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TMI Blog2008 (8) TMI 471X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by assessee - Held that merely on account of diversion of imported old newspaper, conclusion of less consumption of waste paper cannot be arrived – held that exemption is available – demand is not sustainable – Paper submitted as cleared under Notification No. 163/67 dated 21-6-1967 for text books to Director of Public Instructions – Investigations revealing that submitted amount not received by such Director – allegation that certain clearances with fictitious gate passes and certain clearances for which exact detailed not given – SCN not giving details of either fictitious gate passes/invoices – further, there was no detail as to customers to whom paper cleared – hence demand of nearly 18 lakh, is set aside – Though majority of demand is set aside, wrong availment of exemption for part of the period was upheld – penalty on director (who is involved actively in function of factory), is upheld - (a) We set aside the demand of Rs. 4,58,71,914/- on the alleged clandestine clearance. (b) We set aside the demand of Rs. 18,37,879/- on account of the alleged wrong availment of the Notification No. 163/67-C.E., dated 21-6-1967 for supply of paper for printing of news paper, text books, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -1990 for modification of the stay order. A petition dated 10-12-1990 was filed before CEGAT for reduction of the pre-deposit. The CEGAT in its order 187/1991 dated 1-4-1991 dismissed the above mentioned petitions. The appellants filed a writ petition before the Hon'ble High Court of Kerala. The Single Bench dismissed the writ petition. Appeal was filed before Division Bench. The Division Bench in its order dated 29-10-1991 remitted the matter to the CEGAT with certain directions. The earlier orders of CEGAT were quashed. A restoration application was filed before CEGAT on 10-2-1992. Further documents were filed on 1-6-1992. CEGAT restored the application in its order No. 427/1992 dated 2-6-1992 directing the appellants to file certain papers and fixed a hearing on 1-7-1992. The appellants' factory got into various problems. It was also closed having become sick. There were court proceedings in the Hon'ble High Court of Bombay. Attempts were made to revive the unit. The hearing before CEGAT did not take place for a long time. There was also jurisdictional change in the work of Tribunal leading to the establishment of CESTAT, Bangalore. The records were not available either with CES ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercentage for the yield of pulp from a particular variety of raw material. For e.g. it is proposed that the yield of pulp from waste paper would be 88%. From pulp it would be 100%. From rags it would be 90% and so on. Using the above percentages the quantity of pulp produced has been arrived at. Thus, for each year the Show Cause Notice has arrived at the quantity of pulp produced. It has further been assumed that the yield of paper would be 100/88 of the pulp used. In other words, the assumption is that every 88 units of pulp would produce 100 units of paper. Based on the above method it has been estimated that for the relevant period the appellants had manufactured 58,060.375 MT of paper. Annexure -C to the Show Cause Notice gives the quantity of paper manufactured as per the statutory accounts of the appellant factory and also the quantity manufactured as per the finished product memo, the difference is also given in that annexure. 5.2 A perusal of the Show Cause Notice indicates that the percentage yield of pulp from the various raw materials proposed in the Show Cause Notice is based on a letter dated 5-5-1986 of M/s. Hindustan Paper Corporation and also the statement of Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also the statements of various persons admitting evasion. In terms of para 20 it is stated that the RG-1 figures are only fabricated. It has also been stated that even the quantity shown in the finished product memo are less than the actuals. Statement of Shri P. Sivaraman Nair, Sales Officer has been discussed in para 23 (1) (2) (3) (4) and (5). The said statement indicates various irregularities. 5.5 Paragraph 34 refers to the search of the office of National Transporting Company, Punalur and certain documents were seized. Para 35 refers to the statement of M.K. Salahudeen of National Lorry Transport Company. He has indicated the lorries with Registration No. (8) which have been used to send consignments without gate pass. Paragraph 36 refers to the visit of the officers to Kerala Roadways Pvt. Ltd. and collection of particulars of dispatch papers of the Transporting Agency. Para 37 refers to the statement of M.K. Salahudeen wherein he admitted that he had sent out 130 lorries to Punalur Paper Mills from January 1985 to December 1985 without gate passess. But it is not understood whether this statement was followed up with further investigation to find out the details of the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated the procedure adopted in the Show Cause Notice to estimate the actual production and the quantity alleged to have been cleared clandestinely. The Commissioner has given a finding that the procedure adopted in the Show Cause Notice is absolutely correct. In para 48.2, the Commissioner has mentioned that the department has adopted a ratio of 100:88 or in other words the ratio of pulp to paper would be 88 to 100. The Commissioner in his finding justifies the adoption of the above ratio. He has