CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
West Zonal Bench, Ahmedabad
COURT
Appeal No. : E/775,776,777/2011-DB
Arising out of : OIO No.18/MP/2010, dt. 31.03.2011.
Passed by : Commissioner,
Central Excise & Customs, Surat-I.
For approval and signature:
Mr. M.V. Ravindran, Hon ble Member (Judicial)
Mr. H.K. Thakur, Hon ble Member (Technical)
1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No
2Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes
3 Whether their Lordships wish to see the fair copy of the Order? Seen
4 Whether Order is to be circulated to the Departmental authorities? Yes
Appellant (s) : M/s. Jay Bhawani Metal Company,
Shri Ramesh R. Kothari,
M/s. Jay Bhawani Metal Industries.
Represented by : Shri W. Christian (Advocate)
Respondent (s) : C.C.E. & S.T. Surat-i
Represented by : Shri Alok Srivastava (A.R.)
CORAM:
Mr. M.V. Ravindran, Hon ble Member (Judicial)
Mr. H.K. Thakur, Hon ble Member (Technical)
Date of Hearing: 08.07.2014
Date of Decision: 31.07.2014
ORDER No. A/11434 11436/2014, dt. 31.07.2014
Per: Mr. H.K. Thakur;
These appeals have been filed by the appellants against OIO No.18/MP/2010, dt. 31.03.2011 passed by Commissioner of Central Excise and Customs, Surat-I. Main appellant M/s. Jay Bhawani Metal Industries, Udhna, Surat (JBMI) are engaged in the manufacture of copper strips, copper wire rods, copper bars, etc. for which they are holding central excise registration. The second appellant M/s. Jay Bhawani Metal Company, Roowala Tekro, Surat (JBMC) is a trading firm of the main appellant and trading in scraps of various metals like copper, zinc, lead, etc. Appellant Shri Ramesh R. Kothari is the partner in both companies i.e. JBMI and JBMC.
2. Brief facts of the case are that the officers of the Directorate General of Central Excise Intelligence (DGCEI), Mumbai Zone received an information that JBMI is indulging in sale of clandestine manufacture and removal of excisable goods under the cover of fake / fabricated sale documents of JBMC. A search was carried out on 25.04.2007 in the factory premises of JBMI, JBMC and JBMI depot at Bhivandi, Thane. Premises of some important buyers and transporters in relation to the appellants were also searched. During the course of search at the factory premises of JBMI, Surat, one bound book of delivery challans / proforma invoices of trading firm JBMC was recovered from the factory premises of JBMI, Surat. Shri Ramesh R. Kothari partner of JBMI identified the said challan book to be of JBMC and lying in the factory premises of JBMI. Two challans / proforma invoices bearing sr. no. 2 & 3 both dtd. 23.04.2007 were found to have been used for removal of copper rods manufactured by JBMI. Another challan bearing sr. no. 2, dt. 20.04.2007 of JBMC was also found to be used for sale of Foundry Ash from the same challan book, which was in addition to the challan bearing the same no. dt. 23.04.2007. After doing detailed investigation and recording of statements of various persons, a show cause notice was issued to the appellants on the grounds that JBMC cannot retrieve articles like copper strips, copper wire rods, copper bars from the scraps purchased by them and that the trading documents of JBMC were actually used for clearance of copper articles manufactured in the factory premises of JBMI. Show cause notice issued was confirmed by the adjudicating authority against all the appellants against which the present appeals have been filed.
3. Shri Willingdon Christian (Advocate) appearing on behalf of the appellants argued that the challans / proforma invoice book of JBMC was found in the factory premises of JBMI as the trading goods of JBMC were required to be temporarily stored near the factory of JBMI. That the retrieved articles sold under delivery challans / proforma invoices, bearing sr. no. 2 and 3, both dtd. 23.04.2007, were purchased from M/s. Mahalaxmi Metals, Ahmedabad vide bill no.5, dt. 21.04.2007 which were brought by truck no.GJ-17 T 4865. It was his case that the premises of JBMC were heavily damaged due to torrential rains in Surat, therefore, temporarily the goods were stored near the factory premises of JBMI. That the bill book of JBMC was found from the JBMI shop only and not from the factory premises of JBMI. That as per the Panchnama dt. 26.04.2007 (sr. no.14) of the annexure to the Panchnama. That the trading goods under challan no.2 and 3 were supplied to the customers in surat only but no verifications were made by the investigating officers from the buyers of these goods. That the affidavits of these two customers were also filed by the appellants which were not appreciated by the adjudicating authority. That there is no other evidence against the appellants except that the two delivery challans were recovered from the factory premises of the JBMI. That the duty with respect to these two challans were paid by the appellant two buy peace.
