Clandestine Removal of Goods

PJ/CASE STUDY/2010-11/17

19 August 2010

PJ/Case Study/2010-11/17

Case Study

Prepared By:

CA Pradeep Jain

Parag Ghate, B.Com and

Sukhvinder Kaur, LLB [FYIC]

Introduction:

It is a well known fact that an assessee has to keep records of all the different Acts and taxes he is registered for. It may be for the purpose of Excise, Income tax, Companies Act or any other Act. Each Act has its own specification and requirements of records. It is very necessary for an assessee to fulfill the requirements under each Act. The task of the assessee does not end here only. He should also take care that all the records maintained under different Acts should also tally with each other. An assessee who is registered under the Central Excise and is engaged in the manufacture of certain product is required to maintain records of production and sale and of receipt of raw materials, capital goods as well as the input services utilised in the manufacture of goods. In case of a company, they have to file the Balance sheet wherein all the sales figures and the value of sales is shown. Now the daily stock account is an excise record and Balance sheet may be according to the Accounting policies. But if in case there is any discrepancy in the sales figure shown in Daily Stock Register (RG-1) and in Balance sheet, can the manufacturer be held to be clandestinely removing the goods without payment of duty without any further corroborative evidence. This was the issue involved in the case under study.

In the matter of M/s Sandeep Industries

[Order-in-Original No. 163/2010-CE-DEMAND dated 02.08.2010]

Brief Facts:

- The assessee is engaged in the manufacture of S. S. Welding Tubes falling under chapter sub heading No. 73061100.

- During Audit, it was observed that the production and clearance of the finished goods and scrap that has been accounted for in RG–1 Register was less than the figures shown in the Balance sheet for the year. It was alleged that the assessee has not accounted for some quantity of production & clearance of finished goods in the RG-1 register. Further the allegation was placed that this difference in production quantity of SS pipes had been cleared from the factory without payment of duty for the period of 2007-08.

- The Superintendent issued a letter to quantify the exact amount of duty and deposit the govt. dues with interest and intimate the details. Assessee duly replied the said letter.

- On the ground that the reply of the assessee appeared to be incorrect, show cause notice was issued alleging clandestine removal by the assessee and suppression of facts.

Assessee’s Contentions:

¨ Assessee contended that there was no clandestine removal on their part. The difference in the figures shown in Balance Sheet and excise record was due to simple mistake of calculation on part of our chartered accountant and wrong figures were submitted to the Income Tax department. When the same was pointed out by the audit then they have asked the Chartered Accountant and he had revised the income tax return and the revised return was submitted to the department. It is submitted that though there was variance in quantitative figures but there was no change in the value of sales in our Balance-Sheet. As it is obvious fact that when the quantity of sale is increased then the total amount of sale should also increase proportionately. However, if the consideration was placed on the excise records, the sales figure matches with the figure mentioned in the Balance-Sheet. Moreover, Balance-sheet is not the wholesome evidence to prove the charge. The charge of clandestine removal cannot be based solely on difference between Balance Sheet and RG-1 register. Reliance in this regard was placed on the case of Martin & Harris Laboratories Ltd. v/s Commissioner of C. Ex., Gurgaon [2005 (185) E.L.T. 421 (Tri. - Del.)].

