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TMI Blog2015 (10) TMI 968X X X X Extracts X X X X X X X X Extracts X X X X ..... but from number of sources and at times through brokers. Suppliers of MS ingots as also brokers had confirmed the correctness of the information indicated in the diaries recovered from the appellant's office in Mumbai. It is also noted that majority of the supplier of MS ingots in turn have paid the duty for the clandestinely cleared MS ingots to the present appellant. In such a situation, in my considered view, as far as the purchase of clandestinely cleared MS ingots is concerned, there can be no doubt and is proved. - The diaries recovered from Shri Faruk Shaikh indicated the purchase of clandestinely cleared MS bars during the period 2005-06 and 2006-07 (upto December 2006 i.e. the time of search). It was found that the diary contained precise information about the date, quantity and rate etc. It was also found that the said diaries contained the information of both types of clearances i.e .with bill and without bills. The Revenue has demanded the duty on the goods cleared without bill. In his statements during investigation, Shri Faruk Shaikh has admitted the details. It is also important to note that Shri Faruk Shaikh along with the diaries was apprehended during the search a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his decision on the case of Surjit Singh Chhabra (1996 (10) TMI 106 - SUPREME COURT OF INDIA). I do not think that there has been any violation of the principles of natural justice in the present facts and circumstances of the case. - Decided against assessee. - Appeal No. E/483, 484 and 485/2010-Mum - - - Dated:- 11-9-2015 - Ashok Jindal, Member (J), P S Pruthi, Member (T) And P K Jain, Member (Technical) - Third Member on Reference For the Petitioner : Shri D B Shroff Shri Ashok Kumar Singh, Advs For the Respondent : Shri S Dewalwar, Addl Commissioner (A.R.) ORDER Per Ashok Jindal The main appellant namely M/s Shri Salasar Ispat Pvt. Ltd. has filed appeal against the impugned order confirming the demand of duty along with interest and imposition of penalty on account of clandestine removal of TMT/CTD bars. The co-appellants namely Shri Pravesh Gautam and Shri Pravin Gautam who are directors of the appellant Company are also in appeals against the impugned order imposing penalty under Rule 26 of the Central Excise Rules, 2002. 2. Brief facts of the case are that the main appellant is engaged in manufacture of TMT/CTD bars. On 18.12.2006, the DGCEI c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nesh Parvati. It is also contended that the Directors of the appellant company have retracted their statements recorded during the course of investigation stating that their statements were recorded under duress. It is further submitted that cross-examination of various persons was not granted who had given statements. Out of the numerous brokers and ingots manufacturers whose statements were recorded, the department offered for cross-examination only 1 ingot manufacturer and 3 brokers. On the basis of the statement of M.S. Ingots supplier, it is alleged that the appellant had purchased 7474.305 MT of Ingots and out of which 47.775 M.Ts of ingots were received in the factory of the appellant which were used in the manufacture of TMT/CTD bars but no documentary evidence was produced that the appellant had purchased the above material in their factory. It was contended 7426.530 MT of ingots to manufacture 7426.530 metric tons of TMT/CTD bars is only on presumption basis. It was contended by the appellant before the adjudicating authority in reply to the show-cause notice that the installed capacity of the appellants factory is only 4441 MT per year and as per the records during the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in to those records belongs to Gautam Enterprises and Shiv Ganesh Parvati which are the trading firms. He further submits that during the course of cross-examination, the supplier of MS Ingots has denied any clandestine removal. Moreover, the statements of 3 brokers relied by the revenue, recorded during the cross examination, have also stated that they have never purchased goods from the appellants without Central Excise invoices and their statements were recorded during investigation under duress. In these circumstances, the incriminating statement recorded during the course of investigation of these persons cannot be relied upon. Moreover, the appellants required for cross examination 31 persons whose statements have been relied upon in the show-cause notice were not afforded the cross examination of these persons which is in gross violation of Section 9(d) of the Central Excise Act, 1944. Therefore, impugned order is required to be set aside on this sole ground. It is further submitted that the impugned order is in gross violation of principles of natural justice therefore, the same is required to be set aside as per the decision in the case of Parmarth Iron Pvt. Ltd. v. CCE - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no records pertaining to the alleged clandestine removal of the goods by the appellants were available and the allegations were solely made on the basis of calculation done by the department on the basis of statements made by the director and the brokers and manufacturers of ingots who were not produced for cross-examination. During the course of cross-examination as sought by the appellant and the director of the appellant, has alleged that their statements were recorded under duress. No enquiry was made with any transporter and no octroi receipt was produced. As during the course of search in the factory, no incriminating documents were