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TMI Blog2019 (11) TMI 900X X X X Extracts X X X X X X X X Extracts X X X X ..... or on short payment of duty, during the period 1st April, 2010 to 15th July, 2012, be not demanded and recovered, under Section 11A(4) of the Central Excise Act, 1944 (hereinafter referred to as "the Act"), (ii) interest, on the said amount, be not demanded from them under Section 11AA of the Act, (iii) penalty be not imposed on them under Section 11AC of the Act and Rule 25 of the Central Excise Rules, 2002 (hereinafter referred to as "the Rules"), (iv) redemption fine, in lieu of confiscation of the excisable goods, clandestinely removed by Respondents No.1 and 2, during the period 1st April, 2010 to 15th July, 2012, valued at Rs. 107,56,15,784/-, be not imposed under Section 34 of the Act, as the goods themselves were not available for confiscation, (v) the amount of Rs. 70,00,000/-, deposited by Respondents No.1 and 2 be not appropriated towards the aforesaid duty liability, (vi) duty of Rs. 10,32,559/- be not demanded, and recovered, from Respondents No.1 and 2 , under Section 11A of the Act, on the goods found short in the factory premises of Respondent No.1, which appeared to have been clandestinely removed, (vii) duty of Rs. 26,86,992/-, on goods allegedly clan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubject to compliance with the above directions, for payment, the Settlement Commission has, vide the aforesaid Final Order dated 2nd September, 2014, granted immunities, to the respondents (i.e. the applicants before the Settlement Commission), under Section 32K(1) of the Act which reads thus: "32K. Power of Settlement Commission to grant immunity from prosecution and penalty. - (1) The Settlement Commission may, if it is satisfied that any person who made the application for settlement under section 32E has co-operated with the Settlement Commission in the proceedings before it and has made a full and true disclosure of his duty liability, grant to such person, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act and also either wholly or in part from the imposition of any penalty and fine under this Act, with respect to the case covered by the settlement : Provided that no such immunity shall be granted by the Settlement Commission in cases where the proceedings for the prosecution for any such offence have been instituted before the date of receipt of the application under section 32E." (Emphasis supplied) 5. Ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not registered with the Central Excise authorities. (vi) Flush doors, and plywood, which were unaccounted, were found in a godown, located at 548/4, Swarn Park, Udyog Nagar, Mundka, Delhi, of Respondents No.1 and 2. Mr. Amit Mittal, caretaker of the said godown, clarified that no stock register, or purchase bills, relating to the said flush doors and plywood, was available. (vii) Scrutiny of documents revealed that Respondents No.1 and 2 were raising invoices, against goods cleared and sold by them, of lesser amounts, and receiving the differential payment in cash. These documents were recovered, inter alia, from the office at A-90, 3rd floor, Saraswathi Vihar. Para 3 of the Show Cause Notice reproduces a sample of such evidence, in the form of a computer printout. Mr. Govind Pareek, in his statement dated 19th July, 2012, deposed that the entries in the computers were being made using FCA software. He decoded the aforesaid sample computer printout as depicting the total amount received against sale of finished products, as well as the amount received in cash. He further clarified that the amounts written in the said computerised records were required to be multiplied by 100 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on "per square metre" basis, instead of "per square foot". Effectively, the rate entered in the excise invoice was far lower than the actual rate of the goods, resulting in huge undervaluation. The actual amount received, against each consignment, he deposed, was recorded in the sales register and the sales summary. Surendra Pareek further elaborated that the cash books, which were written in hand, contained the dates and amount of cash received and the dates and amount of cash delivered. Even while doing so, the entries were not made in full, but after dividing the actual amounts by 100. He also identified the cash books resumed from the Paharganj office on 19th July, 2012, as the cash books which they used to maintain. He also deposed that the entries, in the said cash books were made either by Shyam Joshi or by him. By way of example, he explained the entries made in one of the pages of one of the cash books resumed from the Paharganj office on 19th July, 2012. He also pointed out that handwritten entries, representing hawala payments, were also contained in the said cash books, only for record purposes. (x) Proceeding from the statements of Shyam Joshi and Surendra Pareek, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not entered in the RG-1 register, and that no production slip, in respect thereof, had been prepared. (xv) The statement of Amar Aggarwal, Senior Accountant of Respondent No.1, was also recorded on 3rd October, 2012, wherein he acknowledged that he was managing all accounts of Respondents No.1 and 2. He admitted that the challans, contained in File 131, resumed from A-90, 3rd Floor, Saraswati Vihar, related to sales effected from the factories of Respondents No.1 and 2 . He acknowledged that production, in these factories, was carried out, without bifurcating the production, factory-wise, in the records, and that no separate accounts and stocks