1. These three appeals have arisen out of a common Order-in-Original No. 30/94 dated 28.6.94 passed by the Collector, Central Excise. Two appeals have been filed by M/s. Ajanta Synthetics and their Director Shri Sanjay V. Modi against confirmation of demand of Central Excise duty and Penalty. The third appeal has been filed by the Revenue against dropping of some demand of duty and imposing penalty not commensurate with the gravity of the offence.
2. Briefly stated the facts are that on the basis of intelligence to the effect that M/s. Ajanta Synthetics were indulging in evasion of duty on processed man made fabrics by resorting to suppression of production, mis-declaration and clandestine removal of excisable goods, the Central Excise Officers searched their premises on 29.1.1988 and seized unaccounted stock of processed and finished man made fabrics valued at Rs. 2,17,908. They also seized packed fabrics valued at Rs. 1,41,173 lying in the godown of M/s. Prabhat Textile. The Collector, under the impugned Order, has confirmed the demand of duty, amounting to Rs. 37,32,052 as against Rs. 1,07,34,391 demanded in the Show Cause Notice dated 24.5.1989; confiscated the seized goods and imposed penalty of Rs. 5 lakhs on the Company and Rs. 1 lakh on the Director.
3. Shri L.P. Asthana, learned Advocate, mentioned that the Collector has confirmed part of the demand mentioned in Annexures D-I, D-II, D-VI and entire demand mentioned in D-VII and has set aside the remaining demands in Annexures D-I, D-II, D-III, D-IV, D-V and D-VIII; that no appeal has been filed by the Revenue against setting aside the demand in Annexure D-V and D-VIII; that the appeals have been filed against the demand of duty/setting aside the demand as under: (i) By Ajanta Synthetics in respect of Annexures--D-I, D-II, D-VI and D-VII, 4.1 The learned Advocate submitted that the demands in Annexure "D-I and D-II" are on the basis that the prescribed and authenticated Lot Registers show the fabrics as PC shirting whereas according to the Grey Receipt/Challans and/or Dyeing Receipt Books, the fabrics were of higher quality carrying a higher rate of duty; that the Adjudicating Authority has very fairly held that the grey receipt/challans and Dyeing Receipt Books (DRB) are not at all reliable and no demand based entirely on the description of the fabrics shown in those documents is justified; that the Collector has come to the conclusion that the DRBs were being maintained in a very casual and slipshod manner and could not be made the basis for any demand; that on the basis of these findings he has held that the demands based only on the difference between the description given in prescribed registers and the description given in the private records was not justified and dropped the demand of differential duty of Rs. 13,01,390 Annexure D-I and Rs. 16,46,504 in Annexure D-II.4.2 He then submitted that the Commissioner has confirmed the demand of duty Rs. 5,37,719 mentioned in Annexure D-I and duty Rs. 13,83,083.03 mentioned in Annexure D-II on the ground that where the higher quality of fabrics shown in these two Annexures had been taken on the basis of both grey challans as well as other production records, credence would have to be accorded to the quality of fabrics as recorded in Internal records because of existence of a corroborative document i.e. Grey challans which also indicated a higher quality of fabrics than that recorded in the Authenticated Lot Register.