4. Ld. Advocate emphasized that appellant has the experience in the field of segregating of waste / scrap for the last more than 30 years and has segregated the retrievable articles of copper and other metals which were sold to the customers by paying Sales Tax / VAT and were also shown in their income tax returns. That from the purchased copper scrap appellant is retrieving reusable plastics, copper rods, copper strips, copper wires of metals, including tin, lead, nickel. It was argued by the Ld. Advocate that it is presumed by the adjudicating authority that JBMC had sold the entire quantity of more than 400 MT scrap to some other persons over a period of 4 / 5 years and JBMI has procured equal quantity of copper material from elsewhere to manufacture copper articles for which demand has been issued. He made the bench go through Panchnama dt. 25.04.2007 drawn at the factory premises of JBMI do drive home the point that during the course of Panchnama physical stocks of raw materials, semi finished goods and finished goods were taken under by the officers of DGCEI but the physical stocks were found to be as per statutory records. It was thus argued by the Ld. Advocate that if their was clandestine manufacture and clearance of copper articles then there would have been some shortages / excess in the raw material and finished goods in the factory premises of JBMI.
6. Ld. Advocate appearing on behalf of the appellants also argued that the case of the revenue is totally based upon the surmises, presumptions and statements of third parties. That no cross examination of the witnesses was allowed to the appellants as indicated by the adjudicating authority in paragraph 31 of the OIO dt. 29.04.2011. Ld. Advocate also invited the attention of the bench to the tables made in paragraphs 26.3 and 26.4 of the OIO dt. 29.04.2011 to emphasize that yearwise details of the second hand goods of aluminum, zinc, lead, etc. were segregated by JBMC out of the waste and scrap purchased. That no question has been raised in the investigation with respect to capability of JBMC to retrieve wire rods, wire bars and strips of metals like lead, tin and zinc. That no investigation worth the name was carried out with respect to the manufacturing activity done by the JBMI and no inquiries were conducted from any suppliers of the manufacturing unit to indicate as to from where the excess raw materials were procured by JBMI for the manufacturing activity and how consumption of extra raw materials, electricity, transportation of finished goods and money adjustments were achieved. He relied upon the following case laws in support of his argument that in the absence of any other corroborative evidences no case can be made against the appellant JBMI for clandestine manufacture and clearance of goods:
(i) Jai Mata Industries Ltd. Vs. CCE, Rohtak [2013 (293) ELT 539 (Tri. Del.),
(ii) Centurian Laboratories Vs. CCE, Vadodara [2013 (293) ELT 689 (Tri. Ahmd.),
(iii) Arya Fibers Pvt. Ltd. & Ors. Vs. CCE [2014-TIOL-15-Cestat],
(iv) CCE Vs. Vishwa Traders P. Ltd. [2013 (287) ELT 243 (Guj.), [2014 (303) ELT 68 (SC),
(v) Bachcha Prasad Vs. Collector of Customs [1988 (37) ELT 269 (Ttibunal).
7. Ld. Advocate also filed written submissions in support of his arguments which were received on 14.07.2014. In the written submissions certain sale invoices of JBMC for the years 2004-05 were provided indicating the purchase and sale of articles of zinc and other metals. It was also the case of the appellants that JBMC is also trading in Foundry Ash for which proper ledger records are maintained by the appellants.
8. Shri Alok Srivastava (A.R.) appeared on behalf of the revenue and made the bench go through paragraphs 3.1, 3.2, 3.3.1 and 3.3.2. It was his case that Shri Ramesh R. Kothari, Partner of JBMI in his statement dt. 01.05.2007 had admitted duty liability with respect to challan nos.2 and 3 both dtd. 23.04.2007 of JBMC found in the factory premises of JBMI. It was his case that another challan no.2, dt. 20.04.2007 with respect to Foundry Ash of the JBMI was also be for clearing Foundry Ash generated in the factory premises of JBMI. Ld. A.R. also emphasized that as per the statement of the suppliers of waste and scrap to JBMC it was not possible to retrieve copper articles like copper bars, copper rods and copper strips. It was also his case that in a small premises of JBMC it is not possible to segregate the waste and scrap of different articles and that during the relevant period the payment made to the labour was found to be nil when appellant claimed the segregation of waste and scrap to have been done by employing labourers and that such labourers were being paid through cash. Ld. A.R., therefore, strongly defended the order passed by the adjudicating authority.
