2015 (2) TMI 225 - AT - Central Excise

Large scale evasion of excise duty - Shortage of goods found - Clandestine removal of goods - Held that - There was no protest by Shri Dinesh Gupta or by the Appellant Company immediately after the stock taking that the shortage of 12096.565 M.T. in the stock of MS Ingots determined on that day is not genuine shortage and weighment on that day had not been determined correctly. In view of this, plea at this stage that the weight of MS Ingots had been determined on eye estimation only without weighment and the shortage of 12096.565 M.T. in the stock of MS Ingots is not genuine shortage, cannot be accepted. However, what is of more significance is that the fact that this huge shortage in the stock of MS Ingots, for which there is no explanation, corroborates, the allegation of clandestine removal which is also supported by the recovery of 13 parallel invoices involving duty of ₹ 6,98,495/- from the factory premises. These invoices were bearing the same number and the same date as the invoices under which the goods had been cleared on payment of duty but the names of the buyers were different. No explanation has been given by the Appellant Company for these 13 parallel invoices recovered from the factory which also point to the evasion of duty by the Appellant Company by clandestine removal. The despatch slips were in 11 files and had been recovered alongwith the other documents pertaining to the factory like attendance register for the period from December 2006 to August 2007 and also the weighment register of Dharamkanta, also belonging to the Appellant Company. - Though the appellant plead that cross-examination all the dealers and transporters were not allowed, in our prima facie view, since this is not the only evidence to link the 11 files containing the despatch slips to the Appellant Company, at this stage, it cannot be said that the appellant have prima facie case in their favour. The Appellant Company has pleaded financial hardship, in case of a company which has indulged in large scale evasion of duty by under reporting of its production, no credibility can be attached to its profit and loss account. Moreover, though the Appellant Company has filed an application before the BIFR on 19/7/13, so far no orders have been passed. In any case, as held by the Apex Court in the cases of Indo Nissan Oxo Chemical Industries -2007 (12) TMI 220 - SUPREME COURT OF INDIA, even if a unit has been declared a sick unit under Sick Industrial Companies (Special Provision) Act, 1985 it would not exempt it from the provisions of Section 35F. As regards the requirement of pre-deposit of penalty under Rule 26 imposed on Shri Zakir Ali Rana, the Managing Director of the appellant company from his role discussed in para 125 (i) of the impugned order it is clear that he was actively involved in unaccounted manufacture and sale of the excisable goods without payment of duty and, as such, the provision of Rule 26 are prima facie attracted in his case. Therefore, this appellant also has to be put to some conditions for considering waiver from the requirement of pre-deposit under Section 35F. As regards the other appellants namely Shri Dinesh Gupta, Shri Sarfraz Ali and Shri Neeraj Garg, since they were only employees of the Appellant Company, who are acting as per the directions of the management, in our prima facie view the penalty on them under Rule 26 is not called for in view of the Tribunals judgment in the case of Z.U. Alvi vs. CCE, Bhopal reported in 2000 (1) TMI 79 - CEGAT, COURT NO. I, NEW DELHI . Therefore, so far as these three appellants are concerned, the requirement of pre-deposit has to be waived for hearing of their appeals. Appellant company directed to pay an amount of ₹ 8,00,00,000 within a period of eight weeks for compliance with the provisions of Section 35F. This amount would be in addition to the amount of ₹ 40,00,000/- already paid by them. On payment of this amount within the stipulated period, the requirement of pre-deposit of balance amount of duty demand, interest and penalty shall stand waived and recovery thereof stayed. As regards, Shri Zakir Ali Rana, he is required to deposit an amount of ₹ 10,00,000/- (Rupees Ten Lakhs) within a period of eight weeks for compliance with the provision of Section 35F. On deposit of this within the stipulated period, the requirement of pre-deposit of balance amount of penalty and its recovery stayed. - Partial stay granted.

