| SooperKanoon Citation | sooperkanoon.com/17240 |
| Court | Customs Excise and Service Tax Appellate Tribunal CESTAT Mumbai |
| Decided On | Nov-26-1999 |
| Reported in | (2000)(117)ELT495Tri(Mum.)bai |
| Appellant | Mistry Extrusion Pvt. Ltd. |
| Respondent | Commissioner of Central Excise |
2. The facts of the case are that the appellants have a factory at GIDC Saregaon Industrial Estate, Bhilad near Vapi in Balsar district in the state of Gujarat in a backward area where the transportation and infrastructure facilities are very poor. They are engaged in the manufacture of aluminium collapsible tubes...76.12 of the schedule to the Central Excise Tariff Act, 1985, a small scale industrial unit and availing general exemption under Notification No. 175/86, dated 1-3-1986 and holding L-4 Central Excise Licence. On 30-3-1990, the officers of the Central Excise Preventive unit at Vapi visited the factory and conducted search operations and seized the documents, registers, papers and records on 30th and 31st May, 1990. The statutory records for the period 1987 to 1990 such as RG 1 Register, RG 23 Part I and II register of input and final goods, gate passes, copies of sales invoices, were also seized by them, and taken to their custody. The statements of the appellant M.J. Mistry and K. Soni, proprietor of the security agency supplied to the appellant's factory and M/s. M.K. Koli, the owner of the tempo vehicle and Mr. Ashok Kulkarni, authorized representative of Pushpam corporation were recorded. The show cause notice was issued on 5-8-1992 by the Collector of Central Excise and Customs addressed to the appellant, making allegations concerning non-maintaining of the excise records by the unit, the novel modus operandi employed by the appellant for the illicit removal of finished goods and taking wrong credit in RG 23A Part II register, resulting in the evasion of excise duty. The specific allegation was made about - (1) Illicit removal of finished goods without accounting of production and clearance in the RG 1 register and without the cover of Central Excise gate passes.
(2) Removal under the cover of Central Excise gate passes which were thereafter cancelled.
(3) Under valuation of the goods by removal thereof through M/s.
Pushpam Corporation, and by not including the capping and packing charges in the assessable value of the goods manufactured by the appellants.
(4) Taking wrong credit in RG 23A Part II register on rejected goods, which were removed, from the unit under gate passes.
The appellant's unit had intentionally removed goods under the cover of Central Excise gate passes although there was no sufficient balance in the PLA/RG 23A Part II register and overdrawing of the said account amounted to negligence and wilful intention on the part of the appellants to remove goods without payment of duty. The appellants were called upon to show cause why excise duty amounting to Rs. 9,52,642.62 in respect of ACT and aluminium waste and scrap worked out on the basis of Annexure A-G appended to the show cause notice, should not be recovered from them under Rule 9(2) read with 11A of the Central Excise Act, and the Modvat credit aggregating to Rs. 56,470.62 wrongly taken and availed of by the appellant should not be disallowed and recovered under Rule 57-I read with Section 11A of the said act, and why penalty should not be imposed on the appellant company, and why the land building machinery etc. belonging to the appellants and used in the manufacture of production of excisable goods should not be confiscated under Rule 173Q read with 209A of the Central Excise Rules. The Managing Director M. Mistry, the appellant, was also called upon to explain why penalty under 209A of the Central Excise Rules should not be imposed upon him. The appellants have filed the reply on 5-2-1993 and explained their case in detail. After healing the appellants the duty of Rs. 8,80,057.12 in respect of ACT valued at Rs. 40,16,961.43 and imposed penalty of Rs. 5 lakhs on the appellant company under Rule 173Q(1)(a), (b), (d) & (bb) of Central Excise rules and penalty of Rs. 1 lakh on the appellant M.J. Mistry under Rule 209A of the rules and ordered for the confiscation of land, building, plant and machinery of the company under Rule 173Q(2) of Central Excise rules with redemption fine of Rs. 1 lakh. Hence these two appeals.
3. The facts leading to the above are : on the detailed checks conducted by the officers it was found that the security department of the factory had maintained the goods out register at the factory gate.
It contained various details of despatches namely, date of removal, challan no., description of goods, consignor, quantity, vehicle no., time of removal etc. and the such entries of despatch found to have been attested by the driver or carrier and the security guards of the unit and on comparing of the statutory gate passes there was no Central Excise gate pass for several entries. The Managing Director of the appellant company stated in his statement that M/s. Pushpam Corporation was a labour contractor for packing the ACT and that the packing materials as well as the caps were produced by them on the loan account. According to the statement of authorized representative of the said company, it is a partnership concern engaged in the capping activities on the empty ACT and they had got contract with Rossel Pharmaceuticals India Ltd. for the same and this capping activity was done by them on contract basis for caps capping and packing. During the short period from 8-14990 to 29-3-1990 the appellant company had illicitly removed the ACT involving the Central Excise duty worth Rs. 3,82,539.83 and Rs. 19,123 of special excise duty. From the delivery challan for the period 1988 January to October, 1989 it is seen that there were no duty paying documents for 17 delivery challan showing that the unit had illicitly removed ACT involving the Central Excise duty 54,164.35. The appellant unit was found to have adopted the practice of issuing the chit from the duplicate pad for various purposes such as instruction to the gatekeeper to allow clearance of finished excisable goods or other materials written in the said chit.
Some chits showing removal of finished excisable goods were found to tally with the statutory GP 1. Some chits were also found in accordance with the particulars recorded by the security guards in the register and statement in respect of finished excisable goods ACT for which no Central Excise gate pass found to have been prepared but was on record.
During the period from 28-9-1989 to 16-2-1990 illicit removal of ACT involving Central Excise duty of Rs. 2,10,208.14 was noticed The appellant unit illicitly removed aluminium waste and scrap weighing 16,185.300 kg. involving Central Excise duty Rs. 56,082.06. It was also noticed that the appellant unit after having cleared the goods under proper gate pass which after reading the destination safely cancelled the gate passes as mentioned in duplicate and triplicate copies with a remark that the same has been cancelled there was evasion of duty of Rs. 89,121.12. The appellant unit has not included the value of capping and packing charges and were undervaluing the finished goods supplied to M/s. Russel Pharmaceuticals India Ltd. Thus there is an evasion of total duty of Rs. 90,849.90. The appellant unit have illicitly removed the goods from Pushpam Corporation to Russel Pharmaceutical India Ltd. without having duty paying documents either in the name of any one of the above companies for the above said RG 23A Part II and duty paying document, it was noticed that several consignments or GP 1 were originally removed from the unit and the same were found to have been shown as rejected goods but they have availed Modvat credit for the finished goods i.e. ACT in the RG 23A Part II treating as if the said goods were their inputs and these have wrongly availed the Modvat credit of Rs. 56,417.62.
