Full Judgment
1.1 The officers recovered inter alia, two exercise note books and some duplicate challan books from the factory premises. It is to be noted here that the exact place from where these exercise books were recovered has not been given either in the seizure memo or anywhere else. These exercise note books contain entries of chokes and other goods despatched by the person concerned maintaining these exercise books.
1.2 Based on the entries of despatches of chokes mentioned in these two exercise note books and on the basis of statement of Shri Vishwanath Agarwal, a partner of the appellant firm on the date of detection itself, it was alleged that the appellant firm had despatched chokes to the extent of Rs. 18,98,9067- during the period 10-7-81 to 20-3-82 and to the extent of Rs. 5,56,438-50 during the period 1-4-82 to 16-8-82.
These clearances are in addition to the clearances brought on record by the appellant firm through statutory accounts during the relevant financial year 1981-82 and 1982-83 (upto -16-8-82). In other words during the financial year 1981-82 the appellant firm were alleged to have cleared chokes to the tune of Rs. 24,77,185-50 and of Rs. 7,06,790/- during the year 1982-83 (upto 16-8-82).
1.3 The statement dated 17-2-82 of Shri V. Agarwal relied upon by the department is a typed statement on the letterpad of the appellant firm.
We shall discuss about his statement at a later stage because reliance has been placed by both the sides on this statement.
2. During the course of adjudication the appellant firm denied that the two exercise note books which carry the entries of chokes and other goods belong to them. In this connection it is pertinent to reproduce para 5 from their reply dated 27-6-83 to the show cause notice addressed to the Collector of Central Excise, Delhi :- "In this connection, we would like to invite your kind attention to the statement of Shri Vishwanath Agarwal, Partner, recorded on 17.8.82 - on the date of seizure by the Anti-Evasion officers of Central Excise. We reproduce below the relevant extracts from the said statement : 'We started manufacturing since February 1979.... Another unit in the name of M/s Agarwal Industries was also started in one manufacturing Hall in the month of December, 1980. (This was a firm with different partners) There is a common office room for both these units.
All the despatches in respect of Chokes for fluorescent Tubes and other goods made from our factory were introduced in these 2 exercise books .... We are only trading in tube light fixtures other than Chokes....' It is submitted that these 2 Exercise Books are Miscellaneous Books, which are not regular Account Books but show Miscellaneous entries of sale and purchase of different Items like and certainly it would not be correct to hold us guilty on the basis of the aforesaid two exercise books and it would not be justified to say that these two note books depicted the despatches of chokes and other goods made by us from our factory, more over so when not a single entry is in the handwriting of any of our partners. It is not understood as to how these 2 note books have been connected with us. In case these would have belonged to us, at least there would have been some entries by us. In view of the fact that none of the entries are in our hand, we do not know as to whom these belong to. It is submitted that we are not manufacturing any other goods except chokes and as your Honour would kindly see, the above Miscellaneous items depict only different items which are not in any way connected with us. This fact was brought to the notice of the Anti-Evasion officers as well, on 17.8.82, when it was told to them that these two Note Books do not belong to them and none of them was in their handwriting. Even if it is assumed that these belong to us even though it is not correct, it may kindly be got verified that we do not have the capacity to produce to the extent as mentioned in the Show Cause Notice. It is a verifiable fact and cannot be suppressed." (Emphasis supplied by the appellant firm) 2.1 Dealing with the above contention of the appellant herein the learned adjudication authority has stated as follows : "I have carefully gone through the records of the case and written submission made by the party in reply to the show-cause notice, including submission put forward at the time of personal hearing.
M/s. S.M. Enterprises, New Delhi are engaged in the manufacture of chokes for fluorescent tubes falling T.I. No. 61 of the Central Excise Tariff. The dispute is regarding the quantity of chokes manufactured and cleared from the factory during 81-82 and 82-83 without pay-merit or Central Excise duty. The department has based its case on two exercise note books and some duplicate challan books which were recovered from the factory premises of the party in the presence of Shri V.N. Aggarwal. Shri Vishwa Nath Aggarwal in his statement dated 17.2.82 has admitted that these two exercise books reflect the despatches of chokes and all the despatches/sales not figure in their regular sale accounts as the regular sale accounts were manipulated to contain the value of clearances within the exemption limits. The party's reply on this account is self-contradictory. On the one hand they have denied the ownership of these exercise books on the other hand they have said "these exercise books are not regular account books but show miscellaneous entries of sale and purchase of different items like book wire, water paper, leatheroid, lamination etc." In case these two exercise books do not belong to them, how can they say anything regarding the contents of the books. This is nothing but an after thought and is said to side-track the issue. The counsel at the time of personal hearing simply stated that the exercise books recovered from their premises did not belong to them. On being specifically asked to whom these books belong, he simply stated "we do not know". Name of the firm written on the top cover of the exercise books is "S.M. Enterprises". Challan Books recovered are printed with name and full address of M/s S.M. Enterprises. Running serial numbers of the Challan forms are hand written; some of the entries as made in these challan books appear in the exercise books. This establishes beyond any shadow of doubt that these exercise books belong to M/s. S.M. Enterprises. Obviously a duplicate book was maintained apparently to keep on account of the commercial activities of the manufacturer, not carried over to the regular account books, to evade Govt. dues.
