1. These appeals have been filed against the Order-in-Original No.11/2005 dated 31-3-2005 passed by the Commissioner of Central Excise, Bangalore-1 Commissionerate.
2. The appellants are manufacturers of HDPE/PP Woven Fabrics/Sacks. The officers of the Directorate General of Central Excise Intelligence (DGCEI for short), conducted certain investigations. The investigations culminated in the issue of two Show Cause Notices. The first one was issued on 4-7-2003 in respect of seized cash of Rs. 10,04,000/- from the residence of Shri Raj Kumar Sipani, Managing Director of the appellant unit. Another Show Cause Notice dated 19-7-2004 has made the following allegations: (i) The appellants diverted Plastic Granules purchased by them during the period from 1999 July to March 2003. The Cenvat credit amounting to Rs. 50,05,465/- is recoverable under Rule 57AI/57I of the erstwhile Central Excise Rules, 1944/Rule 12 of the erstwhile Cenvat Credit Rules, 2001/Cenvat Credit Rules, 2002 with proviso to Sub-section (1) of Section 11A of the Central Excise Act, 1944.
The Adjudicating Authority, apart from confirming the duty demand of Rs. 50,05,465/- equal penalty; and the interest under 11AB, imposed the following personal penalties: (i) Penalty of Rs. 5,00,000/- on Shri Rajkumar Sipani, Managing Director and Shri Anil Sipani, Director (ii) Rs. 20,000/- on Shri K.M.S. Imtiyaz Saleem, Proprietor of M/s.
Royal Plastics (Unit 1) Bangalore.
Further, he absolutely confiscated the seized cash of Rs. 10,04,000/- from the residence of Shri Rajkumar Sipani, Managing Director of the company under Section 121 of the Customs Act 1962. The appellants strongly challenge the findings in the impugned order. Hence, they have come before this Tribunal for relief.
3. Shri M.S. Nagaraja, the learned Advocate appeared on behalf of the appellants and Shri K. Sambi Reddy, the learned JDR, for the Revenue.
(i) The demand is beyond the scope/basis of Show Cause Notice for the following reasons: (a) The Commissioner has recorded in Para 17 that the retracted statements do not form part of the proceedings. But, the statement dated 20-6-2003 given by Shri Arvind Acharya of M/s. Amrith Synthetic Products Private Ltd. has been relied upon in the Show Cause Notice as the basis for determining the quantity of plastic granules allegedly diverted. The above statement was retracted immediately on 21-6-2003. When the Commissioner states that the retracted statement is not taken into account and at the same time confirming the demand, the demand would not survive.
(ii) The allegation in the Show Cause Notice and the findings in the impugned order are that the normal wastage allowed could be only 7.5% to 7.7% and anything beyond that is clandestine removal. This stand is arbitrary and without any basis whatsoever for the following reasons: (a) The Department has not prescribed any Standard Input Output Norms under the Central Excise Laws for the manufacture of woven fabrics and sacks from HDPE/PP Granules (b) There is no scientific or technical or statutory basis for the Department to allow wastage only up to 7.5% to 7.7% (c) The wastage in other similar factories (M/s. Tulsyan NEC Ltd.) relied upon in the Show Cause Notice varies from an average of 8.01% to 9.38% (d) The wastage permitted even in terms of SION under the EXIM Policy for the manufacturers of woven sacks is 10%.
(iii) The Commissioner has recorded in Para 19 that the wastage in other factories varies from 8.01% to 9.38%. As per the Show Cause Notice, wastage in M/s. Tulsyan NEC Ltd. varies from 7.30% to 8.67% and in the other factory, it varies from 8.01% to 9.38%. According to the appellant's information, the wastage in other factories varies from 8.01 % to 14.60%.
(iv) After recording the finding in Para 19 that the wastage in other factories varies from 6.13% to 9.38%, the Commissioner cannot at the same time conclude that the wastage in excess of 7.5% to 7.7% is the quantity of granules diverted by the appellants.
(v) The wastage on the basis of SION under the EXIM Policy is permissible up to 10% for the manufacturer/exporter of woven sacks.
(vi) The impugned order is singularly devoid of any discussion or findings on the evidence for removal of the Cenvat credit availed plastic granules as alleged in the Show Cause Notice. There is no material evidence for removal of inputs not only for the period prior to commencement of investigations on 11-7-2002 but even during the period of investigation since the same assumptions are made the basis for the period up to 31-3-2003.
(vii) Various factors like handling, feeding to hoppers, variation in the quality of raw material, moisture content, quality of electricity, stoppage of extruders, improper blending of different grades of granules, skill levels of operators are responsible for wastage. There is not a whisper of evidence for the alleged removal of plastic granules without payment of duty.
(viii) The performance of machinery will not be uniformly the same.