found and the stock of raw materials tallied with the Books of Accounts, therefore, the allegation cannot be made against the appellant for clandestine removal of the goods. He further submitted that the Balance Sheets of M/s Gautam Enterprises and M/s. Shiv Ganesh Parvati show that those firms were engaged in the activity of trading of ingots and sale of bars manufactured out of such ingots. To support this contention, the appellant has produced a copy of Income Tax Returns and final accounts which shows that they were engaged in the activity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion capacity depends on number of hours and raw material used during the course of manufacturing of the final product. He further submitted that details of the transporter, vehicle No. etc were not necessary to be ascertained as the evidence for establishing the charge and proving the facto of clandestine removal is available in the records. In these circumstances, he prayed that the impugned order is required to be upheld. 6. After hearing both the sides, we find that allegation of clandestine removal of the goods by the department is on the basis of private records entered in the Diary No. 23, 24 and 25 which were recovered from the premises of M/s Gautam Enterprises. We have seen that 75% of the entries mentioned in those records do not found to be related to the appellants by the lower authority. As all relied upon documents are to be described entirely but in this case half of the documents have been relied upon and half of the documents were denied. More over the claim of the appellant is that the hand writing in some of the records was not of the appellants. The said fact was not examined during the course of adjudication by the adjudicating authority. It is also found t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he factory of the appellants which would have required more than 1000 trucks within a period of six months. It is an admitted fact that at the time of visit of the factory of the appellants, no incriminating documents were found. Moreover, stocks of raw material were tallied with the records maintained by the appellants. Therefore, to prove contrary, Revenue is required some supportive evidence to establish the case of clandestine removal which the revenue failed to do so. 6.4 We further find that during the course of adjudication, the appellant sought cross examination of about 31 persons whose statements were relied upon by the Revenue. Out of those persons, only 4 persons were allowed and all the 4 persons who appeared for cross-examination have stated that they have dealt with the appellants and all the dealings were done with the appellants under the cover of Central Excise invoices. No transaction was dealt with the appellants without cover of Central Excise invoices. Therefore, the statements of these 4 persons recorded in the investigation cannot be relied upon without supporting evidence. 6.5 We further find that the appellants have relied upon the decision of Basude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y can always challenge that in a particular case invocation of such a provision was not warranted. 6.6 Further in the case of J K Cigarette Ltd. - 2009 (242) ELT 189 (Del.) the issue of constitutional validity of Section 9D of Central Excise Act, 1944 came up before the Hon'ble High Court wherein the Hon'ble High Court has held as here-in-as under:- 32 . Thus, we summarize our conclusions as under :- (i) We are of the opinion that the provisions of Section 9-D (2) of the Act are not unconstitutional or ultra vires; (ii) while invoking Section 9-D of the Act, the concerned authority is to form an opinion on the basis of material on record that a particular ground, as stipulated in the said Section, exists and is established; (iii) such an opinion has to be supported with reasons; (iv) before arriving at this opinion, the authority would give opportunity to the affected party to make submissions on the available material on the basis of which the authority intends to arrive at the said opinion; and (v) it is always open to the affected party to challenge the invocation of provisions of Section 9-D of the Act in a particular case by f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without payment of duty by the appellants from their factory during the relevant period. In this case also the production capacity of the appellant was fixed in the year 1998 and thereafter it is the claim of the appellant that there is no increased in production capacity fixed by the revenue and as this claim has not been examined during the course of investigation as well as in adjudication, we find it is a vital evidence for the fate of issue. Moreover, the electricity consumption was also not checked. Therefore, the ratio laid down by this Tribunal in the case of Galaxy Indo Fab Ltd. (supra) squarely applicable to the facts of this case and we hold that it will be absurd to believe the claim of the department about the possibility of huge production and clearance thereof without payment of duty by the appellants from their factory during the relevant period. The installed capacity of the appellants factory is only 4441 MT per year and the statutory records show that the appellant had manufactured/cleared 2600 MT during the impugned order. It is alleged that apart from 2600 M.T. the appellant has manufactured and cleared 7697.10 M.T clandestinely. As discussed above, such huge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estigations need to be considered. First, they are in the form of confessional statements of the Directors of the appellant Company, brokers, manufacturers of M.S. Ingots and customers. The 2 nd evidence relates to the production records. The 3 rd evidence is the cross-examination of various people involved in the complete transactions from purchase of M.S. Ingots to the sale of TMT bars. The 4 th piece of evidence is the various records seized particularly the Records at Sl. No. 23, 24 and 26 recovered during the search of the office premises of M/s. Salasar Ispat Pvt. Ltd. (SSIPL in short). 