Commissioner of Central Excise Vs. Surya Ceramics - Court Judgment

Excerpt:
1. both the respondents are manufacturers of ceramic glazed tiles located in gujarat. they were central excise assessees and were clearing the said tiles on payment of duty. however, investigations led to allegation that the respondents were undervaluing ceramic tiles cleared by them and that way evaded duty. in the case of fine ceramics pvt. ltd. there was also allegation that certain quantities of tiles were clandestinely removed without payment of duty. the period involved is 1996-98. accordingly, show-cause notices were issued proposing recovery of short-levy and imposition of penalties on the respondents.2. in adjudication, commissioner confirmed the duty demands at much lesser amounts than proposed in the show-cause notices. imposed much lower penalties too. revenue is in appeal against those orders.3. the submission of the learned sdr is that the quantifications of duty evasion made by the commissioner are grossly incorrect as he had adopted an erroneous approach in evaluating evidence. in the case of m/s. surya ceramics, commissioner confirmed the demand only in regard to certain clearances made to m/s. b.k. enterprises of gujarat. the submission of the learned sdr is that there was evidence showing under-invoicing in regard to clearances made to m/s. mangla sales corporation, m/s. orient corporation and m/s. choice distributors, all located in kerala. the learned sdr, therefore, contends that duty demand should certainly have been made in regard to clearances to those parties also. the same is his contention in regard to duty demand against m/s. fine ceramics pvt. ltd. also on the ground of undervaluation. he would also submit that commissioner was in error in quantifying the clandestine removals of the goods.4. learned senior counsel appearing for the respondents points out that differential duty demand can be confirmed only upon satisfaction in adjudication that certain quantities of goods were undervalued. he points out that it is well settled that under valuation in regard to supplies to some parties of some regions cannot be a basis for demanding differential duty in regard to clearances made by the manufacturers to other parties other regions. he has, in particular, relied on the decision of this tribunal in the case of alpha ceramics industries v. c.c.e., pointed out that this decision of the tribunal remains confirmed by the hon'ble supreme court . in regard to the charge of clandestine removal, it is the learned senior counsel's submission that commissioner has carefully weighed the evidence before him and determined the quantities so cleared and no intervention is called for.5, we have perused records and considered the submissions made by both sides. we may note the finding of the commissioner in regard to quantification of demand arising from undervaluation: 3.4. there are statements from three other dealers, (1) mayur kumar b., partner of m/s. choice distributors, cochin, (2) shri abdul salim, partner of m/s. orient corporation, and (3) shri ashraf lambath, partner of m/s. mangala sales corporation. it is significant that there is no chits/slip available relating to sales to these three parties or for that matter, to any other party (other than m/s. b. k. enterprises). in fact there is no evidence of sale to these parties mentioned anywhere in the show cause memo. these three parties in their statements have of course stated that they used to pay extra money to m/s. sc through dd. but the price they mentioned as having paid has no relation to the prices mentioned in the slips/chits or the prices taken in the show cause notice. similarly the show cause notice mentions in para 7.1, 12 varieties of tiles and fixes an assessable value for each. neither the nomenclature nor the assessable value fixed tallies with the chits which are accepted to be incriminating documents. it is not at all explained where from each assessable value has been taken quality-wise. 3.5 in this type of a case, the investigation ought to have done at least the following - (1) the investigation should have been done in the banks to identify the person who encashed the drafts or withdrew the amounts from the bank, and to interrogate them as to whom they handed over the money. (2) party-wise and quality-wise sale amount should have been identified and the differential value should have been added. each of these parties should have been interrogated to get a confirmation of the excess payment. (3) the detailed calculation sheet of how the excess assessable value was arrived at should have been given. 1.6 none"of thg abovg things have been done. instead a number of invoice books has been shown as relied upon documents. there is no evidence of processing of these invoice books. in view of the above lacunae in the investigation, it is not possible to accept the duty calculation of the show cause memo. even if one would like to apply the price charged from m/s. b.k. enterprises to other buyers, it is impossible to do so, bgcause how the ppice chapggd fpoo m/s. b, k. enterprises is arrived at in anlexupe/b (inalwding annexures bl and b2), is not given.6. the rule of evidence followed and findings reached by the commissioner are clearly not sustainable. in a case of clandestine operations, tje revgnwe authorities cannot be put to prove every detail of the clandestine transaction. that too, when there is sufficient evidence showing that the goods were clandestinely dealt with for evasion of duty. we have perused the evidence tendered by the representatives of m/s. mangla sales corporation, m/s. b.k.enterprises, m/s. choice distributors and ors. all these parties have stated that they were paying amounts over and above the invoiced prices. the method of remittance has also been explained in detail. the evidence of b.k. enterprises confirms the particular modalities. we are, therefore, of the opinion that in regard to the sales of bmth the respondents, there was sufficient evidence to hold that there was under valuation in regard to sales made to m/s. b.k. enterprises, m/s. mangla sales corporation, m/s. choice distributors and m/s. orient corporation, erna-kulam. the differential duty is therefore, required to be recomputed in the light of the following observations made by the tribunal in the case of alpha ceramics ltd, 13 this brings us to the last submission of the appellants, that the differential duty demand should be limited to the sales made to thg distributors in m.p.. thks submission has drawn support from the decision of the apex court in the case of state of kerala v. c. velukutty. in that case, dealing with the reopening of sales tax assessments, the apex court held that the discovery of secret accounts maintained at one place is no ground to hold that the transactions as revealed by those accounts took place in other places also. we find that the situation in the present case is closely comparable to the case before the apex court. evidence gathered during the investigation has convincingly established that part of the sale price from the m.p. distributors was being collected by cash. such evidence is lacking in respect of sales to dealers in other areas. in such a situation, evidence obtained in respect of sales to m.p. distributors cannot lead to the reasonable inference that similar was the case in respect of all sales in other areas also. we, therefore, accept the appellant's submission that the demand cannot be extended beyond the sales to m.p.. the differential duty in respect of sales to m.p. has been computed by the appellants (and duty verified by the revenue authorities) at rs. 27,35,960/- for alfa ceramics and at rs. 11,05,036/- for globe ceramics.7. in the present cases, the evidence about undervaluation is only of certain parties, while the respondent-assessees have several dealers all over the country. there is no evidence indicating that the practice of under valuation was prevalent in relation to clearances made to all parties. therefore, the demand has to be restricted to the clearances made to the parties/regions found to be receiving the undervalued goods.8. in view of what is stated above, the impugned orders are set aside and revenue's appeals are allowed by remanding the cases to the original authority for fresh quantification of duty demands. needless to say, penalties depend, inter alia, upon amounts of duty involved.the adjudicating authority shall, therefore, re-determine the quantum of penalties also.9. the respondents have filed cross-objections. they are not being pressed and are dismissed as such.