Summary

Issues Involved:
1. Alleged shortage of MS Ingots and duty evasion.
2. Recovery of parallel invoices indicating duty evasion.
3. Recovery of despatch slips and other documents from Maheteshwari Dhaba.
4. Financial hardship and compliance with Section 35F.
5. Imposition of penalties on the Managing Director and employees under Rule 26 of the Central Excise Rules, 2002.

Detailed Analysis:

1. Alleged Shortage of MS Ingots and Duty Evasion:
The allegation of duty evasion amounting to Rs. 40,19,741/- was based on the alleged shortage of 12,096.565 MT of MS Ingots detected during stock taking on 04/12/08. The stock taking was conducted in the presence of the Authorized Signatory of the Appellant Company, Shri Dinesh Gupta, who did not express any dissatisfaction with the method of stock verification at that time. The Appellant Company later claimed that the shortage was determined by eye estimation and not by actual weighment. However, the tribunal noted that there was no immediate protest from the company regarding the stock taking method, and the shortage corroborated the allegation of clandestine removal. Additionally, the recovery of 13 parallel invoices involving duty of Rs. 6,98,495/- from the factory premises further supported the claim of duty evasion.

2. Recovery of Parallel Invoices Indicating Duty Evasion:
During the preventive operation, 18 parallel invoices were recovered from the factory premises and 13 from the premises of some customers. These invoices bore the same serial numbers and dates as the duty-paid invoices but were issued to different parties. The total duty involved was Rs. 16.06 lakhs. The tribunal noted that no explanation was provided by the Appellant Company for these parallel invoices, which pointed to the evasion of duty by the clandestine removal of unaccounted production.

3. Recovery of Despatch Slips and Other Documents from Maheteshwari Dhaba:
The main documents indicating large-scale duty evasion were recovered from Maheteshwari Dhaba, located adjacent to the factory gate. These included 11 files containing despatch slips, weighment registers, and attendance registers. The despatch slips detailed the despatches of MS Bars and Girders, including the date, quantity, customer details, and truck numbers. The tribunal noted that the despatch slips were corroborated by inquiries with 30 customers and 28 transporters, who confirmed receiving goods without Central Excise invoices and transporting the goods mentioned in the slips, respectively. Despite the appellants' plea for cross-examination of these parties, the tribunal found that the evidence was sufficient to link the despatch slips to the Appellant Company.

4. Financial Hardship and Compliance with Section 35F:
The Appellant Company pleaded financial hardship, citing huge losses and an application before the BIFR for declaring it a sick unit. However, the tribunal noted that no orders had been passed by the BIFR, and no credibility could be attached to the company's profit and loss account in a case of large-scale duty evasion. The tribunal directed the Appellant Company to pay Rs. 8,00,00,000/- within eight weeks in addition to the Rs. 40,00,000/- already paid, for compliance with Section 35F. On payment, the requirement of pre-deposit of the balance amount of duty demand, interest, and penalty would be waived, and recovery stayed.

5. Imposition of Penalties on the Managing Director and Employees under Rule 26:
The tribunal found that the Managing Director, Shri Zakir Ali Rana, was actively involved in unaccounted manufacture and sale of excisable goods without payment of duty, attracting the provisions of Rule 26. He was directed to deposit Rs. 10,00,000/- within eight weeks for compliance with Section 35F. However, the tribunal held that the penalties on Shri Dinesh Gupta, Shri Sarfraz Ali, and Shri Neeraj Garg, who were employees acting under the management's directions, were not justified. The requirement of pre-deposit of penalties by these employees was waived, and recovery stayed.

Conclusion:
The tribunal directed the Appellant Company and the Managing Director to make specified pre-deposits for compliance with Section 35F, while waiving the pre-deposit requirements for the employees. The compliance was to be reported on 10/04/2015. The stay applications filed by the employees were allowed. The judgment emphasized the corroborative evidence of duty evasion and the need to safeguard revenue interests.