12.1 I note that the main concerned persons of SSIPL namely the Directors Shri Parvesh Gautam and Shri Pravin Gautam have in their statements dated 18.12.2006, 02.01.07, 05.01.07, 06.01.07 and 20.12.06 accepted the correctness of the transactions reflected in their private records. The brokers through whom the M.S. Ingots were procured viz. Shri Kamal Singh Dassani vide his statement recorded on 09.01.2007, Shri Vijay Kumar Jindal on 09.01.07, 15.01.07 and 17.01.07 admitted the clandestine deals. Shri Jindal identified the entries in Record Nos. 23 and 24 relating to clandestine sale of M.S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the matter it was obviously not possible to provide such documents and conduct enquiries in relation to the transport. It is true that in cases of clandestine production and removal, assessees will try not to leave any evidence which can trap them. On the other hand, paras 2.1 and 2.1.1 of Annexure I to the show-cause notice show how methodically the Revenue has been able to decipher the records. The sample pages of Note Books seized from Shri Umesh Modi which figure at Sl.No. 1,2,3,4,5,6 of the annexure to Panchanama dated 18.12.06 indicate how intelligently the officers were able to decipher the records. The sample pages as shown in paras 2.1 and 2.1.1 of the show-cause notice indicate the date, name of the customer, description of goods/quantity supplied, value of goods and name of supplier. They are shown below. 12.3 Similarly the records seized from the possession of Shri Faruk Shaikh, the broker under panchnama dated 18.12.2006 are referred in para 2.2 of the show-cause notice. This para gives a sample of page No. 129 of Collection Book for 2006-07 recovered from the possession of Shri Faruk Shaikh where entries have been deciphered to indicate the name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capacity of production. I note that the capacity fixation of 4444 M.T. in the year 1999 was based under the Compounded Levy Scheme on various important factors such as distance of pinions, rpm, reduction ratio of gear box, pully systems of high speed or low speed and number of utilized hours. Having declared these parameters, the duty payable by an assessee would be fixed and constant. It is a historical fact that the scheme did not work and was withdrawn later by the Government, precisely because the actual capacity could be tweaked by changing the above parameters but the duty payable would remain the same. In other words, the capacity practically could be much more than declared and verified capacity. In any case, the plea of the Counsel that the capacity was not changed after 1999 cannot be accepted because it was never verified subsequently. Capacity determined in 1999 has no relevance in 2006. The change in number of utilized hours itself could have increased the capacity very significantly. That the figure of capacity fixed in 1999 cannot be accepted for the period in dispute is evident from the large variation in production shown in the declared records i.e. ER-1 returns d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow massive variation which is inexplicable for a unit (rolling mill) whose consumption per MT is expected to be in the range of 100 units only. Therefore, in my view no sanctity is to be attached to the declared capacity of 1999. 14. The next piece of evidence which has been discussed in the cross examination. The contention of the appellant is that out of 31 persons, cross-examination was conducted in only 5 cases. It is seen that Shri Ashok Kumar Singh at the time of personal hearing held on 01.07.2009 before the Commissioner, C.Ex, Cus., Nashik, showed his willingness to cross-examine 5 persons, namely (i) Shri Pradip Sargoi (ii) Vijaykumar Mittal (iii) M/s Bhavshakti Steel Mines Pvt. Ltd. (iv) Shri Farukh Shaikh and (v) Arvind Shah. Accordingy, letter dt. 06.07.2009 with a copy to Shri Singh was issued to the persons mentioned at Sr. No. (i) to (iv) above for appearing on 29.7.2009 at 11:00 hrs for cross-examination. The cross-examination of Shri Farukh Shaikh was held on 29.7.2009 and that of Shri Mithunlal Gupta, Director fo M/s Bhavshakti Steel Mines Pvt. Ltd. was held on 04.8.2009. At the time of cross-examination on 04.8.2009, Shri Singh again requested for cross-exam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h were suspect and in respect of which corroborative confessions were made by persons involved in the transactions needed to be considered. This shows that Revenue was just and fair. Also, I find that the Directors Pravesh Gautam and Pravin Gautam had in their statements confessed to the contents of the diaries Shri Pravesh Gautam deposed that he was one of the Directors of M/s SSIPL and other directors were Shri Pravin Gautam (his brother) and Mrs. Murli Gautam; that he was also proprietor of one trading firm namely M/s Shri Shiv Ganesh Parvati Steel; that his father Shri Roshanlal Gautam was the proprietor o M/s. Gautam Enterprises, which was engaged in the trading of Iron and Steel products; that he admitted that M/s. SSIPL used to purchase the M.s Ingots either through brokers or directly from various manufacturers without cover of Central Excise invoice and without payment of Central Excise duty, that the record no. 23 24 seized from his office premises at Mumbai