4. Investigation discloses that the appellant by recourse to different modus operandi engaged themselves in unauthorised receipt of raw materials and production of finished excisable goods which in turn was processed by them and illicitly removed in a manner otherwise those as provided under the Central Excise Act. The appellant also availed Modvat credit even on the finished goods and utilised the same towards clearance on other goods. The appellant also evaded the Central Excise duty by undervaluation of their goods. The appellant had deliberately and with mala fide intention to evade Central Excise duty adopted novel methods contrary to law on large scale which is calculated and shown in Annexure A to H enclosed to the show cause notice. The appellant could not show a single instance in which they could prove the bona fides.
The appellant did not avail the opportunity to explain and clarify the irregularities pointed out. The appellant failed to determine the duty liability and to pay duty on the goods which are removed illicitly and failed to prepare gate passes in proper form for removal of excisable goods and failed to account for the production, clearances in statutory RG 1 register and they wrongly availed credit of duty under Modvat scheme in RG 23A Part II and utilised towards clearance of excisable goods and undervalued their goods by recovering separate caps, capping and packing charges. The appellant Mahesh J. Mistry the director has indulged in the act of illegal removal of ACT contravening the provision under Central Excise Rules and such act on his part results in an offence under 209A of the Central Excise Rules. The act indulged by the unit of illegal removal of ACT constitute an offence of the nature as described and punishable under Rule 172Q(1) of the Central Excise Rules.
5. In support of the appeal the ld. Senior Counsel Shri E.P. Barucha has submitted in the course of the arguments that the alleged goods out register maintained by the security guard at the appellant's unit was neither authentic nor an accurate record of clearances and removals from the appellant's unit, and could not be relied upon by the adjudicating authority. During the period 8-1-1990 to 14-3-1990 all the entries in the said register have been countersigned by one security guard M. Rathod, whereas there were three security guards working in successive 8 hour shifts everyday and the clearance and removal were made throughout the day, which shows that the goods out register was selective, inaccurate and incomplete. The statement of the persons who have maintained the register namely Rathod and Bhim Bahadur are not recorded, and to test the authenticity and accuracy of the said register no opportunity was given to cross examine them. The entry in the said register for the above period shows the total clearance of finished goods effected exceed the clearance recorded in the register.
Only 65 entries in respect of such removal are made in the said register, whereas total number of clearance of tubes was 97 as per the records of the appellant. The appellant has reconciled each and every removal set out in Annexure A to the show cause notice with the clearances recorded in the statutory records and register by indicating the corresponding gate pass and invoice under which the goods were cleared. It was also indicated in the reconciliation statement the amount of duty paid in respect of each of the 47 instances of removal mentioned in Annexure A. There is no proper appreciation of these material and the conclusion arrived at by the adjudicating authority that the entries in the goods out register set out in A inexure A to the show cause notice did not tally with the statutory registers maintained by the appellants is not proper and correct. Central Excise gate passes is maintained by the appellant regarding the clearance recorded in the goods out register. The finding of the Collector contrary to it is not correct The appellant had provided complete and satisfactory explanation including the details of the gate passes as well as the invoice numbers in the reconciliation statement annexed to the reply to the show cause notice, in respect of the 4 instances examined by the Collector in the order while dealing with Annexure A, but has failed to appreciate it. The finding of the Collector that the date of the delivery challans and the entries made in the goods out register being different and the appellant had affected double clearance against one set of gate passes is beyond the scope of the show cause notice. It is silent that the appellants had made double clearances with one set of duty paying documents. On the other hand, the departments' case as per the show cause notice is that the entries recorded by the security guards in the goods out register were not relatable to any excisable documents. In view of the full reconciliation statement submitted by the appellant, charge under Annexure A to show cause notice stand answered. The Collector has unjustifiably supported the demand of the show cause notice on a new basis i.e., theory of double clearance. Even if the dates entered in the goods out register are correct, it does not establish double clearance. The findings is not supported by any evidence.
6. He has further argued that the quantities mentioned in the delivery challans are the same in the quantity shown in the goods-out-register, duty paying documents. The show cause notice contains incorrect entries of the goods-out-register with respect to challan Nos. 364 & 365, dated 31-1-1990 that in spite of correct figure being 28 boxes shown, 280 boxes. The corresponding gate pass Nos. 155 & 156 of the same date show the aggregate quantity of 1,04,500 tubes with respect to challan No.344, dated 12-1-1990. The corresponding gate pass No. 135 of the same date are in respect of a total of 19,437 tubes (93 boxes x 203 tubes per box). The Annexure 'A' to the show cause notice incorrectly produces the quantity mentioned in the goods-out-register corresponding to challan No. 344. The observation that the dates in the said register for the removal were after 1 to 5 days after the date of the delivery challan. It is established that the goods were cleared twice under single set of duty paying documents is not correct. The security contractor K.R. Soni had no personal knowledge about the register and his knowledge is hearsay one. There is no material to show that the said register was maintained as per the direction of the management of the appellants. The statement of the transporter M.D. Kohiley does not anywhere support the case of the department that the removal enumerated in Annexure 'A' was illicit and that no duty was paid in respect thereof. The said transporter had acknowledged that he had not maintained any records of any type with respect to deliveries made and has no evidentiary value in establishing the authenticity of the goods-out-register, as the driver of the vehicle was supposed to have signed the register, whose statement is not recorded. If the goods out register had been accurately maintained, it would have reflected both the lawful clearance under the gate pass as well as the clearance for the second time illicitly under the same gate pass. Neither the show cause notice nor the impugned order sets out a single instance of such thing. The theory of double clearance stands repelled by the contents of the goods-out-register relied on by the department. The entries in the goods-out-register, represented illicit clearance, if assumed, amounts to the appellants having manufactured 22,26,711 aluminium tubes during the period January to March, 1990 in addition to the actual production of 37,08,504 tubes, which is physically impossible at the appellants unit as evident from the certificate dated 24-3-1994 of M/s.