also made the following observations: "I find that there cannot be a fixed ratio for converting pulp into paper. But it is a common knowledge that writing and printing paper contains about 8 to 12% of China Clay, 2% of Alum, 1% of Rosin, and 5 to 6% Ash. Similarly kraft paper contains 2% alum 0.5% to 1% rosin, 0.5% Glue and 6 to 6.5% moisture etc. To justify adoption of the ratio 100/88, the Commissioner has given the following argument which is reproduced herein below: As per ISI specification for kraft paper (IS:1397-1967) the requirement of PH percentage is 5.5 to 7.5 ash percentage 7.5, chlorides percentage 0.20, Sulphate 0.12, Fatty and/or similar acids 0.25 etc. As per ISI standar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be verified and hence the demand itself is not sustainable. (b) The demand has been computed on the basis of various figures taken from various seized documents which have been relied upon in the SCN [PB Pg. 385-94]. While filing the appeal the appellant had stated that in view of closure of the factory and its sealing by Receiver appointed by High Court with effect from 1-10-1987 [PB Pg. 171], the appellants could not access the relied upon documents and other relevant records which form the basis of demand and crave that they may be allowed to make further submission once those records are made available. The said records are still inaccessible till date due to which the appellant has requested the office of the Commissioner of the Central Excise, Thiruvananthpuram to provide copies of such documents. If the department are to substantiate its allegation, they need to prove such allegations by producing all relevant documents to the Hon'ble CESTAT. It is well settled that it is for the department to substantiate its allegation by providing necessary evidences. Reference may be made in this regard to the decisions in (a) K.P. Varghese v. ITO [(1981) 131 ITR 597 (S.C.), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld of raw materials for manufacture of pulp was based on erroneous assumptions and incorrect. Such formula was also admittedly based on yields achieved by other factories like HPC and West Coast Paper Mills [PB Pg. 406-407]. It is well settled that production ratios or parameters of a factory cannot be based on, or be compared to those of other factories. [Indian Metals Ferro Alloys Ltd. v. CCE, [1994 (69) E.L.T. 390 (Tri.)]. This is particularly so since the opinions of the two experts produced by the appellant categorically stated that in view of significant differences in quality of raw materials and production process, the yields of the appellant's factory cannot be compared with any other factory [PB Pg. 269-273, 306-19]. The collector was totally unjustified in rejecting the two expert opinions from Mr. Mittal and Mr. Gopalaswamy produced by the appellant in support of the percentage yields of Etta reeds and pulp wood in the case of Punalur and instead going by the views of Mr. K.J. John and HPC, without assigning any reason and without refuting to the technical observations made by the two experts [PB Pg. 223, 225]. This renders the order non speaking and void. (f) The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable in modern Mills. Hence, there is no basis to comment that the ratio of conversion of pulp to paper at 88:100 is realistic, factual and probable. (h) The Collector wrongly rejected the appellant's plea that consumption of raw materials cannot be based on records from divergent and unrelated sources, e.g., weighbridge register, RT-5 Returns etc. without assigning any cogent reason as to why the raw materials records of the appellant were considered to be improperly maintained or manipulated. [PB Pg. 221-22, 162-63] (i) The entire issue of clandestine removal hinges around the basic allegation that the raw materials records of the appellant was manipulated and incorrect [PB Pg. 221-22]. However, apart from being a general remark the fact has not been adequately substantiated. On the contrary, it is observed that the raw materials consumption figures as per the records of the appellant do not vary significantly as compared to other records like weigh bridge register etc. To give an example the total consumption of Etta reeds (a principal raw material) for the entire impugned period as per the SCN was 1,14,458.445 MT [PB Pg. 253-54] while the corresponding figure as per raw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to what rate of duty was taken while calculating the demand. The appellants have stated that they could not have access to all the relied on documents in the Show Cause Notice. We agree with the appellants that unless the relied on documents are supplied, they would not be in a position to effectively make their submissions. Even before this Bench all the relevant documents were not available. The Hon'ble Supreme Court in the case of K.P. Varghese, cited supra, has held that "it is well settled rule of law that the onus of establishing that the conditions of taxability are fulfilled is always on the revenue and the second condition being as much a condition of taxability as the first, the burden lies on the revenue to show that there is an understatement of the consideration and the second condition is fulfilled." In the Seal Narrow Tapes Pvt. Ltd. case, the Tribunal has held that the charge of clandestine removal is required to be proved by the Revenue by production of tangible and positive evidence. In the CCE Coimbatore v. Sasidhara Dyers case cited supra, it has been held that to confirm demands on clandestine removal, department should also show that the goods were produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidences and only such evidences can form a solid basis of demand. The formulas at best can be used only for a rough estimate and not for demanding duty. The Revenue has gone by figures supplied by Hindusthan Paper Mills. In the course of personal hearing, it was vehemently argued that the appellant paper mill was very old and the machinery is not at all modern. Therefore the figures of another unit like Hindusthan Paper Mills cannot form the basis for arriving at the clandestine production and removal. In the Indian Metals Ferro Alloys Ltd. v. CCE, cited supra it has been held that production ratios or parameters of a factory cannot be based on, or be compared to those of other factories. 