¨ It was submitted that mere variation in Balance Sheet and excise records does not prove that the clandestine removal has taken place. Reliance was placed on Karnataka Cement Pipes Factory v/s Commr. of C. Ex., Belgaum [2006 (206) E.L.T. 215 (Tri. - Bang.)], S. Peter v/s Commissioner of C. Ex., Belguam [2007 (5) S.T.R. 237 (Tri. - Bang.)], Commissioner of C. Ex., Guntur v/s Balaji Steel Corporation Ltd.[2002 (150) E.L.T. 1189 (Tri. - Bang.)], Commissioner of C. Ex., Raigad v/s Laminar Industries [2007 (220) E.L.T. 946 (Tri. - Mumbai)], Commissioner of C. Ex., Nagpur v/s Vidrbha Winding Wires Ltd.[2008 (229) E.L.T. 218 (Tri. - Mumbai)], Commissioner of C. Excise, Patna v/s Universal Polythene Industries [2001 (130) E.L.T. 228 (Tri. - Kolkata)], Raam Tyres Ltd. v/s Commissioner of Central Excise, Vishakhaptanam [2005 (188) E.L.T. 408 (Tri. - Bang.)], Ram Gelkem Industries Pvt. Ltd. v/s Commr. of C. Ex., Madurai [1997 (89) E.L.T. 178 (Tribunal)], Suvarna Polymers Pvt. Ltd v/s Commissioner of C. Ex., Hyderabad [2000 (120) E.L.T. 148 (Tribunal)].

¨ It was submitted that the sale value of the Balance Sheet had not changed. The duty of excise is on the value of the goods. When the same value is appearing in the Balance Sheet then the charge of clandestine removal is not sustainable. It was further submitted that the department was relying on the quantitative figures of Balance sheet and alleges the clandestine removal on that basis, then the Department should also rely on the value shown in the balance Sheet. It is obvious that when the quantity of goods sold is increasing then the sale value should also increase. But there was no change in the sales value. This shows that it is simple mistake. If the department is relying on one figure of Balance sheet for raising the demand then they should also take the other figure so that correct interpretation can be framed out. The Balance Sheet should be relied as a whole.

¨ The second basis of contention by the Assessee was that the department was imposing allegation without presenting any corroborative evidence for the same. The allegation that the assessee have not properly accounted for the goods manufactured nor paid the duty on those excisable goods at the time of clearances and removed the goods clandestinely was not true as they had paid the duty on the removal of goods cleared from their factory. They had prepared the invoices and RG-1 register for the same. Further, they had maintained the record of RG 23A Part-I register relating to receipt of inputs, their use in manufacture of final product. But on the other hand, the department has not produced the related invoices under which the goods had been removed. They have not shown the procurement of inputs from which these goods have been manufactured. They have not shown to whom these goods have been sold. They have not shown about realization of these goods. Thus, the department has not discharged the onus cast upon him by the law and the demand itself is not sustainable. In this regard, reliance was placed on the judgment given in Commr. of C. Ex., Coimbatore v/s Sangmitra Cotton Mills (P) Ltd [2004 (163) E.L.T. 472 (Tri. - Chennai)] wherein it was held that there has to be concrete evidence to prove the charge of manufacture and sale of goods without payment of duty. The Show cause notice so issued mere alleging something which has no proof is baseless and is not justified and should be quashed.

¨ It was further submitted that the proof of charge of clandestine removal has to be corroborated with other evidences and onus of the same lies on the department. The department has not discharged the same. Reliance is placed on the following decisions wherein it is held that the clandestine removal is a positive act and the burden of proving it is on the department:

(i) Icycold Commercial Enterprise vs. Collector of C. Ex., Calcutta-I [1994 (69) ELT 337 (Tribunal)]

(ii) Commr. of C. Ex(Appeals), Hyderabad v/s Dr. Reddy's Laboratories Ltd [2006 (200) E.L.T. 445 (Tri. - Bang.)]

(iii) Pacific Pharmaceuticals Pvt Ltd v/s Commr. of C. Ex, Bangalore-II [2007 (216) E.L.T. 263 (Tri. - Bang.)]

(iv) R.A. Castings Pvt. Ltd v/s Commissioner of C. Ex., Meerut-I [2009 (237) E.L.T. 674 (Tri. - Del.)]

(v) Andhra Cements Ltd v/s Commissioner of Central Excise, Guntur [2005 (191) E.L.T. 1046 (Tri. - Bang.)]

(vi) Martin & Harris Laboratories Ltd v/s Commissioner of C. Ex, Gurgaon [2005 (185) E.L.T. 421 (Tri. - Del.)]

