Winners Rubber Private Limited Vs. Collector of C. Ex. - Court Judgment

Excerpt:
1. this appeal is directed against the order-in-original dated 17-2-1994 passed by the collector of central excise, kanpur ordering appropriation of rs. 14,000/- of bank guarantee executed by the present appellants against provisional release of 72 rolls of rubber belting seized from them, apart from confirming a duty demand of rs. 1,32,983.26 for clearances made by the appellants during years 1989-90 and 1990-91 allegedly beyond their entitlement under notification no.175/86. they were also imposed a penalty of rs. 50,000/-.2. the appellants are engaged in the manufacture of rubber beltings classifiable under sub-heading no. 4010.90 of the central excise tariff act, 1985. they were also availing the exemption under the provisions of notification no. 175/86-c.e.2.2 officers of the central excise (preventive) visited the appellants' factory on 23-1-1991 and after conducting checks and verifications certain vouchers and challans in the names of one vijay babu and vikrant udyog were resumed and 72 rolls of rubber beltings measuring 6,939 meters seized on the reasonable belief that they were liable to be confiscated. the statements of sarvashri pramod chaudhary, director of appellant company, vijay kumar goel, its production manager, radha krishan agarwal, accounts and sales in-charge and daya shankar gupta, munim of another unit named m/s. triveni rubbers, were also recorded.on the basis of the statements and other information collected, a show' cause notice was issued to the appellants on 19-7-1991 alleging that the material shown to have been purchased in the name of m/s. triveni rubbers and others as per bills/vouchers/challans were actually received and consumed by the appellants and the final products had been cleared by the appellants without accountal.3. the collector in the impugned order found that the appellants had not been able to produce any record showing account of 72 rolls of rubber belting found in fully finished condition in their premises. he, therefore, held that the seized goods were liable to confiscation under rule 173q. as regards the demand of duty of rs. 21,08,760.26 made as per scn, the appellants had contended that the various bills showing purchase of raw materials in fact were meant for other parties including m/s. triveni rubbers, whose proprietor shri radha krishan agarwal was also working as manager for the present appellants, viz., m/s. winners rubber pvt. ltd. shri agarwal was also employed by m/s.winners rubber pvt. ltd., the present appellants on a monthly salary of rs. 1,100/- and was looking after the purchase of raw materials and sale of its goods. shri agarwal was operating from the premises of m/s.winners rubber pvt. ltd. and continued to issue challans pertaining to finished goods of m/s. triveni rubbers from the same premises. apart from smt. goel, the appellant company had two other directors, shri pramod chaudhary and shri madan lal jaswal. shri pramod chaudhary in his statement dated 24-1-1991 had stated that none of the directors were concerned with the day to day functioning of m/s. winners rubber pvt. ltd. and the purchase, production and sale in the company was looked after by shri vijay kumar goel and shri radha krishan agarwal.shri goel had in his statement dated 24-1-1991 stated that while he was concerned with the production, shri agarwal was concerned with the sale of the finished goods. this position was confirmed by shri agarwal in his statement dated 24-1-1991.4. by the impugned order, collector observed that no evidence to corroborate the alleged receipt of the raw material and their use in the manufacture and removal of t.r. beltings had been proved. however, collector confirmed demand of duty of rs. 1,32,983.26 being duty on clearances of goods over and above clearances allowed under the ssi notification 175/86-c.e. penalty was also imposed on the same ground.5. shri j.p. kaushik, ld. advocate appearing for the appellants submitted that the adjudicating authority has come to the conclusion presuming that the entire cotton canvas purchased by the appellants had been used by them in the manufacture of t.r. beltings. he had ignored the statement of shri radha krishan agarwal that part of the cotton cloth purchased was sold to third parties by him. further, the adjudicating authority had also assumed without any supporting evidence that the appellants had purchased chemicals and other ingredients. in the absence of evidence to show the procurement of rubber and rubber compound required to be used in the alleged manufacture of t.r.beltings, the alleged manufacture and clearance of. the said goods was also based on mere surmises. ld. advocate further submitted that the clearance value has been calculated on the basis of a project report which was found in the appellants' factory. though the collector had himself observed that the project report was a draft report, (being not signed by any responsible officer of the appellant company), ld.advocate pointed that the said report had still been relied on for computing the quantum of clearances. as regards the value of the fabrics arrived at by the collector, ld. advocate contended that the same had been arrived at on the basis of value prevailing during the period june 1990 to january 1991. since the price of the fabrics was always subject to fluctuation, ld. advocate submitted that the value of the fabrics have been arrived at on the basis of hypothetical prices.he, therefore, submitted that the