Where certain documents, records or accounts have been seized from the premises of the party which are prima-facie connected with the production and sale, removal or clearance of the goods manufactured by them, it is for the defen-dents to explain the existence of such records and its contacts thereof; in the absence of any satisfactory explanation thereto, the department would be justified to hold with due prudence and fairness, an adverse inference from the said records." 3. The appellant has now urged that the learned adjudicating authority has fallen into an error in coming to a finding that the appellant's stand regarding the exercise note books is self-contradictory or is an after thought. They state that they pointed out the contents of the exercise books after due inspection of those books while they were in possession of the department after their seizure by the officers concerned. They further pointed out that entries of some goods like book wire, water paper, leatheroid, lamination, paints had nothing to do with the appellant and entries of these goods alone should be sufficient to discard any theory of link between the note books and the appellant firm. They have further emphasised that it is an admitted fact that the appellant's premises consisted of a manufacturing hall and in their adjoining premises are two more units which are M/s. Anil Industries and M/s. Agarwal Industries - the latter unit is engaged in the manufacture of chokes since December, 1980. The constitution of all the three firms are separate but since all the three factories are situated at one address and due to paucity of space they agreed to open one office room where in all the three units used to handle their routine day-to-day work. The appellant, therefore, urged that in these circumstances common officer room was accessible to workers of all the units and the account books of each unit are kept in the same office room which is common to all the three units. In these circumstances coupled with the fact that the appellant firm does not deal with some of the goods whose entries arc found in the two exercise note books, as mentioned above it is not possible to say with any reasonable probability that the two exercise note books belong to them. In these circumstances the learned advocate for the appellant has urged that no reliance should be placed on these two books and therefore, entire case of the department falls to the ground.
4. On the other hand the learned advocate urges that the appellant firm has only one wire winding machine for manufacture of chokes. With the help of this one machine and 5 to 6 labourers they are not in a position to manufacture so many chokes as has been alleged during the period under consideration. For this purpose they submitted a certificate from Chaudhary Trading Co. Engineers, Manufacturers of 'coils winding' machines according to which 100 to 125 chokes could be wound within 8 hours with the help of that machine, but the learned Collector had not accepted that certificate pointing that the certificate did not contain the particulars like speed, RPM, numbers of coils that could be wound simultaneously on the machine. The learned advocate has urged if the adjudicating authority had asked for this information they would have brought Manager of Chaudhary Trading Co.
who had given necessary certificate so that they could satisfy the learned adjudicating authority regarding the correctness of the certificate based on definite and relevant particulars. That having not been done by the adjudicating authority, the learned advocate submits that they are compelled to bring on record a certificate dated August 24th, 1984 from M/s. B. Dev & Associates, Consulting Engineers regarding the capacity of the winding machine for production of chokes.
This certificate gives all necessary particulars and arrives at a finding that 119 chokes with a fluctuation of 10% on either side corresponding to 100% performance rating can be produced by the machine installed in the appellant's factory.
5. The learned SDR appearing for the Revenue opposes that the said certificate of M/s. B. Dev Associates should not be taken into consideration because it is a certificate which was not before the lower authority and has been taken subsequent to the date of adjudication.
6. The learned SDR, while placing a copy of Assistant Collector (Jud.)'s letter dated 4.4.88 to her, emphasises as mentioned in that letter that "electrical coils and bobbins are not the only components required for the manufacture of chokes and the possibility exists that the party may have purchased wire-wound bobbins from outside without accountal, i.e. the existence of a capacity certificate for winding machine which goes in favour of the party is not by itself sufficient to set aside the case. Even otherwise the certified capacity of the winding machine is only for 8 hours which implies that if the factory was working continuously, the daily production of chokes would be more than 300 and as per Annexure-II to show cause notice, the entries of production on many of the dates is 300 chokes of different capacities." 7. We have carefully considered the pleas advanced on both the sides.
Main question to be decided is whether the two exercise note books on which the department relies belong to the appellant firm or not. The learned adjudicating authority has given following reasons for linking the note books with the appellant :- (i) The name S.M. Enterprises is mentioned on the top cover of the note books.
(ii) Shri V.N. Agarwal in his statement dated 17.8.82 has admitted that these two exercise note books reflects the despatch of chokes and all the despatches and sales do not figure in their regular sale account as the regular sale account were manipulated to contain the value of clearances within the exemption limits.
(iii) The party's (appellant herein) reply on this account is self-contradictory. On the one hand they denied the ownership of these exercise note books while on the other they claim that these books are not regular account books but show miscellaneous entries of sales and purchases of different items like hook wire, water paper, leatheroid, lamination etc. If the books do not belong to them then it is not possible to understand as to how the appellants could know the contents of the books. This plea therefore is an afterthought.
(iv) During the course of personal hearing on query from adjudicating authority the appellants replied that they do not know to whom the books belong when they were recovered from their premises.