Nike Corporation Chartered Engineers. The raw materials purchased, the power consumed and the labour force employed and the capacity of the production of such a large number of tubes could not possibly justify the said figure. In the absence of any evidence in the record illicit removal is not established. No excess stock of raw material, finished goods or packing material was found other than that of statutory excise records during the surprise visit on 30-3-1990 by the Preventive Unit.
There is no direct or substantial evidence of illicit removal. All entries in the goods-out-register have been satisfactorily reconciled by the appellants. The appellants unit located in Sarigam, Bhilad, in a backward area, and in 1990 the transportation and other infrastructure facilities were extremely poor. If there is some delay between the preparation of gate pass and the despatch of the goods, it should have been appreciated properly. During the period June, 1987 to March, 1990 the jurisdictional Inspector and Superintendent had verified the monthly and quarterly returns filed by the appellant firm and no adverse remark or a breach was pointed out, and all the records were found satisfactory during the annual audit and the CERA audit also.
Under delivery challan No. 19, dated 21-1-1988 the goods were sent to M.J. Industries, Mumbai for lacquering and were thereafter duly received back by the appellants which is certified by the auditor in the purchase register reflecting the bill Nos. 2705 and 2706 of the said industry towards labour charges. Confirming the demand in that regard is not correct. The goods cleared under delivery challan No. 21, dated 1-2-1988, to M/s. Impact Containers Pvt. Ltd. under the bill No.21/87/88, dated 1-2-1988 and gate pass No. 2 of the same date. The confirming of the demand is not correct. So also regarding the goods under No. 106 dated 4-7-1988 which were covered under the gate pass No.107 which was subsequently cancelled by the appellant, recognized by the department in the show cause notice at Sr. No. 5 at Annexure E mentioning the gate pass number. The goods were sent to Wilco Laboratories under delivery challan No. 235, dated 28-7-1989 under the cover of the invoice No. 31/89-90 after paying the excise duty and the confirming of the demand in that regard is not correct. The goods under delivery challan No. 282, dated 6-10-1989 were sent to M/s. Franco India Pharmaceuticals for reprinting work on the said tubes which is evident by the purchase order No. P-413/29-9-1989 and the appellant's bill No. L-5, dated 6-10-1986. Other clearance for similar reprinting work by the aforesaid party were accepted in the impugned order as involving no excise duty liability. The confirming of the demand with respect to the above goods is not correct notice which contains 31 entries on the basis of the chits issued by the appellant's Supervisor to the security guards and other department which are reconcilable by the correlating duty paying documents. Scrutiny of the relevant gate pass and the other duty paying documents which show the payment of excise duty by the appellants in respect of the entries in Annexure C, for which a detailed reconciliation statement corresponding to the invoice and the duty paying documents are filed by the appellants under exhibit L. The gunny bags used to remove the aluminium scrap were not of uniform standard size. The entry No. 11 in annexure D of the show cause notice in respect of 191 bags shows a corresponding weight of 1076 kgs. which works out to 5.63 kg. per bag whereas in the impugned order the average weight is taken as 11.6 kgs. on the basis of the gate pass No. 231, dated 1-3-1990. The confirming of the demand of duty of Rs. 56,082/- in respect of aluminium scrap illicitly cleared as per the particulars to Annexure D to show cause notice is not correct. As per the allegation in the show cause notice approx. 16.19 tons of aluminium scrap would have been illegally cleared between 24-1-1990 to 24-3-1990 which could have been generated in the appellants factory in 3 months.
Even from the commencement of the production from 1987 upto March 1990 such a huge quantity of scrap has not been generated. The purchase of the raw material by the appellant would not justify such a large quantity of aluminium scrap. As per the certificate of M/s. Nike Corporation the quantity of aluminium scrap as percentage of aluminium utilised in the manufacture of collapsible tubes is approx. 3-5% of the aluminium inputs used. The utilization of approx. 31 tons of aluminium raw materials during the period from 7-1-1990 to 31-3-1990 the approx.
scrap generated would be 121.5 tons and not as alleged in the show cause notice and confirmed in the impugned order (16.19 tons). The confirmation of the demand under Annexure E to show cause notice is not correct. The gate passes enumerated therein were cancelled since the goods could not be despatched immediately due to non-availability of the transporter to the backward area of the appellant writ. The appellant had informed the department in that regard under 7 letters, which have been duly acknowledged by the Excise Department the copies of which are produced at Ml to M7. It establishes beyond any doubt that the finding of the impugned order is only on surmises and conjectures.
It is further urged that the original of the gate passes enumerated in Annexure E are lying with the department at the Range Officer, Umbergaon, and that could have been verified by the department, to confirm whether the appellant had intimated to them the cancellation of the gate pass. It is for the department to establish it about the non-intimation, and not for the appellant. The quantity mentioned in the cancelled gate pass was indicated clearly on the very next day or in two days from the date of the gate pass as per the reconciliation statement produced at Exhibit N, which shows the reason for cancellation of the gate pass i.e. non-availability of transport was authentic and valid, and as soon as it was available the goods were duly despatched to the customers.
8. The demand confirmed for Rs. 89,121.12 is time barred. The cancelled original gate passes were immediately forwarded to the department during 28-3-1988 to 9-3-1990 and the copies thereof retained by the appellant were submitted for scrutiny, and the department has scrutinized the same during assessment of returns, audits, and it had complete knowledge in that regard. The invoking of the extended period beyond 6 months is not proper. The demand under Annexure G was also with regard to the capping work carried out by Pushpam Corporation just like Annexure E, that demand should have been dropped. The goods delivered under the delivery challan No. 15 & 16 dated 31-5-1989 and 12-3-1989 respectively could be reconciled to duty paying documents and the corresponding gate passes. The excise duty with respect to the tubes available with the challan No. 15 were cleared under the invoice No. 12 dated 31-5-1989 and gate pass No. 43 of the same date. With respect to delivery challan No. 16, initially clearance was sought to be made to the gate pass No. 23 which came to be cancelled due to non-availability of the transport, and the goods were subsequently cleared under another gate pass. Disallowing the Modvat credit holding it as a serious offence is not proper and correct. The 9 entries contained in Annexure H in respect of rejected goods received back of which Central Excise duty has been paid and reverse entries were passed in the register upon the return of the rejected goods. There is no dispute that the subject goods were received back, and the Excise Department while assessing and verifying the monthly returns had not objected to the reversal entries. There can be no dispute about the appellants' right to do the same, and the Collector ought to have held in that manner. There was no clandestine removal or suppression of facts or misdeclaration by the appellant and all clearances were effected in the open, and to the knowledge of the department. The appellant had maintained statutory records and each of the allegation of illicit removal were fully reconcilable with the duty paying documents and in fact has been reconciled by the appellant. The invoking of the extended period of 5 years under Section 11A of Central Excise Act is not proper and correct. Any claim beyond 6 months is patently time barred. There are no grounds to impose penalty. It is not shown that the appellants have acted contemptuously or were in deliberate defiance of the law or disregard of the obligation. The confiscation of the plant, machinery, building and land with redemption fine is not called for. In support of these contentions, appellant has relied on 1986 (24) E.L.T. 308 and 1989 (39) E.L.T. 688.
