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TMI Blog2020 (3) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... eals) [CIT(A)] is bad, both in the eyes of law and on facts. 2. (i) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the addition of Rs. 2010567/- made by the AO by applying the rate of 1.60% of gross profit on the alleged clandestine removal of goods worth Rs. 125660484/- from the premises of the appellant. (ii) That the learned CIT(A) has erred in sustaining the above addition by arbitrarily rejecting the explanations and evidences brought on record by the assessee. (iii) That the ld. CIT(A) has erred in relying on the order of the AO with respect to his reliance on the findings of the Excise Department ignoring the detail explanations filed before him and ignoring the fact that the assessee has filed an appeal and has challenged the action of Excise Department before the Honorable CESTAT, New Delhi. 3. (i) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the addition of Rs. 7564761/- made by the AO by applying an estimated rate of 6.02% of stock turnover ratio on total alleged clandestine removal of goods worth Rs. 125660484/- and considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing officer that the assessee company was indulged in evasion of Central Excise duty by resorting to clandestine manufacture and clearance of finish goods. DGCEI conducted search operations at the assessee's factory premises and other premises of its associates. During the course of search, certain incriminating documents and assets were recovered and physical verification of finished goods and raw material was also conducted which resulted in detection of various discrepancies. Statement of Shri Sunil Khurana, Director of the assessee company was also recorded. Thereafter, Additional Director General, DGCEI, Delhi Zone issued a show cause notice to the assessee on 11.03.2011 and 25.11.2011. Thereafter, Commissioner Central Excise, Jaipur adjudicated the case of the assessee and held that the assessee was indulged in evasion of Central Excise duty by resorting to clandestine manufacture and clearance of finished goods. As per show cause notice dated 25.11.2011 of DGCEI, the assessee has removed goods from his factory premises worth Rs. 23,21,52,189/- during the period 24.02.2009 to 26.02.2010 and for Rs. 17,88,40,952/- during the period 27.02.2010 to 31.08.2011. Basis said info ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scertain the undisclosed investment in stock the assessee was asked to submit stock turnover ratio as reflected in regular financial statements as on 31.03.2010 and 31.03.2009. As per the financial statements of the assessee, the stock turnover ratio of manufactured finished goods for 31.03.2010 was 6.52% and for 31.03.2009 was 5.52%, therefore, the average of both i.e. 6.02% can reasonably taken as undisclosed investment made in stock by the assessee for achieving production and sale of Rs. 12,56,60,484/-. Therefore, the undisclosed investments in stock is worked out at Rs. 75,64,761/- ( 12,56,60,484*6.02%) and the same is added to the total income of assessee. 10. Further, from the perusal of manufacturing account of the assessee, it reveals the assessee declared Gross Profit rate of 1.60% on sales. Therefore, a G.P. rate of 1.60% can be reasonably applied on undisclosed sales of Rs. 12,56,60,484/- which comes to Rs. 20,10,567/- resulting in addition of Rs. 20,10,567/- to the total income of the assessee." 5. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who has sustained the said addition made by the AO. The ld. CIT(A) stated in his order t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulting in duty thereon Rs. 51,47,390/- Thereafter, the assessee went in further appeal before the CESTAT against this order of the Commissioner (Appeals). The CESTAT passed the final order dt. 20.10.2017 in Appeal No. A/57285-57299/2017- EX[DB], deleting the whole demand raised by the Excise department and reference can be drawn to Para 44 of the order of the CESTAT wherein the following directions are given: " (a) the demand of Rs. 7,33,57,221/- is set aside; (b) the demand of Rs. 16,00,60,335/- is set aside" It was submitted that in this manner, a relief of total Rs. 23,34,17,556/- (7,33,57,221+ 16,00,60,335), has been granted by CESTAT. A relief of Rs. 51,47,390/- was already granted by the Commissioner (Appeals). In total, a relief of Rs. 23,85,64,946/- (23,34,17,556+ 51,47,390), has been granted, which was exactly the amount of total demand raised by the Excise department. In view of the above, it may be seen that all the allegations levied on the assessee by the Excise department have been held non-sustainable and the matter has been decided in assessee's favour. 