¨ It was further submitted that value adopted by the department was high. They have taken the highest rate from the monthly chart prepared by the assessee. This showed that approach of the department was to fix the highest price against us. There should be some conceptual base for opting the highest rate of duty and the same should be clarified.

¨ It was further submitted that extended period of limitation could not be invoked against the assessee as there does not arise any question of invoking the extended period of limitation. There occurred some variances in the quantitative data of which the assessee have submitted duly rectified statement to the department before the audit was being conducted. The balance sheet of the unit is a public document and it is provided to all when the same is needed. It is submitted to Income tax department, it is given to the banks also. It was also given to audit for the desk review. As such, it can not be said that we have suppressed anything. Reference has been made to the following decisions:-

(i) Rolex Logistics Pvt Ltd v/s Commissioner of Service Tax, Bangalore [2009 (13) S.T.R. 147 (Tri. - Bang.)]

(ii) Kirloskar Oil Engines Ltd v/s Commissioner of Central Excise, Nasik [2004 (178) E.L.T. 998 (Tri. - Mumbai)]

(iii) Jindal Vijaynagar Steel Ltd v/s Commissioner of C. Ex, Belgaum [2005 (192) E.L.T. 415 (Tri. - Bang.)]

(iv) Hindalco Industries Ltd v/s Commissioner of C. Ex., Allahabad [2003 (161) E.L.T. 346 (Tri. - Del.)]

¨ With regard to proposed imposition of penalty, it was submitted that when the charge of clandestine removal is not established against the assessee on the basis of submissions made above and as such the penalty cannot be imposed on them. There was no willful suppression of fact the imposition of penalty and interest thereon is not legally justified. There was no malafide intention to evade duty or to suppress facts from the department. Further, suppression of facts means something is required under the law to disclose but one does not discloses which is not their case is as it can be seen that they had submitted the details in this regard. Reliance was placed on n this case of Andhra Cements Ltd v/s Commissioner of Central Excise, Guntur [2005 (191) E.L.T. 1046 (Tri. - Bang.)].

Issue Involved:

The issue involved in this matter was that

Whether the only evidence of difference in the Balance sheet and Daily stock account can be the basis for imposing clandestine removal on the assessee?

Order of the Deputy Commissioner:

Ø The Deputy Commissioner held that there was force in contention of the assessee that it was a simple mistake of calculation on part of their Chartered Accountant and wrong figures were submitted to the Income Tax department and when the same was pointed out by the Audit party, they have asked their Chartered Accountant and he has revised the income tax return and the revised return was submitted with the Department.

Ø It was further held that it was obvious fact that when the quantity of sale is increased then the total amount of sale should also increase proportionately. It was held that the sales figure shown in the Balance sheet matched the sales figures shown in the Excise records.

Ø It was further held that there was force in the contention of the assessee that the sale value of the Balance sheet has not changed. The duty is on the value of the goods and when the same value is appearing in the Balance sheet then the charge of clandestine removal was not sustainable.

Ø The Deputy Commissioner held that it is obvious that when the quantity of goods sold in increasing then the sale value should also increase. But the sale value had remained the same. This showed that it is simple mistake only.

Ø It was held that if the Department is relying on one figure of Balance Sheet then they should also take the other figure as correct.

Ø In the end it was held that contentions of the assesses were agreeable that the mistake was clerical and was rectified by submitting revised Income Tax Return to the Income Tax Department. On merits, the demand is held to be not sustainable.

Decision of the Deputy Commissioner:

Proceedings initiated against the assessee by the impugned show cause notice are dropped.

Conclusion:

The Learned Deputy Commissioner has rightly stopped the proceedings initiated against the aseessee for clandestine removal. As there was just a small mistake committed on the part of the assessee that the quantitative figures of two records were not matching. But the two records were having no mistake in the amounts shown. The department also had the mere figures as evidence. So the assessee has not violated any of the Acts and took all the corrective actions on pointing out the mistake, he cannot be punished for a clerical mistake.

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PJ/CASE STUDY/2010-11/17
19 August 2010

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