4.3 The learned Advocate contended that once the Commissioner has come to the conclusion that the description given in the Grey Receipt Challans and DRB are not reliable, he cannot have relied on these documents as corroboration of each other; that thus it cannot be held that the entries made in Authentic Lot Register are not correct; that moreover in numerous cases the quality of fabrics shown in the Grey Receipt Challans is different from the quality shown in the Dyeing Receipt Books; that for example in respect of serial No. 18 in Annexure D-I, description in Grey Receipt Challan is 2/60PV 48 x 52 whereas in Dyeing Receipt Book it is Toplar Tex & Tex; that similarly in Annexure D-II at Serial No. 28 (Lot No. 389) the description in Grey Receipt Challan is 'Polyster Dyed' whereas in DRB it is 'H.T.'; that neither Polyester Dyed nor H.T. indicates quality of the fabrics; Polyester Dyed means that only the polyester portion in the fabric is to be dyed; H.T. means High Twist; that similarly at Serial No. 73 (Lot No. 661) in Annexure Q-II the description is 'Fancy' and 'Tex & Tex' respectively; that 'Fancy' also does not indicate quality but means that it is a fancy fabric of any blend of fibre. The learned Counsel, therefore, emphasized that it is patently erroneous to hold that the two records -- Grey Receipt Challan and the Dyeing Receipt Books -- corroborate one another; that further four representative samples drawn on 29.1.88 itself by the Central Excise Officers from different packages having different lot Nos. were found to be P.C. as shown in the Authenticated Lot Register and the entries however in DRBs were found to be wrong. He also pointed out that the assessee being job worker could realize the duty from the principals who had sent the fabrics for processing and as such there was no incentive for showing wrong description; that no enquiry has also been caused by the Revenue from their customers in this regard; that burden is cast upon the Revenue to prove the allegation.
5. Regarding confirmation of demand mentioned in Anexure D-VI and D-VII, the learned Counsel mentioned that emphasis had been placed on Note Book (Serial No. 81) held to be the account of goods processed, packed and cleared, without accounting in the official records; that no effort had been made to contact parties whose names are mentioned in the Note Book to ascertain whether the quantities shown against their names were received or not; that Shri R.H. Dhumal and Shri K.A. Naidu, their employees, had clarified in their Cross Examination that their statements were not recorded properly and correct position was not brought out; that Shri Dhumal had mentioned that the alleged lot numbers 1001, 7001, 4000, etc. were not lot numbers but were short numbers which depended on the quality of the fabrics; that they had their own corresponding lot numbers which were mentioned in the Authenticate Lot Register. He also emphasized that the Adjudicating Authority has himself held in Order-in-Original (Internal Page 53) that no specific records had been mentioned in Annexure D-VI in working out the evasion of duty and Annexure D-VII purports to give the totals from the said Note Book given serial No. 81; From the said total is deducted production covered in Annexure VI; that the Commissioner has also held that 12 Lot Nos. were duly accounted for and he had thus dropped the demand in respect of them; that it is their contention that D-VI shows several other lot numbers and there is no finding that these lot numbers did not figure in the authenticated lot register; that Note Book No. 81 was maintained obviously for check of the production figures in relation to the agreements with workers for production norms etc. Finally he submitted that fabrics seized on 29.11.88 was not fully processed being improperly or defectively processed, and the same had to be sorted out for reprocessing; that neither Rule 173G(4) nor Rule 53 requires unfinished goods to be entered in RG1 register or in the Bonded Store Room when the goods are improperly or defectively processed; that the goods are not sellable goods i.e. not in marketable condition and, therefore, cannot be entered in RG1 register. Regarding fabrics measuring 8823.30 L. metres, it is submitted that these goods were duty paid goods, rejected by the upcountry buyers and returned by them.
6. Countering the arguments, Shri Jagdish Singh, learned DR, submitted that in a case of clandestine removal it is not easy to trace the weaver/trader so as to ascertain the actual quality of the products cleared by the Appellants; that Shri R.L. Dhumal, Grey Clerk of the Appellant Co., in his statement dated 4.4.89 has clearly deposed that he had maintained the Authenticated Lot Register by mis-declaring the composition/quality of the grey fabrics on the instructions of Shri Sanjay Modi, Director; that Shri Lalit Kumar Mehta, Dyeing Master, in his statement dated 31.3.89 stated that the composition/quality, etc.
