Charge of clandestine clearance is void if the discrepancies found were properly answered.

Case:-M/s VINNY OVERSEAS PVT LTD VsCOMMISSIONER OF CENTRAL EXCISE, AHMEDABAD-I

Citation:-2014-TIOL-1536-CESTAT-AHM

Brief Facts:-In this case, the Central Excise Department has demanded duty on clandestine clearances. The demand which is raised on the basis of folding record in formchits of the folding book seized under Panchnama and shortages which were found at the factory premises of the appellant. Though, various statements are recorded indicating therein that the goods were cleared illegally & on deeper convinction of the records, the said lot numbers which were recorded in the worksheet prepared were properly answered by the appellant when they replied to the show cause notice. The said appellant had filed an application on 18.05.2001 to operate under compounded levy scheme with CCE Ahmedabad. The said application on the date of visit was not rejected by the authorities and after visit of the authorities in the factory premises. The appellant having not received any rejection letter, continued to sell the goods manufactured by them under the compounded levy scheme. The demand of duty was raised on the appellant on the charge of clandestine removal.

Appellant contentions:- Ld. Counsel appearing on behalf of the main appellant and other two individuals, after giving overall picture of the issue involved, submits that the demand can be bifurcated into three different demands against which he is making following submissions:-
(a) Demand of Rs. 2,54,883 /- on shortages found during the course of Panchnama is being disputed on the ground that the Panchnama in the appellant's premises had begun at 09.00 hrs in the morning and ended at 11.00 Hrs in the night i.e. after 14 hours. It is his submission that during the entire proceedings, huge stock of fabrics lying in the premises of the appellant could not have been verified and counter-checked to the quantity shown as closing stock in the stock register maintained by the appellant. It is his submission that the stock checking was done in a haphazard manner, overlooking various stock lying in process at various departments of the appellant's factory. It is his submission that the judgment of the Tribunal in the case of Hira Steels Ltd - 2006 (206) ELT 783 is a guiding factor and stock checking being defective, demands are not sustainable. It is also his submission that though there is an allegation of shortage, no further investigation has been conducted by the Department for establishing clandestine clearances such as no statements of buyers, movement of money as private record were recovered. It is his submission that the ratio of the decision of the Tribunal in the case ofM/s Suzler Processors Ltd - 2013 (293) ELT 258 would be applicable in this case as in that case, the Tribunal, in similar facts & circumstances, has heldthat when there is application for fixing of annual capacity to discharge duty under compounded levy scheme was pending, thedemand of shortages was unacceptable and dropped by the Tribunal. He would submit that the appellant had also filed an application for discharge of duty under compounded levy scheme in May 2001 and subsequent to search, the said applicationwas rejected in October 2001.
(b) As regards the demand of Rs. 15,78,888 /- confirmed on the basis of folding report, it is his submission that these demands are also not tenable as there is no evidence in any manner to establish clandestine removal on the part of the appellant. It is his submission that even during the recording of statements of the Director on 21.06.2001, no quantity has been determined and put forth to the Director as clandestinely removed and only on 11.06.2002, a worksheet was prepared and put to the Director as the quantity cleared without payment of duty. It is his submission that the basis on which the worksheet was prepared by the departmental authorities, has not been brought on record nor it is indicated that this information was retrieved during the search. It is his submission that very veracity of the worksheet prepared by the Department and consequential demands raised and confirmed pursuant thereto, is doubtful. It is also his submission that the Department has relied upon the statements recorded during investigation to suggest that there was clandestine removal and accepted by the concerned parties, but Department has failed to appreciate that serious allegations like clandestine removal are to be established by further corroborative evidences. He would rely upon the decision of the Hon'ble High Court of Gujarat in the case ofNissan Thermoware - 2011 (266) ELT 45 ( Guj ) = 2010-TIOL-877-HC-AHM-CX , Tejwal Dyestuff Industries - 2007 (216) ELT 310 = 2007- TIOL-1438-CESTAT-AHM. It is also his further submission that the chart shows the allegations of clandestine removal as noted inthe worksheet prepared by the Department even if improper as in response to worksheet which was provided with the showcause notice, appellant submitted a list and details of all the invoices/ARE 4, under which the goods were removed and chargedby the Department as clandestinely removed. It is also his submission that the appellant had submitted all the copies ofrelevant documents to the lower authorities, which has been totally ignored. It is his submission that for the demands raised during the relevant period, the appellant was functioning under compounded levy schemebased upon an application made by him on 11.05.2001 and had relied upon various documents to show that they havedischarged the duty liability as per the ascertained production capacity.
(c) As regards the demand of Rs. 80,663 /-, the said demand is based upon the un-reliable private record and statements of co-accused. It is his submission that the Department has not adduced any tangible or concrete evidence to establish a case of clandestine removal. It is his submission that in any case, it is a settled law that statement of co-accused cannot be blindly relied upon to confirm a demand under the serious charge of clandestine removal.