9. Shri G.B. Yadav, the ld. DR on behalf of the respondent has contended that the impugned order has considered all the contentions raised by the appellant in the course of the adjudication, and gone through available documents, and the statements of the witnesses and heard the appellant and has come to just and proper conclusion. The statement furnished by the appellant in support of the reply to the show cause notice regarding Annexure A to E is also dealt with and discussed in the light of the supporting documents. The statement of the security contractor Kadak Singh Ratansingh and transporter Madhubhai D. Kale supports the case of the department. The statement of the Director appellant Mahesh J. Mistry and that of Ashok B. Kulkarni authorised representative of Pushpam Corporation also supports the case of the department and there is a clear admission by the Director/Managing Director, M.J. Mistry regarding the maintenance of statutory records in the unit as alleged in the show cause notice. Even in the reply to show cause notice there is an admission of clerical error regarding the 73 clearances without balance in PLA/RG 23A Part II and the showing of negative balance in the register supports the case of the department. The adjudicating authority has upheld the contention of the appellant that Pushpam Corporation is not a dummy unit, and is legal entity in existence has a separate place of business, the sales tax registration etc. The undervaluation alleged by the department is negatived by the adjudicating authority. There is an admission regarding the procedure lapse by the appellant. The bona fides are pleaded and pointed out. Annexure A to G are considered under separate headings in the light of the allegation in the show cause notice and reply by the a0ppellant and the documents and the statements. It is further contended by the ld. JDR that register No. 13 maintained by the security guard/gatekeeper did not tally with the gate passes in the Statutory Central Excise records for the details of despatch of the ACT. No such passes were issued by the appellant.
10. In the course of the reply, the ld. Counsel for the appellant has contended that the appellant has properly maintained the records and the unit was frequently audited by the department and no irregularities were found prior to this visit. There is no evasion of payment of duty by the appellant and there is no question of suppression to attract the longer period. In response to the show cause notice detailed reply with the enclosures namely statement reconciling the defects pointed out in the annexure to the show cause notice are filed which was not at all considered by the Superintendent before the issue of show cause notice.
The appellant is a reputed manufacturer supplying the material to the established companies, and availing the Modvat credit facilities. Under such circumstances, the question of evasion of Central Excise duty does not arise.
11. The points for consideration are whether the show cause notice is barred by limitation and whether the impugned orders are liable to be set aside? We answer is in the affirmative.
12. We have perused the show cause notice and its enclosures and the reply of the appellant, and the documents produced such as delivery challan, chits and cancelled gate passes under Annexure B to E and G in the Index running to 73 pages and also gate passes and Exhibit L in response to Annexure C and intimation of the appellant with the Superintendent regarding the cancellation of the gate passes No. 85, 142, 145, 135 and 9, 23 and Exhibit H in response to Annexure E. Also perused the 1986 (24) E.L.T. 308 in the case of CCE, Madras v. Madras Chemicals regarding the burden of proving and the value of the documents seized in the case of clandestine removal. As per this decision the standard of proof required in the quasi-judicial proceedings is the understanding of a prudent man's estimate, the probabilities of the case. The materials recovered during the course of investigation, the statements recorded from the various persons and the surrounding circumstances coupled with the entries in the pocket diary seized, clearly points to the conclusion that the case of clandestine removal of goods is made out by the department. Under Section 36A of the Central Excise Act where any document is seized from the custody or control of any person the genuiness of such document shall be presumed, unless the contrary is proved (Paragraph 5 to 11). 1989 (39) E.L.T. 655 in the case of Kashmir Vanaspati Pvt. Ltd. v. CCE under Rule 9(2) of the Central Excise Rules it is held that a note book maintained by the labourers containing unauthenticated entries and overwriting not a dependable record to establish clandestine removal unless the same is supported by other evidence such as the raw material consumed, goods actually manufactured and packed (paragraph 2 & 4). We have taken note of the contention of both the sides.
13. From the facts and circumstances of the case as depicted in the reply to the show cause notice by the appellant and the statement of the witnesses namely the appellant Mahesh J. Mistry and Ashok Kulkarni, authorized representative of Pushpam Corporation and statement of K.R.Soni, the contractor of security agent and M.D. Kolhi, the transporter, it is seen that the appellant in both the cases have denied the charges of non-payment of Excise duty and the wrongful availment of Modvat credit and the clandestine removal of the product. They have admitted that there are some clerical errors on the records in the maintenance of RG 1 and adopted wrong procedure. It is stated that - "when the rejected goods were returned from the buyers, the credit was taken of duty paid earlier without knowledge. Pushpam Corporation, a partnership firm, under the deed of 14-5-1985, as a job worker of M/s. Roussel Pharmaceuticals Ltd. under a contract, with an independent existence, and have paid rent for the premises used by them The gate-out-register maintained by the security guard is not authorized by the appellant.