norms adopted by the collector in calculating the production as well as cost of raw material were unrealistic and as a result, the entire duty demand unsustainable in law. he also relied on case law in support-of his contentions. as regards the charge of clandestine removal, he relied on the following cases in support of his contention allegation that of clandestine removal cannot be sustained on the basis of conjectures and presumptions :saraya steel ltd. v. cce in support of his contentions that the burden of proving the allegations was on the department, he cited the following cases : he also relied on the two tribunal decisions viz., v.k. thampy. v. cce 1994 (69) e.l.t. 300 and cce. v. md. zafar alam 1996 (17) rlt 288 to contend that in case of insufficient evidence to prove the allegations, the benefit of doubt should go to the assessee.6. ld. departmental representative, shri m. tilak drew attention to the fact that as an ssi unit availing the benefit of notification no.175/86-c.e., appellants were also subject to the ceiling to their production for claiming the benefit of exemption. he emphasised the fact the collector had given benefit of doubt to the appellants insofar as the allegation relating to receipt of raw material and clandestine removal of the goods was concerned on the ground that these have not been proved.- as regards the duty demand confirmed to the collector, ld. jdr submitted that verification of records showed a raw material stock worth rs. 14,72,068 and finished goods worth rs. 55,227.00 on the date of verification. further, the production figure was calculated on the basis of the ratio given in the project report which was quite a reasonable yardstick to adopt in the circumstances where no other data was shown by the appellants.7. i have considered the submissions made on both sides and have perused the record. i find that the collector had dropped the duty demand of rs. 21/08,76.26 under rule 9(2) on the ground that no proof to corroborate the alleged receipt of raw material and consequent manufacture and clandestine removal had been produced by the department. however, on the basis of bills showing purchases made by the appellants for the period 1989-90 and 1990-91 and relying on the calculations made in the project report the collector had arrived at a figure of clearance of rs. 15 lakhs worth of rubber beltings in excess of the limit permissible under notification no. 175/86-c.e. for the period 1989-90 and rs. 20 lakhs worth during the period 1990-91. i find that the observations of the collector on this aspect as far from categorical. he had observed: "the party's contention that the officers have taken project report as basis for calculating the sale proceeds is not quite correct. in fact, it has simply taken for elaborating the details of requirement of the charges. however, it is important to note that as argued by the party, this report does not appear to have been submitted to any financial institution and also the project report is not even signed by any officers of the factory. therefore, the figures of sale proceeds appeared in the project report could be taken as projected as hypothetical as contended by the party as i find no contrary evidence forthcoming in the report." 8. i find that the basis for arriving at the figure of final production for the two years, the collector has multiplied the value of raw material by 1.237735849% as per project report (see internal page 33 of impugned order). the appellants had contested the final figure arrived at by the collector and claimed that the value of finished products was below the exemption limit of rs. 15 lakhs specified in the notification. they have contested the value of the raw material relied on by the department on the ground that the price of fabric which was an important raw material (41.44%) was subject to fluctuation. the collector had relied on the price given by m/s. maa textiles for the fabrics supplied for the year 1989-90 for calculating the price of cotton fabrics for the whole year which worked out to rs. 5,22,301.87.collector had also calculated the value of rubber compound (including raw rubber), the major component (57.09%) in the manufacture of beltings at rs. 7,19,551.90 for the same period apart from rs. 18,527.60 as value of lubricants and others (1.47% raw material).adding the cost of coal (8.08%) which worked out to rs. 1,01,837.17 for the period 1989-90 the total value of finished products was worked out at rs. 16,86,041.46 on the basis of project report. similarly, the value of finished products was worked out at rs. 19,04,904.44 on the same basis for the year 1990-91. i find that the appellants had contested both the unit price of raw materials on the basis of which the total cost of raw materials have been calculated as well as the ratio for converting the raw material into the finished product for which the ratio mentioned in the project report is relied on. adopting the parameters, in any view, are by their very nature incapable of producing reliable figures. further, in the absence of sufficient evidence of purchases of chemicals in the name of the appellants during the year 1990-91, the value of other raw materials was calculated by the collector on the basis of value of fabrics. i, therefore, find some force in the ld. advocate's submission that the collector has based his conclusion to a great deal on assumptions and presumptions. in this fact situation, the case law cited by the ld. advocate on burden of proof being on the department, would clearly apply.

