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TMI Blog2008 (9) TMI 355X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,00,000/- on Shri Riad Murad Fyzee, Managing Director of 100% EOU/DTA and Shri Autar Krishan Kaul, Chief Operating Officer of 100% EOU/DTA respectively. 2. The appellant is a Company which has two units. One is a DTA unit while the other is EOU. The DTA started since 1992 while EOU started sometime in September 2001. A demand is sought to be raised on the DTA unit on the ground that it cleared excisable goods without payment of duty. The department has further sought to raise a demand on the EOU with regard to duty on inputs received by it without payment of duty, on the ground that there is violation of the terms of notification No. 1/95-C.E., dated 4-1-95 which permits the EOU to obtain inputs without payment of duty. 3. It appears that both the units manufacture automotive gears. The case against the unit is sought to be made out on the basis of visit by officers of the DGCEI, Poona on 17/18-3-04. The principal raw-material to manufacture the gears is forgings. At the time of the visit, the stocks of raw-material were found to tally and there has been no seizure at either of the units. Furthermore, there were no documents in the form of chits, slips, payment receipts, transpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents, accepting clearances of any such goods by DTA without payment of duty. The department seeks to rely upon the cost auditors' report to the aforesaid effect and also seeks to rely upon the difference between the figures of production, sale, stock position in the books of accounts, as compared to the excise records. This aspect is stated in para 8 to 8.2 of the SCN. Thus, the case is further sought to be stated by the fact that the turn-over as per excise records is of Rs. 27,23,25,079/ and that as per books of accounts is Rs. 30,68,34,405/-. It is sought to be alleged that this difference is the difference of 102252 gears clandes finely removed by DTA. 7. It was submitted by the appellants that the aforesaid case is ex-facie unsustainable. It was argued that there is absolutely no proof of clandestine removal of the goods. There are no documents which are recorded which would support a case of clandestine removal of goods. It was argued that the goods are always made to order on job work. They are made as per specific design. The goods do not have general marketability. They can not, therefore, be clandestinely removed and sold in the open market. There are no statements of pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s because these semi-finished forgings were sent to the EOU and were made into final gears only at the EOU and exported directly from there. Thus, there is a difference of 85138 pieces between the excise records and account books of the DTA. 9. To support the aforesaid, innumerable documents were referred to before sending the semi-finished or partially processed forgings from the DTA to EOU; and permissions obtained from the Assistant Commissioner. The permission specifically pointed out the description of goods, the nature of job work, and also allows semi-finished goods to be cleared from the DTA to EOU. It was further pointed out that on each occasion such semi-finished forgings were transferred under challans, the processes to be carried out were also stated therein. On each occasion, a letter was specifically written to the Superintendent along with the challan, explaining the number of partially processed goods being sent, as well as the nature of work to be carried out at the EOU. This was done on each and every occasion when semi-processed goods were transferred. It was explained that as per the provisions of the Import-Export Policy, EOU is allowed to carry out job work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SCN, Shri Kaul whose statement was recorded, also himself stated that what is alleged to be clandestine removal from the DTA is actually semi-finished goods sent for job work to 100% EOU and clearances from there for exports. The operations of drilling, cutting, heat treatment and inspection done at the EOU were also clarified. It was, therefore, submitted that as per the statement, recorded by the department itself, it is clear that what is alleged to be clandestine removal is nothing else but semi-finished goods sent to the EOU, for completion of manufacturing activities on job work and export therefrom, it was also clarified and submitted that such semi-finished goods being not marketable were not required to be mentioned in the RG-1 or any other record or Register under Central Excise. 12. With regard to reconciliation, duly certified certificate, by Chartered Accountants, was submitted in the course of the adjudication. The same, as a matter of fact, has not even been disputed in the Order-in-Original. They also further submitted that this very reconciliation was provided to the Cost Accountant and even in the body of the Cost Accountant's report, such reconciliation has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e DTA clandestinely. 13. Reference was made to the certificate of overall quantity issued by the Chartered Accountants to show that the total quantity of raw-material purchased could be used only to account for the total accounted quantity of gears manufactured and sold either for exports or for local sale. He, therefore, submitted that even by conjectures and surmises, no case could be made out. 14. With regard to the remaining quantity of 17114 pieces, he pointed out that in para 7.5.2 of the SCN itself, it is stated that in the absence of Stores Ledger, the excesses and shortages can not be worked out. As a matter of fact, the Cost auditor has himself stated in his report that in the absence of Stores Ledger, such excesses and shortages could not be worked. Reference was made to the balance sheet of the Company, to show the huge amount of work-in-progress running into crores of Rupees. It was thus explained that the quantity difference of 17114 pieces, which is less than 2% of the total forgings quantity of 926871, is work-in-progress. He also further submitted that in any case, without any evidence, such minor differences can not be used to make out a case of clandestine