entered in the dyeing receipt book are correct and that the entries in the books mainly Stenter Books, Gigger Books, Jet & Beam Book, Costing Book in respect of lot Nos. name of the party, composition/quality of the fabrics, quantity in L. Metres are being recorded correctly. The learned D.R. also referred to the statement of Shri Anand Thakre, Excise In-charge, who had deposed in his statement that it was their practice to take the signature of the parties on blank printed declarations form in advance and after processing of the fabrics or at the time of clearance he was filling the details as per the directions of Sanjay Modi and Rasbihari Mittal; that Shri Mittal, Factory in-charge, in his statement dated 2.11.88 admitted that the fabrics seized on 29.11.88 bearing the name of the Appellants and packed by strips bearing the name of M/s. New Empire Textile Processors (P) Ltd. were not entered in any of the statutory books or in private register, that Shri Sanjay Modi, Director also admitted in his statement dated 3.4.89 that the depositions given by the staff were correct and he had put his signatures on all the statements. The learned DR contended that after such an admission, there remains no need to investigate the matter further; that these statements were not retracted at any time; that no processing unit can function without a Dyeing Master who decides the receipt for processing of the fabrics depending upon its quality and compositions and, therefore, the quality/composition of the fabrics shown in the Dyeing Receipt Book has to be the appropriate one.
He also mentioned that in a manufacturing unit, non-official records are generally kept as supplement to official records and entries therein are entered on the basis of certain internal documents and that too with the full knowledge of the management; that as per Section 36A of the Central Excise Act, the contents of any document seized from the custody or control of any person shall be presumed to be true unless the contrary is proved. He emphasized that the Dyeing Master would not have ventured to undertake processing without knowing about the quality, composition etc. of the fabrics brought to him for processing; that all the statements recorded and confirmed by Sanjay Modi support the allegation of clandestine manufacture and removal of the impugned goods; that the lot numbers were found repeated in the DRB for the obvious reason of evasion of duty; that different lots of fabrics were processed by allotting the same lot number again and again in order to avoid its entry in the authenticated lot register, RG1 and clearance on payment of duty.
7.1 The learned DR also mentioned that demand of duty in respect of Annexure D-III was made on the ground that the fabrics were not grey returns as contended by the assessee; that they had not produced any evidence to prove that these were grey returns; that in the absence of such evidence the Adjudicating Authority ought not have accepted their contention of grey returns and dropped the demand; that the Collector ought to have taken into consideration the statement of the Dyeing Master who had confirmed all the entries made in the Dyeing Receipt Books were correct.
7.2 He also mentioned that the Collector had wrongly dropped the demand in respect of Annexure D-IV on the ground that the allegation had not been justified by corroborative evidence; that the statement of Dyeing Master is a corroborative evidence who had confirmed the authenticity of the DRBs. The learned DR also contended that the testing of samples does not justify whatever had been admitted by the assessees in their statements; that a piece of fabric was sent with the Price-List for the purpose of valuation and the same had nothing to do with the classification. He relied upon the decision in Rajasthan Explosives & Chemicals Ltd. v. CCE, Jaipur, 2003 (85) ECC 85 (T) wherein the Tribunal has held that "if there are documents for the clearance of excisable goods without payment of duty issued by the appellants themselves, this evidence cannot be obscured by the plea of lack of evidence of the consumption of raw material and electricity, etc." 8. In reply, the learned Advocate mentioned that the statement have to be taken with a pinch of salt as both Dhumal and Mehta have stated in their cross examination that the quality fabrics cannot be judged only by feeling the fabrics; that DRB will be the same for P.C.; that if statements were correct entire duty demanded mentioned in Annexure D-I and D-II should have been demanded, and therefore, nothing can be held against them on the basis of statements. He also contended that the Collector has given his finding that no specific records have been mentioned in Annexure D-VI and accordingly no duty can be demanded in respect of D-VI; that in respect of Annexure D-VII, there is a note book and so all clearance of D-VI should have been mentioned in Note Book; that names of customers have been mentioned in the Note Book; that Department should have enquired the matter from them; that extra pack mentioned in the Note Book does not automatically mean that the goods were removed clandestinely in absence of any supporting document.
