2019 (11) TMI 121 - AT - Central Excise

Valuation/undervaluation - Plywood, Veneer etc. manufacture and cleared by the appellants - confirmation of demand only on the basis of records recovered from the Dealers of the Appellant in Bangalore viz., The Veneers and Space System Agencies - genesis of the case is in the investigation conducted by the officers of DGCEI against these companies subsequent to such searches conducted at various premises on 30/03/2005. The Department presents evidence in the form of diaries, registers, note books, private records/slips recovered from the premises of M/s. The Veneers Bangalore and M/s. Space Systems and Agencies both belonging to Shri G. Suryanarayana and the statement of several other persons recorded - Preponderance of probability. HELD THAT - The evidence made available by the Department in the form of record registers, diaries which are explained by the person from who possession the same have been recovered. Ongoing through the various records and the statements of the different persons, though retracted at a later stage, we find that the fact that there is under-valuation in the trade of the impugned products - We find that on the one hand, the Department tries to put down the pieces of evidence as an impregnable concrete defence to substantiate the allegation of under-valuation, defence attempts to wash it of saying it s a third-party evidence and as such, it cannot be relied upon and on the one hand, Sh. T.P. Haneefa, looking after the affairs of the company has denied any knowledge of payments over and above and on the other hand, the so-called confirmatory statements were retracted during the cross-examination - We find that DGCEI has made a series of cases against manufacturers of Veneers and Plywood across South India. Some cases have travelled up to the Tribunal on adjudication. Understandably, we are dealing with a case of tax-evasion and not a criminal case wherein the degree and standard of evidence is much higher and more precise. As far as the tax-evasion cases are concerned, we find that the principle of pre-ponderance of probability has precedence over proof beyond doubt. It is widely accepted that 'Preponderance of probability' is met when a proposition is more likely to be understood by people of reasonable intelligence to be true than to be not true. Effectively, the standard is satisfied if at least there is 50% or more chance that the given proposition is believable by a reasonably prudent to be true. Acceptance of the principle of preponderance cannot be a Licence to demand duty on the basis of assumptions/presumptions/ vague imputations. Therefore, while accepting the fact that there was under-valuation resorted to by these companies, we find that the methodology adopted to quantify the duty evaded should be sustainable on the evidence available and quantum thereof, needs to be arrived in a logical; rational and legally appropriate manner. The quantification of the duty liability requires to be arrived strictly on transaction to transaction basis. The show cause notice proposes to recover additional duties on the basis of a percentage of under valuation arrived at. Learned Commissioner has correctly denied an approach of quantifying the duty liability on an approximation basis as is proposed in annexure-D to the SCN in respect of Prime Veneers and Others.

Issues Involved:
1. Allegation of undervaluation by the appellants.
2. Evidence of additional consideration paid in cash.
3. Reliance on third-party records and statements.
4. Methodology for quantifying duty evasion.
5. Liability of successor companies.
6. Clandestine removal of goods.
7. Imposition of penalties.

Detailed Analysis:

1. Allegation of Undervaluation by the Appellants:
The Department alleged that the appellants, including M/s Prime Veneers Limited, M/s Wood Veneers, M/s Perfect Boards & Doors, and M/s Wood Boards, engaged in undervaluation of their products. The investigation by DGCEI revealed that the appellants received additional consideration in cash over and above the invoice value, leading to a significant undervaluation of their products.

2. Evidence of Additional Consideration Paid in Cash:
The Department based its allegations on records recovered from dealers in Bengaluru, namely 'The Veneers' and 'Space System and Agencies,' belonging to Shri G. Suryanarayana. Statements from various dealers indicated that they paid additional consideration in cash. However, the appellants contested these allegations, arguing that there was no documentary evidence to support the charge of undervaluation.

3. Reliance on Third-Party Records and Statements:
The appellants argued that the case was built on third-party records and statements, which were not corroborated by independent evidence. They relied on the decision of the Hon'ble Delhi High Court in the case of Vishnu & Co. Pvt. Ltd., which held that allegations of clandestine removal could not be sustained solely on third-party records. The Department, however, maintained that the statements and records recovered were sufficient to establish the undervaluation.

4. Methodology for Quantifying Duty Evasion:
The Department calculated the duty evasion based on a percentage of undervaluation derived from the records of one dealer. The Commissioner, however, rejected this methodology, stating that it was not dependable and did not reflect the correct and actual value. The Tribunal agreed with the Commissioner, emphasizing that the duty liability should be quantified on a transaction-to-transaction basis, as per the principles laid down in the case of CERA Boards.

5. Liability of Successor Companies:
The Commissioner held that the successor companies, such as Prime Veneers Limited, could not be held liable for the duty evasion committed by their predecessors before the date of acquisition. The Tribunal upheld this view, stating that Section 11 of the Central Excise Act, 1944, only allowed for the recovery of confirmed arrears from the successor and did not permit issuing a show cause notice to the successor for the predecessor's lapses.

6. Clandestine Removal of Goods:
In the case of Prime Veneers Ltd., it was alleged that goods were cleared under the invoices of M/s Bhadriya Industries. The Commissioner confirmed the duty based on statements from various individuals. However, the Tribunal found that there was insufficient evidence to establish clandestine removal and remanded the matter back to the Commissioner for re-evaluation.

7. Imposition of Penalties:
The Commissioner imposed nominal penalties of ?10,000 on various individuals involved. The Tribunal did not interfere with these penalties but directed that penalties under Section 11AC should be equivalent to the re-quantified duty. Penalties under Rule 25/26 were set aside as they were not warranted.

Conclusion:
The Tribunal remanded the appeals of the main appellants for re-quantification of duty based on transaction-to-transaction analysis. The appeals filed by individuals, including Sh. T.P. Haneefa and Sh. G. Suryanarayanan, were rejected. The Department's appeals seeking confirmation of the entire duty proposed in the show cause notices were also rejected. The Tribunal emphasized the need for a logical, rational, and legally appropriate methodology for quantifying duty evasion and upheld the principle that successor companies could not be held liable for the predecessor's lapses unless there were confirmed arrears at the time of acquisition.

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