2014 (6) TMI 268 - AT - Central Excise

Evasion of duty - Clandestine clearance of goods in the name of closed unit - manufacture of printing and writing paper as well as news print - Exemption Notification No. 6/2001-C.E., dated 1-3-2001 - Held that - Both the units are situated in adjoining plots. It is also not in dispute that at the time of visit to the factory of M/s. Sikka and M/s. Shamli on 24-4-2003, it is only the M/s. Sikka which was found to be functioning and the unit of M/s. Shamli was found to be totally closed and from its appearance, it appeared that it was not functioning since long. There is no dispute about the fact that M/s. Shamli did not have electricity connection since 3-7-1998. Though M/s. Shamli claim to be manufacturing paper by using the power using diesel generating sets, out of two DG sets each of 380 KVA, only one DG set was found to be functioned, in respect of this also no evidence of purchase of diesel by M/s. Shamli for running of the DG set. The communication dated 18-9-2001 of M/s. Shamli to Assistant Labour Commissioner shows that they had intimated the Assistant Labour Commissioner regarding closure of their unit in September, 2001. After this communication of September, 2001 there is no further communication, which shows that the unit remained closed since September, 2001. It is also seen that M/s. Shamli had deposited their contributions towards employees provident fund in the office of Provident Fund Commissioner only upto February, 2001. It is difficult to believe their claim that their factory was still functioning by hiring contract labour. When no evidence of contract labour having been engaged by them have been produced. Even if the claim regarding supply of waste paper from M/s. Raghav Enterprises is accepted, it cannot be concluded that this waste paper was used by M/s. Shamli, when all other evidence indicate that the same was closed - obviously the waste paper, if any, supplied by M/s. Raghav Enterprises must have been used in the factory of M/s. Sikka. Taking into account the totality of the evidence against M/s. Shamli, we are of the view that the claim that M/s. Shamli was functioning during the period of dispute is difficult to believe, more so, in view of the fact that at the time of officer s visit to the factory on 24-4-2003 from the condition of the plant it appeared that the factory is closed since long and also there was neither any power connection since July, 1998 no any evidence of purchase of diesel for running DG set or engaging contract labour. Goods which are shown to have been cleared under the invoices of M/s. Shamli, had actually been manufactured by M/s. Sikka and this has been done by M/s. Sikka to wrongly avail of the exemption under Notification No. 6/2001-C.E. Since from the records it is seen that it is Shri Vinay Bansal who was running both the units and it is he who is the brain behind this duty evasion, the penalty has been rightly imposed on him - Decided against assessee.

Summary

Issues Involved:
1. Alleged duty evasion by M/s. Sikka Papers Limited.
2. Wrongful availing of duty exemption under Notification No. 6/2001-C.E.
3. Confiscation of excess stock and demand of duty on short stock.
4. Imposition of penalties on M/s. Sikka, M/s. Shamli Paper Mills, and Shri Vinay Bansal.

Detailed Analysis:

1. Alleged Duty Evasion by M/s. Sikka Papers Limited:
The officers of Central Excise Commissionerate, Meerut-I, received intelligence that M/s. Sikka Papers Limited (M/s. Sikka) was evading duty by showing part of their production under a sister concern, M/s. Shamli Paper Mills (M/s. Shamli). On inspection, M/s. Shamli was found to be non-operational, with no electricity connection since 1998 and no records of diesel purchase for generators. Evidence indicated that M/s. Shamli had been closed since 2001, and thus, the production shown under its name was actually produced by M/s. Sikka, leading to duty evasion.

2. Wrongful Availing of Duty Exemption under Notification No. 6/2001-C.E.:
Notification No. 6/2001-C.E. exempts clearances up to 3500 M.T. in a financial year for certain paper products. M/s. Sikka and M/s. Shamli were availing of this exemption. However, the investigation revealed that M/s. Shamli was not operational, and the production shown under its name was actually produced by M/s. Sikka to wrongfully avail the exemption. The Commissioner confirmed a duty demand of Rs. 68,72,654/- against M/s. Sikka, imposing penalties under Section 11AC of the Central Excise Act, 1944.

3. Confiscation of Excess Stock and Demand of Duty on Short Stock:
During the inspection, 16.037 M.T. of writing and printing paper was found in excess at M/s. Sikka's premises, while 16.452 M.T. of newsprint was found short. Separate show cause notices were issued for the confiscation of the excess stock and the demand of duty on the short stock.

4. Imposition of Penalties on M/s. Sikka, M/s. Shamli, and Shri Vinay Bansal:
Penalties were imposed on M/s. Sikka under Section 11AC and on M/s. Shamli and Shri Vinay Bansal under Rule 26 of the Central Excise Rules, 2002. The Commissioner imposed a penalty of Rs. 68,72,654/- on M/s. Sikka, Rs. 5,00,000/- on M/s. Shamli, and Rs. 1,00,000/- on Shri Vinay Bansal. The appeals against these penalties were dismissed, as the evidence supported the conclusion that M/s. Shamli was not operational, and the production shown under its name was actually by M/s. Sikka to evade duty.

Conclusion:
The Tribunal upheld the findings of the Commissioner, confirming that M/s. Sikka had evaded duty by wrongfully availing the exemption under Notification No. 6/2001-C.E. through M/s. Shamli. The penalties imposed on M/s. Sikka, M/s. Shamli, and Shri Vinay Bansal were deemed appropriate and justified based on the evidence. The appeals were dismissed, affirming the impugned order.