remo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ines were also repetition of the old machines. Thus, it is absurd to suggest that the Unit did not have manufacturing capacity. He referred to the certificate of Chartered Engineer who has certified that upto March, 2003, the manufacturing capacity was 10 lakh gears and upto June, 2003, it was 12 lakh gears. It was submitted that the department has not even cared to check the installed capacity and got the same certified. He further referred to certificates of Chartered Accountants to demonstrate that the electricity bill of the EOU for the year 2002-03 was more than Rs. 66 lakhs whereas from April to June '03, it was Rs. 17.00 lakhs. Similarly, he referred to Chartered Accountants' certificate to demonstrate that wages paid by the EOU were Rupees 1,18,00,000/- during the year 2002-03 and Rs. 15 lakhs during April to June 03. He, hence submitted that the above payment of salary installed capacity etc. leave little doubt that the EOU had much more capacity than required to manufacture the goods in question. Against the aforesaid overwhelming evidence, the department is only relying upon a mistake which is committed while filing the LOP. Clearly, such a minor mistake can not undo suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact, the aforesaid documents would show that such forgings were used in the EOU itself on their own machines. With regard to clause d(iv), it was submitted that there was no question of the NFEP not being met. He submitted that there was no charge in the SCN that the NFEP is not met. Furthermore, he submitted that even if the value of these 53,000 pieces is taken out, the NFEP would still be met, by a huge margin. In this context, he referred to the Chartered Accountant's certificate which year-wise demonstrates the NFEP, to show that against the NFEP of Rs. 3604 lakhs required to be achieved, the total exports made were Rs. 22096.85 lakhs and the NFEP was Rs. 18492 lakhs. The NFEP has only to be positive i.e. only more than Rs. 3604 lakhs. The NFEP achieved is Rs. 18492 lakhs. Hence, even if the export of 53,000 pieces is removed, the NFEP would be still met. Hence, there is no question of applying condition d(iv) of the notification. With regard to condition "e" of the notification, it was argued that the goods have been used for the manufacture of export goods, as is clear from the evidence of machinery being installed etc. In any case, it is the Development Commissioner whose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en issued, which are not issued in this case. It was clarified by the appellants that CT-3 is issued to the scheme of exemption. If the goods are semi-finished, they are not excisable; hence there is no need to issue CT-3 certificates. The D.R. sought to support the Order-in-Original and relied upon certain portions of the Order-in-Original, to support the SCN and the demand. He also argued that if the EOU had no capacity, then the provisions of notification No. 1/95 could not have been satisfied as those goods must have been made by the DTA and, therefore, the demand is correctly raised. Hs submitted that this has been done to meet the NFEP requirements He argued that when the assessee's records themselves show difference, between accounts and excise records, there is no need for any other evidence to be produced. He submitted that the department's case is also based upon the cost auditors' report and hence clandestine removal is proved. 23. We have carefully considered the submissions made by both sides at length and perused the records. It is settled position in law that clandestine removal is required to be proved, by evidence, and can not be based upon conjectures and surmise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , permissions obtained from the Assistant Commissioner, different types of invoices, ARE-1s, showing job work exports, endorsements in RG-1 registers etc. that are fully supported not only by documents but also by certificate of chartered accountants, which show that precisely the same quantity of 85138 semi-finished forgings having been sent from the DTA to the EOU for finishing and exports therefrom. There is no proper finding in the impugned order in this regard except for a bare averment that these documents are fabricated and unreliable. It is submitted by the appellants that such voluminous statutory and private documentations maintained by them can not be brushed aside like this without any cogent reason. We find that these documents demonstrate beyond doubt that 85138 pieces were sent by the DTA to the EOU for further processing and export therefrom. 26. We, therefore, hold that the case of clandestine removal of 85138 pieces by the DTA is clearly not substantiated. On the contrary, evidence on re cord clearly goes to show that the same are duly accounted as being removed from the DTA to the EOU for job work. 27. With regard to charge of 17114 pieces, we find that our afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... city, if there was no production. The possibility of the capacity of 45,000 written in the LOP being a mistake c not thus be ruled out, as it seems absurd in the facts of this case. In any view of the matter, given the aforesaid weighty documents, which are not even considered by the Commissioner, it is difficult that the unit was not operational. Once the machinery is installed, the same is bound to be used. It is not relevant whether such a production is termed as commercial or trial, so long as the goods could have been produced and sold, the accounting effect of such production is not relevant for the purposes of excise. Even trial production can be sold. In any case, the aforesaid demonstrates that the EOU was certainly a functioning unit carrying out manufacturing activities. To what extent the activities were carried out may not be possible to be ascertained but one can certainly state that substantial activities must have been carried out, given the aforesaid state of evidence by the EOU in their factory. We also note that no adverse action appears to have been taken by the Development Commissioner, despite the fact that the EOU is directly under his supervision and control ..... X X X X Extracts X X X X X X X X Extracts X X X X
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