Judgment:
1. This appeal is directed against the order-in-original dated 17-2-1994 passed by the Collector of Central Excise, Kanpur ordering appropriation of Rs. 14,000/- of Bank Guarantee executed by the present appellants against provisional release of 72 rolls of rubber belting seized from them, apart from confirming a duty demand of Rs. 1,32,983.26 for clearances made by the appellants during years 1989-90 and 1990-91 allegedly beyond their entitlement under Notification No.175/86. They were also imposed a penalty of Rs. 50,000/-.

2. The appellants are engaged in the manufacture of rubber beltings classifiable under sub-heading No. 4010.90 of the Central Excise Tariff Act, 1985. They were also availing the exemption under the provisions of Notification No. 175/86-C.E.2.2 Officers of the Central Excise (Preventive) visited the appellants' factory on 23-1-1991 and after conducting checks and verifications certain vouchers and challans in the names of one Vijay Babu and Vikrant Udyog were resumed and 72 rolls of rubber beltings measuring 6,939 meters seized on the reasonable belief that they were liable to be confiscated. The statements of Sarvashri Pramod Chaudhary, Director of appellant Company, Vijay Kumar Goel, its Production Manager, Radha Krishan Agarwal, Accounts and Sales in-charge and Daya Shankar Gupta, Munim of another unit named M/s. Triveni Rubbers, were also recorded.

On the basis of the statements and other information collected, a show' cause notice was issued to the appellants on 19-7-1991 alleging that the material shown to have been purchased in the name of M/s. Triveni Rubbers and Others as per bills/vouchers/challans were actually received and consumed by the appellants and the final products had been cleared by the appellants without accountal.

3. The Collector in the impugned order found that the appellants had not been able to produce any record showing account of 72 rolls of rubber belting found in fully finished condition in their premises. He, therefore, held that the seized goods were liable to confiscation under Rule 173Q. As regards the demand of duty of Rs. 21,08,760.26 made as per SCN, the appellants had contended that the various bills showing purchase of raw materials in fact were meant for other parties including M/s. Triveni Rubbers, whose proprietor Shri Radha Krishan Agarwal was also working as Manager for the present appellants, viz., M/s. Winners Rubber Pvt. Ltd. Shri Agarwal was also employed by M/s.

Winners Rubber Pvt. Ltd., the present appellants on a monthly salary of Rs. 1,100/- and was looking after the purchase of raw materials and sale of its goods. Shri Agarwal was operating from the premises of M/s.

Winners Rubber Pvt. Ltd. and continued to issue challans pertaining to finished goods of M/s. Triveni Rubbers from the same premises. Apart from Smt. Goel, the appellant company had two other Directors, Shri Pramod Chaudhary and Shri Madan Lal Jaswal. Shri Pramod Chaudhary in his statement dated 24-1-1991 had stated that none of the Directors were concerned with the day to day functioning of M/s. Winners Rubber Pvt. Ltd. and the purchase, production and sale in the company was looked after by Shri Vijay Kumar Goel and Shri Radha Krishan Agarwal.

Shri Goel had in his statement dated 24-1-1991 stated that while he was concerned with the production, Shri Agarwal was concerned with the sale of the finished goods. This position was confirmed by Shri Agarwal in his statement dated 24-1-1991.

4. By the impugned order, Collector observed that no evidence to corroborate the alleged receipt of the raw material and their use in the manufacture and removal of T.R. beltings had been proved. However, Collector confirmed demand of duty of Rs. 1,32,983.26 being duty on clearances of goods over and above clearances allowed under the SSI Notification 175/86-C.E. Penalty was also imposed on the same ground.

5. Shri J.P. Kaushik, ld. Advocate appearing for the appellants submitted that the Adjudicating Authority has come to the conclusion presuming that the entire cotton canvas purchased by the appellants had been used by them in the manufacture of T.R. beltings. He had ignored the statement of Shri Radha Krishan Agarwal that part of the cotton cloth purchased was sold to third parties by him. Further, the Adjudicating Authority had also assumed without any supporting evidence that the appellants had purchased chemicals and other ingredients. In the absence of evidence to show the procurement of rubber and rubber compound required to be used in the alleged manufacture of T.R.beltings, the alleged manufacture and clearance of. the said goods was also based on mere surmises. Ld. Advocate further submitted that the clearance value has been calculated on the basis of a Project Report which was found in the appellants' factory. Though the Collector had himself observed that the Project Report was a draft Report, (being not signed by any responsible officer of the appellant company), ld.Advocate pointed that the said Report had still been relied on for computing the quantum of clearances. As regards the value of the fabrics arrived at by the Collector, ld. Advocate contended that the same had been arrived at on the basis of value prevailing during the period June 1990 to January 1991. Since the price of the fabrics was always subject to fluctuation, ld. Advocate submitted that the value of the fabrics have been arrived at on the basis of hypothetical prices.