He also mentioned that the rate of duty has been applied wrongly; that as samples were provided in respect of D-I and D-II, there cannot be any suppression and consequently larger period of limitation is not invocable. The learned DR replied that the Annexure-D-VI has been prepared on the basis of Note Book; that Shri Kanhayya Naidu in his statement dated 7.4.89 had deposed that he was keeping two accounts of the fully processed fabrics which were ready for despatch as per instructions of Shri Sanjay Modi and Shri R.B. Mittal; that the extra packs were not accounted for in RG1 register. He finally mentioned that the larger period of limitation is invocable as the Assessee had deliberately shown wrong description of the goods, not entered the goods in statutory records and mis-declared the goods in RG-1, classification list and invoices with an intent to evade payment of duty.
9.1 We have considered the submissions of both the sides. In Annexures D-I and D-II the charge against the Assessee is that the fabrics attracting higher rate of duty had been cleared from the factory describing the same as fabrics attracting lower rate of duty. The Adjudicating Authority has not found Grey Receipt/Challan as reliable as the same have been issued by the weavers who are illiterate or semi-literate and often do not contain any particular regarding variety. He has observed that Dyeing Receipt Book (DRB) has been written in a very perfunctory manner and did not contain any sequence of dates regarding actual commencement and/or completion of dyeing process or correlation with the completion of other processes of a particular lot. He has given other reasons also for not completely relying on Grey Receipt and DRB. We find ourselves unable to agree with this finding of the Adjudicating Authority. The factory premises were visited by the Officers on 29.11.88. The statement of Shri R.K. Dhumal was recorded on 4.4.89 in which he had clearly admitted that in many instances, as per instructions of Shri Sanjay Modi, Director, he had mis-declared the composition/quality of grey fabrics in the Authenticated Lot Register even though he was aware of the true and correct nature of the fabrics which was also mentioned in the Grey Delivery Challans. It is not the case of the Assessee that the statement was retracted immediately. Even in his Cross Examination on 12.8.93 he had stated "My statement took 4 to 5 hours. My statement was recorded putting questions and taking down the answers." He does not say that the answers were given under duress or coercion. Further, in answer to a question in cross-examination to the effect that Sanjay Modi or Ras Behari Mittal used to give him instruction to give false description in respect of certain lots entered in the lot register, he replied as under: "Shri Ras Bhari Mittal and Shri Sanjay Modi sometimes use to give the instructions for making wrong entries." His statement cannot be discarded merely on the basis of his answer that he could not judge the quality of the fabrics himself by mere feeling.
9.2 The entries made in Grey Challans and Dyeing Receipt Books are most relevant as this is the beginning of the work of processing the fabrics undertaken by the Assessee. Shri Lalit Kumar Mehta, Dyeing Master, has also deposed in his statement dated 31.3.89 which is recorded after more than 4 months of visit of the factory that the supervisors were maintaining DRBs as per his instructions and that 'the composition/quality, quantity, width etc. detailed in the said Receipt books are true and correct.' He further mentioned that the said details are true and correct because it is not possible to decide the receipt of dyeing and processing unless the composition/quality and width mentioned therein are correct and same have been entered after actual verification. Again no retraction has been made by him of his statement. Again in his cross-examination conducted on 27.8.93, he did not allege any coersion or duress at the time of recording of his statement. We, therefore, agree with the learned DR that the processing could not have been undertaken by the Dyeing Master without knowing about the quality/composition, etc. of the fabrics. Shri Sanjay Modi, Director whose statement was recorded on 3.4.89 had not expressed any doubt about the statement of Dhumal and Mehta and deposed that when the grey fabrics was issued for processing, the receipe of the processing was decided and was entered in the Receipt Books. In view of this the demand of duty on the basis of Grey Challan/Dyeing Receipt Books has been correctly made by Revenue and the appeal filed by the Revenue in respect of Annexure D-I and D-II is allowed.