9. Heard both sides and perused the case records. In these proceedings, a case of clandestine manufacture and clearance of copper articles has been made against JBMI on the grounds that JBMC is not capable of segregating waste and scrap purchased by them in view of the statements of the suppliers of such waste and scrap who supply these goods to JBMC. Second piece of evidence is that certain trading challans of JBMC were found in the factory premises of JBMI on the date of search operations. The case of the revenue is that the goods manufactured in the factory premises of JBMI were cleared in the guise of trading invoices of JBMC. Appellant requested for the cross examination of the suppliers of the raw materials who gave the opinion that no copper articles can be retrieved from the waste and scrap and that such waste and scrap can be used only as melting scrap. Appellants also requested for the cross verification of the customers of JBMC to whom they have sold that retrieved material as traded goods. However, it is observed from the case records that no cross examinations of such witnesses were provided by the adjudicating authority and no investigations were carried with respect to the buyers of the traded goods from JBMC. It is also observed from the sale invoices / bills of JBMC that even truck numbers are also mentioned but no statements of such transporters were recorded to establish the truth as to from where the goods originated and whether these goods were prime or out of retrieved materials.
10. Appellants have clearly argued before the adjudicating authority that JBMC were retrieving articles of metals like tin, lead, nickel and copper from the waste and scrap purchased. Revenue has only questioned the capability of JBMC for retrieving copper articles but no doubt has been expressed with respect to retrieving of articles of tin, lead and nickel. It is not the case of the revenue that the waste and scrap purchased by JBMC was diverted for the manufacturing activity in JBMI and the finished goods so manufactured were then clandestinely cleared in the guise of traded goods under the invoices / bills of JBMC. On the date of search of the factory premises of JBMI no excess of quantity of raw materials and finished goods were found. Under the present facts and the extent of clandestine manufacture and clearance activities there ought to have been some indicators in the form of excess / shortages of raw materials and finished goods or seizure the finished goods outside the factory premises after clandestine removals. Recovery of certain challans of JBMC in the factory premises of JBMI and the opinion / statements of third parties can create a strong presumption that appellants were indulging in the clandestine manufacture and clearance of excisable goods. However, creation of a strong suspicion does not establish the charge of clandestine manufacture and clearance of excisable goods. It has been held by the Hon ble Supreme Court in the case of State of Kerela Vs. M.M. Mathew & Anr. [(1978) 4 SCC 65] that a strong suspecion from strange coincidences and grave doubts cannot take the place of the legal evidence. That to establish the charges of clandestine manufacture and clearances, it is essential to substantiate the case by adducing satisfactory proof to the effect that appellants have actually committed an offence. In the absence of any such corroborative evidences and indications mentioned above, it cannot be held that JBMI has undertaken clandestine manufacture and clearance of excisable goods. In the case of Commissioner of Central Excise, Customs and Service Tax Vs. Vishwa Traders P. Ltd. [2013 (287) ELT 243 (Guj.)], the jurisdictional Hon ble High Court of Gujarat held as follows in paragraphs 7 and 8:
7. The Tribunal in Paragraph Nos. 12, 13 and 16 has recorded clear finding that when the premises of the respondent were visited, the stock of raw-material and finished goods were tallying with the recorded goods. Further, nothing on record was found by the authority, which showed that unrecorded raw-materials were purchased or consumed by the respondent or that the respondent had clandestinely manufactured or removed the goods. It is necessary to extract Paragraph Nos. 12, 13 and 16 of order of the Tribunal, which reads as under :-
12. Be that as it may be, it is to be noted that there is no dispute that to manufacture of said final product Frit requires the use of Quartz, Feldspar, Zinc, Borax Power, Calcium and Dolomite as inputs/raw material. On the date of visit of the officers to the factory premises of the appellant, it is undisputed that the stock of raw materials as well as finished goods was tallying with recorded balances. This conclusion can be reached from perusal of records, as there is nothing on record to indicate otherwise.
13. On careful perusal of the entire records of the case, we find that there is nothing on record as to unrecorded purchases or consumption of various other raw material in the manufacture of Frit, there is also nothing on record to indicate that the appellant had purchased the Quartz, Feldspar, Zinc, Borax Powder, Calcium and Dolomite and without accounting them used for the manufacture of Frit for clandestine removal. There is also nothing on record nor there is any statement of the suppliers of other raw materials, which would indicate that the appellant had received unaccounted raw material from the suppliers of these raw materials. There is a solitary evidence in the form of statement of supplier of one of the raw material i.e. Borax Powder, who indicated that the appellant had procured Borax Powder and not accounted the same in his record; and the said entries and information were deduced from the documents of the premises of Shri Anil Jadav and whose evidence has been discarded for having not been produced for cross examination; in the absence of any other tangible evidence to show that the appellant had been procuring the other major raw materials required for manufacture of Frit without recording in books of accounts, we are unable to accept the contentions of the ld. AR appearing for the Revenue and the findings of the adjudicating authority, that there was clandestine manufacture and clearance of the finished goods. The investigation has not proceeded further to bring on record unaccounted purchases of all the raw materials required for manufacturing of Frit .
