2018 (6) TMI 764 - AT - Central Excise

Clandestine removal - Hank Yarn - it was alleged that appellant (ETM) had no facility for manufacture of hank yarn during the disputed period - it was also alleged that cleared cone yarn in the guise of hank yarn and thus evaded payment of duty - further allegations are that they did not account the entire production of cone yarn and cleared cone yarn clandestinely without payment of duty - Held that - Though it is shown that hank yarn is cleared, it is pertinent to note that the quantity of hank yarn in stock noted in the report at the time of last stock taking and current stock taking is nil. This would only prove that stock taking was conducted there was no hank yarn at all. Appellants have merely showed in their accounts that hank yarn was cleared and these figures have been adopted in the report which was endorsed by the officer. The report certifies that it is based on figures in stock register - these document will not support the appellant in any manner, especially when the stock of hank yarn on both dates of stock taking is shown to be nil . All these evidences leads to the strong inference that appellant company was not manufacturing hank yarn during the period of dispute. Though in RG-1 the appellant accounted production in respect of cone yarn and hank yarn, the diary showed details of production of cone yarn only. Again, there were no packing labels or materials purchased by appellant for packing hank yarn. The purchase of packing materials showed purchase of labels for cone yarn only. The appellants have not been able to counter these evidences, with satisfactory explanation. The evidence unearthed by department being voluminous, it is not possible to detail each and every piece of evidence in this order. From the records, it is found that the strong probability is that appellants have indulged in clandestine clearance of yarn without payment of duty. Department has been able to establish with both documentary and oral evidence that appellant company was not manufacturing or clearing any hank yarn and was clearing cone yarn clandestinely. The appellant has not put forward even slightest evidence to establish that they have not indulged in clandestine removal of cone yarn. Extended period of limitation - penalty u/s 11AC - Held that - the invocation of extended period is legal and proper - Department has been able to establish case laws a strong case in their favour. We therefore find no grounds to interfere with the duty demand, confiscation or the penalty imposed under 11AC of Central Excise Act, 1944 - Since equal penalty under 11AC is imposed, a further penalty of ₹ 50 Lakhs on the appellant company, each under Rule 25 and Rule 173Q is unwarranted and requires to be set aside. Appeal disposed off.

Summary

Issues Involved:
1. Whether the appellant had the facility to manufacture hank yarn during the disputed period.
2. Whether the appellant cleared cone yarn in the guise of hank yarn to evade payment of duty.
3. Whether the appellant clandestinely cleared cone yarn without payment of duty and proper accounting.

Issue-wise Detailed Analysis:

1. Facility to Manufacture Hank Yarn:
The department alleged that the appellant (ETM) did not have the facility to manufacture hank yarn during the disputed period. This was based on the Energy Audit Report dated 22/1/2002, the statement of Sh. N. Muruganandam, and correspondence with TNEB. The Energy Audit Report indicated no reeling activity in the factory, and TNEB confirmed no reeling machines were connected to power. The appellant's reliance on a stock-taking report dated 11/11/2000 was found unconvincing as it showed no hank yarn in stock, suggesting no hank yarn was manufactured. The evidence led to the strong inference that the appellant was not manufacturing hank yarn during the period of dispute.

2. Clearance of Cone Yarn in the Guise of Hank Yarn:
The department's investigation revealed that the appellant cleared cone yarn in the guise of hank yarn to evade duty. The personal diary of the Managing Director, Sh. K. Periasamy, was key evidence showing production and clearance of cone yarn, although it was accounted for as hank yarn in RG1 registers. The diary entries matched the production figures, indicating that the appellant was clearing cone yarn while falsely accounting it as hank yarn. The lack of purchase of packing materials for hank yarn further supported the department's case. The modus operandi involved raising parallel invoices with the same serial numbers and using group companies like KPK Exports to create fictitious transactions.

3. Clandestine Clearance of Cone Yarn:
The department found substantial evidence of clandestine clearance of cone yarn without payment of duty. Documents seized from the administrative office, such as Kalaas Coolie vouchers, indicated unaccounted clearances. Statements from employees and buyers corroborated the findings. The appellant used double sets of invoices and destroyed the ones used for actual deliveries. The seizure of 10 bags of cone yarn at Saranya Impex without any invoice further evidenced clandestine activities. The note book of Sh. C. Elango, a yarn broker, and the diary of Sh. Periasamy revealed unaccounted transactions and meetings to arrange for the clearance of cone yarn without duty.

Penalties and Orders:
The Tribunal upheld the duty demand and the penalty under Section 11AC of the Central Excise Act, 1944, citing the appellant's contumacious conduct in evading duty. However, additional penalties under Rule 25 and Rule 173Q were deemed unwarranted and set aside. Personal penalties on individuals were reduced to meet the ends of justice:
- Sh. K. Periasamy: Reduced from ?10 Lakh to ?5 Lakh.
- Sh. C. Elango: Reduced from ?50,000 to ?25,000.
- Sh. R. Ganesan: Reduced from ?50,000 to ?25,000.

The appeals were disposed of with consequential reliefs, if any. The operative part of the order was pronounced in open court.