9. The appellant had relied on the opinions of two experts S/Shri K.C. Mittal and Gopalaswamy. The revenue relied on the views of Shri K.J. John, HPC. In such circumstances, revenue should have conducted an experiment to arrive at the ratio of raw materials to pulp and also pulp to paper. If such an experiment had been undertaken, then the calculation and estimate of the department would have acquired more credibility. We feel that without proper basis, the collector had rejected the opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proper GP1s have been issued for the receipt to the text book officer and the quantity shown as issued to the text book officer were not received by them. It has been concluded that the quantity in excess of the quantity received by them was diverted and sold without payment of duty. The allegations in para 100 are as follows: "During the course of investigation, it was seen that the majority of the dispatches of paper shown as issued to the Director of Public Instructions, Trivandrum at 'NIL' rate of duty vide Notification No. 163/67 dated 21-6-1967 as amended by Notification No. 72/76 dated 16-3-76 were not actually received by them, (vide Annexure 'D')." It is also seen that the quantity shown as issued to the Director of Public Instructions, Trivandrum were cleared to some other customers, thereby evaded duty is worked out as under:- Quantity of Text book printing paper said to have been cleared to DPI, but diverted 566.893 MT -do- Pulp Board White 158.486 MT Total 725.379 MT B.E.D. Rs. 18,27,113.08 Cess Rs. 10.765.76 Total evasion Rs. 18,37,878.84 11. The Annexure D indicates that 725.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The quantity covered by the above gate passes was 151.815 MT. These particulars also do not form part of the show cause notice. The Collector had concluded that the above mentioned gate passes are fictitious because on comparing with the gate passes received by the Director of Public Instructions, Trivandrum with the triplicate copies of gate passes kept in the factory, it was found that they did not tally. He has further mentioned that the appellant had cleared 158.486 MT of pulp board for printing text books with gate passes, but under cover of fictitious invoices. But further details are not available either in the finding or in the show cause notice. Anyhow in view of the fictitious gate passes/invoices the Collector had come to the conclusion that in all 725.379 MT of paper had escaped payment of duty on account of wrongful availment of the said notification. With regard to the above allegation, the appellant stated that the following submissions were made before the Collector. 5.2 Re: Wrong availment of excise duty exemption allowed under Notification No. 163/67-C.E., dated 21-6-1967 for supply of paper for printing of news paper, text books etc. That copy of Text Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here are certain clearances with fictitious gate passes, then there are certain clearances for which the exact details are not given. In respect of two types of clearances, the gate pass number, date and also the invoice number and date are given. We have already mentioned that in para 52.2 the Collector gives the available details. The contention of the appellant is that they had cleared 308.582 Mt of paper to their Director of Public Instructions, but the Collector's finding is that the quantity of 725.37 MT is in addition to the quantity actually received by DPI. The show cause notice has not given any details of either fictitious gate passes or fictitious invoices. Annexure-D indicates only the quantity and value. There is a mention about parallel gate passes, but the details are not given. When the impugned order relies on certain evidences, which are not available in the show case notice, in our view, the impugned order will be beyond the scope of the show cause notice. There is no indication as to the details of the customers to whom the paper was cleared. In these circumstances, we are unable to sustain the demand of Rs. 18,37,879/- on account of the alleged irregular avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken as 8169.703 MT. In Annexure-H the consumption of waste paper and the production of final product are mentioned. The percentage arrived at is shown as 54.8%. Annexure-G gives the calculation of the actual percentage of waste paper used for the year 1983-84. The actual receipt of waste paper is 1913.747 MT as per the bills from various waste paper dealers. The production of paper during the same period is 8132.800 MT. The percentage works out only to 23.53%. However, if the consumption of waste paper is as shown in the raw material account maintained by the appellant the percentage will work out to 54.8%. The differential duty for the financial year 83-84 has been worked out in Annexure-I. The amount comes to Rs. 97,06,084.93. 