2011 (9) TMI 875 - AT - Central Excise

Duty demand - Penalty - Confiscation of seized goods - Clandestine removal of goods - Onus to prove - Held that - In a case of clandestine activity involving suppression of production and clandestine removal, it is not expected that such evasion has to be established by the Department in a mathematical precision. After all, a person indulging in clandestine activity takes sufficient precaution to hide/destroy the evidence. The evidence available shall be those left in spite of the best care taken by the persons involved in such clandestine activity. In such a situation, the entire facts and circumstances of the case have to be looked into and a decision has to be arrived at on the yardstick of preponderance of probability and not on the yardstick of beyond reasonable doubt . Claim that if they procured raw materials, then they might be eligible for MODVAT credit to the tune of about Rs. 1.25 crores may be true. We have already held that the appellants have indulged in suppressing production and clearing the same without payment of duty. However, the benefit of MODVAT claim cannot be considered and allowed in the absence of duty paying documents for procurement of the raw materials. It is not as if that the raw materials could be procured only from duty paying sector - Duty demand penalty imposed is reduced - Decided partly in favour of assessee.

Issues Involved:

1. Allegation of unaccounted production and clandestine removal of goods.
2. Discrepancies in stock and raw material accounting.
3. Use of parallel invoices and roll numbers.
4. Allegations based on inflated production figures for bank loans.
5. Validity of penalties imposed on the appellant company and associated parties.
6. Duplication of demand in Annexure-E.1 and Annexure-E.2.
7. Consideration of MODVAT credit claims.

Issue-wise Detailed Analysis:

1. Allegation of unaccounted production and clandestine removal of goods:

The Tribunal considered the evidence of unaccounted production and clandestine removal of goods by the appellant company. The investigation revealed unaccounted stock of finished products, parallel roll numbers, and discrepancies in production records. Unaccounted production was corroborated by the statements of various individuals, including the Director, and the presence of katcha invoices without corresponding gate-passes. The Tribunal upheld the demand of Rs. 1,18,04,132.58 based on these findings.

2. Discrepancies in stock and raw material accounting:

The Commissioner found significant discrepancies in the stock of PVC resins and cotton fabrics, which were not promptly accounted for. The appellant company's claim of high wastage rates was not substantiated by evidence. The Tribunal agreed with the Commissioner that the unexplained excess use of raw materials indicated unaccounted production.

3. Use of parallel invoices and roll numbers:

The Tribunal noted the existence of parallel roll numbers and invoices, which the appellant company failed to justify adequately. The company's explanation that returned goods were resold through sister concerns was not supported by evidence. The Tribunal concluded that the use of parallel roll numbers was a clear indicator of unaccounted production.

4. Allegations based on inflated production figures for bank loans:

The appellant company admitted to inflating production figures for securing bank loans and other facilities. The Tribunal acknowledged that while such declarations alone cannot substantiate allegations of clandestine removal, they are relevant when corroborated by other evidence. The Tribunal found sufficient corroborative evidence to support the allegations.

5. Validity of penalties imposed on the appellant company and associated parties:

The Tribunal upheld the penalties imposed on the appellant company, M/s. Subramanya & Co., and Shri N.A. Jayaram, Director, for their involvement in the manipulations leading to evasion of excise duty. The penalty on the appellant company was reduced from Rs. 5 lakhs to Rs. 3.5 lakhs, but the penalties on the other parties were found to be justified and not excessive.

6. Duplication of demand in Annexure-E.1 and Annexure-E.2:

The Tribunal accepted the appellant's argument that the demand in Annexure-E.2 was duplicative of the demand in Annexure-E.1. The demand of Rs. 42,48,373.42 in Annexure-E.2 was set aside, as it was not proved to be for a different quantity of coated cotton fabrics.

7. Consideration of MODVAT credit claims:

The Tribunal acknowledged that the appellant company might be eligible for MODVAT credit if they procured raw materials. However, in the absence of duty-paying documents for the procurement of raw materials, the benefit of MODVAT credit could not be considered or allowed.

Conclusion:

The Tribunal concluded that the appellant company had the infrastructure and capacity to produce beyond the accounted production and engaged in unaccounted production and clandestine removal of goods. The demand of Rs. 1,18,04,132.58 was upheld, while the demand of Rs. 42,48,373.42 was set aside. The penalties on the appellant company, M/s. Subramanya & Co., and Shri N.A. Jayaram were upheld, with a reduction in the penalty on the appellant company. The appeals were disposed of accordingly.

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