There cannot be an exact mathematical equation between the inputs used and the finished products manufactured. The onus to prove the clandestine clearance lies heavily upon the Revenue and it is required to be discharged on production of sufficient, tangible and affirmative evidence. The following case-laws were relied on:Nutech Polymers Ltd. v. CCE, Jaipur II (b) Western Metal Caps Ltd. & Am. v. CCE, Ahmedabad Em Ess Electricals v. CCE, Delhi (ix) The Commissioner has recorded in Para 18 that HDPE granules of certain grades as recommended by the primary manufacturers alone would be useful in the manufacture of woven sacks and that the unsuitable grades were removed without payment of duty. There is no justification for a manufacturer to purchase raw materials, which are not suitable for manufacture of the final products. Different grades of plastic granules purchased from M/s. Gas Authority of India Ltd. are blended to manufacture woven sacks. There has never been any compliant from buyers of the sacks with regard to the quality of the sacks. Therefore, the finding of the Commissioner that only the grades as recommended by the manufacturer are suitable and that other grades cannot be used is totally perverse and contrary to the certificate dated 20-8-2002 issued by M/s. GAIL. The same issue of blending of granules was considered by the Tribunal in the case of Delta Plastics and Anr. v. CC Kolkata-1 2003 (56) RLT 85 (CEGAT-Kol.) wherein the Tribunal has relied upon the letter dated 15-2-2002 of the Central Institute of Plastics & Technology confirming that it is possible to produce HDPE material for pipes conforming to the DOT specification by mixing/blending of granules of different grades. The Tribunal observed that the whole case of the Department that credit was availed on granules which were not used in the manufacture of final products was based on assumption and conjectures and that there was no evidence that the HEPE granules were sold in the market as such.
(x) The demand is for the period from 1-7-1999 to 31-3-2003. But, the Show Cause Notice was issued on 19-7-2004 invoking the extended period. The department was informed through the monthly RT 12/ER 1 returns, the quantity of waste generated and cleared on payment of duty. The returns contained the quantum of waste fabric captively consumed as packing material for the final product. The appellant had not suppressed the quantity of waste generated in the course of manufacture. Therefore, the allegation of suppression is not tenable. The officers visited the factory in June 2001 and audited the documents for the period from 1-4-1996 to 22-6-2001. The Audit Party did not make any adverse observation on the quantum of waste.
The officers visited the appellant's factory and commenced investigations on 11-7-2002. Therefore, for the period from 11-7-2002 to 31-3-2003, the department cannot allege that there was willful suppression or mis-statement to invoke larger period of limitation. The following case-laws were relied on:Batliboi & Company Ltd. v. CCE, Swat (xi) The cash amounting to Rs. 10,04,000/- was seized from the residence of Shri Rajkumar Sipani and Shri Anil Kumar Sipani, on 11-7-2002, under a belief that the same represented the cash removed without payment of Cenvat. The provisions of Section 121 of the Customs Act, 1962, do not apply to the alleged removal of Cenvat availed inputs in contravention of Rule 3(1) and/or Rule 3(4) of the Cenvat Credit Rules, 2002. The Notification No. 68/63-C.E. dated 4-5-1963 declaring applicability of Section 121 of the Customs Act does not include the Cenvat Credit Rules, 2002 in its ambit. Penal provisions cannot be invoked by implication and an Adjudicating Authority cannot assume jurisdiction unless the statute specifically confers such jurisdiction. Moreover, the appellant had submitted to the investigating authorities a detailed account for the entire amount. An amount of Rs. 9,05,799.83 belongs to the company as per the Cash Book and the balance amount belongs to the members of the family. The Adjudicating Authority refers in Para 21 that one customer M/s. Bramhanayaki Packaging Ltd. has paid an amount of Rs. 3,03,100/- to the noticee on 11-7-2002 for the purchase of woven fabrics. The appellants submit that woven fabrics are the final product and payment of cash by a customer cannot be a consideration for the alleged sale of input HDPE/LLDPE Plastic Granules.
(xii) The Show Cause Notice and the impugned order has not shown any stretch of imagination that the amount of Rs. 10,04,000/- seized was the proceeds from the sale of these plastic granules. The following case-laws were relied on:CC, New Delhi v. Sudhir Electronics (xiii) Personal penalties have been imposed on S/Shri Rajkumar Sipani and Anil Sipani under Rule 209A of the Central Excise Rules and Rule 26 of Central Excise Rules, 2002. The Commissioner has not recorded any findings as to how the appellants had personally dealt with the excisable goods with the knowledge or having reasons to believe that the said excisable goods are liable to confiscation and fulfilled the ingredients of Rule 209A of the Central Excise Rules, 1944 or Rule 26 of the Central Excise Rules to be liable to personal penalty.
5. The learned JDR said that the Commissioner has given a very detailed order and justified the demand of duty and imposition of penalties. He requested the Tribunal to uphold the order.
6. We have gone through the records of the case carefully. There are two Show Cause Notices. One Show Cause Notice relates to the seizure of cash and proposes confiscation of the same on the ground that they are the sale proceeds of the granules on which Cenvat credit was availed by the appellants. After detailed investigation, another Show Cause Notice dated 19-7-2004 has been issued. This Show Cause Notice proposes demand of Rs. 50,05,465/- being the Cenvat credit irregularly availed by the appellant on the plastic granules diverted by them during the period between July 1999 to March 2003. Annexure-D to the Show Cause Notice indicates how the above amount has been arrived at. In order to appreciate the contention of the department we are reproducing the said Annexure-D to the Show Cause Notice below: WORKSHEET SHOWING THE CENVAT CREDIT IRREGULARLY AVAILED BY M/s.
