2019 (11) TMI 175 - AT - Central Excise

Valuation - under-valuation - veneers/block board/plywood manufactured and cleared by M/s. Kammadi Plywoods and Block Boards ie. the appellants - allegation was that the Appellant was indulging in undervaluation of goods; were showing a lesser price/value than the actual selling price of the final product and collecting the excess sale price in cash and were procuring raw materials and paid cash without accounting the same in their books of account and showing wrong description to suppress the value of such raw materials - preponderance of probability. HELD THAT - We find that Department alleges that purchase of phenol is not found mentioned under Glue register. We also find that Shri Ramesh Shetty vide affidavit dated 27.09.2006 has retracted his statement dated 26.09.2006. However, he did not choose to appear before the Deputy Director of DGCEI to put forth evidence in support of his claim. We also find that Shri Hajee Ibrahim, who has accepted the statement of Shri. Ramesh Shetty and also the fact of existence of undervaluation in the trade of plywood and veneers, has not retracted his statement. The records maintained by Shri Ramesh Shetty in the factory of the appellants cannot be brushed aside as nobody would note down such entries just for fun. Ongoing through the entirety of the circumstances of the case, we find that the Department has undertaken a wide investigation and has established the fact that the appellants were indulging in undervaluation. We find that as this is a case of tax evasion and not a criminal offence to be proved beyond reasonable doubt. We hold that the investigation could establish to set the principles of preponderance of probability in motion for a proper appreciation of the case. Tax evasion - HELD 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 License to demand duty on the basis of assumptions/presumptions/ vague imputations. Inability to investigate and establish evasion cannot be covered up by mere citing of the principle. A fine line of distinction requires to be drawn. 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, need to be arrived in a logical, rational and legally appropriate manner. We find that in the instant case the Department has some sort of corroborative evidence in the form of slips recovered from Shri. Ramesh Shetty, Manager, which is supported by the statements of Shri Ramesh Shetty and Shri Hajee Ibrahim. Retraction of statements - HELD THAT - The allegation of duty evasion can be held to be sustainable only where corroborative evidence other than the statements recorded. In the instant case, the statements are retracted though in a belated manner. Only statements which are supported by corroborative evidence are not vitiated by retractions. Therefore, in the instant case the allegation of duty evasion is sustainable only for the year 2004-05, as discussed in the show-cause notice. The issue needs to go back to the Adjudicating Authority, who shall re-quantify the duty evaded, in view of our findings above, after going through the available records to arrive at the value in respect of each of the transactions after giving an opportunity to the appellants of being heard - the penalty imposable under Section 11AC of the Central Excise Act shall be equal to such duty re-quantified. Appeal allowed by way of remand.

Issues Involved:
1. Allegation of undervaluation of goods.
2. Basis of demand and quantification of duty.
3. Applicability of the principle of preponderance of probability.
4. Consideration of corroborative evidence.
5. Invocation of extended period of limitation.
6. Imposition of penalty on the Managing Partner.

Detailed Analysis:

1. Allegation of Undervaluation of Goods:
The Department alleged that the Appellant was indulging in undervaluation of goods by showing lesser price/value than the actual selling price and collecting the excess sale price in cash. This was based on four slips of paper and statements from four customers. The Department concluded that the Appellant recorded only about 43.24% of the value and suppressed the balance of 56.76%.

2. Basis of Demand and Quantification of Duty:
The demand was based on averages and conjectures, using a thumb rule formula. The Appellant argued that the demand was not tenable as it was based on assumptions and presumptions without examining actual facts. The Department, however, relied on the principle of preponderance of probability and various statements and records to establish the undervaluation.

3. Applicability of the Principle of Preponderance of Probability:
The Department argued that in cases of tax evasion, the principle of preponderance of probability is applicable rather than proof beyond reasonable doubt. This principle is met if there is a greater than 50% chance that the proposition is true. The Tribunal accepted this principle, stating that the investigation established the fact of undervaluation based on the preponderance of probability.

4. Consideration of Corroborative Evidence:
The Appellant produced certificates from 24 dealers and suppliers stating that they paid consideration only by cheque or DD and never paid any cash. The Department, however, provided evidence from four dealers who accounted for a major portion of the sales and confirmed that part of the actual sale consideration was paid in cash. The Tribunal found that the Department's investigation was extensive and corroborated the allegation of undervaluation.

5. Invocation of Extended Period of Limitation:
The Appellant argued that the entire adjudication demand was barred by limitation as they were registered and regularly filed periodical returns. The Tribunal did not specifically address this issue in the judgment, focusing instead on the evidence of undervaluation.

6. Imposition of Penalty on the Managing Partner:
The Revenue appealed for the imposition of a personal penalty on the Managing Partner. The Tribunal found that the Commissioner had given reasoning for not imposing such a penalty and upheld the decision, rejecting the Revenue's appeal.

Conclusion:
The Tribunal upheld the allegation of undervaluation based on the principle of preponderance of probability and corroborative evidence. However, it found that the methodology for quantifying the duty evaded was not sustainable on the evidence available. The case was remanded to the Adjudicating Authority for re-quantification of the duty based on transaction value for each removal of goods. The appeal by the Revenue for imposing a penalty on the Managing Partner was rejected.

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