Demand on assumptions and presumptions is not sustainable

Case:-M/s SIDDH INDUSTRIES VERSUS COMMISSIONER OF CENTRAL EXCISE, AHMEDABAD-II

Citation:- 2013-TIOL-1026-CESTAT-AHM

Brief Facts:-This appeal is directed against the Order in Original No. 21-24/COMMR/2006 dated 5/07/2006.
The relevant facts that arise for consideration is appellant herein is a manufacturer of Submersible Copper Winding Wire/Insulated Copper Wire. On specific intelligence, it was observed that the appellant is undertaking manufacturing activities without Central Excise registration which in turn resulted in removing finished goods without payment of Central Excise duty, Revenue officers conducted search operation on 29/04/2003 at the factory premises of the assessee and the residential premises of the proprietor. Vide Panchnama dated 29/04/2003 various documents were withdrawn which, according to the department, indicated production and illicit clearance of finished goods. Various private records maintained by the proprietor were scrutinized. After scrutiny, lower authorities came to the conclusion that the appellant had during the year 2001-02, 2002-03 manufactured and cleared clandestinely finished goods and evaded duty. After completion of investigation and recording of various statements, show- cause notice was issued to the appellant directing to show cause as to why Central Excise duty should not be demanded denying benefits of on Small Scale Industries. Show cause was contested by the appellant on merits as well as on various other grounds.
The ld. adjudicating authorities did not agree with the contentions raised by the appellant, confirmed demands raised in the show cause notice along with interest thereof and imposed penalties under various sections on the main appellant and also confiscated the goods which were seized from the factory premises of the appellant.

Appellant Contentions:-The Appellant submitted that the entire order in original is mis-directed. He would submit a small synopsis as regards dates and events:

1	29/04/2003	The DGCEI authorities caused enquiries at the appellant's factory, the appellant's residence and also at the office of one customer namely Shree Ambuja Trading Co. (Partner Shri Parag Patel). Two Sales Tax registers for 2001-02 and 2002-03 were recovered from the factory among other documents. It is the case of the Revenue that one pencil entry with marking "#2" at the end of each month was made in Sales Tax Registers and these entries were for weight and value of the goods sold in unaccounted manner. (Register at pg. 1 to 8 of Paper Book No.2).
2	29/04/2003	The officers recorded statements of the appellant as well as 5 of his employees admitting that illicit manufacture of the goods was undertaken and the pencil entries in the Sales Tax registers were for goods illicitly manufactured and cleared.
3	17/05/2003	The appellant submitted a letter to the Chief Commissioner of Central Excise, the Additional Director General of Central Excise Intelligence and the Commissioner-II, Ahmedabad, lodging protest about the high-handed manner and pressure tactics of the DGCEI officers in coercively obtaining admissions/confessions during enquiry on 29.4.2003; and affidavits of the appellant and the employees sworn on 1.5.2003 were also submitted with this letter (Page 59 to 92 of Main Paper Book). In the appellant's Personal affidavit (page 80 to 91), the appellant explained the correct facts and also about the pencil entries in the Sales Tax register which were denied on oath.
4	21/05/2003	The Joint Director, DGCEI replied to the appellant that the complaint of duress and threat were not true and that the contents of affidavits were also not correct because statements were given by everyone voluntarily (page 93).
5	18/06/2003	The appellant replied to the said Joint Director and emphasized that the complaints of threat and duress by officers were correct and also that the contents of the affidavits were true (page 94).
6	18/07/2003	Shri Parag Patel of Shree Ambuja Trading Company also submitted a letter to the Jt.Director, DGCEI putting on record that he was forced to sign statements and other documents on 29/04/2003 and that his affidavit made on 1.5.2003 contained the correct facts. (page 97).
7	18/07/2003	The appellant wrote one more letter to the Jt. Director, DGCEI, stating that statement of one of his employees Shri Limbachia recorded on 16/7/2003 was obtained under force and duress and Shri Limbachia also signed this letter (page 99).
8	22/07/2003	The appellant was arrested and sent to judicial custody (page 101)
9	30/07/2003	The appellant's father submitted an affidavit before the Court of the Additional Chief Metropolitan Magistrate, Ahmedabad in the appellant's bail application and again referred to the pressure and coercion by the DGCEI officers during the enquiry and also about the force and threats applied for obtaining confessional statements as well as pencil entries on the Sales Tax Registers (page 102).
10	04/08/2003	The appellant was granted bail by the Criminal Court.
11	---	Thereafter, no further statement containing any admission of clandestine removal of goods has been recorded.
12	13/04/2004	Show Cause Notice was issued by the Additional Director demanding total sum of Rs. 41,15,853/- on the ground that pencil entries made at the end of each month in the Sales Tax Registers indicated that goods valued at Rs.1,48,22,401/- in F.Y. 2001-02 and Rs.3,02,59,759/- in F.Y.2002-03 were sold without payment of duty, and that these clearances were admitted by the appellant and his employees during the enquiry. The value of the goods was arrived at by taking a uniform price of Rs.150/- per Kg. of Winding Wires irrespective of 9 sizes and 14 brands of the wires (page 1).
13	25/01/2005	The appellant filed an interim reply.
14	25/04/2005	The appellant filed a detailed reply with the letters and affidavits already submitted before the authorities at the time of investigation.
15	25/04/2005	The Commissioner passed an ex-parte order without considering the appellant's reply which came to be set aside by the Hon'ble Tribunal and the case was remanded for denovo adjudication.
16	23/03/2006 & 17/04/06	The Senior Intelligence Officers Shri G.A. Khati, Shri Chetan Verma and Shri Y.A. Doulati and also Shri Santosh Kumar (Inspector) and two panchas of the panchnama made at Shri Ambuja Trading Co. and also Shri Parag Patel of Shree Ambuja Trading Company were cross-examined before the Commissioner, Ahmedabad. The investigating officers confirmed that except pencil entries in the Sales Tax Registers, there was no other evidence corroborating illegal sales, and that the buyers of the appellant were contacted by issuing summons but their statements were not recorded by the officers. The officers also admitted that the panchas for the premises of Shri Ambuja Trading Co. were working elsewhere and no permission was taken by the officers from their employers for allowing them to remain present during the panchnama. The panchas confirmed that they were not present all throughout but were called in the evening for putting their signatures on the panchnama and the documents recovered by the officers from Shri Paragbhai's office. Shri Paragbhai confirmed that he was forced and pressurized by the officers in putting his signature on the statement on 29.4.2003 and he was also forced to make stray entries in his purchase book for showing unaccounted purchases of Rs.10 lakhs for two years with reference to the appellant's name (page 178 to 187).
17	19/04/2006	The appellant filed a final note of written submissions and inter-alia submitted as under:
		(i) The evidence in form of panchnamas and statements was collected in questionablecircumstances and hence case of clandestine manufacture on such unreliable evidence cannot be upheld without any corroboration. (ii) The electricity consumption recorded in two Electric Meters indicated that the recorded and billed consumption was much lower than what would be required for producing the quantities alleged by the department (details page 222 to 245). (iii) The value of the goods was arrived at by taking a uniform price of Rs.150/- per Kg. which was not correct nor justified in view of total 126 varieties of Winding Wires (i.e. 14 brands and 9 sizes). (iv) No manufacturer would write one pencil entry for the clandestine sales of the entire manufacture in the Sales Tax Register, and the whole case of the Revenue based on this statutory register maintained under Sales Tax law was ex-facie improbable and unsubstantiated. In the private diary of Shri Paragbhai Patel (Shree Ambuja Trading Co.) also, only one entry for a month was shown and therefore also it was not probable that a buyer would buy only one consignment in a month in unaccounted manner. (v) Other buyers were contacted by the officers because their names were given by the appellant on 30.4.2003 when his statement was recorded, but statements of these buyers were not recorded resulting in a irresistible inference that these buyers did not agree for having purchased or received any unaccounted goods from the appellant. (vi) There was no cogent or reliable evidence of independent nature showing a large scale clandestine production and sale without payment of duties.

