Clandestine removal and suppression of facts

PJ/Case Laws/2011-12/1405

Clandestine removal and suppression of facts - proof of

Case: PRABHU LALA RAM RATAN DAS (P) LTD. v/s COMMISSIONER OF C. EX., KANPUR

Citation: 2011 (271) E.L.T. 420 (Tri.-Del.)

Issue:- Whether mere payment of duty can be the basis for coming to the conclusion of suppression of production and clandestine removal?

Brief Facts:- Respondents were engaged in the manufacture of branded chewing tobacco and other respondents are directors of the said company. During visit of Excise officers to the factory premises, godown and office of the respondents on 1-6- 2007, it was found that as per records of the raw material stock was 1,13,177.300 kgs of raw tobacco whereas on physical verification the stock available was 65,815 kgs of raw tobacco and also 37,562 kgs of semi processed chewing tobacco.

Thus, a shortage of 10,400 kgs of raw tobacco was recorded. Shri Vijay Kumar Gupta, Director in his statement on 1-6-2007 stated that the said shortage was due to dryness of raw tobacco and wastage during manufacturing process which was not taken into account. The investigators felt that the shortage of 10,400 kgs should have been utilized for manufacture of 550.2 bags each bag containing 540 pouches (each pouch containing 35 gm per pouch) and accordingly goods valued at Rs. 7,42,770/- would have been cleared without payment of duty involved amounting to Rs. 5,04,934/-. The respondents company paid duty involved on 21-6-2007.

A show cause notice was issued proposing confirmation of demand of duty already paid and proposing imposition of penalty on the company and the directors. In reply to the show cause notice, the respondent contended the demand on the ground that the shortage of raw tobacco was due to dryness of raw tobacco and wastage during manufacturing process and the same is less than 3% of the raw tobacco processed. It was also contended that no presumption of unaccounted production of chewing tobacco can be made and duty demanded. The respondents also contended that no penalty was imposable on them.

However, the Original Authority confirmed the demand and imposed penalty of Rs. 5,04,934/- under Section 11AC on the respondent-company and penalty of Rs. 25,000/- each on the directors of the respondents.

In appeal, the Commissioner (Appeal) set aside the order-in-original and held that benefit of doubt is to be given to the respondents as there was no discrepancy found in stock of finished goods and the shortage was explained by the assessee. Thorough investigation and positive evidences were absent and therefore, demand was no sustainable on the ground of presumption.

Revenue is in appeal against the above order.

Appellant’s Contention:- Revenue contended that the shortage was admitted by the director. They deposited the entire duty involved on 21-6-2007. Therefore, the order of the Original Authority is legal and proper.

Respondent’s Contention:- Respondent argued that the shortage is less than 3% considering that about 4 lakhs kgs of production was recorded during the year 2007-08. No shortage of other raw materials has been found. Serious allegation of suppression of production and clandestine removal has been made on the basis of presumption and assumption. Mere payment of duty at the instance of department cannot bar them for seeking remedy before the Adjudicating Authority and Appellate Authority. They relied on the decision of the High Court of Punjab and Haryana High Court in the case of C.C.E., Chandigarh v. Nachiketa Paper Ltd. [2008 (225) ELT 194 (P & H)] in support of their contention that the demand of duty on presumption and assumption that the raw material found short must have been used in the manufacture of final products which would have been cleared without payment of duty was not justified.

Reasoning of Judgment:- The Tribunal noted that at the time of visit of the officers, the stock of raw tobacco was found partly as raw tobacco and partly as semi processed tobacco. It is not disputed that there was shortage of 10,400/- kgs of raw tobacco when compared to the stock available as per records. The explanation given by the directors of the respondent-company was that the same was attributable to dryness of raw tobacco and wastage and manufacturing loss over a period of time. Before the original authority, it was claimed that the loss was less than 3%. There was no admission of suppression of production or production of goods without bringing them into account and clandestine removal of the same. There is also no evidence in the form of private records indicating unaccounted production and clandestine removal of the goods. Mere payment of duty involved cannot be the basis for coming to the conclusion of suppression of production and clandestine removal. In the absence of any evidence indicating suppression of production and clandestine removal of the same, merely based on shortage of raw materials, no duty on assumed excess production of final products can be made. The facts in the case C.C.E., Chandigarh v. Natchiketa Paper Ltd are akin to the facts of the present case. Further, it was held that no evidence of corroborative nature such as shortage of other raw materials or documents indicating excess production or clearance has been relied. Order of the Commissioner (Appeal) upheld.

Decision:- Departmental appeals rejected. Cross objections dispose of.

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PJ/Case Laws/2011-12/1405

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