14.2 During 1984-85 also the appellant claimed similar exemption under Notification No. 26/84, dated 1-3-1984 declaring finished product containing more than 50% pulp from materials other than bamboo, wood, reeds and rags and got them approved by the Assistant Collector of Central Excise Trivandrum. During this year, seven dealers supplied waste paper to the appellant. They are listed in para 118 to the show cause notice. Investigations revealed that duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g without reason the appellant's claim that the computation of differential duty on waste paper as per revised annexure-I submitted by them should be Rs. 54,19,608.79 [PB Pg. 296, 293] instead of Rs. 97,06,084.93 [PB Pg. 457] as computed in Annexure-I to the SCN. The Collector failed to appreciate that the original Annexure-I suffered from major arithmetical mistakes which have been illustrated in Exhibit-A enclosed. This Exhibit has been prepared without considering the mistakes in quantity and rate of duty (which have been already considered in revised Annexure-I) and only highlights the pure arithmetical mistakes that can be observed in Annexure-I to the SCN. It can be observed there from that in item Sl. No. 10 of the annexure, the differential duty has been stated at Rs. 41,58,825.57 whereas the correct figure should have been Rs. 4,15,825.57. Similarly, in item Sl. No. 23 and 24 the correct differential duty amount should be Rs. 1,17,922.99 and Rs. 26,505.31 instead of Rs. 1,46,390.40 and Rs. 26,493.31 respectively. Even if only these arithmetical corrections are carried out, the differential duty payable would work out to Rs. 59,34,629.55 instead of Rs. 97,06,084.93. The rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the proper calculation of the differential duty taking into account the arithmetical errors pointed out by the appellant. The re-computation should be done within a period of three months. 17. As regards the waste paper consumption for the year 1984-85, the Collector in paragraphs 53.4 onwards has referred to the import of old news paper by the appellant and its diversion to various dealers instead of using the same in their factory. There is actually no detailed finding regarding the percentage of waste paper consumed in the year 1985-86 and 1984-85. The Commissioner has commented "instead of producing any evidence to refute the allegations raised in the show cause notice, the party has merely shown the production of paper vis-à-vis the consumption of waste paper as per their own incorrect accounts and made a bald statement that there was no misuse in 1985-86 and 1984-85." This finding, in our view, is not satisfactory. When the show cause notice makes certain allegations and when the appellant has replied to the allegations raised on his accounts, the Commissioner ought to have clearly given a finding as to how the figures furnished by the appellant cannot be accepted. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of the percentage either in the show cause notice or in the finding of the Commissioner. In these circumstances, we have no other option, but to set aside the finding of the Commissioner when the appellant has shown a figure of 76.24%. The Commissioner ought to have given a reasoned finding as to the correct percentage. Merely on account of the fact that there was diversion of imported old news paper, one cannot come to the conclusion that the waste paper consumption is less than 50%. Hence, the Collector's order on the denial of the benefit of the exemption notification has no basis especially when the appellant had shown the percentage of waste paper consumption at 76.24%. Hence, we set aside the demand for the year 1985-86. 19. Seizure of 891.16 MT of paper: It has been mentioned that 891.166 MT of paper which was in excess of the RG1 quantity had been seized. The appellant in the reply to the show cause notice had stated that the seized paper did not reach the RG1 stage. These papers were in stock in the mills and the bank godown had not reached the RG1 stage. It has been stated that the RG1 point for paper is after the paper is cut and weighed. The appellant produced a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner has given a finding that in the statement dated 21-12-1985 Shri Kunal Dalmia admitted that he knew about the suppression of actual production, clearance of goods without payment of duty. It is also recorded on the basis of the statement of S/Shri P. Sivaraman Nair, M. Baskaran Pillai, Ramakrishnan that the appellant was actively involved in the functioning of the factory and used to give instructions. Even though we had set aside the major demands, the fact remains that there had been irregularities and in many cases, the misuse of exemption notification requiring use of waste paper of more than 50% has been wrongly availed in the year 1983-84. This wrong availment has been upheld. Considering the fact that Shri Kunal Dalmia was actively involved in the functioning of the unit, the imposition of penalty of Rs. 3000/- on him is not very harsh. Therefore, the same is upheld. Thus, appeal filed by Kunal Dalmia is rejected. Summing up: (a) We set aside the demand of Rs. 4,58,71,914/- on the alleged clandestine clearance. (b) We set aside the demand of Rs. 18,37,879/- on account of the alleged wrong availment of the Notification No. 163/67-C.E., dated 21-6-1967 for sup ..... X X X X Extracts X X X X X X X X Extracts X X X X
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