Respondent Contentions:- Ld. Departmental Representative, on the other hand, would draw up the attention to the Order-in-Original and Order-in-Appeal. It is his submission that the appellant has not made out any case as the shortage which was detected during stock verification is un-contested in as much as the stock have been verified in front of Panchas and the Directors of the appellant company and not before any junior officers of the company. It is his submission that no objection was raised to stock taking during the course of panchnama or during the statements recorded of the directors. The contention that huge stock could not be verified in just 14 hours is totally untenable as no such doubt was raised when the stock taking was undertaken, in the presence of the directors. It is his submission that the Annexure 'B' to the Panchnama clearly indicates that lots were themselves missing and it is not a case of partial shortage of lots and this was accepted by Shri Hiralal J. Parekh in his statement, dt.08.06.2001, specifically indicating that they might have been sold to unknown buyers on cash basis without accounting for the same in statutory records. He would rely upon the decision of the Tribunal in the caseof M/s Auora Foam Pvt. Ltd . - 2011 (271) ELT 104 (Tri-Del) for the proposition that even no objection was taken during stock taking, the same cannot be objected to atthe appellate stage. As regards the illicit removal charge on the appellant for demand of Rs.15,78,888/-, it is his submission that the saiddemand is raised on the folding report which was found hidden in lump of fabric in the folding department. It is his submission that it is onrecord that these reports were prepared by the folding contractors of the firm and was admitted in his statement dt.08.06.2001. He wouldalso submit that incriminating documents were recovered from the adjacent folding house premises owned by Shri Hiralal J. Parekh, Directorof the main appellant. It is his further submission that one Shri Devichand M. Munot has admitted that MMF without any Central Exciseinvoices is an indicator that main appellant as engaged in clandestine removal of its goods. It is his submission that Shri Hiralal J. Parekh, inhis various statements, had admitted to this fact. It is also his submission that these arguments would apply to the third demand of Rs.80,663/-. As regards the plea of the appellant that they are operating under compounded levy scheme during the date of search, it is hissubmission that it is undisputed that an application dt.18.05.2001 was made by the appellant to operate under compounded levy schemeto the Commissioner of Central Excise, Ahmedabad. It is his submission that CCE vide an order dt.12.10.2001 has rejected the application for compounded levy on various grounds against which an appeal filed before Hon'ble High Court, but withdrawn by the appellant. It is his submission that as per Rule 96ZZA( ii) of Central Excise Rules, 1944, a manufacturer makes his application to pay the provisional duty as per compounded levy scheme, however, of application is dismissed, then duty will have to be paid on ad valerom basis and such duty is to be adjusted with the duty already paid provisionally, are the provisions which will apply in this case. It is his submission that the appellant's claim as to the duty was paid under compounded levy in the month of June 2001, is also incorrect as the invoices submitted by the appellant vide letter dt.17.08.2006 before the adjudicating authority also are incorrect as they had themselves during the month of May and June, paid the duty under ad valerom basis. It is his submission that the worksheet prepared on the basis of folding book indicate that the folding of the fabric was done in the month of May 2001, hence the duty liability would arise as during the relevant period, the appellant was not operating under compounded levy scheme. It is his submission that the plea of the appellant that the goods were actually removed under the cover of invoice, is also incorrect as it can be seen that majority of the invoices have been issued subsequent to the date of search i.e. 07.06.2001 and this shows that it is an after-thought on the part of the assessee to show lot numbers in the invoices issued subsequent to the date of search to claim the benefit of illicit clearances.