The entries therein are made by the guards. The way of writing and keeping records shows to what extent it is correctly maintained by the persons from the backward area without proper understanding, ability and education. The statement of the concerned guards who have maintained the said register, and the statement of the drivers who have signed the said register, are not recorded. The evidence of the transporter and the security contractor is secondary one. There is no comparison of the entry in the goods-out-register, with the records available in the unit. Almost all entries tally. There are no variations. The goods are cleared as per the written orders of the customers. The arrangement in capping the tubes with the knowledge of the department were made. There is no wrong entry in RG 23A Part II, but the procedure adopted of writing, it may be wrong. Hardly, there may be 2 or 3 clearances without balance in PLA/RG 23A Part II register, a clerical error, which is negligible one when compared to the 1000s of entries to be made in the registers daily. There are no mala fide or hide out. Genuine entries are made. The charge against the appellant is purely an assumption, speculation, conjecture, without any evidence. The removals are as per the customers purchase order under valid delivery challan, gate passes, proper invoices, sales tax, octroi paid, Excise duty paid accounted by both the parties. Payments are made. The income tax and sales tax assessment have cleared this. The appellant is a reputed manufacturer of ACT, and mostly undertakes to prepare for GODREJ, Hindustan Lever Ltd. There is an accuracy in manufacturing them. The section packing supervisor maintained the chits for non-excisable goods and on the complaint of the customers that the ACT are sent in torn condition corrugated boxes, new boxes of same numbers and quantity with partition were sent by way of replacement to these goods sent. He had sent the ACT in torn corrogated boxes without the knowledge of the director, which was a second class box, due to scarcity. That chit issued contained details about such boxes by way of accounting balance of corrugated boxes. The watchman in the gate has made entry in the goods out register of such corrugated boxes. The assessable value is not shown in this chits. So the conclusion of the raiding party about the assessable value appealing in chits/goods-out-register is quite surprising. Chits by this are not sufficient in proving the charge. It has to be corroborated by some other document such as gate passes, invoice, and delivery challan.
Demand of duty on such corrugated box is not just and proper. No penalty can be imposed for technical or vinyl breach. There is a bona fide error with the irregularities and there was no intention to evade duty." 14. It is further stated in 1989-90 upto June, there were 2 doors to go to one section to another in the factory. To bring any corrugated sheets and corrugated partition for aluminium tubes, the section packaging supervisor used to maintain chits for issue of goods from one section to another by way of transport. To enable the security guard to allow outside the factory for the removal of the same, chits were issued. The investigating officer had not applied his mind. There was a waste to the tune of 16,185 kg. during 24-1-1990 to 24-3-1990 against the background of the quantity manufactured the raw material received and maintained in the statutory records. It is only a suspicion. On checking of the invoice only the IO has arrived at the value. The appellant has cleared the waste and scrap waste of corrogated boxes and partition, which were in torn condition or secondary grade received back from the buyer as against the replacement. There is no supportive evidence for demanding duty.
15. From the above, it is clear that the appellant has challenged the case of the department on all courts, except the procedure, clerical errors in the maintenance of the registers, and taking of the credit.
From the above discussions, it is seen that the appellant though challenged the reliability of the goods out register maintained by the security guard in the gate, ultimately has accepted it as the record of the factory. Under Annexure A to the show cause notice, there is a demand of Rs. 4,01,666.93. According to this annexure the period is from 8-1-1990 to 29-3-1990 covering 49 items. The impugned order has dealt that in that regard in pages 13 to 15. The Collector has observed that some of the entries are not tallying with the Central Excise gate passes as there was no such gate passes issued. In this connection, challan No. 336 dated 8-1-1990 and 326 dated 14-1-1990, 3/248 dated 23-3-1990 and S/PM/113 of the same date found without gate passes. The appellant has taken up the defence that the entries made are traceable on RG 23A Part II. All the removals are as per the customer purchase order and valid challan, which are shown in a separate statement. The Collector has examined the said statement and observed that it contains only details of goods supplied under GPs only. The despatch is shown against the above delivery challans are found to be double transaction inasmuch as the date of delivery challan and the date of removal mentioned in goods out register are different. There is a difference in quantity also. There is a variation of 1 to 5 days from the date of removal and the date of delivery challan. The transactions shown in the register are second transaction of ACT on which no duty of excise has been paid by the unit. So he has rejected the contention of the appellant and has concluded that there is a illicit removal to the tune of Rs. 4,01,666.93, after discussing the statements of the security contractor and the transporter about the maintenance of the register and the signature of the driver, for having taken the goods from the security guard. From the above discussion, it is clear that as contended by the appellant a new case is made out from the show cause notice. Regarding the basis on which the claim is made under Annexure A to the show cause notice, there is no mention of this allegation in the show cause notice. The stand of the department was that there is no gate pass for the removal of the same as cleared from the heading of Annexure A.16. In. the tabular column under Exhibit I by way of reply under Annexure A of paragraph 6 of the show cause notice, the appellant has disclosed the delivery challan No. and date, invoice number and date, GP number and date, quantity of box and number of ACT and its value, and the basic and special duty paid thereon, and RG 23A Part II entry No. and date in the column 1 to 7 under the details of clearance of ACT of payment of Central Excise duty, covering 47 items which is shown in Annexure A to the show cause notice. This gives the complete picture in response to the annexure A to the show cause notice, establishing the fact of payment of excise duty on the goods covering under delivery challan and the existence of gate passes and invoice. In view of this position, the case of the department under Annexure A to the show cause notice does not stand to reason. The adjudicating authority has not properly considered this document which would nullify the charge. As already disclosed he has only picked up 4 delivery challan and found out the variations in the date when compared with the RG 1 register and has held it as double clearance. On the other hand, this statement makes out a clear case in support of the reply to the show cause notice rebutting the case of the department. So under these circumstances, the finding in the impugned order under Annexure A cannot stand. So it is rejected. The confirming of the demand thereunder automatically has to be set aside.
17. The impugned order has dealt with Annexure B to the show cause notice in page 98 to 100 of the impugned order. Annexure B is a statement showing the details of ACT removal without payment of duty and without Central Excise gate pass worked out on the basis of the delivery challan enlisted at Sr. No. 27 of the annexure to statement dated 30-3-1990. This denotes the delivery challan No., the name of the consignee, and the size of the ACT, quantity removed in numbers and the value for 1000s, and the assessable value, rate of duty, the amount of duty recoverable under basic and special duty and the total of the sum with the amounts in 12 column. 17 delivery challan starting from 15-1-1988 to 6-1-1999 are dealt with. The contention of the appellant is noted and discussed and has upheld the defence of the appellants in that regard, and rejected the demand of Rs. 54,164.35 and reduced it to Rs. 15,957.13 on the ground that the delivery challans are not showing the removal of the goods of the unit and there was no proper investigation in that regard and so far as 6 delivery challan No. 19, 21, 30,106,235,282 are held to be as not free from doubt, inasmuch as they did not reflect the gate pass numbers or where the goods shown therein or of job work or were otherwise. It leads to believe that the ACT covered thereunder has been removed illicitly without payment of duty.
