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TMI Blog2017 (11) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... se notice. The department was having lenient view towards M/s.Shanu which shows that the whole of the investigation was conducted by the Revenue was to drag M/s.Vira in litigation to allege clandestine removal of the goods. There is positive observations of the adjudicating authority in favour of the appellants have not been controverted by the Revenue have not been challenged the same in the appeal before us. But the appellant have heavily relied on the observations made by the adjudicating authority in the impugned order and controvered the observations of the adjudicating authority in para 3.16 in the impugned order that the appellants were given many opportunities but never explained the sources of large amount of cash that was recovered in the house. The explanation is coming at a late stage, therefore the same is afterthought - the adjudicating authority has made observations on the basis of documentary evidence, the documentary evidence cannot be denied by merely saying that it is an afterthought. Therefore, the said finding of the adjudicating authority is not tenable. Reliance on private/internal records maintained for internal control cannot be the sole basis for demand. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acked and affixed Vira brand. Shanu is also procuring (approx) 1% of its turnover of auto parts from M/s.Vira and 99% of auto parts procured from the open market and are sold under the brand name Vira which means that few clearance made by Shanu which were manufactured by M/s.Veera. 3. On 30.6.2005, the official of DGCEI visited the factory premises of M/s.Vira, residence of the proprietor, premises of various dealers across the country dealing with goods supplied by M/s.Vira and Shanu and few of the transporters transporting goods supplied by M/s.Vira and Shanu. They also visited and searched another premises in Ludhiana occupied by Shri Darshan Lal and his sons Shri Sanjay Sharma and Shri Naveen Sharma which is registered premises of M/s. Lakhnapal Auto under the proprietorship of Sh. Naveen Sharma, engaged in the trading of auto parts, similar to what are manufactured by the Appellant or traded by Shanu. The documents were recovered from Naveen Sharma in form of loose papers, kachaparchis and note pads. During the search Sh. Naveen Sharma categorically mentioned that said documents are prepared and maintained by his brother Sh. Sanjay Sharma, who is employee of Shanu. The docum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not propose any clubbing of clearances of M/s.Vira and Shanu. (iv) Not even a single live consignment was seized from any transporter or any dealer across the country under invoices related to M/s.Vira. All such goods were under the invoice of Shanu. (v) All the dealers have retracted from their statements either through affidavit or during cross-examination. (vi) Technical reports by two different authorities were not questioned by the department and stand affirmed. (vi) Cash of ₹ 65.70 Lakh recovered from Mr. Rajneesh Jain was duly justified and same was duly acknowledged by the Adjudicating Authority. (vii) No Investigation or show causes notice to allegedly key people/entities namely, Sh. Naveen Sharma proprietor of M/s. Lakhanpal Auto, transporter and dealers of the goods. 6. He further submitted that the allegation of clandestine removal is not proved. He also submitted that an unaccounted amount of ₹ 62.40 lakh in cash was recovered from the residential premises of Sh. Ravinder Jain, which was alleged to be sale proceeds of clandestinely manufactured and sold auto parts. To counter this allegation, Appellant has explained cash of ₹ 47.40 Lakh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... private records maintained by Sh. Sanjay Sharma wee supported with corroborative evidence. Therefore, it is a settle proposition of law that private records of third party cannot be relied to confirm the demand on the charge of clandestine manufacture in view of the Tribunal in the case of Bearing Manufacturing Company- 2000(123) ELT 1148 wherein it has been held that charges of clandestine removal based only private records of an employee made for his own purpose are not sustainable unless corroborative evidences are found. He also relied on the decision of the Tribunal in the case of Savitri Concast Vs. CCE, Jaipur, 2015 (329) ELTT2 13(Tri. DEL), Someshwara Cement & Chem Ltd. Vs. CCE, Hyderabad, 2005(191) E.L.T.1062 and Andhra Cement Ltd. Vs. CCE, Guntur, 2005(191) ELT 1046. 10. He further submits that the department has made no efforts to test and confirm the electricity consumption of M/s.Vira. On the contrary, M/s.Vira has produced two technical test reports to support their case, which were not doubted by the department. He also submitted that the Commissioner has rightly addressed the issues and held that lack of evidence and incomplete chain, the demand is not sustainable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om sources other than M/s.Vira. As Shanu is legally using the Vira brand, it cannot be alleged that all the goods under brand of Vira one manufactured by M/s.Vira. Therefore, the Revenue s appeal is not sustainable. 14. He further submits that no specific role of Co-noticees has been explained in the show cause notice or in the impugned order, therefore, the penalty is not sustainable. Moreover, as the demand is not sustainable, the penalties are not imposable. 15. In these terms, he prayed the impugned order quo demanding duty on account of clandestine removal on the basis of resumed records having reference VI is to be set aside. Consequently, the penalties are also set aside. He also prayed that the appeal filed by the Revenue is to be dismissed. 