9. It was further submitted that as the Assessing Officer in the present Income Tax proceedings has wholl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Department is not acceptable and the assessee is in the process of challenging the same by way of filing an appeal before CESTAT and a request was made to keep the proceedings in abeyance till the decision of CESTAT. The assessee also submitted that in any case, the total sales cannot be added in its hands and in support certain decisions were cited before the AO. The same so filed was considered but not found fully acceptable to the Assessing Officer. The Assessing officer finally determined undisclosed production and sale of Rs. 12,56,60,484 where 4585.145 MT was valued at Rs. 27,406/-. Here, it is noted that as against value of Rs. 33,012.83 per MT, the AO finally applied value of Rs. 27,406/- per MT as submitted by the assessee. On such undisclosed production and sales, the AO determined an amount of Rs. 75,64,761/- on account of undisclosed investment in stock and another addition of Rs. 20,10,567/- was made on account of profit on sales of undisclosed stock at the declared G.P of 1.6%. Therefore, we find that the whole addition of Rs. 95,75,328/- has been made by the Assessing Officer basis the findings of DGECI relating to manufacture and clandestine removal of finished good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anchnama dated 14.09.2010 (RUD-6)] 11 E/56621/2013 Mr. Surendra Kumar (Authorized Signatory) Rs. 5,00,000/- Rule 26 of CER, 2002 12 E/56687/2013 Mr. Prateek Garg Rs. 50,000/- --do-- 13 E/56688/2013 Mr. Suresh Garg Rs. 50,000/- --do-- 14 E/56689/2013 Mr. Sanjay Garg Rs. 50,000/- --do-- 15 E/56670/2013 Department's Appeal against Raghuveer Metal Industries Ltd. Rs. 51,47,390/- Charge of clandestine clearance dropped on account of duplication of demand. As all these appeals arise from the same investigation and are interconnected/common issue, are accordingly taken up together for disposal. 2. The main appellant-M/s. Reghuveer metal Industries Limited (RMIL for short) are engaged in manufacture of TMT bars under the brand name of "KAMDHENU" and MS ingots classifiable under chapter 72 of Centre Excise Tariff Act, 1985. The appellant is regularly paying the Central excise duty and also availing benefit of Cenvat credit on inputs. The main raw materials used are steel scrap and sponge iron. 3. The brand name "KAMDHENU" belongs to 'Kamdhenu Ispat Ltd.' (KIL for short), who charged a royalty of Rs. 150 per metric ton of sales made by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsporters of the appellant, namely M/s Khawaja Garib Nawaj Transport Company, Ajmer and M/s Vikas Transport Company, Ajmer. No corresponding invoice/bill was found to be issued against some of the entries in the booking register of the said transporters. Further, for some of the GR's, no corresponding invoice was found to be issued. In respect of information collected from the commercial tax Department revealed that entry in respect of 162 vehicles as per sale entries were not found recorded in appellant's records. Further appellant purchased material through three vehicles, which were not recorded in their records. 8. As per the agreement dated 01/07/2006 and 22/09/2009 between the appellant-RMIL and Kamdhenue Ispat Ltd. (M/s KIL), Bhuwadi, Royalty was being paid at the rate of Rs. 150 per M.T. There appeared to be excess payment of Rs. 25,79,797/-, made during the period April 2008 to Oc tober 2008 a s compared with the clearances effected in ER-1 returns. There also appeared to be some discrepancy in the electricity consumption pattern visa- vis product norms as per ER - 5 returns. 9. Show cause notice dated 11/03/2011 was issued proposing confiscation of excess TM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 'KAMDHENU' brand TMT Bars, since it would enhance their chances of being caught during scrutiny. Such excess payment of royalty would only have been available in the records/books of KIL. The learned counsel states that the appellant's account in the books of KIL seized by the Department - RUD 88, reflects the entries for royalty due and paid. When the royalty amount is actually paid by the appellant during the month, it's account, in KIL books is credited and when the royalty income is recognised/due in the books of KIL, the appellant's account is debited. This is how the account of appellant is maintained by KIL in its books of account. However, the Department have wrongly interpreted it by treating both the royalty due as well as royalty paid amounts every month appearing in the Ledger account of the appellant in the books of the KIL, as separate payments of royalty by the appellant to KIL. The learned Commissioner lost sight of the fact that the account of the appellant was credited with the royalty payment entry dated 04/04/2008, for Rs. 4 lakhs, and debited with royalty due entry dated 30/04/2008, for Rs. 4,28,104/-. Thus, these two, amounts one being Debit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reof, is sustainable. In this regard, reliance was placed on the following judgments:- * CCE, Raipur, v. Devi Iron & Power Pvt. Ltd., 2015 (321) E.L.T. 270 ( Tri. Del.) * CCE, Meerut-I V. Silvertone Papers Ltd., 2013 (287) E.L.T. 478 ( Tri. Del.) * Hissar Pipes Pvt. Ltd. V. CCE, rohtak, 2015 (317) E.L.T. 136 ( Tri. Del.) 20. He also asserted that even the expertise of the employees could not have led to weighment of around 2200 MT of stock within the short span of 15 hours, taken in the Panchanama proceedings, since the time required to load, unload and weigh the vehicle could not be curtailed. Such stock taking required around 228 truck loads of 10 MT per truck. 21. The second Pancha, Shri Praveen Kumar could not be produced by Revenue for cross-examination, even though the appellant had requested for the same. Had he been produced, he would also have given similar statements as made by Shri Daulat Ram, during the cross-examination. 