18. The grounds of appeal at No. 29 to 38 deals with this aspect i.e.
Annexure B to show cause notice and the documents referred therein namely purchase register extract certified by the auditors are produced at F to K, without any application for production for additional endorsement. In the absence of it cannot be connected. This finding of the Commissioner appears to be proper and correct. In the absence of any documentary evidence regarding proving of job work, the case of the appellant is rejected. In that regard, the department's case deserves to be accepted. So the finding for the demand in Annexure B is upheld.19. Annexure C is a statement saying the details of ACT removed without payment of duty and gate passes as per duplicate pad enlisted at 16 & 17 of annexure of 30-3-1999. This statement contains the chit No. and date and variety of ACT and quantity, the number of tubes and boxes, and the designation of consignee, vehicle no., assessable value, the rate of duty, both special and basic, and total duty amounts. The column No. 2 regarding the variety of ACT goods the names shown are binaca, close up, nirma toothpaste, beta pharma cap, bincoin of 10 gms.
The period is from 28-9-1989 to 16-2-1990 under 31 items. The appellant has submitted his reply with statement in tabular column under Exhibit L giving the details of clearance of tubes under gate pass no. and date, and invoice no. and date, covering the items under Annexure C. In that regard, the impugned order has discussed in page 100 to 103 which has considered the duplicate pad (chit) and the details of number of boxes of ACT with or without destination. It is held since they contained brand name, the contention of the appellant that new corrugated boxes with partition inside as replacement of torn boxes cleared by them is not correct, and cannot be accepted. If it were so the description would have been empty boxes. So it is held that the chits are meant for giving instructions to the security guard to pass the material outside the factory of any goods namely finished goods, tools or any other parts machinery. On comparison of the chits with Annexure C it appears that no Central Excise gate pass were issued for the ACT therein and no Central Excise duty was paid thereon. As already observed above, the Exhibit L in response to Annexure 'C contains the details of the gate pass no. and date and invoice no. and date and the tubes are cleared as per the following details. In view of this material, the finding in the impugned order that the goods were removed without payment of duty, and without gate pass, cannot be accepted. The appellant has contended in the ground at Sr. No. 35 to 39 that the entries were reconcilable by them to the documents, which is not appreciated. Exhibit L is a reconciliation statement in that regard. So the appellant has established the payment of the duty for the goods under Annexure C by reconciling the statement Annexure C. In that regard, the case of the appellant has got to be accepted and the impugned order in that regard has to be set aside.
20. Exhibit D is the statement showing the details of aluminium waste and scrap falling under chapter Heading 7604 removed without payment of duty and without Central Excise gate pass set out as per the register maintained by security and duplicate pad enlisted at No. 13,16 & 17 of Annexure dated 30-3-1990. This statement gives the chit number and date description of the goods and its quantity in box and kgs. vehicle no.
if any, assessable value, rate of duty with the basic, special and total duty and remarks in column No. 11 covering the period of 24-1-1990 to 24-3-1990. The column of the duty at Sr. 8 to 10 kept blank, column of the basic duty shows 53,411.49 and 2670.57 as special duty, and total duty is 56,682.06. The impugned order considers at page 103 and 104 in the light of the contention of the appellant and has examined the chits and out turn register, and has held that it is meant for removal by the appellant unit outside the factory, without issuing any statutory documents. The existence of 2 doors of the factory during 1989 and 1990 upto June, to support the explanation of the appellant that the packing supervisor used to maintain chits for issue of goods from one section to another is not supported by any evidence. No documentary evidence is shown for the destruction of the scrap if any.
The fact of corrugated scrap is true as chit No. 84/22/1/90 and 81/27/1/90 shows that the security was asked to allow to carry such scrap by tempowala. This is also a fact that the chits mentioned in Annexure D, there are instructions to security to allow tempowala to carry aluminium scrap. The aluminium scrap is cleared without payment of duty, and so it is confirmed at Rs. 56,800/-.
21. The appellant has challenged the finding in the grounds No. 41 to 45 that gunny bags used to remove aluminium scrap were not of uniform standard size. Regarding the average weight per bag on the basis of GP 231/01.03.90, as 11.6 bags is not correct as entry No. 11 in Annexure D shows for 191 bags, for 1076 kgs. weight which works out to 5.63 kg.
per bag. As per the show cause notice total quantity of the aluminium illegally cleared would have been 16.19 tons during the period of 2 months from 24-1-1990 to 24-3-1990, which could not have been reasonably generated in the factory even from the start of manufacturing in 1987 to March 1990. The purchase of raw materials by the appellant could not justify such large quantity of aluminium scrap.
The quantity of aluminium scrap as a percentage of aluminium utilised in the manufacture of ACT is approximately 3-5 % of the aluminium inputs used. Given the utilization of approx. 31 tons of raw materials during the period 1-1-1990 to 31-3-1990 the approx. scrap generated would be about only 1 to 1.5 tons and not 16.19 tons. The certificate of Nike Corporation Exhibit D is relevant. The appellant has chosen to produce this document before the Commissioner. The contention of the appellant is that the entire scrap generated during the financial year 1989-90 was sold in 2 lots under the GP's 231, 253 dated 1-3-1990 and 31-3-1990 and the corresponding bill No. 194-216, dated 1-3-1990,31-3-1990 respectively, and the total weight of aluminium scrap sold was 2071.4 kg. In the remarks column the Annexure D shows the average weight per bag as 11.600 kg. and valued at Rs. 11 per kg.
ascertained on the basis of GP No. 231, dated 1-3-1990. In view of this position, the contention of the appellant in paragraph 45 of the appeal memorandum has got some force. The certificate now produced at Exhibit D supports the case of the appellant. Nothing is submitted on behalf of the department contrary to it. So in the absence of it, the contention of the appellant gains weight. So the demand of Rs. 56,082.26 cannot be accepted. The claim of the appellant regarding the scrap and its usage in the production of ACT has got some basis. Certificate at Exhibit D gives the number of machines and its production capacity in the factory. In this background the finding of the Collector under Exhibit D in the impugned order requires to be set aside.
