2016 (4) TMI 143 - AT - Central Excise

Clandestine clearance of finished MMF(P) measuring 66,91,771.78 L.Mtrs. - confiscation of the goods of MMF(P) 66,91,771.81 L.Mtrs though not physically available proposed - demand of duty - Held that - Clandestine removal cannot be sustained in the absence of evidence of clandestine manufacturing. The statements were uncorroborative nature and could not be made sole basis for holding against the assessee. Their veracity has to be gauged from accompanying circumstances and corroborated by independent evidences. Thus the demand of duty of ₹ 1,99,11,979.00 on 62,22,212.00 L.Mtrs cannot be sustained. But, we find force in the submission of Revenue in respect of demand of duty of ₹ 14,65,949.00 on 4,82,220.00 L. Mtrs of grey fabrics. It is seen that there was shortage of 4,82,220,00 L. Mtrs of grey fabrics during the physical stock verification. The appellants failed to give a proper reason. Thus, the demand of duty on the shortage of the raw material is justified. The Learned Authorised Representative cited various decisions on this issue. We agree with the submission of the Learned Authorised Representative. The demand of duty of ₹ 27,560.00, the Learned Advocate had not contested, and therefore, it is required to be upheld. Regarding imposition of penalty on Shri Sandeep Arunkumar Khaitan Director of the assessee company, we find that he has accepted the removal of finished goods to the quantity of 4,82,220.00 L. Mtrs, and therefore, the imposition of penalty is warranted. However, the quantum of the penalty is required to be reduced. We do not find any material against imposition of penalty on Shri Mohan Lal Khaitan and M/s Koral Prints. There is no material available of involvement of Shri Mohan Lal Khaitan, and M/s Koral Prints and therefore, imposition of penalty on them are not justified. It is well settled by serious of decisions that if the goods are not available, confiscation of goods and imposition of redemption fine cannot be warranted. In view of the above discussion, the impugned order is modified to the extent the demand of duty of ₹ 14,65,949.00 and ₹ 27,560.00 alongwith interest and the imposition of penalty of equal amount of duty are upheld. The demand of duty of the balance amount alongwith interest and penalty is set-aside. The penalty on Shri Sandeep Arunkumar Khaitan is reduced to ₹ 2,00,000.00 (Rupeees Two Lakhs only). Confiscation and Redemption Fine are set-aside. The penalty on Shri Mohan Lal Khaitan and M/s Koral Prints are set-aside. The assessee is entitled to option to pay penalty 25% of duty alongwith entire amount of duty and interest within 30 days from the date of communication of this order as provided under Section 11AC of the Act, 1944. The appeals filed by the M/s. Santosh Textile Mills and Shri Sandeep Arunkumar Khaitan are disposed of in the above terms. The appeals filed by Shri Mohan Lal Khaitan and M/s Koral Prints are allowed.

Summary

Issues Involved:
1. Demand of duty based on alleged clandestine removal of goods.
2. Demand of duty due to shortage of grey fabrics during stock verification.
3. Demand of duty based on job cards and theoretical calculations.
4. Imposition of penalties on various parties including the Director of the assessee company.
5. Confiscation and imposition of redemption fine.

Detailed Analysis:

1. Demand of Duty Based on Alleged Clandestine Removal of Goods:
The main contention was that the demand of Rs. 1,81,38,719.00 and Rs. 17,72,360.00 (total Rs. 1,99,11,979.00) on 62,22,212.25 L.Mtrs. of MMF(P) was based on rough scribbling papers, job cards, and statements of transporters. The appellant argued that the alleged clandestine removal was beyond their manufacturing capacity, supported by the Annual Capacity of Production (ACP) determined by the Department. The Tribunal found that the demand on such a huge quantity was not sustainable given the manufacturing capacity and the lack of corroborative evidence such as electricity consumption, staffing, and other production-related records. The Tribunal referenced the case of Galaxy Indo Fab. Ltd., which set aside similar demands due to the impossibility of production capacity and lack of concrete evidence. Consequently, the demand of Rs. 1,99,11,979.00 was set aside.

2. Demand of Duty Due to Shortage of Grey Fabrics During Stock Verification:
The demand of Rs. 14,65,949.00 was based on the shortage of 4,82,220 L.Mtrs of grey fabrics detected during physical stock verification. The appellant failed to provide a satisfactory explanation for this shortage. The Tribunal upheld this demand, agreeing with the Revenue that the shortage justified the duty demand.

3. Demand of Duty Based on Job Cards and Theoretical Calculations:
The demand of Rs. 27,560.00 was not seriously contested by the appellant, and the Tribunal upheld this demand. The other demand based on job cards and theoretical calculations was dismissed due to lack of physical verification and corroborative evidence.

4. Imposition of Penalties on Various Parties Including the Director of the Assessee Company:
The Tribunal upheld the penalty on Shri Sandeep Arunkumar Khaitan, Director of the assessee company, for the removal of finished goods corresponding to the shortage of grey fabrics. However, the penalty amount was reduced to Rs. 2,00,000.00. Penalties on Shri Mohan Lal Khaitan and M/s Koral Prints were set aside due to lack of evidence of their involvement.

5. Confiscation and Imposition of Redemption Fine:
The Tribunal set aside the confiscation of goods and the imposition of a redemption fine, as the goods were not physically available for confiscation.

Conclusion:
The Tribunal modified the impugned order, upholding the demand of Rs. 14,65,949.00 and Rs. 27,560.00 along with interest and penalties. The demand of the balance amount was set aside. The penalty on Shri Sandeep Arunkumar Khaitan was reduced, and penalties on Shri Mohan Lal Khaitan and M/s Koral Prints were set aside. The assessee was given the option to pay 25% of the penalty along with the entire amount of duty and interest within 30 days as provided under Section 11AC of the Central Excise Act, 1944.