He, therefore, submitted that the norms adopted by the Collector in calculating the production as well as cost of raw material were unrealistic and as a result, the entire duty demand unsustainable in law. He also relied on case law in support-of his contentions. As regards the charge of clandestine removal, he relied on the following cases in support of his contention allegation that of clandestine removal cannot be sustained on the basis of conjectures and presumptions :Saraya Steel Ltd. v. CCE In support of his contentions that the burden of proving the allegations was on the Department, he cited the following cases : He also relied on the two Tribunal decisions viz., V.K. Thampy. v. CCE 1994 (69) E.L.T. 300 and CCE. v. Md. Zafar Alam 1996 (17) RLT 288 to contend that in case of insufficient evidence to prove the allegations, the benefit of doubt should go to the assessee.

6. Ld. Departmental Representative, Shri M. Tilak drew attention to the fact that as an SSI unit availing the benefit of Notification No.175/86-C.E., appellants were also subject to the ceiling to their production for claiming the benefit of exemption. He emphasised the fact the Collector had given benefit of doubt to the appellants insofar as the allegation relating to receipt of raw material and clandestine removal of the goods was concerned on the ground that these have not been proved.- As regards the duty demand confirmed to the Collector, ld. JDR submitted that verification of records showed a raw material stock worth Rs. 14,72,068 and finished goods worth Rs. 55,227.00 on the date of verification. Further, the production figure was calculated on the basis of the ratio given in the Project Report which was quite a reasonable yardstick to adopt in the circumstances where no other data was shown by the appellants.

7. I have considered the submissions made on both sides and have perused the record. I find that the Collector had dropped the duty demand of Rs. 21/08,76.26 under Rule 9(2) on the ground that no proof to corroborate the alleged receipt of raw material and consequent manufacture and clandestine removal had been produced by the Department. However, on the basis of bills showing purchases made by the appellants for the period 1989-90 and 1990-91 and relying on the calculations made in the Project Report the Collector had arrived at a figure of clearance of Rs. 15 lakhs worth of rubber beltings in excess of the limit permissible under Notification No. 175/86-C.E. for the period 1989-90 and Rs. 20 lakhs worth during the period 1990-91. I find that the observations of the Collector on this aspect as far from categorical. He had observed: "The Party's contention that the Officers have taken Project Report as basis for calculating the sale proceeds is not quite correct. In fact, it has simply taken for elaborating the details of requirement of the charges. However, it is important to note that as argued by the party, this Report does not appear to have been submitted to any financial institution and also the Project Report is not even signed by any Officers of the factory. Therefore, the figures of sale proceeds appeared in the Project Report could be taken as projected as hypothetical as contended by the party as I find no contrary evidence forthcoming in the report." 8. I find that the basis for arriving at the figure of final production for the two years, the Collector has multiplied the value of raw material by 1.237735849% as per Project Report (see internal page 33 of impugned order). The appellants had contested the final figure arrived at by the Collector and claimed that the value of finished products was below the exemption limit of Rs. 15 lakhs specified in the notification. They have contested the value of the raw material relied on by the Department on the ground that the price of fabric which was an important raw material (41.44%) was subject to fluctuation. The Collector had relied on the price given by M/s. Maa Textiles for the fabrics supplied for the year 1989-90 for calculating the price of cotton fabrics for the whole year which worked out to Rs. 5,22,301.87.

Collector had also calculated the value of rubber compound (including raw rubber), the major component (57.09%) in the manufacture of beltings at Rs. 7,19,551.90 for the same period apart from Rs. 18,527.60 as value of lubricants and others (1.47% raw material).

Adding the cost of coal (8.08%) which worked out to Rs. 1,01,837.17 for the period 1989-90 the total value of finished products was worked out at Rs. 16,86,041.46 on the basis of Project Report. Similarly, the value of finished products was worked out at Rs. 19,04,904.44 on the same basis for the year 1990-91. I find that the appellants had contested both the unit price of raw materials on the basis of which the total cost of raw materials have been calculated as well as the ratio for converting the raw material into the finished product for which the ratio mentioned in the Project Report is relied on. Adopting the parameters, in any view, are by their very nature incapable of producing reliable figures. Further, in the absence of sufficient evidence of purchases of chemicals in the name of the appellants during the year 1990-91, the value of other raw materials was calculated by the Collector on the basis of value of fabrics. I, therefore, find some force in the ld. Advocate's submission that the Collector has based his conclusion to a great deal on assumptions and presumptions. In this fact situation, the case law cited by the ld. Advocate on burden of proof being on the Department, would clearly apply.