Judgment:
1. Both the respondents are manufacturers of ceramic glazed tiles located in Gujarat. They were central excise assessees and were clearing the said tiles on payment of duty. However, investigations led to allegation that the respondents were undervaluing ceramic tiles cleared by them and that way evaded duty. In the case of Fine Ceramics Pvt. Ltd. there was also allegation that certain quantities of tiles were clandestinely removed without payment of duty. The period involved is 1996-98. Accordingly, Show-cause Notices were issued proposing recovery of short-levy and imposition of penalties on the respondents.

2. In adjudication, Commissioner confirmed the duty demands at much lesser amounts than proposed in the Show-cause Notices. Imposed much lower penalties too. Revenue is in appeal against those orders.

3. The submission of the learned SDR is that the quantifications of duty evasion made by the Commissioner are grossly incorrect as he had adopted an erroneous approach in evaluating evidence. In the case of M/s. Surya Ceramics, Commissioner confirmed the demand only in regard to certain clearances made to M/s. B.K. Enterprises of Gujarat. The submission of the learned SDR is that there was evidence showing under-invoicing in regard to clearances made to M/s. Mangla Sales Corporation, M/s. Orient Corporation and M/s. Choice Distributors, all located in Kerala. The learned SDR, therefore, contends that duty demand should certainly have been made in regard to clearances to those parties also. The same is his contention in regard to duty demand against M/s. Fine Ceramics Pvt. Ltd. also on the ground of undervaluation. He would also submit that Commissioner was in error in quantifying the clandestine removals of the goods.

4. Learned Senior Counsel appearing for the respondents points out that differential duty demand can be confirmed only upon satisfaction in adjudication that certain quantities of goods were undervalued. He points out that it is well settled that under valuation in regard to supplies to some parties of some regions cannot be a basis for demanding differential duty in regard to clearances made by the manufacturers to other parties other regions. He has, in particular, relied on the decision of this Tribunal in the case of Alpha Ceramics Industries v. C.C.E., pointed out that this decision of the Tribunal remains confirmed by the Hon'ble Supreme Court . In regard to the charge of clandestine removal, it is the learned Senior Counsel's submission that Commissioner has carefully weighed the evidence before him and determined the quantities so cleared and no intervention is called for.

