Full Judgment
2. Shri Jitendra Singh, learned Advocate, submitted that M/s. Carbon India, a partnership firm, are engaged in the manufacture and trading of stationery, viz., Type Carbon Paper, Pencil Carbon Paper, Typewriter Ribbon, Sealing Wax, Ink Pad and Paper Pins; that the Revenue has alleged that they had suppressed production of excisable goods and removed the same clandestinely without payment of duty and that they created a dummy unit in the name of M/s. Rohit Enterprises, Appellant No. 2 with a view to avail undue exemption under Notification No.175/86-C.E., dated 1-3-1986; that the impugned order has been passed only on the basis of entry of sale in their Balance Sheet relating them as sales of the goods manufactured in their factory; that Shri Deepak Agarwal, partner, in his statement, has deposed that the difference in the figures of goods, removed as reflected in the Balance Sheet and R.T. 12s, was on account of trading of similar goods purchased by them from the market; that they had purchased these goods in compliance to fulfil their obligations against time bound supplies to various Government Departments; that these purchases were also reflected against sale in their annual Balance Sheet as detailed in the foot note as well as in the Annexure Form 3 C.D. attached to it; that the Appellant No. 1 could not support these contentions with the Bills or other documents as the same had been burnt and lost in the fire accident in their office on 20-4-1990. The learned Advocate contended that the Revenue also does not have any evidence with them to show that the Appellant No. 1 had not traded in similar goods, besides manufacturing; that it is settled law that clearance of the excisable goods from the factory cannot be arrived on the basis of Balance Sheet - Kanam Foam Industries, 1993 (68) E.L.T. 368 (Tribunal). He also submitted that it is settled law that the declaration of quantity of goods, manufactured and removed to other Government Departments, should not be the sole basis for concluding clandestine manufacture and removal of excisable goods that something more is required to establish the fact of clandestine removal; that, therefore, the Commissioner has erred in concluding the Sales Tax Returns as corroborative evidence for the sale amount of the Balance Sheet to establish clandestine removal; that the Revenue had no positive direct affirmative evidence to substantiate clandestine manufacture and removal of goods by them beyond declared in R.T. 12 returns.
3. The learned Advocate, further, mentioned that sealing lac sticks were purchased by them from M/s. Prakash & Co. which is evident from the sale Bill No. 1, dated 1-10-1989 and Sale Bill No. 2, dated 2-11-1989; He also referred to Form 'C' of Central Sales Tax which reflects sale of sticks to M/s. Dilip Enterprises (Page 68 of Paper Book). He also contended that the sealing wax or sticks are classifiable under Heading 13.01 of the Schedule to the Central Excise Tariff Act for which Tariff rate of duty is nil; that, therefore, the question of demanding any duty in respect of sealing wax does not arise; that the presumption of the Adjudicating Authority that the trading amount reflects the value of the carbon paper is neither proper nor legal in the absence of any evidence. He also referred to the decision dated 14-7-1999 of Trade Tax Tribunal, Bench-2, Kanpur wherein it has been observed that the evidence maintained by the Excise Department shows that in the year of assessment, work of manufacturing remained totally closed from 1-1-1990 to 31-3-1990 and the supply of Rs. 20,951.96 only. The Department of Electricity and Certificates of National Small Scale Industries Corporation Ltd. also prove the closing of production. The learned Advocate also submitted that M/s. Rohit Enterprises are having its independent entity having Central Excise Licence No. 41 Ch. 48/Range XI/89; their Central Excise records were periodically scrutinized; holding provisional SSI registration from the Directorate of Industries and had applied for a registration from the Trade Tax Department. He contended that their annual capacity cannot be determined on the basis of production for the month of November, 1989 in absence of any norms fixed by the Department under Rule 173E of the Central Excise Rules, 1944; that the production for the month of October was shown in the month of November.
4. The learned Advocate also mentioned that the demand has been confirmed for 1987-88 on the difference of amount of sale shown in Balance Sheet -Rs. 33,44,174/- as against Rs. 31,25,782/- in R.T. 12 return; that the difference is on account of sale of damaged carbon papers under Cash Memo Nos. 46, dated 2-7-1987 and 105, dated 30-3-1988; that these damaged goods were transported under consignment Note Nos. 887, dated 22-7-1988 and 872, dated 30-3-1988 removed to New Delhi. He also mentioned that demand is hit by time limit specified in Section 11A(1) of the Central Excise Act as their trading activities were within the knowledge of the Department. Finally, he submitted that the separate penalty cannot be imposed on a partner as a partnership concern is not a legal person in the eye of law unlike that of a company; that if Rohit Enterprises is regarded by the Department as a dummy unit no penalty can be imposed on a unit which does not exist.