were kept for the said factories. He agreed with the statement, dated 19th July, 2012, of Manish Kedia, and admitted that the office at A-90, 3rd Floor, Saraswati Vihar, was a secret office of Respondents No.1 and 2. He further admitted that the full value of the goods was not reflected in the invoices issued by Respondents No.1 and 2, and that the differential amount was collected, from the customers, in cash. He explained, in detail, the manner in which this subterfuge was effected, by deposing that (a) before clearance from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than the actual value of the goods, and that the differential amount was paid, by him, in cash, to Surendra Pareek or Shyam Joshi. He stated that no record, of such payment in cash, was retained by him. He also agreed with the statement dated 19th July, 2012, of Manish Kedia, wherein undervaluation of the clearances, on invoices and bills, and receipt of the differential amount in cash was admitted. He further confirmed that goods were also received, by him, from Respondents No.1 and 2, under challans which did not reflect the value thereof. On his attention specifically being invited to the documents, at pages 220 to 223 in File No. 5, resumed from his premises on 11th September, 2012, he confirmed that these documents covered the same consignment, to which the challans, at page no. 9 in file No. 131 resumed from A-90, 3rd Floor, Saraswati Vihar, Pitampura, pertained. The details of the cash amount, to be paid to Respondents No.1 and 2, he deposed, were contained in computer printouts, which were brought to their office by Shyam Joshi or Surendra Pareek and, after checking the figures, they used to make the payment in cash. He further confirmed that, in the said computer printouts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re admitted. He, too, confirmed that the cash was collected by Surendra Pareek and Shyam Joshi. (xviii) Investigation was also conducted at the end of raw material suppliers. (a) Sonu Arora, of M/s Shree Rattan Timbers, who supplied core (a major raw material for manufacture of plywood), in his statement, dated 10th December, 2012, deposed that the bills, raised by him, on Respondents No.1 and 2, reflected a price lower than the actual value of the goods, and that, the differential amount was paid, to them, by Respondents No.1 and 2, in cash, of which they did not keep any account. (b) Deepak Rawat, proprietor of M/s ISS Corporation, who supplied chemicals to Respondents No.1 and 2, similarly admitted, in his statement dated 10th December, 2012, that he was forced to supply chemicals to Manish Kedia either without invoices or under invoices which reflected lower values. He further confirmed that differential amount was paid, to him, by Manish Kedia and his employees, in cash. (xix) Manish Kedia, on being shown the aforesaid statements of the buyers, and the suppliers, of Respondents No.1 and 2, agreed with the contents thereof. (xix) The computer printouts, taken on the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... personnel. The clearances made without bills were identified by tallying the party wise clearances shown in the computerized sheets and central excise invoices accounted for in the record." (xxiii) Tallying of the record revealed that, during the relevant period, finished goods valued at over Rs. 12 crores were clandestinely removed and sold, by Respondents No.1 and 2 , to M/s Sunmica House, Paharganj, though summons, issued to the said buyer, did not meet with any response. (xxiv) Raghunath Prasad Kedia, father of Manish Kedia and a Director in Respondents No.1 and 2, also admitted, in his statement dated 3rd January, 2013, the fact of evasion of duty, by Respondents No.1 and 2 , under the directions of Manish Kedia, with his full knowledge. He confirmed that he was aware about the evasion of duty by these companies. (xxv) In view of the above evidence, para 23 of the Show Cause Notice recorded as under: "23. In view of the above it appears that M/s ADPL, M/s ADDP, Shri Manish Kedia and Shri Raghunath Prasad Kedia, had maintained a systematic system of account in coding/ decoding language, collection of amount with respect to the finished goods cleared without payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. As has already been noted hereinabove, the respondents chose, instead of submitting themselves to adjudication, to move the Settlement Commission, for settlement of the case arising from issuance of the aforesaid Show Cause Notice dated 16th January, 2013. 9. Out of the total duty demand of Rs. 11,80,12,105/-, along with interest, (being the sum total of the demands of Rs. 11,43,09,554/-, Rs. 10,32,559/- and Rs. 26,86,992/-) as demanded and proposed in the Show Cause Notice, the settlement application admitted duty liability of Rs. 1,56,11,930/- and interest of Rs. 44,17,956/-. 10. The grounds, on which the petitioner sought to limit its admission of duty liability of Rs. 1,56,11,930/-, as against the liability of Rs. 11,80,12,105/-, proposed in the Show Cause Notice, are contained in paras 18 to 21 of the settlement application, which are reproduced as under: "18. The applicant most humbly submits that duty demand has been wrongly demanded on the basis of RUD-10. The figures in the said RUD do not correctly reflect the actual transactions of the applicant as they are highly inflated. This fact comes out of the following submissions:- (a) The Revenue also lay hand 3 noteb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued by the applicant. (f) During the searches at the premises of the buyers know where the department noticed anomaly in the stocks as their stock was matching with the records and this fact mentioned in their respective panchnamas." (Emphasis supplied) 11. Consequent on receipt of notice from the Settlement Commission, regarding filing of the aforesaid settlement application by the respondents, the petitioners submitted detailed para-wise comments, before the Settlement Commission. 