooks, could not be contacted by the investigating officers since he left service of the assessee. He also left the premises in Sivakasi where he was staying earlier. His whereabouts could not be traced. Hence it was not practical to record his evidence. Secondly, in the retraction statement made by Mr. Rajagopal after two months, a new interpretation was introduced that these notebooks were maintained for purpose of disbursement of salary and that "cases" as mentioned in the notebooks may contain semi finished and finished goods. On perusal of the notebook, I find that this interpretation has not much force because, for each variety, separate pages are allotted and details of opening balance, daily production, receipt and total have been given in terms of number of 'cases'. Also the notebooks do not contain any details such as name of worker, working time, shift, etc for purpose of determining the wages/salary.
Further finding that the appellants were not aware of the existence of the notebook till it was brought to the notice of Managing Partner which has been answered in Para 32, which is recorded herein below :- 32. The last point which is to be considered in the plea is thai the firm was not aware of the notebook maintained by the Supervisor till it was brought to the notice of the Managing partner by the Central Excise Officers at the time of the surprise inspection and that the title 'Magazine Stock Notebook' was actually given by the Office Accountant at the Office of the factory said to be situated 5 Kms away from the factory. I find that this point has not been raised in the earlier proceedings either before my predecessor or before the CEGAT. The impugned notebooks have been recovered under a mahazar drawn before independent witnesses in the presence of the Managing partner at the factory itself. Therefore, I am unable to accept this contention, which is not substantiated.
As regards the plea of the appellants that firework cannot be manufactured to the extent of value of Rs. 1.09 crores as they did not have so much funds to make and that during the period of 'Deepavali' alone, it is manufactured and the inspection took place on 1-9-95 and just the production of fireworks started and that purchase of all the raw materials were regulated by the Govt. of India under the Explosives Act and that such a huge quantity of clandestine removal cannot be removed without due insurance under the various legislations and it requires 10 to 15 trucks for removal and it was impossible to have manufactured and cleared without the notice of other legislative authorities under whose control the fire works are manufactured. The Commissioner has answered this point in paras 17 to 31 as follows :- 17. With reference to the question that the raw material purchase details from invoices should have been taken into account in computing the production, I find that the production as per notebook relates to a long period i.e., January to August '95. In respect of some raw material invoices covering the quantity received have not been accounted for in the RG23A Part 1. Assessee claimed that since transporters copy was not available they were not taking credit in RG 23A Part II. However it is to be noted that no form IV Register has been maintained. In such a situation assessee ought to have taken into stock in the RG 23A Part I Register even if credit was not taken in Part II. Therefore, it is not possible to assume that the assessee had retained all invoices relating to purchase of raw materials. All these would lead to the inescapable conclusion that the assessee's accounting system was not reliable.
18. With reference to the issue of non-examination of workers, I have to consider the following points. The Managing Partner himself was available in the factory on 1-9-1995 and witnessed the mahazar drawn in the presence of the two independent witnesses on the same day. He had given a statement on the next day admitting shortages and the genuineness of magazine stock notebooks. In such a situation, there was no need for recording any statement from the labourers. With reference to the plea that no evidence has been adduced by the Department for input/output ratio, it is evident that no definite ratio could be fixed by the Department given the numerous of variefies of Fireworks manufactured with no established norms of production.
19. Now I proceed to discuss the details for co-relation sought to be established by the department between the notebooks and the alleged suppression of production. A claim has been adverted that on dates where there were no entries of production in the seized notebooks, entries in RG 1 register showed substantial production and therefore the entries in the seized notebooks could not be considered as reflecting the actual production. The RG 1 is accounted in terms of UNITS whereas in the private notebook the account is in terms of CASES. The number of units per case of each variety of Fireworks as per the printed price list has been considered. To cite an example, one case of 4 lakshmi contains 500 packets. During the period from 29-4-95 to 17-6-95, 31 cases i.e., 15,500 packets have been manufactured as per the magazines stock note whereas as per RG 1 only 1,500 packets have been shown to be manufactured. Likewise for '25 Major Crackers', one 'case' contains 400 boxes. It is seen from the magazine stock book that 8000 boxes have been manufactured whereas only 5,425 boxes have been accounted in RG 1. Considering these examples, the argument of the party that RG 1 showed substantial production compared to the notebook is not substantiated. On the other hand, it is very clear that the production as per the private notebook has not been properly accounted in RG 1 as the entries in both cases do not match. It is the case of the assessee that the notebook entries contained finished and semi-finished goods. In that case the so-called finished gods should have figured in the RG 1 for any particular day. However the assesses himself admits that there were entries in RG 1 on certain days when the notebook had no entry. Further, the notebooks clearly show that for each variety of fireworks a separate page is allotted and the opening balance of a particular variety of fireworks, the daily production, total production etc. are given in terms of number of cases. The claim that some of the entries referred to semi finished goods is not acceptable as there is no entry regarding their removal for further manufacture. In the circumstances there is strong ground for concluding that these notebook entries relate to finished goods which were not accounted in RG 1.
