2017 (4) TMI 426 - AT - Central Excise

Clandestine removal - cotton yarn - demand of duty with interest and penalty - Id. counsel vehemently opposed the adjudication on the ground that when the principal appellant RRM had sent the goods for the purpose of job work, there is no fault that can be found against that appellant. If at all there is any breach of law, that may be attributable to job worker and duty liability shall be confined to the job worker exonerating the appellant from the charges leveled against it - Held that - Preponderance of probability is in favor of Revenue when appellants failed to come out with clean hands. Although appellant tried that investigation should be in dark to unearth the offence committed, they failed since self-speaking evidence came up in the course of investigation. The evidences gathered by investigation were so cogent and those could not be scrapped or rebutted by the appellant. The duty liability of ₹ 49,24,207/- evaded through such subterfuge by the appellants and demanded by the original authority under proviso to Section 11 (A) (1) of CEA, 1944, along with interest thereon, which demand been upheld by the Commissioner (Appeals) in the impugned order, does not call for any interference. For the same reasons, equal penalty imposed on the appellants under Section 11 AC ibid is also justified and appeal on this count also cannot succeed. Appeal dismissed - decided against appellant.

Issues Involved
1. Unaccounted purchase and suppression of production.
2. Misrepresentation of cone yarn as hank yarn.
3. Clandestine removal of cotton yarn without payment of duty.
4. Penalties imposed on various appellants for their roles in the evasion.

Detailed Analysis

1. Unaccounted Purchase and Suppression of Production
The Show Cause Notice (SCN) highlighted that M/s. Raja Rajeswari Spinning Mills (RRM) engaged in unaccounted purchase of cotton and suppression of actual production. Evidence from seized documents indicated discrepancies between the actual production and the accounted production. For instance, the Worker-wise production notebook and Yarn Realization Statements revealed that RRM suppressed actual production in their books. The adjudicating authority confirmed that RRM had indulged in unaccounted purchases and suppressed production, leading to evasion of duty.

2. Misrepresentation of Cone Yarn as Hank Yarn
The SCN and subsequent investigation revealed that RRM misrepresented cone yarn as hank yarn to evade payment of duty, as hank yarn attracted a nil rate of duty until February 2002. The investigation found that RRM showed bogus conversion of cone yarn into hank yarn, both within their factory and through job workers who lacked the infrastructure to perform such conversions. The adjudicating authority concluded that RRM accounted for cone yarn as hank yarn in their books to evade duty, supported by statements from various employees and job workers.

3. Clandestine Removal of Cotton Yarn Without Payment of Duty
The investigation unearthed that RRM cleared cotton yarn without proper invoices and without paying the required duty. The modus operandi involved clearing cone yarn in the guise of hank yarn through their agent, Shri. Palanisamy, and raising invoices in the names of fictitious entities. The adjudicating authority found that RRM, through this scheme, evaded a duty amount of ?49,24,207/-. The evidence included documents from RRM, statements from employees, and records from job workers, all corroborating the clandestine removal and duty evasion.

4. Penalties Imposed on Various Appellants
The original authority imposed penalties on various appellants, which were upheld by the Commissioner (Appeals):

- RRM (Appeal No. E/475/2006): Duty liability of ?49,24,207/- along with an equal penalty under Section 11AC of the Central Excise Act, 1944. The Tribunal found that RRM's contentions failed on all counts and upheld the duty demand and penalty.

- Shri M. Ramamoorthy (Appeal No. E/476/2006): Penalty of ?1,00,000/- under Rule 26 of the Central Excise Rules, 2002. Despite his denial, his statements and involvement in the administration and sales transactions of RRM were found to justify the penalty.

- Shri R. Palanisamy (Appeal No. E/450/2006): Penalty of ?50,000/- under Rule 26 of the Central Excise Rules, 2002. His statements and the incriminating documents recovered from his premises confirmed his role in the clandestine removal scheme.

- Shri P. Dhandapani (Appeal No. E/477/2006): Penalty of ?25,000/- under Rule 26 of the Central Excise Rules, 2002. His involvement in raising fictitious documents for job work, as revealed in his statements and the account note book seized from him, justified the penalty.

Conclusion
The Tribunal dismissed all four appeals, upholding the findings and penalties imposed by the original authority and the Commissioner (Appeals). The investigation and evidence presented established the appellants' involvement in unaccounted purchases, suppression of production, misrepresentation of cone yarn as hank yarn, and clandestine removal of cotton yarn without payment of duty.

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