10.1 As far as demand in respect of Annexure D-III is concerned we find that the Revenue has not succeeded in rebutting the finding in the impugned Order as they have merely mentioned in Grounds of Appeal filed by it that the assessee could not produce any evidence to prove that these were grey returns; We, therefore, reject the appeal of the Revenue in respect of Annexure D-III.10.2 Demand of duty in Annexure IV was on the ground that M/s. Ajanta Synthetics had processed fabrics twice by allotting the same lot numbers. The Adjudicating Authority has dropped the said demand as the Department had not specified the particular Dyeing Receipt Book in which lot numbers appeared twice and further the Assessee had shown in respect of one lot number that duty had been paid twice as the lot number was 888 and not 889. No specific averments have been made by the revenue to controvert the findings contained in the impugned Order in relation to Annexure D-IV and accordingly Revenue's appeal is rejected in respect of the said Annexure.
11. The Adjudicating Authority has confirmed the demand of duty in respect of Annexure D-VI and D-VII which are in respect of processed fabrics which were not accounted for in the statutory records but were entered in private records. We have considered the submissions and observed that the Collector has dealt with all the contentions which M/s. Ajanta Synthetics have not succeeded in controverting. It has been mentioned by the Collector that Shri K. Naidu, Folding Clerk, had deposed in his statement dated 7.4.89 that Note book was being maintained by him and entries recorded therein were also made by him.
The Note book was recovered from the drawee (sic, drawer) of Shri R.B.Mittal, Factory-in-charge. The Note Book contained month-wise, variety wise and date wise details of the total quantity of fabrics manufactured by the Assessee during the period from May 1998 to September, 1998. It also contained Summary of quality-wise extra packed fabrics for the months of May to August, 1988 had also been given separately and the quantity of fabrics shown as "extra" had not been accounted for in the RGI Register whereas production shown as "Party's Packed" had been entered in RGI register. The Collector has also given his finding that non-existence of correspondent lot numbers in respect of lot series of Annexure-D-VI not only in the Authenticated Lot Register but even on grey receipt challans or in DRB or in any other private production records proves that the fabrics pertaining to these lots was unaccounted one. Even in his Cross Examination, Shri K.A.Naidu has mentioned that the Note Book has been maintained by him on the basis of packing slip as per the instructions of Shri R.B. Mittal and Shri Sanjay Modi. In answer to a question he has replied that his statement might have taken 1 or 11/2 hour and the same was recorded by asking questions. He has not alleged duress or any harassment or threat. In answer to a question from the Adjudicating Authority about the difference between "Party's packed total" and "Extra Packing total" he replied as under: "The final packing is done party wise and therefore the party's packed total relates to the parties and the extra packed total relates to extra packing done at the instance of Mr. Sanjay Modi and Mr. Ras Behari Mittal. However, I do not remember it completely." We thus find no reason to interfere with the confirmation of demand of duty as mentioned in Anexures D-VI and D-VII.12. Regarding confiscation of the fabrics seized from the factory premises, it is not in dispute that the fabrics had been processed.
According to the Assessee the same were not entered in statutory records as they were defective. The nature of defect has not been indicated. Once the goods have been processed these are required to be entered in RG-1 Register. Therefore, we uphold the confiscation.
Similarly the goods found in the godown of P.T. and seized subsequently, the Adjudicating Authority has not accepted the explanation offered by the Assessee to the effect that these goods had been cleared earlier on payment of duty and were received back as the buyers had rejected them being defective and were repacked in October-November 1988. The Collector has given his findings that M/s.
NEPT had not furnished documents under which the said goods were returned by the buyers nor copies of letters under which the Central Excise Department was informed about such return. We, therefore, uphold the confiscation of these goods also. The redemption fine of Rs. 50,000 is also not on the higher side at all and is, therefore, upheld. The Penalties imposed by the Collector are reasonable and no change is warranted and as such are upheld.