5. Countering the arguments, Shri V. Valte, learned SDR, submitted that the case of the Department is based on the documents which were recovered from their factory premises; that there are no records available for the period prior to April, 1990 as the Appellants claim that all these records have been destroyed in the fire which took place on 20-4-1990; that this is not acceptable as the Appellants were avoiding the production of documents much before the incident of fire, which is apparent from the report of the Inspector-in-charge of the Appellant's factory (Page 280 of the Paper Book); that the Inspector had clearly reported that the Managing Partner, Sh. Agarwal had avoided to give copies of relevant invoices in spite of requests made under letters dated 10-1-1990, 23-1-1990, 5-3-1990, 27-3-1990, 24-4-1990 and 14-5-1990; that no official intimation of fire was also received by the Department from the Appellants. The learned SDR emphasised that only papers, relating to Excise Department, were burnt in fire; that fire brigade was not called for extinguishing the fire; that no half burnt record was also shown. The learned SDR, further, submitted that the Commissioner has recorded a specific finding in the impugned order that the sales figures for 1989-90 had been taken not only from Balance Sheet but also from the Sales Tax Return and that there was no mention in the Sales Tax Return that part of the sales represented trading sales; that the Commissioner has also observed, from the order passed by ITO, Kanpur, regarding the income-tax for 1989-90, that purchase and sales were not verifiable and that Trade Tax Tribunal in order dated 14-7-1999 had mentioned that since the records had been burnt in fire, the declared invoice could not be accepted. The learned SDR reiterated the findings contained in the impugned order.
6. We have considered the submissions of both the sides. We observe from the perusal of the impugned order that the Commissioner has not accepted the plea of the appellants about purchase of carbon paper from M/s. Ajay Traders on the ground that the consignment notes were dated 28-11-1989, 10-12-1989, 20-12-1989 and 11-2-1990 whereas the Bills raised by Ajay Traders are dated 11-3-1990 only and that their purchase order is dated 21-1-1990. In view of these facts, we do not find any reason to interfere with the finding of the Adjudicating Authority that the appellants had not established the fact that they had purchased carbon papers from Ajay Traders for trading purposes. Regarding resale of damaged goods received from M/s. Silverline Steel Industries Ltd., the Commissioner has relied upon the Insurance Report according to which goods were damaged beyond use and could not have been resold and further no bill or vouchers for resale of these goods had been submitted by the appellants even if the goods were resold, the figure cannot be taken into record as it does not amount to any additional sale. We also do not find any substance in the submission of the learned Advocate that the quantum of excisable goods could not be arrived at from the Balance Sheet. The Balance Sheet is an important document which contains details of the entire year and the figures mentioned therein cannot be simply brushed aside. It is for the appellants, who have prepared the Balance Sheet, to prove that the figures mentioned therein are false.
7. The Commissioner has held that Rohit Enterprises was a dummy unit as the same was started by M/s. Shailja Agarwal, wife of Praveen Agarwal, partner of the appellant, employed as an engineer with U.P. Electricity Board and executed a Joint Power of Attorney in favour of Deepak Agarwal, partner and K.K. Tripathi. Shri K.K. Tripathi, in his statement dated 3-6-1991, had deposed that Rohit Enterprises did not possess any machine for the manufacture of carbon paper, no technically qualified person had been employed in that unit. The Commissioner has rightly discarded the affidavit of K.K. Tripathi which has been given to the Department after more than one year. Even in the affidavit, he had confirmed that Rohit Enterprises had taken machines from the appelants. This shows that the appellants were having the capacity to manufacture the carbon paper. The finding of the Commissioner that both Sh. K.K. Tripathi and Mrs. Shailja Agarwal had stated that finished goods and raw materials were given back to the appellants on closure of Rohit Enterprises, nothing had been said regarding disposal of the machine, is quite significant. The Commissioner has also given a specific finding that no financial withdrawal could be made by M/s.
Rohit Enterprises without the consent of one of the partners of the appellant and this has not been controverted. We, therefore, do not find any reason not to treat M/s. Rohit Enterprises as a dummy unit and the clearances shown against its name are, in fact, the clearances made by the appellants.
8. Regarding Sealing Wax, we observe that the learned Advocate has shown a Sales Tax form reflecting sale of the same to Dilip Enterprises. The learned Advocate has also mentioned that the Tariff rate of duty is nil in respect of lac falling under sub-heading 1301.10 of the Schedule to the Central Excise Tariff Act. This aspect has to be looked into by the Adjudicating Authority as none of these facts were before them at the time of adjudicating the matter. Except the demand on account of sale of sealing wax, the demand of duty is upheld.Accordingly, penalty imposed on the appellants is reduced to Rs. 1.5 lakh from Rs. 2 lakh. We make it clear that it is open to the Adjudicating Authority to consider imposition of duty, while re-adjudicating the matter regarding sealing wax. The penalty on Rohit Enterprises is set aside as it has been held to be a dummy unit.
Penalty on Sh. Deepak Agarwal is also set aside as penalty has already been imposed on the partnership firm.