22. Annexure E is the statement of the gate pass in which the goods were removed for which no duty is paid nor debited by the appellant. It gives the GP number and date, name of the consignee, quantity removed, value and the vehicle no. if any, and the date and time of removal, and the rate of duty and duty recoverable as basic duty, special duty and total duty are given in column 1 to 10. In response to this, the appellant has produced the statement under Exhibit N at page 139 and 140 giving the gate pass no., date, the bill no. and the date under which they are cleared. In the impugned order it is considered in page 104,105. The contention of the appellant in that regard is considered and after examining the relevant gate passes, and has found the entry relating to debit of duty in PLA is kept blank. He has quoted 173(2)(vii) according to which when any gate pass is to be cancelled, after debiting duty on the goods on this account he shall send the intimation in writing to the proper officer not later than the working day next following day on which gate pass is cancelled and may thereupon take credit of the duty in that account. According to him, no evidence is produced in that regard and the duty is not debited. So the duty of Rs. 89,121.92 is confirmed.
23. In paragraph 46 to 52 of the appeal memorandum the appellant has challenged the finding that the copies of the letter regarding the cancellation of the gate pass marked at M-I to M-VII were sent to the department and it is duly acknowledged by them, which establishes that the finding is not based on any material. The cancellation was due to non-availability of transport in backward area. There was no verification of the original gate passes in the range office at Umbergaon about the receipt of the intimation of the cancellation of the gate pass. The quantity of the goods mentioned in the cancelled gate pass were cleared on the very next day or 2 days from the appellants factory under the gate pass as explained in the reconciliation statement at Exhibit L. The department cannot invoke long period when the original gate passes cancelled were forwarded to the department shortly after cancellation during the period 28-3-1988 to 9-3-1990 and the copies retained with the appellant were submitted for scrutiny and in fact were scrutinised by the department during the assessment of returns and audit and the department had complete knowledge of the said gate passes. The appellant has produced the said copies before the Tribunal at pages 132 to 138. Nothing is submitted by the Ld, JDR about these contentions of the appellant. In the statement enclose to reply at Exhibit N, Ml to M7, copies of intimation, and in the absence of the verification by the departments all these documents, the contention of the appellant gains weight. Even on the question of limitation, the stand of the appellant is with sound reason, which is not contraverted by the department. Under these circumstances, the confirmation of the demand under Annexure E of Rs. 89,121.92 cannot stand. So the contention of the appellant in that regard is accepted and it has to be set aside.
24. Annexure F is the statement showing the detail of ACT removed through Pushpam Corporation to Russel Pharmaceuticals (RP for short).
But the carrying, forwarding, handling and transport charges are not included in the assessable value, worked out as per the file enlisted at Sr. 37 and 23 of the annexure to statement dated 30-3-1990. This table gives the detail of invoice no. and date, description of goods and its quantity in number, amount of capping, forwarding, handling, transport charges, payment made by M/s. RP, rate of duty in column 1 to 6 of 18 invoice and the duty amount as 90,849.97. In the impugned order it is considered in pages 105 to 107 upholding the claim of the appellant and ordering that Rs. 90,849.90 is not recoverable from the appellant. In view of this position, no order is called for on this finding in the absence of any cross-objection by the department.
25. Annexure G is the statement showing the details of ACT removed without payment of duty and without Central Excise gate pass by the appellant through Pushpam Corporation during the period March 1987 to 30-3-W90 asking duty on the basis of the delivery challan to Pushpa enlisted at Sr. No. 33 of statement dated 30-3-1990. This gives the description of the delivery challan no. and date, name of the consignee, particulars of ACT quantity cleared rate per 1000 tubes, value, rate of duty recoverable of both basic and special of total duty and the remarks in column 1 to 12 Rs. 50,500/- is the duty recovered regarding delivery challan No. 15/31-5-1989 No. 16/12-3-1989 to RP issued by Pushpam. On the perusal of the impugned order at pages 107, 108 internal page 23 & 24 it is seen that the appellant had not produced the document, nor submitted anything in the course of the personal hearing, about this claim and the delivery challan were examined by the adjudicating authority along with the other delivery challan of the book from 1/30-5-1988 to 14/31-12-1988, and he has observed that about the caps, capping forwarding and transportation of customs RP 15 gms sophramycin skin cream tubes received from M/s.
Mistry Extrusion on the customers above, which have not been mentioned in these 2 delivery challan. The statement of A.P. Kulkarni of Pushpam Corporation is examined and it disclosed that there was a contract of cap capping packaging with RP for which the empty ACT were received from the appellant on behalf of RP and other Central Excise gate pass issued in the name of RP and in all the other delivery challan there is a remark in the bracket that material received from Mistry Extrusion on your behalf, which is not forthcoming in delivery challan No. 15 and 16. No gate pass is issued regarding quantity of the ACT mentioned in them. The appellant has not produced any documents showing the duty paid character of the goods and so it is concluded that the ACT shown in these 2 delivery challan have been removed by the appellant without the cover of the gate pass and without payment of duty leviable thereof.
26. The appellant has challenged this finding in paragraph 54 to 56 of the grounds of appeal contending that the Collector has failed to note that the demand is with regard to the capping and delivery work carried out by Pushpam Corporation and if ought to have been dropped when the show cause notice is discharged regarding under valuation as per Annexure E. Now he has given the invoice no. and the gate pass no. for clearance of the goods under the delivery challan No. 15 & 16. The gate pass No. 23 for challan No. 16 was cancelled and consequently cleared under gate pass. The appellants have not commented on the observation made by the adjudicating authority regarding the non-production of the documents and non-participating in the personal hearing regarding the annexure G. The appellant have not produced any supporting material in support of paragraph 26 just like they have produced in support of Exhibit A, C & E. In the absence of it and in view of the statement of A.P. Kulkarni, authorised signatory of Pushpam Corporation and endorsement on the delivery challans in the book, the failure to make such endorsement of such delivery challan No. 15 & 16 as admitted by AP Kulkarni, supports the case of the department. So the contention of the appellant in that regard is rejected and the demand for Rs. 50,500.12 is upheld.27. Annexure H is the statement showing the details of credit taken on the receipt of rejected finished products ACT by the appellant worked out on the basis of the file listed on Sr. No. 12 of annexure to statement dated 30-3-1990 and file produced under statement dated 9-8-1990. The statement gives the description of the goods and the name of the consignor and the original gate pass no. and date, quantity RG 23A part I entry and date, the amount of credit taken under basic duty and special duty RG 23A Part II entry and date name of the consignee under column 1 to 10 of 9 items during the period from 25-8-1988 to 30-6-1989. The pages 108 & 109 (internal pg. 24 & 25) of the impugned order deals with this annexure. According to the appellant, there is only a procedural lapse and there is no wrong credit. The Collector has examined the file No. 12 with Annexure H and found that the gate pass mentioned refers to the product being rejected goods and the credit was taken of the duty paid on the finished goods mentioned in Annexure H.He has held that under Rule 57A of the Central Excise Rules, the rejected duty paid goods required for reconditioning or repairing are not inputs. The final product being a rejected goods, must not have been declared as an input in the declaration under Rule 57G. So the credit cannot be taken in such cases as there is no provision under Modvat rules. No declaration is filed under Rule 57G for the rejected duty paid final product and so they are not eligible for such credit and the demand of Rs. 56,470.62 is confirmed.