12. Apart from reiterating the various assertions contained in the Show Cause Notice, the parawise comments, furnished by the petitioners, to the Settlement Commission, contained, inter alia, the following assertions and submissions: (i) The submission, of Respondents No.1 and 2, that they were also trading in plywood and veneer, was not acceptable, as this stand had been taken only first time, in the settlement application, and apart from the fact that it was not supported by any documents evidencing purchase or sales in the course of trading, was also contrary to the statements of Shyam Joshi, Govind Pareek and Surendra Pareek, none of whom ever stated that Respondents No.1 and 2 were engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90, 3rd Floor, Saraswati Vihar. Reliance was also placed, in this context, on the statements of Manish Kedia, which already stand paraphrased hereinabove, and which were never retracted. (v) For the same reason, the assertion, in the settlement application, that duty liability was required to be worked out on the basis of the figures contained in the note books recovered under panchnama dated 19th July, 2012, drawn at the Paharganj office of Respondents No.1 and 2, was also denied. (vi) The settlement application also sought to contend that, with the equipment found in their premises, it was impossible for Respondents No.1 and 2 to manufacture the quantity of finished goods which, according to the Show Cause Notice, had been clandestinely manufactured and removed by them. The para-wise comments refuted this assertion, by pointing out that the position regarding number of machines was as recorded at the time of search of the premises of Respondents No.1 and 2 , whereas duty liability related to the period April, 2010 to July, 2012. (vii) Ultimately, admission of duty liability, in the settlement application, was limited to the figures contained in diary numbers, 6, 7, 8 and 47 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue had "produced no evidence for clandestine removal". No evidence was "cited to establish purchase of raw material or consumption of electricity or other parameters to establish that finished goods of a quantity to match the value of Rs. 146 crores had in fact been manufactured" (ii) The data contained in the computer printouts was not corroborated by any corresponding investigation. Investigation was primarily conducted in respect of the diary entries. The nature of investigation conducted, to establish authenticity of the data contained in the computer printouts was not forthcoming in the Show Cause Notice. (iii) The data contained in the computer printouts was, in fact, vastly exaggerated. (iv) The details contained in the computer printouts had not been corroborated or confirmed by buyer of the finished goods or by suppliers of the raw material. (v) The statement, dated 2nd January, 2013, of Manish Kedia, did not accede to computation of demand by subtracting, from the value indicated in the computer printouts, the values declared by Respondents No.1 and 2 in their ER-1 returns. (vi) In these circumstances, the duty liability had been worked out, on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e alleged excess clearance took place. However, this claim of the Revenue is not supported by any evidence nor is it backed by higher quantities of inputs purchased clandestinely or higher quantities of unrecorded sales. The Bench observed that Revenue has, in their latest comments sent on 29.08.2014 submitted that the computer printout is a sales account whereas the diaries are a record of cash received from such buyers. Only in case of M/s. Sunmica is there a large volume of transaction for which bills were not found. However, M/s. Sunmica did not join the investigation and consequently this could not be verified. In any case, it is the only instance cited in the SCN. 24.4. A charge of clandestine removal needs to be backed up with evidence of acquisition of input and machinery as well as of clandestine manufacture and removal of final products. Without such confirmation, it is not possible to fasten duty liability of Rs. 11,43,09,554/- on the applicant." Rival submissions advanced before this Court 19. We have heard Mr. Satish Aggarwala, learned senior Standing Counsel appearing for the petitioners and Mr. Sudhir Malhotra, learned counsel appearing for the respondents, at le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld have fallen for consideration by an adjudicating authority - had the matter proceeded to adjudication - are readily appreciated. We are required to assess whether these issues could have been settled, by the Settlement Commission, in the manner in which the impugned Final Order, dated 2nd September, 2014, proceeds to settle them, and on the terms recorded therein. 25. As would be apparent from the discussion that follows hereinafter, our view is that the answer to both these queries - though they overlap - is in the negative. Nature of jurisdiction exercised by the Settlement Commission 26. The ambit of jurisdiction of the Settlement Commission has been examined, judicially, on several locations, and the issue may justifiably be said to be no longer res integra. 