22. That further As regards, the assumption of the department that each test noted in the notebook of chemist was one heat, and multiplying the number of heats with the capacity of furnace, and accordingly drawing of conclusion that 2409 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the department. There is no evidence regarding how the scrap without invoices was transported to the Appellant. 26. He also pointed out that for the alleged clandestine production and clearance of 42,300 MT of finished products, the Appellant would have required around 47,000 MT of scrap. The impugned order vaguely and without evidence merely could uphold only 2230 MT, as unaccounted procurement of scrap. There is no evidence led by the department to prove such huge quantity of unaccounted scrap procurement by the Appellant and the other relevant necessary overheads/factors of production required for their conversion like labour costs, electricity, fuel, consumables, etc. 27. As regards, the demand of Rs. 7,33,57,221/- based on six booking registers and loose GRs of the transporter(s) is concerned, Ld. counsel submitted that Shri Moin Khan (Transporter) himself stated during cross-examination in response to question 11 & 12, that the booking register reflects only the approximate requirement whereas the actual weight in Kg is known after the actual loading of goods only. Further, in response to Questions 8 & 9, he had already stated that all the entries mentioned i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,104/- on 30.04.2008 in Appellant's Account with Kamdhenu shows that the total royalty payment for the month of April 2008 was Rs. 8,29,441/-, as against royalty payment of Rs. 4,00,000/- only recorded in the Appellant's account. There is no substance in the submission that payment of Rs. 4,00,000/- on 04.04.2008 was advance against the actual royally due entry of Rs. 4,28,104/- made on 30.04.2008. 31. It-is highly unlikely that the Appellant would show any royalty payment on paper with respect to clandestinely removed Kamdhenu brand TMT bars since it would enhance their chances of being caught during scrutiny. Such excess payment of royalty could only have been available in the records of M/s Kamdhenu Ispat Ltd. Therefore, the Ld. Commissioner has correctly confirmed the demand of clandestine clearance in this regard. 32. Further, in the matter of demand based on six booking register and loose GR of the transporter, Ld. AR submitted that on the basis of cross examination of Mr. Moin Khan, Proprietor of the transport entities, the Appellant argued that all the bookings made in the morning by the Appellant which were reflected in the booking register may not be finall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per Para 36-61 of the SCN, it comes out that the Appellant was procuring Cenvatable scrap by showing higher quantity of scrap than what was actually supplied by raw material suppliers and non cenvatable scarp from market without bills by making cash payments and without recording the scrap so obtained in their statutory records. 39. We have heard both the sides and have perused the appeal records and written submission given by both the sides 40. On the first issue, regarding Physical verification of stock we observe that such exercise was challenged by the appellant immediately after search, the Pancha witness Shri Daulat Ram during cross examination confirms not undertaking of stock taking exercise. During subsequent statements the Appellant or its directors were never again confronted on the aspect of retractions and from this we find force in the appellants arguments that no such stocktaking was actually clone. Further, it can also be understood that stock of approximately 2200 tons of steel (approximately 228 trucks load) cannot be undertaken in the total duration of 15 hours.Therefore, this finding of the Commissioner is not sustainable. 41. We also observe that Ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms of directions and observations hereinabove; (c) order of confiscation of cash and goods is set aside; (d) all penalties stand deleted; (e) Appellant is entitled to consequential benefit(s). 45. All other appeals are allowed wi th consequential benefits." 13. In light of above findings of CESTAT where the whole demand relating to clandestine manufacture and clearance of finished goods has been set-side, the findings of the AO which are solely based on the proceedings under Central Excise therefore doesn't survive and the consequential addition made by him are liable to be deleted. At the same time, the Revenue would be at liberty to take action as per law where the matter so decided by the CESTAT is appealed against by the Revenue and is decided in its favour by the Courts. We find that the similar issue has been decided by the Coordinate Bench in case of M/s Natani Rolling Mills Pvt. Ltd. Vs. ITO (in CO No. 29 & 30/JP/2019 arising out of ITA No. 537 & 538/JP/2018 dated 11.08.2019) wherein the relevant findings read as under:- "9. We have heard the rival contentions and pursued the material available on record. As we have noted above, the whole case of the Revenue re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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