Reasoning of Judgment:- After considering the submissions made at length by both sides and perusing the records, the main issue in these cases is whether the main appellant had engaged himself in clandestine removal of goods during the material period based upon the folding book recovered.
(i) As regards the demand of duty on illicit removal of 26,534 L.Mtrs , wherein an amount of Rs.80 ,663 /- has been confirmed, the purchasers of the materials M/s DCM Fabrics have clearly recorded a statement which clearly indicate that they have received this quantity of fabrics from the appellant without any duty paying documents or under cover of any invoice. It is seen that the said statement of the buyer is not retracted by him, hence in Tribunal’s considered view, appellant has not made out any case for setting aside the demand of Rs.80,663 /-.
(ii) As regards the demand of illicit removal of 5,19,371 and 1,05,993 L.Mtrs found as shortage during stock taking on 07.06.2001, appellant has case in his favour for more than one reason. Firstly, as noticed from the records that this demand is raised on the basis of folding record in the folding book seized under Panchnama and shortages, at the factory premises of the appellant. Though, various statements are recorded indicating therein that the goods were cleared illicitly, on deeper convinction of the records, the said lot numbers which were recorded in the worksheet prepared were properly answered by the appellant when they filed reply to the show cause notice. Also in one of the lot numbers i.e. 39 mentioned in the worksheet and considered as illicitly removed, was, removed by the appellant under invoice dated 07.05.2001, 08.05.2001, under ARE4s on payment of duty. The worksheets prepared by the appellant gives clear details as to the invoice number and the amount of duty liability discharged against the lot numbers which were alleged to have been removed clandestinely. There are various entries in the worksheet attached to the show cause notice which are either overlapping or appearing twice in the said worksheet.
Secondly, the tribunal found that there is no denial of the fact that the main appellant had filed an application on 18.05.2001 to operate under compounded levy scheme with CCE Ahmedabad. The said application on the date of visit was not rejected by the authorities and after visit of the authorities in the factory premises of the appellant, appellant having not received any rejection letter, continued to clear the goods manufactured by them under the compounded levy scheme. It is noticed from the records that the appellant had prepared invoices during the period, clearly indicating therein that they are operating under compounded levy scheme. It cannot be held against the appellant that they having filed an application for paying duty on the ascertained annual production capacity, as per the notification issued under Section 3A of Central Excise Act, 1944 and rules made thereunder, that they had removed the goods clandestinely during the period. The entire worksheet of the Revenue indicate that the productions were done in the month of May, barring few entries, they were done from 11.05.2001 which would fall under the application filed by the appellant on 18.05.2001 indicating to operate under compounded levy scheme. There is no dispute that the main appellant had discharged the Central Excise duty liability after 18.05.2001 under compounded levy scheme and paid the duty liability through PLA. In Tribunal’s considered view, the charge of illicit removal cannot be confirmed against the appellant on this factual matrix, which indicate that the appellant to his subsequent application made on 18.05.2001 has paid the duty under the compounded levy scheme.
The Honourable Judge finds that both the lower authorities have conveniently disregarded this main plea of the appellant before them and have confirmed the demands raised without addressing to the fact that duty liability has been discharged by the appellant after 18.05.2001 under compounded levy scheme. Though the ld.Departmental Representative submits that the said application was rejected by the authorities on12.10.2001 & before rejection of said application, the fact that the appellant was discharging the duty liability on such goods, is not denied. Even if on considering that the Commissioner has rejected the application filed by the appellant to operate under compounded levy scheme, it would not indicate that the clearance of 5,19,371 and 1,05,993 L.Mtrs were illicitly removed in as much as the rejection of the application made by the appellant, at the most, would require re-consideration of value and discharge of duty liability under different headings and it cannot be held that there was clandestine removal of the goods by the appellant. Thus, on perusal of records,it is found that there is no such allegation in the show cause notice.
The Honourable Judge fortified the order of this Bench in the case of Suzler Processors Ltd (supra) wherein it was stated that:
“The question required to be decided in the present appeal is as to whether the non-maintenance of record by the appellant during the intervening period of filing the application and rejection of the same by the Commissioner, which resulted in shortages of grey fabrics and final product would call for confirmation of duty of Rs. 3,00,020/-. As per the appellant during the said period, they discharged their duty liability under compounded levy scheme, which does not take into consideration each and every clearances and duty is required to be paid on the lump sum basis. There is nothing on record to show that the goods found short were not included in the goods cleared under compounded levy scheme, on which the duty already stand discharged on monthly basis. It is also noticed that the appellants prayers for working under the compounded levy scheme was rejected only in October, 2001. As such in August, 2001, when their factory was visited by the officers, they were working under the compounded levy scheme and were discharging their duty liability accordingly. It is not the Revenue's case that such shortages were not part and parcel of the clearances effected under compounded levy scheme on which duty already stand paid by the appellants. As such, by extending the benefit of doubt to the appellant, we find no justification in separate confirmation of demand of Rs. 3,00,020 /-. Accordingly, we set aside the impugned order and allow the appeal filed by the assessee.”
In view of this, it was held that the demand of duty raised on the appellant on the charge of clandestine removal of 5 ,19,371 & 1,05,993 L. Mtrs is unsustainable and liable to be set aside.

Thereafter, the issue of imposition of interest and penalties on the appellant was taken up for disposal. As already held that the demand of Rs.80 ,663 /- needs to be upheld against the appellant, interest liability on such amount also arise on the appellant, which needs to be discharged. As regards the penalties to be imposed on the main appellant on the amount of Rs.80,663/-, since Tribunal has come to conclusion that the appellant is liable to discharge this duty liability, equivalent amount of penalty on the same needs to be imposed on the main appellant and the same is done.
As regards the penalties imposed on the individuals, it was found that though they are considered as instrumental for imposition of penalty under the provisions of Rule 26 of Central Excise Rules, 2002, and since the major demand has been set aside, a token penalty of Rs.10 ,000 /- (Rupees Ten Thousands only) each on Shri Hiralal J. Parekh and Shri Devichand M. Munot is imposed.

Decision:- Appeal partly allowed.

Comment:-The essence of this case is that the charge of clandestine clearance is a very grave charge and it cannot be levelled against without substantiating and corroborating the same with sufficient and appropriate evidences. Hence, when the queries of the details unearthed during the investigation have been answered properly, the onus to prove the charge of clandestine clearance rests on the revenue department. Moreover, it was found that the appellant had filed an application to operate under compounded levy scheme and the application on the date of visit was not rejected by the authorities. The appellant having not received any rejection letter, continued to clear the goods manufactured by them under the compounded levy scheme and the same was held to be proper. It was concluded that when the goods were cleared under compound levy, it cannot be considered that the goods have been removed clandestinely without payment of duty. Accordingly, the major portion of the demand was set aside.

Prepared by: Meet Jain.

Comments

PJ/CASE LAW/2014-15/2306

Post a Comment

Query