contained the information relating to transactions of M.S. Ingots/TMT Bars and the record No. 26 contained the information relating to receipts and payments against the sale and purchase, either by way of cash or by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s used. It is not always not possible to provide all the evidence in cases of clandestine activity which can, at best, be established only by circumstantial evidence as held by the Tribunal in the case of Gulabchand Silk Mills Pvt. Ltd. vs. CCE Hyderabad II - 2005 (184) ELT 263 (Tri-Bang). It was held by the Tribunal that in any type of clandestine activity, the persons try their best not to leave any evidence. We cannot expect persons indulging in clandestine clearance to faithfully put the details of all such clearances in some register and append their signature. This is never done. Hence, clandestine activity at best can be established only by circumstantial evidence. It would be too much to expect that the investigating Officers should establish by what transport on which dates and where the supposed non-duty paid goods were sent and who received them, when and how they were distributed and all the financial dealings etc. We are very sure that humanly it would be impossible to establish all the links of clandestine activity without any break. In this case, the statements or the admissions are supported by the recovery of non-duty paid goods as well as incriminating documents. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditable evidence to explain away the various entries in the diaries and to prove that these entries only related to trading. They have not come up with the invoices of manufacturers or the Books of Accounts of purchaser to conclusively support their case that the entries did not relate to clandestine procurement of inputs and removal of finished goods by the appellants. In view of the above, demand of service tax (sic) is upheld. 17. As the activities of clandestine procurement of inputs, clandestine product and clearance of finished goods stand established, interest under Section 11AB and penalties under Section 11AC on M/s. Salasar Ispat Pvt. Ltd. and the penalties under Rule 26 of the Central Excise Rules, 2002 on Shri Pravesh Gautam and Shri Pravin Gautam are upheld. 18. In the above terms, the impugned order is upheld and appeals are dismissed. Difference of Opinion In view of the difference of opinion between Member (Judicial) and Member (Technical), the matter may be placed before the President to nominate 3 rd Member to resolve the difference of opinion on the following points:- 1. In the facts and circumstances of the case whether Member (Judicial) is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case whether Member (Judicial) is correct in holding that the appellant is not having the production capacity to manufacture 10,000 tons of TMT/CTD bars during the impugned period. Therefore, on the basis of records seized during the course of investigation are for the trading activity of the appellant and no duty is payable on the trading activity Or Member (Technical) is correct in holding that the capacity was never determined during the period in question and duty is to be demanded from the appellant for clandestine clearances. 20.1 The reasons in support of the above contention by Member (Judicial) are recorded in para 6.8 and 6.9 of his order while that of Member (Technical) in para 13 of the order. The basic contention of the appellant is that the production capacity of their unit was determined in1999 and the same has not been changed after that and as per that production capacity, they could not have produced the assumed production as per the demand notice. On the other hand, learned AR's contention is that production capacity determined in 1999 was for purpose of charging the excise duty under compounded levy scheme and has nothing to do with actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in worst circumstances. In some cases the capacity may be determined with reference to certain parameters of the original manufacture. For example, in the case of induction furnace capacity of the crucible which determines the quantity of goods produced in one round which can be fairly accurate. Even in case of furnace, time for one round can be area of subjectivity. In case of rolling mill, there is no such standardization or parameter. It is for this reason that the appellant has not produced any catalogue etc. of the original rolling mill manufacturer so as to support their contention. It is also true that the rules framed in 1998 was based upon certain parameters as elaborated by Member (Technical) in his order. The criteria was also amended as it was found that the original criteria adopted was leading to incorrect figures of production. In fact, later on, the whole scheme was abandoned as the scheme did not work properly. I also note that Member (Technical) in para 3 has tabulated the production shown by the appellant themselves which indicates that the production from month to month varies in the ratio of 1:3. In the facts and circumstances, in my considered view, no creden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m, father of the directors of the appellant company. The other firm is Shiv Parvati Enterprises which is again a partnership company and is looked after by Shri Parvesh Gautam who is director in the main appellant company. A lot is being made by the appellant that the records were common for the three entities i.e. the two firms and the present appellant and the fact that the statement of Shri R.L. Gautam was not recorded by the Revenue. I find that there is no dispute that these three crucial documents i.e. Record Nos. 23, 24 26 were recovered from the office which was also used by the present appellant and Shri Pravesh Gautam is one of the directors. Shri Pravesh Gautam was shown all the diaries. He in his statement has explained the contents of the diary and how it was being maintained. It is not as if that the entries which are being claimed for Shri Salasar Ispat i.e. the present appellant, were any time being claimed by Shri Pravesh Gautam or any one else as that belonged to Gautam Enterprises or Shiv Parvati Enterprises. Even before investigating officer or adjudicating authority or before this Tribunal the appellants have never indicated any of the entries that Revenue is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in my considered view, as far as the purchase of clandestinely cleared MS ingots is concerned, there can be no doubt and is proved. 