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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 ..... demand of Rs. 6.73 crores was confirmed. A penalty of Rs. 1 crore was imposed on Punalur Paper Mills. The following penalties were also imposed: Mr. L.N. Dalmia Rs. 25,00,000/- Mr. Kunal Dalmia Rs. 3000/ Shri Baskaran Pillai Rs. 3000/ Shri S.K. Dalmia Rs. 2000/ Mr. G.C. Jain Rs. 2000/ Mr. J. Chandy Rs. 2000/ 3. The appellant filed an appeal before CEGAT, Madras on 11-1-1988. The CEGAT issued Order No. 519/89, dated 30-11-1989 on the stay petitions of the appellants. A pre-deposit of Rs. 54 lakhs was ordered on Punalur Paper Mills. A pre-deposit of Rs. 1 lakh was ordered on Mr. L.N. Damia. The balance of duties and penalties were waived. The appellants filed an application dated 6-7-1990 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 earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gathered from raw material accounts (statutory and private), weighbridge account, RT-5 returns etc. of M/s. Punalur Paper Mills Ltd. for five years. The raw materials indicated are waste paper, pulp, etta reeds, rags, pulp wood, cotton waste, gunny rags, jute waste, wood pulp. For each variety of waste paper in any particular year the quantity consumed has been given. In certain cases the weighbridge accounts have been taken, in other cases RT-5 returns have been relied on. In some cases they have taken actual consumption. In one case the source of information has been indicated as Show Cause Notice. The pulp register is also relied on. The Show Cause Notice has further proposed certain percentage 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated that we could not get the above documents. As per the above mentioned sources, the pulp yield is as follows: Raw Materials Pulp yield Etta reeds 22% Pulp Wood 28% Waste Paper 88% Rags/ Cottonwaste/ Gunny/ Jute 90% Pulp 100% 5.4 Paragraph 18 states that the appellant produced a quantity of 58860.375 MT of paper during the relevant period of 55 months by consuming various raw materials mentioned in the work sheets. There is reference to Annexure B-I which we had already mentioned. Paragraph 19 of the brief facts talks about the installed capacity of the machine, the expected production etc. and 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. Salahudee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve has been worked out to Rs. 4,84,46,601.74/-. (some correction is there) 6. The Commissioner's finding with regard to the unaccounted production and clearance are given in paras 48 to 51 of the impugned order from page 43 to page 55. The improper maintenance of raw material account has been stated by the Commissioner. The weighbridge, RT 5, actual consumption and show cause notice have been taken as the source for getting the quantity of various raw materials. It is stated that as far as the waste paper is concerned, the appellant had shown more receipt than the actual quantity receipt. We had already indicated 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in their statement that the average monthly production was 1000 MT and only 1/3 of the total production was accounted in the records of the factory". 8. The following arguments were advanced on behalf of the appellants: (a) The basis of calculation of duty demand as given in the annexure-A to the SCN [Paper Book Pg. 448] has not been provided to the appellant in spite of requesting for it [PB Pg. 370]. Unless the appellant is provided with category wise details of the quantities, values, rates of duty and the resultant duty alleged to have been short paid, the correctness of the demand cannot 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 record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) E.L.T. 97 (Tri.-Delhi)] (d) It is further emphasized in this connection the instances illustrating clandestine removal in the instant case have very little value or relevance since the demand has not at all been based on such instances but has been based on an entirely different premise of theoretical production. Hence, the question of refutal or otherwise of such allegation by the appellant does not have any significance in relation to sustainability of the demand worked out on the basis of theoretical production. (e) The formula adopted by the department in respect of yield 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t deal with any ratio that is to be adopted for conversion of a raw material or an intermediate product into a final product which is really the issue in the instant case. Further, in any case the appellant in its production process hardly used such ingredients, particularly China clay, since the category of paper mainly produced by the appellant hardly requires such ingredients. Further, in the appellant's production process, much of the ingredients get wasted during conversion of pulp into paper since the appellant does not have the facility of recycling such waste as is available 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly agreeing which signifies that there was no occasion for alleging clandestine removal during these years. Hence, without prejudice to any other contention, the so called theoretical production as adopted in the SCN and confirmed by the Collector cannot be made applicable in respect of 1981-82, 1982-83 and 1983-84. 