i. Gurusamy and Sankareswari Vs. Commissioner of Central Excise, - Court Judgment

Excerpt:
1. this appeal arises from order-in-original no. 27/97 dated 8.5.97 by which the commissioner has confirmed the duty demand of rs. 5,27,998/- in terms of proviso to section 11a of the act and also has imposed a penalty of rs. 53,000/- under rule 173q of ce rules and also a separate penalty of rs. 53,000/- to one of the appellant shri i. gurusamy under rule 209a of the ce rules.2. the facts of the case are the appellants are manufactures of printing ink classifiable under chapter heading 32.15 of cet and were utilising the printing ink captively in the printing of posters/pictures. they were also eligible for ssi exemption from 9/94 as per notification no. 125/94 and they were availing modvat facility.3. the officers visited their unit on 20.11.95 and seized 3 note books.note books: i. showing the production of printing ink pertaining to the period 1.4.93 to 15.6.94 ii. note book showing the production of printing ink relating to the period 2.5.94 to 14.8.95 iii. note books showing the production of printing ink relating to the period 16.9.95 to 16.11.95.4. the officers also noticed shortage of 236 kgs of f.c. yellow and excess quantities of 308 kgs. and 296 kgs of f.c. red and brilliant blue inks respectively against the closing stock showing in the rgi register. the officers noticed the shortage of 1249 kgs of raw materials. the officers accordingly seized the excess quantities of fc red and brilliant blue inks in these 3 note books besides the statutory records. they also took the statement from shri i. gurusamy the partner who is one of the appellant. he admitted the shortage and also further agreed to deposit the amount. he gave a detailed reply. however on 2.8.96 they disowned the note book 2 & 3 on the ground that it was left in the factory by one shri ilango s/o (sic) who was the (sic) ink technician and working in their place. he had come to repair the unit and inadvertently left the book which was seized. the details therein have been recorded in english and all the details did not pertain to their manufacturing process and the type of inks manufactured by the appellant. it also showed different picture of entry and handwriting of the person who wrote the note book no. 1 which was in tamil which had been admitted by shri ilangovan. they have very strongly stated that they were entitled to various deductions as claimed by them in respect of the clearances noted in the note book no. 1 and for ssi benefit in terms of notification. they contend that the duty for clearance in note book 1 could not be more than rs. 40,000/- and it requires to be re-worked out. it is their further contention that there is no evidence produced by the revenue with regard to the purchase of the inputs manufactured and clearance of the final product as noted in note book no. 2 & 3 which does not belong to them. shri i. gurusamy was elderly person who was not managing the factory but it was his son who was doing the work. he was present in the factory on that day and he was not aware of the details admitted by him in the note books seized but did accept the entries. shri i. gurusamy was cross-examined and has clearly stated that the details entered therein does not belong to their factory and the note book 2 & 3 had been left in the factory by shri ilangovan. however, their plea has not been accepted and demands confirmed solely based on the admission made by shri i. gurusamy with regard to seizure of the books. the commissioner has confirmed the order in para 15 to 21.5. arguing for the appellants ld. counsel shri n. venkataraman and shri muthu venkataraman contended that it is settled law that clandestine removal cannot be confirmed solely on the basis of the seized note books and the same is required to be corroborated with evidence like purchase of inputs, manufactured with use of electricity and sale of goods clandestinely and receipt of funds. the same has not been done by the revenue. no evidence was collected and presented except to rely on the entries made in the note books. the appellant has truthfully accepted the contents of the note book no. 1. the duty collection requires to be re-worked by granting various deductions which is well settled including the larger bench judgment rendered in the case of shri chakra tyres as reported in 1999 (108) elt 36. he further relied on the following judgments to plead that the demands cannot be confirmed on mere seizure of chits, private note book maintained by employees:cce v. mira silk mills 6. ld. counsel submits that the penalty is also not in commensurate with the duty liability. he also contended that shri i. gurusamy was not personally involved in the day to day affairs and had not directed his son to indulge in clandestine removal and therefore penalty under rule 209 a was not justified.7. ld. dr reiterated the findings recorded by the commissioner and contends that the findings are clear in the light of submissions made and hence the order is required to be confirmed and the judgments relied by the appellants are distinguishable.8. on a careful consideration we notice that the appellant have admitted the contents of note book no. 1 and have no objection in confirming the demands and in terms of the entries in the said note book except for the legitimate deductions pertaining to duty being cum duty in terms of the larger bench judgment rendered in the case of shri chakra tyres. in view of the submission and the appellants not contesting on the demands raised from note book no. 1 the same is confirmed and the duty liability is required to be re-worked out by granting various deductions. the appellants shall be heard on the demands raised in note book no. 1 for the purpose of re-computation and re-fixation, penalty should be refixed commensurate in terms of the duty liability that could arise there from.9. in so far as the demands with regard to note book no. 2 & 3, although shri i. gurusamy at the time of seizure and mahajar but the scribe of the note book was not examined. be that as it may the appellants had demonstrated by cross-examination of shri i. gurusamy and also by their submission that the details entered in the note book no. 2 & 3 did not pertain to goods manufactured by them and there were entries which cannot be co-related to the goods manufactured and cleared. on this aspect they have also stated that details in note book no. 2 & 3 are totally irrelevant with the type of manufacture of goods cleared by them in their factory and with relation to the entries made in note book no. 1 which is in tamil. the person who was maintaining the records knew only tamil and he has not admitted the contents of note book no. 2 & 3. further in the light of settled law the demand cannot be confirmed on the basis of the entries made in note book no. 2 & 3 as has been laid down in the judgments referred to before us. in order to confirm demands on clandestine removal the revenue has to produce corroborative evidence in the form of receipt of raw materials, manufacturing details, use of electricity, sale of goods and receipt of money as had been laid down in the above noted judgments. in view of the revenue not having further investigated and also not having examined the scribe of note book no. 2 & 3, the plea of the appellants is required to be accepted and demands confirmed with regard to the clearance shown in private note book are hereby quashed and set aside.10. the plea of shri i. gurusamy that he had no role to play in the manufacture, clearance and accounting and payment of duty and that he is not liable to impose penalty under rule 209 (a) is required to be re-examined along with duty liability. for this purpose the matter is remanded for de novo consideration and the appellant shall be heard and they shall be directed to explain their case by demonstrating and establishing their defence. ld. commissioner shall re-adjudicate on the points noted supra and give a detailed speaking order. thus both the appeals are disposed of in the above terms.