SIPANI FIBRES LIMITED BANGALORE, DURING THE PERIOD BETWEEN JULY 1999 TO MARCH 2003YEAR Total Total Waste Excess Value Total Rate Cenvat quan- waste Perce- waste per value of to be tity reco- ntage claimed/ Kg-of of gr- duty rever- of gr- rded granules gran- anules sed/ anules in Kgs.
diverted ules diver- C.Ex.
consu- ted duty med in to be Kgs.
paid1999- 3228005 364842 11.30 105041 39.77 4177481 24% 100259520002000- 5904823 778963 13.19 382304 37.79 14447268 16% 231156320012001- 5843500 788029 13.49 299894 32.77 9827526 16% 157240420022002- 5886615 754073 12.81 21154 35.13 743140 16% 1189022003Total granules consumed 3228005 5904823 5843500 5886615for production in Kgs.
11.30 13.19 13.48 12.80Waste produced during 364842 778963 788029 754073the year as per recordsWaste claimed to be 172805 489137 393775 124351used for packing duringAverage fabrics per roll 1448 1448 1448 1448in meters (annexureNo. of rolls packed 1485 4709 11958 10811during the yearNo. of bales packed 34369 51816 37714 43791during the yearPacking material actu- 15 15 15 15ally required @ 15Actual fabric required 537806 847878 745090 819025for packing rolls/balesAverage content of 67764 106833 93881 103197granules in the fabricTotal waste claimed 172805 489137 393775 124351for use in packingActual usage of waste 67764 106833 93881 103197for packingExcess waste material 105041 382304 299894 21154claimed to have been 6.1 A perusal of the Annexure-D clearly indicates that the Department has not accepted the waste declared by the appellant. For example, for the year 1999-2000, the appellant has claimed for use in packing a waste of 1,72,805 Kgs. According to the Department, the actual usage of wastage for packing is 67,764 Kgs. The difference between the above figures comes to 1,05,041 Kgs. Revenue holds that this represents the raw material diverted for local sale. There is also an indication that the packing material required is at the rate of 15 mtrs per roll per bale as per statement of Shri Aravind Acharya. It was pointed out by the appellant that the statement has been retracted. Even though the Commissioner has recorded that the retracted statements have no evidentiary value, in confirming the demand as per Annexure-D, he has contradicted himself. After making an assumption that 1,05,041 Kgs. of granules were diverted in the year 1999-2000, the duty has been arrived at after taking the value of the granules per kg. Thus, the entire demand is based on theoretical calculation. Similarly, for the years 2000-2001, 2001-2002 and 2002-2003, the same method has been adopted.
There is no other evidence. Not even a single customer who has purchased the so called diverted granules from the appellant is on record. Thus, we do not find any evidence for the diversion of the granules purchased by the appellant.
6.2 There is another allegation with regard to the blending of plastic granules for the manufacture of woven sacks. It is the contention of the Revenue that the suppliers of the raw materials have recommended only certain grades of granules. Therefore, it follows that the non-recommended grades of granules have definitely been diverted. On the other hand, the appellant contends that one could manufacture woven sacks of desired quality by suitable blending. The appellants have also produced certificate from M/s. GAIL. If it is the Revenue's contention that certain grades of raw materials have been purchased and diverted, then they should have specified in the Show Cause Notice what are such grades and should have calculated the Modvat credit availed on them. We do not find such a calculation in the investigation. The entire demand is based only on the so called excess wastage claimed by the appellants. The very fact that the Revenue concedes some wastage shows that there has been use of the raw material. In other words, had the Revenue conducted the investigation properly, there should have been two sets of demands. One demand pertaining to the Cenvat credit availed on granules purchased but diverted and not used at all, for the reason that they are not suitable for use in terms of the recommendations of the raw material supplier. There should be another demand pertaining to excess claim of wastage. This Show Cause Notice in Annexure-D, pertains only to the demand on account of the excess claim of wastage.
Therefore, it is clear that the investigation has not at all been done properly. In the absence of any evidence, we are unable to sustain the demand in Annexure-D.6.3 As regards the seizure of cash, it is seen that for a major portion, the appellants had actually given an account. There is not a single instance given by the investigation for purchase of plastic granules from the appellants. In these circumstances, the confiscation of the seized cash is not sustainable. As we have found that the demand of Cenvat credit and the confiscation of cash are not sustainable, there is no justification for imposition of any penalty. Moreover, the appellants have been filing the ER-1 and RT-12 Returns regularly indicating all the details of wastage. The Audit Party has also visited the unit. Hence, there is no justification for invocation of the longer period. The Show Cause Notice as well as the impugned order does not have any merit. Therefore, we have no other option but to set aside the impugned order. Thus, we allow the appeals with consequential relief, if any.