16. In the absence of any tangible evidence which would indicate that there was clandestine manufacture and clearance of the goods from the factory premises of M/s. VTPL, in the peculiar facts and circumstances of this case, we hold that the impugned order which confirms the demand on the appellant M/s. VTPL and imposes penalty on them is not sustainable and is liable to be set aside and we do so.
8. From the aforesaid findings of the Tribunal, it is clear that the appellant has not made any clandestine manufacture, which he has removed clandestinely and on which the duty was payable.
11. In the present appeals also there is no such evidence on record that appellant JBMI procured extra raw materials or used extra power etc. because on the date of visit of the officers of DGCEI the stocks of raw materials and the finished goods were found tallying. There is also no corroborative evidence suggesting any transit seizure of finished excisable goods or establishment of a modus operandi that there was any procedure of getting unrecorded raw materials by JBMI.
12. Appellants have also relied upon the judgment of M/s. Nova Petrochecmicals Ltd. & Ors. Vs. CCE, Ahmedabad-II [2014-TIOL-15-CESTAT-AHM] to support their case that there is no evidence suggesting clandestine manufacture and clearance. It is observed that in paragraph 40 of this judgment of this very bench held as follows:
40. After having very carefully considered the law laid down by this Tribunal in the matter of clandestine manufacture and clearance, and the submissions made before us, it is clear that the law is well-settled that, in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenue which mainly are the following:
(i) There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions;
(ii) Evidence in support thereof should be of:
(a) raw materials, in excess of that contained as per the statutory records;
(b) instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty;
(c) discovery of such finished goods outside the factory;
(d) instances of sale of such goods to identified parties;
(e) receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons authorized by him;
(f) use of electricity far in excess of what is necessary for manufacture of goods otherwise manufactured and validly cleared on payment of duty;
(g) statements of buyers with some details of illicit manufacture and clearance;
(h) proof of actual transportation of goods, cleared without payment of duty;
(i) links between the documents recovered during the search and activities being carried on in the factory of production; etc.
Needless to say, a precise enumeration of all situations in which one could hold with activity that there have been clandestine manufacture and clearances, would not be possible. As held by this Tribunal and Superior Courts, it would depend on the facts of each case. What one could, however, say with some certainty is that inferences cannot be drawn about such clearances merely on the basis of note books or diaries privately maintained or on mere statements of some persons, may even be responsible officials of the manufacture or even of its Directors/partners who are not even permitted to be cross-examined, as in the present case, without one or more of the evidences referred to above being present. In fact, this Bench has considered some of the case-law on the subject in Centurian Laboratories v CCE, Vadodara, 2013 (293) ELT 689. It would appear that the decision, though rendered on 3.5.2013, was reported in the issue of the ELT dated 29.7.2013, when the present case was being argued before us, perhaps, not available to the parties. However, we have, in that decision, applied the law, as laid down in the earlier cases, some of which now have been placed before us. The crux of the decision is that reliance on private/internal records maintained for internal control cannot be the sole basis for demand. There should be corroborative evidence by way of statements of purchasers, distributors or dealers, record of unaccounted raw material purchased or consumed and not merely the recording of confessional statements. A co-ordinate Bench of this Tribunal has, in another decision, reported in the ELT issue of 5.8.2013 (after hearings in the present appeals were concluded), once again re-iterated the same principles, after considering the entire case-law on the subject [Hindustan Machines v CCE, 2013 (294) ELT 43]. Members of Bench having hearing initially differed, the matter was referred to a third Member, who held that clandestine manufacture and clearances were not established by the Revenue. We are not going into it in detail, since the learned Counsels on either side may not have had the opportunity of examining the decision in the light of the facts of the present case. Suffice it to say that the said decision has also tabulated the entire case-law, including most of the decisions cited before us now, considered them, and come to the above conclusion. In yet another decision of a co-ordinate Bench of the Tribunal (Pan Parag India v CCE, 2013 (291) ELT 81), it has been held that the theory of preponderance of probability would be applicable only when there are strong evidences heading only to one and only one conclusion of clandestine activities. The said theory, cannot be adopted in cases of weak evidences of a doubtful nature. Where to manufacture huge quantities of final products the assessee require all the raw materials, there should be some evidence of huge quantities of raw materials being purchased. The demand was set aside in that case by this Tribunal.
13. In view of the above observations, the facts available on record and the case laws relied upon by the appellants, OIO dt. 29.04.2011 issued against the appellants does not survive and is required to be set aside. Accordingly, appeals filed by the appellants are allowed, with consequential relief, if any.
(Pronounced on 31.07.2014)
(M.V. Ravindran) (H.K. Thakur)
Member (Judicial) Member (Technical)
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