8. We have carefully gone through the records available and the submissions. The Annexure A indicates only the abstract of calculation of alleged duty short paid. The said abstract does not contain the actual working out of the demand. It is not very clear 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are backed by concrete evidence, no demand can be made. In fact, the Central Excise Officers carried out investigations with various purchasers, however these investigations do not form the basis of demand at all. In the statements recorded by the Revenue it has been stated that the appellants accounted only for 1/3 of the actual production. On that basis, one cannot arrive at the actual production by multiplying the accounted production by 3. Even the Revenue has not adopted such a course. In other words, when a demand of nearly 7 crores is made, there should be clear evidences 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication 163/67 the paper supplied for text books is exempted. After investigation, it has been alleged that the appellant evaded duty on 725.379 MT of paper by claiming the above said exemptions fraudulently. Annexure-D indicates the quantity of paper and its value. The allegations are narrated in paragraphs 92 and para 100 of the Show Cause Notice. The Text Book Officer, Trivendrum was contacted. The details of purchase of paper from the appellant were collected. On scrutiny of the details with the concerned GP 1 issued by the appellant factory, it is alleged that no 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 actuall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the serial numbers and dates of seventeen gate passes cleared without GP1s. The quantity covered by the seventeen invoices is 415.078 MT. But these particulars are not available in the show cause notice. It is also not mentioned as to whom these quantities were cleared. Further, the Commissioner in para 52.02 (ii) has mentioned fifteen gate passes with serial numbers and date alleging that the party had cleared paper to Directorate of Public Instruction under cover of fictitious gate passes. 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 pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d such quantity. On the contrary, the Collector relied upon a letter from DPI showing quantities received by them during 1983-84 which was not relevant at all [PB PG. 233-235] 13. On a careful consideration of the matter, we find that the Show Cause Notice has not spelt out the details of the alleged clearance of 725.32 MT by irregular availment of Notification No. 163/67-C.E., dated 21-7-1967. In the findings, the collector had given instances of three types of irregular clearances. There 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 q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and their difference are given in Annexure-F to the show cause notice. Shri Ramachander Nair who is in charge of raw material has given a statement on 25-4-1986 stating that as per instructions of Suresh Kumar Dalmia and L.N. Dalmia, he used to type higher quantity on the blank copies of invoices. In para 116, it is mentioned that the appellant had actually consumed not more than 1913.747 MT of waste paper during 1983-84 as mentioned in Annexure-G. The production during 1983-84 is taken 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ochin and Shri K.J. John, Paper Export have opined that the old news paper cannot be used for the manufacture of any of the quality paper. The differential duty demanded for 1984-85 comes to Rs. 72,56,52.68. For the year 1985-86 up to November 1985 the differential duty is 21,66,760/-. 15. The appellant urged the following in respect of the allegations on the consumption of waste paper. 15.1 In respect of wastepaper consumption during 1983-84, the Collector was unjustified in rejecting 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er arithmetical correction could only be Rs. 59,34,629.55 whereas as per the show cause notice the duty demand comes to Rs. 97,06,084.93. The appellant submitted these points to the Commissioner in reply to the show cause notice. But there is no proper finding by the Commissioner. Therefore, regarding the differential duty for the year 1983-84, as the party has conceded the use of waste paper less than 50%, while upholding the demand of duty, we remand the matter to the Commissioner 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 sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the department has committed an error in the calculation of the percentage of waste paper for the year 1984-85. In such circumstances, the finding of the Commissioner that the appellant are not entitled for the benefit of the notification of the year 1984-85 is not correct. Hence, we have to set aside the demand for the year 1984-85. 18. As regards the year 1985-86, it is the appellants' contention that the percentage of waste paper consumption is 76.24%. There is no working 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e imposed on the appellant unit. 22. In E/57/1988 the appellant is Mr. Kunal Dalmia. A penalty of Rs. 3000/- has been imposed on him. The Commissioner in paragraph 56 of the Order-in-Original has given a finding that he is liable for penalty under Rule 52A(5), 210 & 226 of the Central Excise Rules. Shri Kunal Dalmia was the Director of the company and was appointed on 30th November 1985. The Commissioner 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, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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