16. On the other hand, learned AR submits that the adjudicating authority has examined the issue and on the basis of evidence on record confirmed the demand with reference of VI and without assigning the reason dropped the part of the demand as proposed in the show cause notice. As no specific reason assigned by the adjudicating authority , therefore, the impugned order quo dropping duty demand is to be set aside and proposal made in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se notice has alleged that a sum of ₹ 62.40 lacs unaccounted cash (sale proceeds of clandestinely manufactured and sold auto parts) was recovered during search operations at the residential premises of Sh Ravinder Jain and the same was subsequently deposited as Central Excise Liability by the Noticee vide TR-6 challan No. 1/2005-06 dated 5.7.2005. In this regard the Noticee has pleaded that out of the said amount, ₹ 47.40 lacs belonged to M/s Dr R. C. Jain Charitable Trust with its office at 164-G, Bhai Randhir Singh, Nagar, Ludhiana. Late Dr R.C. Jain was father of Shri Ravinder Jain. The trust is duly registered under the Indian Trust Act, 1862 and Income Tax Act, 1961. The said cash ₹ 47.40 lacs had been collected through donation to undertake construction of a school. The cash was duly reflected in the income & expenditure account/ balance sheet of the trust for the year 2005-06. The Noticee produced copies of registration under the Indian Trust Act, 1862 (dated 26.02.2002) and Income Tax Act, 1961, cash-book, income & expenditure account and balance sheet for the year 2005-06. I observe that the registrations had been recorded much before the date of search a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty on auto parts has become operative for the first time vide Notification No. 12/2006 w.e.f. 29.5.2006. As per these facts, I observe that M/s Shanu Auto Traders were using brand VIRA as per provisions of the prevalent Central Excise law and this during period prior to 29.5.2006 did not invite levy of Central Excise duty. 3.18 The next point to be examined is the provisions of Central Excise law applicable and authority to collect government duties. Collection of Central Excise duties is a tax levied on production and clearance. It implies that some product specified in the First Schedule of the CETA must be manufactured for enabling the tax enforcing authorities to levy and collect Central Excise duties. The basic five parameters of production are being examined & considered in succeeding paras in context of provisions of Central Excise Law.: 3.19 PROCUREMENT OF RAW MATERIAL : As per SCN, the basis of evidence of purchase of raw material has been taken as Statement of Sh Ravinder Jain that, the unaccounted goods were being manufactured out of un accounted quantity of raw materials, the purchase of which was being made in cash from the consideration received from their dealer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge of unaccounted purchase of raw materials. Sh.Sanjay Sharma, hwo claimed to have managed all the transactions of M/s.Vira Industries, did not threw any light on the operations connected with procurement of unaccounted raw material or the sources of supply of unaccounted raw materials. From the proceedings, it appears that Mr.Sanjay Sharma was fully co-operating with the investigating officer, then it is strange that the investigating officer never questioned him about the source of raw materials which VIRA used in the manufacture of unaccounted finished goods. If Mr.Sanjay Sharma was closely associated with the functioning of VIRA then he must have been aware of this vital aspect of manufacturing process. It also transpires that Mr.Sanjay Sharma was also willing to reveal all the details which investigating officers questioned him. But investigating officer did not make any efforts to unravel truth about procurement of raw materials. Not even a single source of inputs has been identified. For manufacturing such a large quantity of goods, there has to be a multiple number of units/persons brokers, transporters who might have been involved in supplying goods. The show cause notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show cause notice. I observe that excess consumption of raw material or other inputs is not substantiated. 3.22 PACKING MATERIAL: The show cause notice has not alleged excess clandestine purchase of packing material by the Noticee No.1. It is admitted that the auto parts cannot be sold all over India without proper packing. The packing has to be quite elaborate. First of all the auto parts are wrapped and packed in corrugated boxes. Such boxes are further packed in wooden boxes for safety of auto parts. The Noticee No 1 has worked out details of volume of packing as per Cubic meters (CBM). A working of total CBM of corrugated boxes used for packing of number of auto parts sold by M/s.Vira Industries and total CBM of wooden cases and cartons purchased has been made. The Noticee has contended that they did not have enough packing material to clear the volume of sales alleged in the show cause notice. The volume of production/clearances alleged to have been done by the Noticee No.1 required a large number of packets. The exact number of persons specifically deployed in packing section are not available in the show cause notice. The show cause notice refers to the statement dated 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record of overtime payments, 58 employees handling 105 machines in the unit of Noticee No.1 appears quite reasonable. Out of these some were looking after office work, packing operations, loading/unloading, electrical operations and outside work of the factory. The Noticee No.1 has contended that they are registered with PF and ESI authorities and regularly filed returns of employees. There are period checks exercised by those departments. As per their records, they had not paid any overtime in their unit. The loose papers recovered from the residence of Sh.Sanjay Sharma show overtime payments. The notice No.1 has not entered those overtime payments in their records. It shows that workers were asked to do overtime and get additional payments. Asking the existing workers to put in more work hours is the easiest method of getting extra work done from them. I observe that there was definitely some practice of overtime payments in M/s.Vira Industries. 