(v) Challan books recovered from appellants are printed with name and full address of the appellant firm. Running serial numbers of the challan books appears in the exercise books. (Full extract of the Collector's finding on this aspect from the impugned order have already been set out above).
8. As against these the learned advocate for the appellant pleads that it is apparent that the seizure memo or any other statement does not disclose the fact as to from which place the two exercise books were recovered. He asserts that these books were recovered from the common office room of the three units - one of which was dealing in and manufacturing the same goods as the appellant's unit is. It is for this reason that Shri V.N. Agarwal, partner of the appellant firm in his statement dated 17.8.82 had clearly pointed out in para 2 of his statement the above facts of there being a common office room for both these units. That being so, the learned advocate submits that the books could belong to any other unit working in the same premises and using the common office room. Name of the appellant firm on the note books' covers could be written subsequently by someone else. It is further submitted that admission of manipulation of despatches of sales in the statement dated 17.8.82 cannot be taken as voluntary in the face of apparent fact that some of the entries in the note books pertain to such goods which are not dealt with at all by the appellant company and hence there could be no reason whatsoever for mentioning them in any record pertaining to them. This fact in itself would show, according to the learned advocate, that the note books do not belong to them. This would further indicate that the statement of admission of manipulation of record is a statement made on dictation of the Central Excise officers. The learned advocate has further submitted that this statement in any case does not have any legal validity because it has been recorded before an inspector of Central Excise. It is only a statement before gazetted officer of Central Excise under Section 14 of the Central Excises & Salt Act that can acquire relevance under Section 9D for the purpose of departmental proceedings. Therefore, such a statement should not be taken on record.
8.1 We have given our considerable thought to the pleas on both the sides on this important issue whether the books belong to the appellant firm or not. We find substantial force in the appellant's plea that any record having entries of some goods with which the appellant firm has no connection whatsoever cannot at all be linked with them. To us, this plea appeals most to commonsense and reason. We find that they had taken this specific plea in their reply to the show cause notice before the learned adjudicating authority in very specific terms as has been extracted above. Nevertheless the learned adjudicating authority has ignored that plea without dealing at all with it. We are also not able to come to categorical finding, in the absence of any finding by the lower authority on this important question of fact, whether some of the entries in the books relate to goods with which the appellants have no connection whatsoever in their trading or their manufacturing activities. Collector has certainly fallen into an error, as pointed by the learned advocate for the appellant when he sees self-contradiction in this respect. In the stand of the appellant there is no self-contradiction because the appellant came to know of the entries in the books only after due inspection thereof with the permission of adjudicating authority after the issue of show cause notice. Mere writing of the name of the firm on the cover of the note bookpales into insignificance so far as linking the note books is concerned in the face of the appellant's plea in not dealing with some of the goods at all mentioned in the note books. The learned Collector while pointing out that some of the entries of duly printed challans are found in exercise note books has not specifically spelt out as to which those entries are; on the other hand we find that the appellant firm categorically denies that there is any such entry in the exercise note books which tallies with the entries in the challans recovered from them. The finding, therefore, regarding the tallying of some entries of challans with entries in the exercise note books is vague and cannot be acted upon to give a finding that books belong to the appellant firm.
6.2 In the aforesaid circumstances we are constrained to remand the matter to the adjudicating authority to give categorically a finding on the appellant's plea that some of the entries in the exercise books relate to goods which are not dealt with at all by them or connected in any manner with the activities of the appellant firm. If the finding is in favour of the appellant on this limited question then it is to be necessarily held that the exercise books do not belong to the appellant. If on the other hand the finding is against the appellant, the Collector will be competent to hold that the exercise note books belong to the appellant firm and therefore, they are required to explain the contents of those entries and to show that they have paid duty on the goods (chokes) alleged to have cleared according to the entries in these books.
9. As regards the other plea of the appellant that their capacity of production was not such as to produce quantity alleged to have been produced and removed by the appellant, we find that this plea is of a secondary importance and is based on assumption that the appellant had been maintaining all his records of the working of shifts, engagement of labour, purchase of raw material etc. accurately or on further assumption that he is not getting goods partly manufactured on his behalf from some other person by supplying necessary raw materials. On the other hand the department's case rest entirely on the two exercise note books. There is no common meeting ground - between the department's case and the appellant's second plea, regarding the capacity of production. In case the department is not able to prove its case on the basis of the two note books as per the direction for remand above, the department's case falls and nothing is left for the appellant to argue. On the other hand, if the adjudicating authority finds that the two books belong to the appellant firm then this circumstance itself would seriously effect the other plea of the appellant regarding the capacity of production inasmuch as the basic assumption on which this plea is based would go against them. In other words the assumption of maintenance of record properly and accurately.
We, therefore, do not consider it necessary to give our finding on this plea of the appellant.
10. Hence the appeal is allowed by way of remand for de-novo decision in the light of the above directions.
11. Since the appellant has deposited an amount of Rs. 1,50,000/- in terms of Section 35-F of the Act before hearing of this appeal in the Tribunal, we direct that the same money be refunded to them because the original order stands set aside by way of remand.