The ld. Counsel would then draw our attention to the findings of learned Commissioner at paragraph No.60 of the Order in Original. After drawing our attention, he would submit that the entire order is beyond the case as made out in the show cause notice; as demand is raised on the basis of statements of the proprietor of the appellant and others, whereas demand is confirmed in the order on the basis of alleged production for particular month i.e. April, 2003. It is his submission that this basis for confirmation of demand was never ever disclosed to the appellant and hence is violation of principles of natural justice. He would submit that the appellant herein was forced and pressurized on 29/04/2003 in making pencil entry in statutory Sales Tax register and this fact has been stated by Shri Paragbhai Patel and proprietor of the appellant in an affidavit which has been made on oath and filed with the departmental authorities. It is his submission that even on merits, average production were arrived at by adding total value of goods seized in the factory and at the premises of one particular customer in April, 2003 and is incorrect because the goods which were seized on 29/04/2003 was not entire production of April, 2003. He would submit that factually there is opening balance of 7650 Kg hence at the most production can be ascertained as 3307 Kg and the said 3307 Kg. which was seized at the purchaser's place was purchased over a period of eight months. It is also his submission that there are no justifiable reasons for arriving at a conclusion for demand of duties as calculation of annual average production is considering only the quantity of finished goods as production of April, 2003. It is his submission that observation about stray cases of clearing of goods without preparing invoices are also incorrect because appellant is exempted from licensing control including getting registered under Central Excise law. It is his submission that factually also appellant had raised commercial bills as pointed out to the adjudicating authority. It is also his submission that as can be seen from the dates and events, all statements are retracted by persons at the earliest and also during investigation, no reliance can be placed on such statements. It is his submission that the appellant had given names and address of eight customers and there is confirmation that the officers had summoned these customers along with records, but surprisingly Revenue has not relied on any of such records would indicate that there is no evidence as to receiving goods without documents and without invoices, and would not support the case of the Revenue of the allegation of clandestine removal. It is also his submission that there is no allegation that electricity consumption has increased and there was purchase of raw-materials clandestinely and finally Pinch cross examination as taken also indicates that they were not present when the documents were withdrawn by the revenue authorities.

Respondent Contentions:-The respondent submitted that during the relevant period, appellant had, in fact, during panchnama held on 24/3/2003 made a statement of illicit clearance made by them and also deposited various cherubs in lieu of acceptance of evasion of duty. It is his submission that there was stock of finished goods which were in ready to deliver condition and were not recorded in statutory record. Partners of Shree Ambuja Trading Co., purchaser of appellant's finished goods, confessed that the seized goods were received without payment of excise duty. He would submit that the impugned order is correct and legal and does not require any interference.

Reasoning of Judgment:-We have considered the submission from both parties and perused the record, we find that the appellant is a small scale industry. He is not required to maintain any statutory register. We also find from private records that appellants have demonstrated that there was no clandestine removal of goods from the factoryand all entries were recorded. The said dispatch/clearance has not disproved by lower authorities either by recording statements of the transporters or purchaser. In absence of any corroborative evidence, adjudicating authorities findings in Para 61 and 62 of the order in original for confirmation of demand is unsustainable, as demand of duty cannot be done on the basis of presumption and assumption. We also find that appellant had informed lower authorities names and address of purchasers of finished goods and investigating authorities have not recorded any statements, and even if recorded are not relied upon as is evidence from allegations in show cause notice.
We find that the judgment of the Hon'ble High Court of Gujarat in the case of Vishay Traders P. Ltd. [2013 (287) ELT 243 (Guj)] would be very relevant as the said judgment clearly holds as to the evidential value of the retracted statements and corroborative evidence which are required. In the case in hands, we find that there is also no Endeavour of the lower authorities to corroborate allegations of clandestine removal of goods, in as much as, there is no evidence brought on record of the transporters having transported the goods without bills. We find that affidavits which have been filed by proprietor, Shri Bhatt and another person, indicate statements were recorded by lower authorities by putting pressure and under coercion and they were made to make pencil entries on Sales Tax register. We find that the lower authorities have not put any effort to contradict these affidavits, and are considered as correct by adjudicating authority in Para 60 of the order in original.
In view of the foregoing, in the facts and circumstances of this case, we find that the impugned order which is passed on presumption and assumption is unsustainable and liable to be set aside and we do so. The impugned order is set aside and appeal is allowed with consequential relief if any.
Decision:-Appeal allowed.
Comment:- The gist of this case is that the burden of proving clandestine charge is on the revenue and this burden is required to be discharged by them effectively. The demand that is based on assumptions and presumptions and the statements that were taken under coercion, is not sustainable.

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PJ/Case law/2013-14/1643

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