20 It is to be admitted that the investigations conducted at the transporter's end, the insurance Companies did not produce any evidence of clandestine removal. However, the very word 'clandestine' connotes something done secretly, on the sly, stealthily etc. Obviously when a person is indulging in clandestine removal, he cannot be expected to insure such goods or to leave evidence through transport documents. I therefore hold that the absence of such corroborative evidence does not weaken the department's case.
21. As regards the plea that there was no sufficient manpower to manufacture the impugned goods, it is to be noted that the unaccounted production as per the private records relate to a long period (Jan. '95 to Aug. '95). Since for the manufacture of different varieties of fireworks, the consumption of raw materials and workmanship would also vary, it is not practical to arrive at any yardstick to show how much would have been manufactured with available manpower.
22. With reference to the claim that the Factory was under the control of the Explosives Act and that no violation was noted by the Deputy Chief Controller of Explosives during his inspection of Work-in-Progress, finished goods, registers etc., it is seen that the statement dated 6-11-1995 of Rajagopal is contrary to this claim. He had admitted that the prescribed Registers under Explosive Act were not maintained by the assessee. This statement has not been retracted nor any such records were produced. Therefore, I have no other option but to conclude that this claim before the CEGAT is an after thought not corroborated or substantiated and therefore hold it as untenable.
23. With regard to the claim that the details of purchase register was updated everyday, I find that there were two statutory registers for stock maintenance. The first one was the Form IV Register in which all raw materials should have been accounted for. The second one was the RG 23A Part I register in which all raw materials eligible for Modvat credit was to be accounted. Now, it is an admitted Fact that the Form IV Register had not been maintained at all. The CEGAT itself has upheld the Order-in-Original on this score. Now, the onus was on the assessee to maintain the stock position in respect of all his purchases in the RG 23A Part I Register. It is to be recalled that some of the raw material invoices had not been accounted at all in the RG 23A part I Register which is very relevant for Central Excise purposes in the absence of Form IV Register.
24. Another argument put forward is that clandestine removal cannot be alleged since there was no excess stock. On this plea, I find that excess stock need not be a pre-requisite for establishing clandestine removals. Unaccounted production in private Notebook can very well be considered as evidence for clandestine removals.
25. With reference to the plea that stock taking done in few hours could have led to errors, I hold that is not tenable in the light of the judgment of CEGAT in the case of Goodyear India v. CCE -1990 (48) E.L.T. 394 (Tribunal) wherein it was held that.
"Plea of human error in counting not acceptable in spite of heavy stock lying in factory, particularly when verification sheets have been signed by Officials of the Assessee. Clandestine removal sustainable." 26. I also hold that the argument that clandestine removal of Explosives like fireworks was not possible, as many authorities like Police. Explosive Act authorities, Sales Tax authorities and Central Excise authorities exercise control, is not tenable since the removal of fireworks is under self removal procedure and could be done by the assessee at his free will without the permission or supervision of the above authorities.
27. The assessee has given an elaborate method of calculating the value of inputs required for manufacture of 1.26 Crores worth of fireworks during the year 1994-95 onwards. The average ratio works out to 70% for raw materials in value terms of the finished products. It has been claimed that there was no dispute with reference to the raw materials and therefore excess production of finished goods as alleged was not possible.
28. However as already discussed by me earlier in Paras 17 and 23 of this order, the assessee, even when he had original copies of invoices for major raw materials purchased like aluminium powder, Dextrine and CC wire, failed to account for the same in RG 23A part I. The claim of assessee that these invoices were not accounted due to non-availability of the transporter's copy is nothing but an after thought as that copy is not relevant for accounting of stock in RG 23A Part I. Though there is no direct evidence regarding purchase of additional raw materials, I hold that non accountal of raw materials coupled with clinching evidence in the form of private note books regarding clandestine production of unaccounted goods lead to the conclusion that the assessee had not kept the entire invoices regarding purchase of raw materials, but had suppressed those relating to clandestine production.