5, We have perused records and considered the submissions made by both sides. We may note the finding of the Commissioner in regard to quantification of demand arising from undervaluation: 3.4. There are statements from three other dealers, (1) Mayur Kumar B., Partner of M/s. Choice Distributors, Cochin, (2) Shri Abdul Salim, Partner of M/s. Orient Corporation, and (3) Shri Ashraf Lambath, Partner of M/s. Mangala Sales Corporation. It is significant that there is no chits/slip available relating to sales to these three parties or for that matter, to any other party (other than M/s. B. K. Enterprises). In fact there is no evidence of sale to these parties mentioned anywhere in the show cause memo. These three parties in their statements have of course stated that they used to pay extra money to M/s. SC through DD. But the price they mentioned as having paid has no relation to the prices mentioned in the slips/chits or the prices taken in the show cause notice.

Similarly the show cause notice mentions in para 7.1, 12 varieties of tiles and fixes an assessable value for each. Neither the nomenclature nor the assessable value fixed tallies with the chits which are accepted to be incriminating documents. It is not at all explained where from each assessable value has been taken quality-wise.

3.5 In this type of a case, the investigation ought to have done at least the following - (1) The investigation should have been done in the banks to identify the person who encashed the drafts or withdrew the amounts from the bank, and to interrogate them as to whom they handed over the money.

(2) Party-wise and quality-wise sale amount should have been identified and the differential value should have been added. Each of these parties should have been interrogated to get a confirmation of the excess payment.

(3) The detailed calculation sheet of how the excess assessable value was arrived at should have been given.

1.6 None"of thg abovg things have been done. Instead a number of invoice books has been shown as relied upon documents. There is no evidence of processing of these invoice books. In view of the above lacunae in the investigation, it is not possible to accept the duty calculation of the show cause memo. Even if one would like to apply the price charged from M/s. B.K. Enterprises to other buyers, it is impossible to do so, bgcause how the ppice chapggd fpoo M/s. B, K. Enterprises is arrived at in Anlexupe/B (inalwding Annexures Bl and B2), is not given.

6. The rule of evidence followed and findings reached by the Commissioner are clearly not sustainable. In a case of clandestine operations, tje Revgnwe authorities cannot be put to prove every detail of the clandestine transaction. That too, when there is sufficient evidence showing that the goods were clandestinely dealt with for evasion of duty. We have perused the evidence tendered by the representatives of M/s. Mangla Sales Corporation, M/s. B.K.Enterprises, M/s. Choice Distributors and Ors. All these parties have stated that they were paying amounts over and above the invoiced prices. The method of remittance has also been explained in detail. The evidence of B.K. Enterprises confirms the particular modalities. We are, therefore, of the opinion that in regard to the sales of bmth the respondents, there was sufficient evidence to hold that there was under valuation in regard to sales made to M/s. B.K. Enterprises, M/s. Mangla Sales Corporation, M/s. Choice Distributors and M/s. Orient Corporation, Erna-kulam. The differential duty is therefore, required to be recomputed in the light of the following observations made by the Tribunal in the case of Alpha Ceramics Ltd, 13 This brings us to the last submission of the appellants, that the differential duty demand should be limited to the sales made to thg distributors in M.P.. Thks submission has drawn support from the decision of the Apex Court in the case of State of Kerala v. C. Velukutty. In that case, dealing with the reopening of sales tax assessments, the Apex Court held that the discovery of secret accounts maintained at one place is no ground to hold that the transactions as revealed by those accounts took place in other places also. We find that the situation in the present case is closely comparable to the case before the Apex Court. Evidence gathered during the investigation has convincingly established that part of the sale price from the M.P. distributors was being collected by cash. Such evidence is lacking in respect of sales to dealers in other areas. In such a situation, evidence obtained in respect of sales to M.P. distributors cannot lead to the reasonable inference that similar was the case in respect of all sales in other areas also. We, therefore, accept the appellant's submission that the demand cannot be extended beyond the sales to M.P.. The differential duty in respect of sales to M.P. has been computed by the appellants (and duty verified by the Revenue authorities) at Rs. 27,35,960/- for Alfa Ceramics and at Rs. 11,05,036/- for Globe Ceramics.

7. In the present cases, the evidence about undervaluation is only of certain parties, while the respondent-assessees have several dealers all over the country. There is no evidence indicating that the practice of under valuation was prevalent in relation to clearances made to all parties. Therefore, the demand has to be restricted to the clearances made to the parties/regions found to be receiving the undervalued goods.

8. In view of what is stated above, the impugned orders are set aside and Revenue's appeals are allowed by remanding the cases to the original authority for fresh quantification of duty demands. Needless to say, penalties depend, inter alia, upon amounts of duty involved.

The adjudicating authority shall, therefore, re-determine the quantum of penalties also.

9. The respondents have filed cross-objections. They are not being pressed and are dismissed as such.