Judgment:
1. This appeal arises from order-in-original No. 27/97 dated 8.5.97 by which the Commissioner has confirmed the duty demand of Rs. 5,27,998/- in terms of proviso to Section 11A of the Act and also has imposed a penalty of Rs. 53,000/- under Rule 173Q of CE Rules and also a separate penalty of Rs. 53,000/- to one of the appellant Shri I. Gurusamy under Rule 209A of the CE Rules.

2. The facts of the case are the appellants are manufactures of printing ink classifiable under chapter heading 32.15 of CET and were utilising the printing ink captively in the printing of posters/pictures. They were also eligible for SSI exemption from 9/94 as per notification No. 125/94 and they were availing modvat facility.

3. The officers visited their unit on 20.11.95 and seized 3 note books.

Note Books: i. showing the production of printing ink pertaining to the period 1.4.93 to 15.6.94 ii. Note book showing the production of printing ink relating to the period 2.5.94 to 14.8.95 iii. Note books showing the production of printing ink relating to the period 16.9.95 to 16.11.95.

4. The officers also noticed shortage of 236 kgs of F.C. yellow and excess quantities of 308 kgs. And 296 kgs of F.C. Red and Brilliant Blue inks respectively against the closing stock showing in the RGI register. The officers noticed the shortage of 1249 kgs of raw materials. The officers accordingly seized the excess quantities of FC Red and Brilliant Blue inks in these 3 note books besides the statutory records. They also took the statement from Shri I. Gurusamy the partner who is one of the appellant. He admitted the shortage and also further agreed to deposit the amount. He gave a detailed reply. However on 2.8.96 they disowned the note book 2 & 3 on the ground that it was left in the factory by one Shri Ilango s/o (SIC) who was the (SIC) ink technician and working in their place. He had come to repair the unit and inadvertently left the book which was seized. The details therein have been recorded in English and all the details did not pertain to their manufacturing process and the type of inks manufactured by the appellant. It also showed different picture of entry and handwriting of the person who wrote the note book No. 1 which was in Tamil which had been admitted by Shri Ilangovan. They have very strongly stated that they were entitled to various deductions as claimed by them in respect of the clearances noted in the note book No. 1 and for SSI benefit in terms of notification. They contend that the duty for clearance in note book 1 could not be more than Rs. 40,000/- and it requires to be re-worked out. It is their further contention that there is no evidence produced by the revenue with regard to the purchase of the inputs manufactured and clearance of the final product as noted in note book No. 2 & 3 which does not belong to them. Shri I. Gurusamy was elderly person who was not managing the factory but it was his son who was doing the work. He was present in the factory on that day and he was not aware of the details admitted by him in the note books seized but did accept the entries. Shri I. Gurusamy was cross-examined and has clearly stated that the details entered therein does not belong to their factory and the note book 2 & 3 had been left in the factory by Shri Ilangovan. However, their plea has not been accepted and demands confirmed solely based on the admission made by Shri I. Gurusamy with regard to seizure of the books. The Commissioner has confirmed the order in para 15 to 21.