29. An affidavit has been filed by the Foreman of the company on 17th December 1999 indicating the purported practice followed by the company in maintaining stock notebooks to monitor worker's performance. It is also stated that both manufactured and semi-manufactured goods were kept in boxes of random sizes and that those boxes were not the ones used for clearance of finished fireworks to the market. It is also claimed in the affidavit that there has been no unaccounted receipt of raw materials, no unaccounted production and no clandestine removal whatsoever during the impugned period in which the deponent was the foreman and responsible for movement of raw materials and finished products.
However, I find that the affidavit is contrary to facts that the raw materials have not been fully accounted for. Further as admitted by Shri Rajagopal, prescribed registers under Explosives Act have not been maintained.
30. With reference to the claim made during the personal hearing that the quantum of production of the assessee was consistent over a period of time and there was no scope for clandestine removal, I hold that the plea is not sustainable since the consistency in production relates only to accounted production. On the other hand, there are strong grounds to regard that the private notebooks under seizure evidence the unaccounted production. These notebooks are very revealing with respect to details and any corroborative evidence is not warranted. I also hold that the foreman who had maintained the private notebook was not speaking the truth.
31. A plea has been made that apart from Explosives Act Regulations, a separate licence had to be obtained under the Arms Act for Sulphur which is also an ingredient for manufacture of fireworks. State Revenue authorities are also claimed to have inspected the stocks, production etc. Also both the Sales Tax authorities and Income Tax authorities are said to have accepted the records of the party after examination. I have already discussed in detail that the managing partner in his statement before the investigating officers had admitted that he had not maintained any record required under Explosives Act. As already discussed in my findings, the Central Excise statutory registers such as Form IV Register and RG 23A has not been properly maintained by the assessee. In the system of Self Removal, a great responsibility is cast on the assessee to maintain records properly and discharge the appropriate duty in a responsible manner. When the assessee does not discharge the responsibility cast on him by not even maintaining the statutory records, the above claims based on maintenance of records and verification by other departmental authorities loses force. The same would also hold for the argument that there was no instance of stopping of clearance at the checkposts by the sales tax authorities.
Examination by the Officers, does not weaken the department's case, as managing partner, who was present during the search, signed the mahazar, admitted to the contents of the mahazar and details contained in the private notebook maintained by the foreman. It is also relevant that when the Officers went to record statement from him, the accountant had left service of the assessee and vacated his residential premises. This leads to the impression that the accountant was made to abscond.
2. Arguing for the appellants, ld. Sr. Advocate Shri S. Ramachandran put forth the following proposition on clandestine removal that the same cannot be confirmed unless the department produces substantial evidence which is cogent and clear to prove the purchase of raw material, clandestine manufacture, sale and receipt of funds. In this case, the scribe has not been examined and the entries in the notebook has not been proved. It is well settled that demands for clandestine removal cannot be confirmed merely on the basis of seized notebook maintained by some worker which was not examined and details were not corroborated with relevant material on record. He has also referred to the affidavit of the Foreman which has not been considered, he denied about the manufacture of such huge quantities of firework and the findings are all based on presumptions and assumptions and no statements can be confirmed merely on the basis of such presumptions as has been laid down in the following judgments :-CCE, Meerut v. Raman Ispat (P) Ltd. [2000 (121) E.L.T. 46 (Trib.)]Beco Industries Ltd. v. CCE, Jamshedpur [2000 (121) E.L.T. 650 (Trib.)]CCE, Mumbai-III v. Mira Silk Mills [1999 (112) E.L.T. 934 (Trib.)]CCE, Patna v. Universal Polythene Industries [2001 (130) E.L.T. 228 (Trib.)]Modern Steel Industries v. CCE, Meerut [2000 (124) E.L.T. 444 (Trib.)] (6) Bharat Containers (Nagpur) Pvt. Ltd. v. CCE, Nagpur [1999 (113) E.L.T. 992 (Trib.)] (7) CCE, Chandigarh v. Indian Hume Pipe Co. [2000 (118) E.L.T. 733 (Trib.)] (8) Deepak Tandon v. CCE, Bhubaneswr [2000 (126) E.L.T. 1079 (Trib.)] and (9) Shree Vallabh Glass Works ltd. v. CCE, Ahmedabad [2000 (126) E.L.T. 1117 (Trib.)].
3. Ld. Sr. Advocate submits that in view of the settled law as laid down by the Tribunal and Courts with regard to the proof and burden of proof to be placed by the Revenue and non production of such proof by the department, the demands are required to be set aside. He submits that as the entries of the seized notebook has not been proved, therefore the demands including penalties are required to be set aside.
4. In reply, ld. SDR Shri G. Sreekumar Menon relied on the findings which are extracted supra. He submits that authenticity of the notebook was not challenged by the Managing Partner and therefore the entries made therein are deemed to have been proved as the same contained the various details of manufacture and removal of each item of fire-work.
