2005 (12) TMI 150 - AT - Central Excise

Demand - Clandestine removal - Appreciation of evidence - confiscation of the seized goods - Interest - Penalty - Whether the main appellants had manufactured and cleared decorative plywood; Durian Brand decorated plywood without payment of duty to their dealers - Third member Order - HELD THAT - It is seen that the entire case of the revenue for the alleged clandestine removal is based upon the seizure of decorative plywood from the premises of the dealers and the statement of some of the dealers to the effect that such decorative plywood was received by them from the manufacturers i.e. M/s. Durian Industries Ltd., and M/s. Palghar Plywood Products Pvt. Ltd. , without payment of duty and under the trading bills for Veneer. The appellants have strongly contended that they are not manufacturing decorative plywood and the said goods found and seized from the dealer's premises are not manufactured by them. Merely because the said goods are affixed with a label/sticker showing brand name Durian , which at the relevant time was not registered in their name, will not go to prove that the said goods have been manufactured and cleared by them. The said brand name being a famous one, could have been used by the dealer to increase their sales or to dupe the customers. No tests were conducted to find out as to whether the said sticker fixed at the back of decorative plywood found at the dealer's premises was identical to the one used by the appellants, further, it has been strongly contended that along with the search of the dealer's premises, their factory premises were also put to search and nothing incriminating was recovered therefrom. There was no excess or shortage of raw materials detected at the time of the visit of the officers. Similarly, no materials requisite for manufacture of decorative plywood was found in their factory premises, thus leading credence to their submissions that they are not engaged in the manufacture of decorative plywood at all. I find that Member (Judicial) has detailed the submissions of the appellants in para 8 of his judgment, from (a) to (t). A reading of the same would show that the manufacturing appellants have categorically denied having manufactured decorative plywood at all. I find a lot of force in their submission that in the absence of any test or investigation having been conducted by the revenue to link the decorative plywood found at the dealer's premises with the appellants manufacturer or to link the sticker with the sticker being used by the appellants, it cannot be conclusively held that the decorative plywood in question was manufactured by the appellants and cleared by them without payment of duty. In fact, it is on record that during the course of visit of the appellant's factory not even a trace of decorative plywood or the raw materials required for manufacture of decorative plywood was found. If the appellants would have been engaged in the manufacture of decorative plywood, the officers would have definitely found some evidence to that effect. No investigations having been conducted by the revenue to ascertain as to who are the manufacturers of the plywood found at the dealers premises, the appellant's contention that it is not their product, has to be accepted. I find that the reliance on the Tribunal's decision in the case of B.G. Plywood Ind. (Pvt.) Ltd. 2007 (11) TMI 562 - MADRAS HIGH COURT , by Member (Judicial) is appropriate, wherein under similar circumstances it was held that in the absence of the samples having been sent for testing, advertising materials in the shape of booklets does not have any evidentiary value. It is well-settled law that the allegations of clandestine removal, which are quasi criminal in nature are required to be proved by the revenue by production of sufficient tangible evidence on record. As discussed by Member (Judicial), the evidence on record is not sufficient enough to inspire confidence to hold against the appellants. Reliance upon the statement of few dealers, which might be using the appellant's brand name Durain with ulterior motive or to dupe the customers by encashing on the goodwill of the said brand name cannot be made the basis for holding against the appellants especially when the appellants have categorically stated that they are not manufacturing decorative plywood and nothing contrary to that has been found by the officers during the course of visit of the factory. As the case law relating to the above submissions have already been discussed in detail by Member (Judicial), I refrain from referring to the ratios of the same. On the other hand, I find that the ld. Member (Technical) have primarily held against the appellants on the ground that they have not been able to produce any duty paying documents before the lower authorities nor any duty paying documents were found during the search at any of the premises of the manufacturers or dealers. However, it is the appellant's stand that they are not manufacturing decorative plywood at all, in which case the question of presence and availability of duty paying documents does not arise at all. Thus, I agree with findings of ld. Member (Judicial) Shri Krishna Kumar and allow all the appeals. The papers may be sent to the original bench for recording the final order. In view of the above majority decision, the impugned order is set aside and the appeals are allowed.

Summary

Issues Involved:
1. Whether the main appellants had manufactured and cleared decorative plywood; Durian Brand decorated plywood without payment of duty to their dealers.
2. Whether the main appellants and others were liable for penalty and interest payment.
3. Whether the seized goods are required to be confiscated.

Issue-wise Detailed Analysis:

1. Manufacture and Clearance of Decorative Plywood without Payment of Duty:
The main appellants, M/s. Durian Industries Ltd. and M/s. Palghar Plywood Product Pvt. Ltd., were alleged to have manufactured and cleared decorative plywood bearing the brand 'Durian' without payment of duty. The Department's case was based on the seizure of branded decorative plywood from the dealers' premises, delivery chits, and statements from dealers. The appellants contended that they only manufactured repressed plywood and were also engaged in trading veneers, which was conducted outside their factory premises. They argued that no evidence, such as excess raw materials or unaccounted production, was found in their factory to support the allegations of clandestine manufacture. The Tribunal noted that no stock of the alleged branded goods was found in the factory, no samples were drawn for testing, and the Department had ordered the release of the seized goods unconditionally. Thus, the Tribunal found that the Department failed to prove that the main appellants had manufactured and cleared branded plywood without payment of duty.

2. Liability for Penalty and Interest Payment:
The Department imposed penalties on the appellants under various sections of the Central Excise Act, 1944, and confirmed the demand for duty and interest. The appellants argued that the order confirming duty was based on assumptions and that no specific document proved the manufacture of decorative plywood by them. The Tribunal noted that the evidence relied upon by the Department, such as delivery chits and dealer statements, lacked corroborative value. The Tribunal also referred to case laws that emphasized the need for concrete evidence to establish clandestine removal. Consequently, the Tribunal found that the penalties and interest imposed on the appellants were not justified.

3. Confiscation of Seized Goods:
The Department proposed the confiscation of decorative plywood seized from the dealers' premises, alleging that these goods were cleared without payment of duty. The appellants contended that the seized goods were not manufactured by them and that the brand 'Durian' was not registered, allowing anyone to use it. The Tribunal observed that the Department did not find any incriminating evidence in the factory or conduct tests to confirm the nature of the seized goods. The Tribunal concluded that the confiscation of goods without notice to the dealers, who were the owners of the goods, was bad in law and set aside the confiscation order.

Separate Judgments:
- Member (Judicial): Allowed the appeals, set aside the impugned orders, and provided consequential relief to the appellants.
- Member (Technical): Upheld the demand for duty but reduced the penalties to 25% of the amounts determined by the Commissioner and maintained the confiscation order with an option to redeem the goods.
- Third Member (Judicial): Agreed with Member (Judicial) and allowed the appeals, emphasizing the lack of sufficient evidence to prove clandestine removal.

Majority Order:
In view of the majority decision, the impugned order was set aside, and the appeals were allowed.