27. The provisions, relating to settlement of cases, are contained in Chapter V of the Act, comprising Sections 31 to 32P. Clause (c) of Section 31 defines "case" as meaning "any proceeding under this Act or any other Act for the levy, assessment and collection of excise duty, pending before an adjudicating authority on the date on which an application under sub-section (1) of Section 32E is made". Sections 32 to 32D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , to make or cause to be made such further enquiry or investigation and furnish a report within a period of ninety days of the receipt of the communication from the Settlement Commission, on the matters covered by the application and any other matter relating to the case: Provided that where the Commissioner (Investigation) does not furnish the report within the aforesaid period, the Settlement Commission shall proceed to pass an order under sub-section (5) without such report. (5) After examination of the records of the report of the Principal Commissioner of Central Excise or Commissioner of Central Excise received under sub-section (3), and the report, if any, of the Commissioner (Investigation) of the Settlement Commission under sub-section (4), and after giving an opportunity to the applicant and to the Principal Commissioner of Central Excise or Commissioner of Central Excise having jurisdiction to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, passed such order as it t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icant, the Settlement Commission, shall, within a period of fourteen days from the date of the notice, by an order, allow the application to be proceeded with, or reject the application as the case may be, and the proceedings before the Settlement Commission shall abate on the date of rejection : Provided that where no notice has been issued or no order has been passed within the aforesaid period by the Settlement Commission, the application shall be deemed to have been allowed to be proceeded with." 30. Section 32I, which deals with the powers and procedure of the Settlement Commission, provides that, on an application being allowed, by the Settlement Commission, to be proceeded with, under Section 32F, the Settlement Commission would, during the pendency of the application, have, subject to the provisions of Section 32F(4), exclusive jurisdiction to exercise powers and perform functions of any Central Excise Officer, under the Act, in relation to the case. Subsections (1) and (2) of Section 32-I may be reproduced thus: "32-I. Powers and procedure of Settlement Commission. - (1) In addition to the powers conferred on the Settlement Commission under this Chapter, it shall have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to give finality to the order of the Settlement, Commission as an order under the provision of the Act and similar to what an Adjudicating officer does. In fact, the expression "exclusive jurisdiction to exercise the power and perform the function of any officer of customs" is basically to look at the evidence and call for such evidence in order to determine whether the Settlement Commission should or should not accept the additional custom duty which the petitioner says is acceptable to him. The aforesaid expression, therefore, appearing in Section 127F(2) has to be read in the context, of the scope and the object of the Settlement Commission being to settle the matter by accepting the duty amount in and around the figure which the petitioner feels acceptable to him................" (Italics and underscoring supplied) The above extracted passages, therefore, clarify that the conferment, on the Settlement Commission, of the "powers of a Customs officer", or the "powers of the Central Excise Officer" would not, ipso facto, result in the Settlement Commission metamorphosing into an adjudicating authority. The "powers of a Central Excise Officer", or the "powers of the Customs offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation" which shows that highly complex and contentious questions of fact cannot even be admitted for processing. 50. It was thus held that if the case involves highly complex and disputed questions of fact for which detailed inquiry is necessary, the Settlement Commission should refer the matter back to the adjudicating officer to be taken up from the stage from which the matter was before such officer just before the making of the settlement application." (Underscoring supplied) 33. Dharampal Satyapal 2013 (298) ELT 653 (Del) has been followed, more recently, by this Court in Shree Flavours LLP v. Government of India 2018 (359) ELT 145. 34. We are aware that the specific statutory stipulation, in Section 32F(1) of the Act, providing for "complexity of the investigation", as a specific ground for the Settlement Commission to decide or to reject the application filed before it, does not find place in Section 32F, as substituted by Section 122 of the Finance Act, 2007. This, however, does not, in our view, change the legal position, and amounts, basically, to deletion of a statutory superfluity. Complex issues of fact, or cases in which determination of the liability of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... options. They could either subject themselves to adjudication, or could approach the Settlement Commission. There is no gainsaying the position, which is apparent on a plain reading of the Show Cause Notice issued to the respondents in the present case, that the case built up by the Revenue was dependent, to a large extent, on statements, recorded from various persons, including the Director of Respondents No.1 and 2 himself, during the course of investigation. Were the Show Cause Notice to be adjudicated, the relevance, of the statements, would