21.3 As far as the second aspect i.e. the sale of bars is concerned, I observe that the demands have been made based upon the assumed production from MS ingots clandestinely cleared by original manufacturer and received by the appellant. Demand is not entirely based upon the clandestinely cleared MS bars as found in the Record Nos. 23, 24 26 or the records recovered from Shri Faruk Shaikh, one of the brokers based in Nashik. It is also noted though Shri Pravesh Gautam in his statement has admitted that he has used the said MS ingots (para 21.2 above) in the production of MS bars which were clandestinely cleared but the same is not supported by evidence similar to that of MS ingots. It is not as if the diaries recovered at serial No. 23, 24 and 26 did not provide any details about the sale of clandestinely cleared MS bars. In fact such details about the money received from various buyers of MS bars was also found in these diaries. However, perhaps Revenue was not able to correlate for the total quantity of MS bars with MS ingots and they adopted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k Shaikh which I have already covered earlier. In respect of the remaining 14 buyers though in the statement they have admitted purchasing the clandestinely cleared MS bars from the appellant, however, it is found that in some cases it is only the bald statement of the buyers. In other cases it is not only the statement but there are entries in record No. 23, 24 or 26. For example, in respect of Amar Hardware Stores, Shri Bhupendra Amarchand Shah, proprietor, in his statement dated 16.5.2008 has not only admitted purchase of about 400 MT of MS bars but the same was also supported by various entries in record No. 23 at page 11, 24, 43, 46, 66, 75, 83, 94, 99, 143 and 162. Similarly, there were entries in record No. 24 at page 12 and 34. In my considered view, demand corresponding to 400 MT of MS bars need to be upheld/confirmed. Similarly, in respect of Mangal Steels, Mumbai, the admission is for a very specific quantity of 21 MT, which again appears in record No. 23 at page 6. Demand for this quantity is also required to be confirmed. Another buyer Rushin H. Modi, Mumbai, has also indicated that he has purchased 200 MT of MS bars and the said statement is supported by entries in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stainable. In view of the above analysis, in my considered view, the evidences collected by the investigating team during the course of investigation are sufficient to the extent described above to prove the charge of clandestine removal. However, demand for the remaining quantity is not sustainable for want of sufficient evidence. I agree with Member (Technical) that the evidences collected by the investigation team during the course of investigation are sufficient to prove the charge of clandestine removal. However, my agreement is not for the whole demand or assumed production but only to the extent indicated above. The remaining demand is not sustainable for want of evidence. I disagree with Member (Judicial) that evidences on the basis of which demand has been confirmed against the appellant are not sufficient to hold that appellant has removed the goods clandestinely. 22. The third point referred to me is as under:- 3. Whether the Member (Judicial) is correct after relying on the case law in the case of Basudev Garg( supra) that the cross-examination was not granted to the persons whose statements have been relied on to hold that the charge of clandestine removal is i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rresponding entries in record No. 23, 24 and 26 and as mentioned with reference to point No. 2 of the difference of opinion, the demand in respect of the same cannot be upheld. Keeping in view the overall factual matrix, I agree with Member (Technical) that adequate opportunity was given and further cross-examination was not requested especially on the last date of hearing by the advocate and also relying his decision on the case of Surjit Singh Chhabra (supra). I do not think that there has been any violation of the principles of natural justice in the present facts and circumstances of the case. I, therefore, agree with Member (Technical) on point No. 3. 23. (1) In view of the preceding discussion, as far as the first point referred to me is concerned, I agree with Member (Technical) that the capacity was never determined during the period in question and duty is to be demanded from the appellant for clandestine clearances. (2) As far as second point referred to me is concerned, I agree with Member (Technical) that the evidences collected by the investigating team during the course of investigation are sufficient to prove the charge of clandestine removal. However, the clan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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