Therefore, it could be easily presumed that such production took place and the demands are therefore required to be confirmed.
5. On a careful consideration of the submission from both the sides, we notice that the matter had come up for final hearing in the previous round and by final order No. 567-568/99, the matter had been remanded to Commissioner to examine the aspect pertaining to confirmation of demands on clandestine removal in terms of the seized notebook. It was noted that the appellants had referred to various evidences to show that such quantum of inputs could not have been used by them as such inputs are regulated under the Explosives Act and that for manufacture and clearance, huge sums are required, for which the appellants did not have the means. In view of the non-speaking nature of the Commissioner's order, the matter was sent back in order to enable the Revenue to examine the material on record and reconsider and give a detailed finding.
6. We have perused the order of the Commissioner which is extracted supra. On a careful reading of the said order, we have to observe that the said finding recorded is totally based on presumptions and assumptions.
In all clandestine removals, it has been now well laid that the crux of the issue in respect of clandestine removal is that Revenue cannot proceed solely on the basis of a seized private notebook maintained by a worker unless the entries are corroborated by various other pieces of evidences in as much as that Revenue has to show that appellants have purchased the inputs from market and utilised the same and that the same has been sold to particular persons through invoices or otherwise and the money has flowed back as capital. In this particular case, admittedly the only piece of evidence is a notebook seized from the premises of the appellant. It was brought to the notice of the seizing officers that it was maintained by the Accountant who was very much present during the time of investigation. It was the duty of the investigating officers to have sought explanation from the said Accountant with regard to the entries made therein. Non-examination of the Accountant has rendered the document inadmissible in evidence. The findings recorded in Para 16 that the Accountant is now not available and his whereabouts could not be traced is not acceptable for the reason that at the time of the raid and the seizure of the notebook, the said Accountant was very much present. Be that as it may, the Revenue is required to show that appellants have purchased raw materials valued more than Rs. 1.09 crores. It is the specific plea of the appellants that the inputs are supplied under licence under the Explosives Act and they are required to purchase only through governmental sources. This was explained by the Managing Partner when he was examined by the Investigating officers. Therefore, at the time of investigation, it was the duty of the said officers to have contacted the supplier of Governmental agency and examined them and should have seen through their records as to whether the appellants have purchased such huge quantities of inputs for manufacture of the fireworks. The said non-examination of the supplier of raw material which is controlled and a licensed commodity is fatal to this case and it can be easily concurred that Revenue has not proved the case with regard to the purchase of raw materials for manufacture of final product.
7. It is seen that the appellants have also brought to the notice of the Revenue that fireworks are required to be insured mandatorily while removing the same and various authorities are required to be informed and permission obtained. Revenue has not examined this point in the correct perspective. The danger of removal and penal consequence of non-insurance is a serious matter and the Commissioner ought to have relied on same evidence to show as to how they could manufacture and remove such controlled explosive commodity without proper protection and insurance. Merely to give finding that such clandestine removal is done secretly and stealthily and they do not follow the law is not acceptable in the peculiar facts and circumstances of this case. There is no other corroborative evidence with regard to the sale and purchase by particular persons and there is no evidence of removal through any transporter and the transporters have not been examined and statements recorded. Each link in the aspect of production and clandestine removal is required to be proved and since this has not been done, the demands are required to be set aside for lack of evidence in the matter. It has been laid down by the Tribunal, as in the case of Kashmir Vanaspati [1989 (39) E.L.T. 655] that a private notebook cannot be a conclusive piece of evidence to prove clandestine removal. Large number of judgments have been ren dered by this bench and the matter has been analysed carefully and the Tribunal has laid down that proof is required to be produced by the department for clandestine removal as in the case of Krishna Bottlers [1999 (32) RLT 845]. The above citations also deals with each of the factors required to be proved and it has been laid down very conclusively in the cited judgments that the scribe of the notebook is required to be examined and details of the notebook is required to be proved as in the case of CCE v. Raman Ispat (P) Ltd., CCE MumbaiMira Silk Mills, CCE Patna v. Universal Polythene Industires, CCE ChandigarhIndian Hume Pipes Co., Deepak Tandon v.CCE Bhubaneswar, Shree Bhallabh Glass Works v. CCE Ahmedabad, etc. (all supra).
8. In view of the Revenue not having proved any evidence of the manufacture or removal without payment of duty in this case except the seized notebook which entries has not been proved including the scribe not having been examined, therefore applying the ratio of all the judgments noted supra, the impugned order is set aside and the appeals are allowed.