5. Arguing for the appellants Ld. Counsel Shri N. Venkataraman and Shri Muthu Venkataraman contended that it is settled law that clandestine removal cannot be confirmed solely on the basis of the seized note books and the same is required to be corroborated with evidence like purchase of inputs, manufactured with use of electricity and sale of goods clandestinely and receipt of funds. The same has not been done by the revenue. No evidence was collected and presented except to rely on the entries made in the note books. The appellant has truthfully accepted the contents of the note book No. 1. The duty collection requires to be re-worked by granting various deductions which is well settled including the Larger Bench judgment rendered in the case of Shri Chakra Tyres as reported in 1999 (108) ELT 36. He further relied on the following judgments to plead that the demands cannot be confirmed on mere seizure of chits, private note book maintained by employees:CCE v. Mira Silk Mills 6. Ld. Counsel submits that the penalty is also not in commensurate with the duty liability. He also contended that Shri I. Gurusamy was not personally involved in the day to day affairs and had not directed his son to indulge in clandestine removal and therefore penalty under Rule 209 A was not justified.

7. Ld. DR reiterated the findings recorded by the Commissioner and contends that the findings are clear in the light of submissions made and hence the order is required to be confirmed and the judgments relied by the appellants are distinguishable.

8. On a careful consideration we notice that the appellant have admitted the contents of note book No. 1 and have no objection in confirming the demands and in terms of the entries in the said note book except for the legitimate deductions pertaining to duty being cum duty in terms of the Larger Bench judgment rendered in the case of Shri Chakra Tyres. In view of the submission and the appellants not contesting on the demands raised from note book No. 1 the same is confirmed and the duty liability is required to be re-worked out by granting various deductions. The appellants shall be heard on the demands raised in note book No. 1 for the purpose of re-computation and re-fixation, penalty should be refixed commensurate in terms of the duty liability that could arise there from.

9. In so far as the demands with regard to note book No. 2 & 3, although Shri I. Gurusamy at the time of seizure and mahajar but the scribe of the note book was not examined. Be that as it may the appellants had demonstrated by cross-examination of Shri I. Gurusamy and also by their submission that the details entered in the note book No. 2 & 3 did not pertain to goods manufactured by them and there were entries which cannot be co-related to the goods manufactured and cleared. On this aspect they have also stated that details in note book No. 2 & 3 are totally irrelevant with the type of manufacture of goods cleared by them in their factory and with relation to the entries made in note book No. 1 which is in Tamil. The person who was maintaining the records knew only Tamil and he has not admitted the contents of note book No. 2 & 3. Further in the light of settled law the demand cannot be confirmed on the basis of the entries made in note book No. 2 & 3 as has been laid down in the judgments referred to before us. In order to confirm demands on clandestine removal the revenue has to produce corroborative evidence in the form of receipt of raw materials, manufacturing details, use of electricity, sale of goods and receipt of money as had been laid down in the above noted judgments. In view of the revenue not having further investigated and also not having examined the scribe of note book No. 2 & 3, the plea of the appellants is required to be accepted and demands confirmed with regard to the clearance shown in private note book are hereby quashed and set aside.

10. The plea of Shri I. Gurusamy that he had no role to play in the manufacture, clearance and accounting and payment of duty and that he is not liable to impose penalty under Rule 209 (A) is required to be re-examined along with duty liability. For this purpose the matter is remanded for de novo consideration and the appellant shall be heard and they shall be directed to explain their case by demonstrating and establishing their defence. Ld. Commissioner shall re-adjudicate on the points noted supra and give a detailed speaking order. Thus both the appeals are disposed of in the above terms.