2017 (11) TMI 978 - AT - Central Excise

Clandestine removal - use of brand name of two firms - who is the actual manufacturer? - Held that - no attempt have been made to find out the actual manufacturer of the goods seized on the date of search from the residential promises. From the facts on record and the findings of the Adjudicating Authority, I find that he have taken contrary stands - under the facts and circumstances, the two firms namely Indian Chemicals Industries and M/s Rahat Industries are the actual manufacturers instead of the respondent individuals, who are admittedly partners either in both or one of these two firms - no reason have been assigned by the learned Joint Commissioner for not treating these two firms to be manufacturer of the goods found and seized on the date of search. The allegation of clandestine removal is not established which are simply based on print outs from floppy disks, without there any further enquiry with respect to the transactions and the persons involved in the transactions therein - appeal dismissed - decided against appellant-Revenue.

Issues Involved:
1. Legitimacy of joint and several demand and penalty.
2. Identification of the actual manufacturer.
3. Allegation of clandestine removal.
4. Validity of penalties imposed under Rule 209A of Central Excise Rules, 1944.
5. Evidence based on printouts from floppy disks and subsequent enquiry.

Issue-wise Detailed Analysis:

1. Legitimacy of Joint and Several Demand and Penalty:
The Revenue appealed against the Order-in-Appeal which held that the joint and several demand and penalty are not tenable. The Commissioner (Appeals) referenced the Tribunal's ruling in ENAR Cements Private Ltd v/s CCE - 2013 (292) ELT 245, emphasizing that the actual manufacturers were M/s Indian Chemicals, Naini, and M/s Rahat Industries, Naini. The Central Excise Duty, if evaded, should have been demanded from these firms instead of the respondents who were partners in these firms. The firms were separately registered and paid Central Excise Duty independently. The judgment concluded that demanding a combined amount and imposing a combined penalty on multiple persons is not sustainable under law, as an association of persons is also considered a legal person under Section 3(42) of the General Clauses Act, 1897.

2. Identification of the Actual Manufacturer:
The judgment clarified that the actual manufacturers were M/s Indian Chemicals and M/s Rahat Industries, as these firms were separately registered and paid duties independently. The goods were manufactured under the supervision of the respondents at their residential premises. The Tribunal held that the respondents were not the manufacturers as per Section 2(f) of the Central Excise Act, 1944, which defines a manufacturer. The goods were manufactured at the residential premises and there was no evidence indicating that the goods were manufactured under the directions of Rahat Industries or Indian Chemical Industries.

3. Allegation of Clandestine Removal:
The Commissioner (Appeals) found that the allegation of clandestine removal was not established because the printouts taken from the floppies, upon which the case was based, were not taken before the appellants (respondents). Additionally, the Department did not conduct any enquiry from the persons who were alleged to have purchased the clandestinely removed goods. The Tribunal referenced the ruling in Continental Cement Company v/s Union of India, 2014 309 ELT 411, which stated that clinching evidence is required for allegations of clandestine removal, including purchase of raw material, use of extra electricity, sale of final products, transportation, and flow back of funds. Mere statements without documentary evidence are insufficient.

4. Validity of Penalties Imposed Under Rule 209A of Central Excise Rules, 1944:
The Commissioner (Appeals) held that if the respondents were treated as manufacturers and a combined penalty was imposed, then an additional penalty under Rule 209A was not maintainable. Rule 209A provides for penalties for individuals involved in activities like transporting, removing, or selling excisable goods liable for confiscation. The Tribunal noted that the respondents were involved in illicit manufacture and clandestine removal of goods, thus liable for penalties both in their combined form and individual capacities.

5. Evidence Based on Printouts from Floppy Disks and Subsequent Enquiry:
The Tribunal found that the evidence based on printouts from floppy disks was insufficient as there was no further enquiry with respect to the transactions and the persons involved. The Commissioner (Appeals) rightly held that no clandestine removal was established based on the printouts alone. The Tribunal also noted that the Department did not allege clandestine removal on the part of the two firms, and the seized goods were released to them, indicating that they were treated as the manufacturers.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the Commissioner (Appeals)'s findings that the joint and several demand and penalties were not sustainable, the actual manufacturers were M/s Indian Chemicals and M/s Rahat Industries, and the allegation of clandestine removal was not established. The penalties under Rule 209A were also deemed not maintainable in the given context. The respondents were entitled to consequential benefits in accordance with the law.

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