fall to be examined in the light of Section 9D of the Act, which reads thus: "9D. Relevancy of statements under certain circumstances. - (1) A statement made and signed by a person before any Central Excise Officer of a gazetted rank during the course of any inquiry or proceeding under this Act shall be relevant, for the purpose of proving, in any prosecution for an offence under this Act, the truth of the facts which it contains, - (a) when the person who made the statement is dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by the adverse party, or whose presence cannot be obtained without an amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Act does not contemplate any such exercise by the Settlement Commission. Wealth of evidence stands cited, in the Show Cause Notice, against the respondents, though, unquestionably, the bulk thereof relates to the data contained in the computer printouts, recovered from the premises of Respondents No.1 and 2 , and retrieved in the presence of the personnel of the said respondents. The reliability of the said printouts, and the fact that they pertained to clearances effected by Respondents No.1 and 2 , and payments received thereagainst, stands vouchsafed by the statements of the said personnel. The respondents do not dispute the position that, were the computer printouts to be treated as reflective of clearances effected by them, clandestine as well as undervalued, the demand, as computed in the Show Cause Notice, would become payable. The extent to which the effect of such evidence could be ignored, in the light of Section 36B of the Act, is also an aspect which could been examined if the respondents choose to subject themselves to adjudication. 41. The manner in which Respondents No.1 and 2 attempted to limit their liability, even while admitting the charge of under invoici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rintouts could easily have been verified, particularly in the context of inquiries with the buyers, which did not reveal any supply of goods without any invoices, (iii) while the evidence, in the form of statements of the buyers, reflected under invoices of goods supplied by Respondents No.1 and 2, there was no evidence of supply of goods without invoices, (iv) it had been admitted, by the departmental representative, that there was no evidence of clandestine removal, other than the computer printouts, (v) the Revenue had not produced any evidence to support its rebuttal, to the reliance, of the respondents, on the installed capacity of their units, though it was sought to be contended, by the Revenue, that the machinery position, as it existed at the time of search, necessarily indicative of the position as it existed during the period of dispute, and (vi) in the circumstances, the allegation of clandestine removal, which was required to be "backed up with evidence of acquisition of input and machinery as well as clandestine manufacture and removal of final products" without which it was not possible to fasten, on the respondents, the duty liability of Rs. 11,43,09,554/-, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich entitles Respondents No.1 and 2 , to compute demand, for the period not covered by the diaries, on a "pro rata" basis. Removal of excisable goods does not take place on "pro rata" basis, but in actual fact, and duty, on such removals has also, therefore, to be paid on actuals, and not on "pro rata" basis. 46. The error, in the perception of the Settlement Commission, regarding its jurisdiction, is, perhaps, most starkly underscored by the findings, returned by it, in the impugned Final Order, with respect to the production capacity of the units of Respondents No.1 and 2 . The production capacity of Respondents No.1 and 2 never constituted a part of the Show Cause Notice, dated 16th January, 2013, and was cited by Respondents No.1 and 2 in their defence. The onus to establish that, during the period of dispute, their production capacity was insufficient to maintain the allegation of clandestine removal and under invoicing, as contained in the Show Cause Notice, lay, therefore, squarely on Respondents No.1 and 2 . As no adjudication took place, neither did Respondents No.1 and 2 discharge this onus, nor did any occasion arise, for the Revenue to lead any evidence, or, in any ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nable to agree. The order, allowing the application to be proceeded with, was an interlocutory order. While we do not dispute the entitlement of the Revenue to challenge such an interlocutory order, the inaction, on the part of the Revenue, to do so, cannot foreclose a challenge to the Final Order of the Settlement Commission. 52. We, therefore, unhesitatingly, reject this submission of Mr.Malhotra. Conclusion 53. In view of the above discussion, the impugned Final Order dated 2nd September, 2014, of the Settlement Commission, is quashed and set aside. 54. The writ petition is, accordingly, allowed, with the following directions: (i) The respondents are directed to file their response to the Show Cause Notice, if any, before the appropriate adjudicating authority, within four weeks of pronouncement of this judgment in Court. No extension of time shall be granted, to them, for the said purposes. (ii) In case the authority, to whom the Show Cause Notice was made returnable, has changed during the time that has lapsed since the date of issuance of Show Cause Notice, the designation and address of the competent authority shall be made known, by the petitioners, to learned couns ..... X X X X Extracts X X X X X X X X Extracts X X X X
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