28. In the paragraphs 58 to 62 in the appeal memorandum the appellant has attacked this order. It is contended that it is only a procedural lapse and not a serious offence to avail the Modvat credit wrongly.
There was no dispute that the subject goods were received back and there is objection by the department while assessing and verifying the monthly returns regarding the reversal entries passed by the appellant.
There could be no dispute that the appellants were entitled to reverse the entries with respect to rejected goods returned to the factory by making appropriate entries in the concerned registers. The appellant has not challenged the finding of the Collector that no declaration is filed under 57G of the Central Excise Rules regarding the rejected finished products as an input. The ground urged in the appeal memorandum is hollow. The failure of the department in not objecting to the reversal entries passed by the appellants is not sufficient to continue it. Now the show cause notice is issued in that regard and adjudicated. The appellant has not met the case of the department as per the impugned order. The appellant has not explained on what basis they were entitled to the reversal of the duty paid on rejected goods in the appropriate register to use it for duty payable on the removal of finished goods from the factory. It is also not made clear as to why there could be no dispute that the appellant were entitled to reverse the entries in that regard. The finding of the Collector (Appeals) is based on some reasoning. So the contention of the appellant cannot be upheld and it is rejected. The appellant has to reverse the Modvat credit taken of Rs. 56,470.62 which is admissible for declaration.
29. Regarding question of limitation, in the impugned order at pages 110 to 112 (internal page 26 & 17) the Collector has considered the case of the appellant, and has held that the goods out register and chits and delivery challan are sufficient to show that the unit has suppressed their production and removed excisable goods for which no satisfactory explanation is offered by the appellant, and no documentary evidence is produced that the duty is not evaded. It is proved on record that the appellant has suppressed the fact of removal of goods with an intent to evade Central Excise duty and so the extended period has to be applied. In that regard the appellant has challenged the finding in paragraph 64 of the appeal memo contending that there is no question of clandestine removal or suppression of fact or misdeclaration on the part of the appellant and all clearances were made to the knowledge of the department and the appellants had maintained statutory records and made an allegation of illicitly removed were fully reconcilable with duty paying document and in fact had been reconciled by the appellant. This contention does not hold good in view of the discussion in the above paragraphs on the goods out register, delivery challan and chits. There is an admission in the statement under Section 14 of the Central Excise Act by the appellant about the irregularities in maintaining the statutory records, and making entry therein. Mahesh J. Mistry has admitted the non-maintenance of day-to-day Central Excise records. The show cause notice alleges the charge covering adopting of the modus operandi of evading excise duty such as illicit removal, without accounting production and clearance in RG 1 register and removal under gate pass subsequently cancelled and taking wrong Modvat credit in RG 23A Part I on rejected goods and there is an admission about the removal of the goods under the cover of gate pass though there was no sufficient balance in the PLA, RG 1 register showing overdraft or negative balance and the adjusting to the minimum balance later on which itself shows negligence and wilful intention to removal of goods without duty payment. The discussion in the above paragraphs have shown that the transactions in the appellant unit was covered by procedural errors and non-entry in the registers and issuing of the chits and the goods out register entries disowned by the appellant even though the packaging supervisor has issued chits to the security guard for taking away the material outside the factory for different purposes. The contention of the appellant that the statutory records were maintained properly is not correct in view of the statement of Mahesh as pointed out above. The contention of the JDR about the applicability of the extended period of limitation is proper and correct and so there is no bar of limitation as urged by the JDR, and as discussed in the impugned order.
30. In view of my discussion and finding in the above paragraphs in which the major portion of the duty demand is reconciled, the case of the department regarding the confiscation of goods, land, building, plant and machinery and imposition of such heavy penalty on both the appellants cannot hold good. Looking to the value and quantity of the goods, the duty evaded, penalty and redemption fine is imposed.
Regarding the imposition of penalty on Mahesh, it is held that the Managing Director and the Director of the company is liable to penalty under Rule 221 and 225 as they are liable to pay excise duty on behalf of the company before removal of the goods. The statement of the Director N.J. Mistry is relied upon that he had full knowledge of the activities of the unit and so the penalty of Rs. 5 lakh is imposed on the company and Rs. 1 lakh on the unit. In view of the discussion above, and the fact that material placed on record shows the liability of the appellant to pay the duty of Rs. 15,950.13 under Annexure B, Rs. 50,500/- under Annexure G and Modvat credit of Rs. 56,470.62 under Annexure H which comes to about Rs. 1,22,920/-, the penalty imposed requires reduction. The ends of justice will be met by reducing the penalty from Rs. 5 lakhs to Rs. 1 lakh on the company, and from Rs. 1 lakh to Rs. 20,000/- on the Director, looking to Exhibit L and Exhibit N and page 114 in response to Annexure A, C & E about the reconciliation of the demand. In view of these conclusions, the point raised is answered in the affirmative to the above extent. Hence the following order.
For the reasons discussed above, the appeals are allowed in part. The impugned order is modified confirming the demand for duty for Rs. 1,22,920/- (Rupees One lakh twenty two thousand nine hundred twenty only) on the ACT and the Modvat amount, and penalty on the appellant Mistry Extrusion is reduced to Rs. 1 lakh, and penalty on the Director Mahesh J. Mistry to Rs. 20,000/-, and confiscation of land, building, plant and machinery with redemption fine of Rs. 1 lakh is set aside.