2005 (6) TMI 15 - AT - Central Excise

Central Excise - Demand & Penalty - Thread manufacturing units involved in impugned cases - Procurement of raw materials under fictitious trading firms- no proper records of invoices and sale proceeds - Use brand name of others in respect of one appellant-Charge against appellant established by adjudicating authority

Issues Involved:
1. Clandestine production and removal of goods.
2. Denial of SSI exemption due to use of brand names belonging to others.
3. Validity of evidence used for estimation of duty.
4. Relationship and mutuality of interest between manufacturing units and marketing firms.
5. Correctness of penalties imposed.

Issue-wise Detailed Analysis:

1. Clandestine Production and Removal of Goods:
The Revenue alleged that the appellants engaged in clandestine production and removal of goods without paying duty. The investigation revealed that the units procured raw materials under fictitious trading firms and supplied the manufactured goods to marketing firms run by family members without proper accounting. The departmental officers conducted extensive investigations, including statements from 46 persons and seizures amounting to Rs. 43,21,527/-. The adjudicating authority found that the appellants did not dispute the authenticity of the documents seized, such as parallel sets of invoices used for clandestine removal, and concluded that the appellants purchased raw materials without accounting them, leading to unauthorized production and clandestine clearances.

2. Denial of SSI Exemption Due to Use of Brand Names Belonging to Others:
The appellants were denied the benefit of SSI exemption on the grounds that they used brand names belonging to others. The adjudicating authority found that M/s. Excel Threads Industry used the brand names "GT GOLDEN QUEEN," "DONA," "ACE," and "EASE," which belonged to other entities. Similarly, M/s. Success used the brand names "TRUE" and "BOY," which also belonged to another entity. However, the adjudicating authority did not provide a clear finding regarding the use of brand names by M/s. Power, leading to the setting aside of the demand and penalties against M/s. Power.

3. Validity of Evidence Used for Estimation of Duty:
The Revenue's estimation of duty was based on the oral evidence of a raw material supplier and documents such as a diary recovered from the supplier's premises. The appellants argued that the diary was not maintained by the supplier and that the author was not examined by the Department. The adjudicating authority rejected the adverse results of cross-examination, stating that the raw material suppliers' statements were supported by documentary evidence and were not retracted. The Commissioner also considered the capacity of the plant and machinery, which indicated the possibility of large-scale production.

4. Relationship and Mutuality of Interest Between Manufacturing Units and Marketing Firms:
The adjudicating authority found that M/s. Golden Thread and M/s. Thread Embayer, the marketing firms, were related persons under Section 4(4)(c) of the Central Excise Act, 1944, due to mutuality of interest in business with the manufacturing units M/s. Excel and M/s. Success. The Commissioner's reasoning was deemed correct as the marketing firms acted as conduits for the clandestinely removed goods.

5. Correctness of Penalties Imposed:
The penalties imposed on the appellants were modified considering the facts and circumstances of the case. The penalties on M/s. Power and its proprietor were set aside due to the lack of clear findings regarding the use of brand names. The penalties on other appellants were reduced as follows:
- M/s. Excel Threads Industry: Rs. 15,00,000/- under Section 11AC and Rs. 5,00,000/- under Rule 173Q.
- Sri S.S. Sainudheen, Proprietor: Rs. 25,000/- under Rule 209A.
- M/s. Success: Rs. 4,00,000/- under Section 11AC and Rs. 1,25,000/- under Rule 173Q.
- Smt. Rose Ann Sapna: Rs. 25,000/- under Rule 209A.

Conclusion:
The appeals were disposed of with the modification of penalties and setting aside of the demand against M/s. Power, while upholding the rest of the Order-in-Original. The charges of clandestine removal and use of brand names belonging to others were established against the appellants, except for M/s. Power.

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