2004 (4) TMI 447 - AT - Central Excise

Summary

Issues Involved:
1. Alleged evasion of Central Excise Duty (CED) by M/s Rukmini Industries Ltd. (RI) through unaccounted removal of acid slurry.
2. Use of fictitious customers to purchase Linear Alkyl Benzene (LAB) for manufacturing acid slurry.
3. Classification and valuation of goods, specifically acid slurry and soap oil.
4. Adequacy of evidence, including statements and documentary proof, to substantiate the allegations.
5. Imposition of penalties on M/s RI and associated individuals.

Issue-wise Detailed Analysis:

1. Alleged Evasion of CED:
The primary issue concerns the alleged evasion of CED by M/s Rukmini Industries Ltd. (RI) by removing acid slurry without payment of duty and without accounting in their statutory records. The investigation revealed that RI engaged in clandestine removal of 140,155 Kgs of acid slurry from January 1990 to March 1994, resulting in a CED evasion of Rs. 53,73,428/-. This was substantiated by the recovery of documents and statements from key individuals, including the Plant Supervisor and Manager of RI.

2. Use of Fictitious Customers:
The investigation found that RI purchased LAB from M/s Tamil Nadu Petro Products Ltd. (TPL) through fictitious customers. The LAB was then used to manufacture acid slurry, which was sold without proper accounting. The Commissioner confirmed that RI used the names of 27 fictitious customers to purchase LAB, and these customers did not exist as verified by the Commercial Tax authorities. The payments for these purchases were made by RI, with applications for drafts signed by RI's Power of Attorney holders.

3. Classification and Valuation of Goods:
The investigation revealed that RI cleared acid slurry under the guise of soap oil, misclassifying and undervaluing the goods to evade duty. The Commissioner found that RI manufactured and cleared acid slurry without accounting for it and without payment of duty, partly in the guise of soap oil. The appellants argued that they had been classifying soap oil under sub-heading 34.01 since 1990 and had filed appropriate classification lists. However, the Department established that the acid slurry was cleared as soap oil to evade duty.

4. Adequacy of Evidence:
The appellants contended that the case was based on suspicion and lacked solid evidence, particularly regarding the receipt of Oleum, another raw material required for manufacturing acid slurry. They also argued that the statements of key individuals, such as Shri Narasing Rao, were unreliable as they were not in service at the time. However, the Commissioner found that the statements and documentary evidence, including bank records and applications for drafts, corroborated the allegations. The statements of various customers who received acid slurry instead of soap oil further supported the Department's case.

5. Imposition of Penalties:
The Commissioner imposed a duty of Rs. 53,73,428/- on RI, along with penalties of Rs. 5 lakhs on RI, Rs. 1 lakh on Shri Ramachander Rao, and Rs. 50,000/- each on Shri B. Damodar Rao and Shri Narasing Rao. The appellants argued that the penalties were based on unsubstantiated allegations. However, the Tribunal upheld the penalties, finding that the Department had established the receipt of unaccounted LAB, its use in manufacturing acid slurry, and the clandestine removal of the same.

Conclusion:
The Tribunal upheld the Commissioner's order, confirming the duty demand and penalties imposed on RI and associated individuals. The appeals filed by M/s RI and Shri Damodar Rao were rejected, as the Department successfully established the clandestine removal of acid slurry, use of fictitious customers for purchasing LAB, and evasion of CED through misclassification and undervaluation of goods.