3.24 AVAILABILITY OF PRODUCITON CAPACITY: The next step of the manufacturing process is the availability of manufacturing capacity available with the manufacturing unit and its actual utilizaiton. With reference to the statement dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s electricity on regular basis, as all the machines are dependent upon electricity motors. The electricity consumption by the Noticee No.1 could have been an important indication of scale of production. I observe that this aspect has not been touched upon in the show cause notice except for the 7 month s electricity expenses details of ₹ 14,08,158/-. The evidence regarding capacity of generator installed in the factory premises of M/s.Vira Industries and the quantity of diesel consumed during the relevant period is not available, except for the seven months, in the show cause notice. The show cause notice has not even discussed the electricity load available and used by the unit. 3.27 The second report has been prepared by Dr.R.K.Garg (Professor) and Sh.Ajay Gupta (Lecturer-SS) both of Dr.B.R.Ambedhkar Institute of Technology, Jalandhar. For preparing their report they studied the time required for manufacturing each and every part and compare the same with actual machine hours available with M/s.Vira Industries during the relevant time. As per report, the Noticee s unit is ajob-shop company and requires frequent changes of the setups and utilizes approx. 85% of the machin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unit assessed through some technical agency/prsn. It is a matter of common knowledge that production process of auto parts normally consists of more than one operation. In some cases the number of operations can stretch to handling at all the machines functioning in the unit. In the absence of recovery of production records, the actual assessed production capacity could have thrown authentic light on the extent upto which that unit could have produced the auto parts. 21. We find that there is positive observations of the adjudicating authority in favour of the appellants have not been controverted by the Revenue have not been challenged the same in the appeal before us. But the appellant have heavily relied on the observations made by the adjudicating authority in the impugned order and controvered the observations of the adjudicating authority in para 3.16 in the impugned order that the appellants were given many opportunities but never explained the sources of large amount of cash that was recovered in the house. The explanation is coming at a late stage, therefore the same is afterthought. 22. We find that the adjudicating authority has made observations on the basis of docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finished goods (not inferential or assumed) from the factory without payment of duty; (c) discovery of such finished goods outside the factory; (d) instances of sale of such goods to identified parties; (e) receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons authorized by him; (f) use of electricity far in excess of what is necessary for manufacture of goods otherwise manufactured and validly cleared on payment of duty; (g) statements of buyers with some details of illicit manufacture and clearance; (h) proof of actual transportation of goods, cleared without payment of duty; (i) links between the documents recovered during the search and activities being carried on in the factory of production; etc. Needless to say, a precise enumeration of all situations in which one could hold with activity that there have been clandestine manufacture and clearances, would not be possible. As held by this Tribunal and Superior Courts, it would depend on the facts of each case. What one could, however, say with some certainty is that inferences cannot be drawn about such clearances merely on the basis of note books or diaries priva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antities of final products the assessee require all the raw materials, there should be some evidence of huge quantities of raw materials being purchased. The demand was set aside in that case by this Tribunal. 26. Although the adjudicating authority has touched certain points for consideration of charge of clandestine removal and held that the Revenue has failed to prove the sources of procurement of raw materials, consumption of raw material, consumption of consumables, production capacity and transportation of the goods, etc. Therefore, the charge of clandestine removal of the goods is not sustainable against M/s.Vira and co-noticees. 27. We also find from the above investigation, the following questions remained unanswered: (a) Why the statement of Shri Naveen Sharma was not recorded when the document recovered from his custody (b) Why Shri Naveen Sharma was not made party to the show cause notice (c) Why Shanu was not made party to the show cause notice when there was conrresonding invoice of the seized goods (d) Why the transporters were not made party to the show cause notice (e) Why the dealers were not made party to the show cause notice 28. As the investi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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