Clandestine removal - proof required to prove

PJ/CASE STUDY/2011-12/43

01 January 2012

PJ/Case Study/2011-12/43

CASE STUDY

Prepared By:
CA Pradeep Jain
CA Nishit Shah and
Sukhvinder Kaur LLB [FYIC]

Introduction:-

In the case under study the issue involved was that for the charge of clandestine removal without payment of duty, whether the Adjudicating Authority has confirmed the demand of duty by taking into account the contentions raised by the assessee. Whether only on statements recorded, the clandestine removal can be held to be established without verifying the existence of the facts.

M/s Sunlight Industries v/s Deputy Commissioner, Jodhpur
[Order-in-Appeal No. 365(HKS)CE/JPR-II/2077 Dated: 13.06.2007]

Brief Facts:-

- Appellant are engaged in processing of man made fabrics classifiable under Chapter Heading No. 55.11and 55.12 from their factory at Mandia road Pali-Marwar. They were doing the same work without the aid of power or steam.

- The anti evasion party visited the premises of M/s Shree Rohit Fab. Tex. Pvt. Ltd. on 9.09.2001. They have seized five delivery challan books which contained entries relating to dispatch of processed (heat set and stentered) man made fabrics to various parties whose names were given in abbreviation such as BPL. It was also observed that on the reverse of these delivery challans, slips containing the details of No. of thans and quantity of man made fabric etc pertaining to different parties were found pasted which corresponded to the details of fabrics mentioned in these challans. These slips were issued by the parties who has sent the fabric in question to M/s Shree Rohit Syn fab (P) Ltd, Pali for processing. Therefore, challan books along with other records/documents were resumed for further scrutiny.

The Department on the basis of resumed record found that the quantity of processed man made fabrics cleared vide the delivery challans did not tally with the quantity entered in the statutory records of the above unit and prima facie it was observed that this quantity was processed and cleared without being accounted for in the statutory records.

- The statement of Director of M/s Shree Rohit Syn fab (P) Ltd, Pali was also recorded wherein it was stated that all the delivery challans, heat set/finished fabric (man Made fabric) was cleared to various parties and while clearing the finished fabrics, they had not issued any excise invoices.

- The Department while scrutinizing the challan books found that some delivery challans had been issued in the name of the appellant-firm. The anti evasion party visited the factory of the appellant as on 7.04.02. They took the statement of the proprietor Mr. Mohammad Sabir of the unit. He clearly told that they are engaged in hand process of fabrics. And that they has sent printed MMF to M/s Shree Rohit Syn fab (P) Ltd, Pali for finishing under the cover of some challans and they did not issue any excise invoice. The entire fabric sent was received without payment of duty.

- Department issued show cause notice to the appellant alleging that they has cleared 50100 meters of processed man Made fabric to M/s Shree Rohit Syn fab (P) Ltd, Pali without paying duty and the same was recoverable from them under the proviso to Section 11A of the Central Excise Act, 1944. And penalty was also proposed to be imposed.

- The Adjudicating Authority confirmed the demand of duty alongwith interest and also imposed penalty equivalent to duty demanded under Section 11AC of the Act. Penalty under Rule 26 of CER, 2002 was imposed on Shri Mohd. Sabir and on M/s Shree Rohit Syn fab (P) Ltd.

- Aggrieved by the impugned order, appellants filed appeal before the Commissioner (Appeals) challenging the impugned order on the ground that they did not possess the facility of processing of fabrics with the aid of power or steam which is exempt from levy of excise duty and no finding in this regard has been recorded. Another ground raised was that the appellant had not received the show causw notice. Reliance was placed on judgment in CCE, Ahmedabad-I v/s medico labs [2004 (173) ELT 117 (Guj HC)] andin Gajra Gears (P) Ltd v/s CCE, Indore [2004 (168) ELT 475 (Tri-Delhi)].

- The Commissioner (Appeal) remanded the order back to the Adjudicating Authority for reconsideration of the case.

- The Adjudicating Authority ordered for recovery of central excise duty alongwith interest in terms of proviso to Section 11 (A) (1) & Section 11AB of the Central Excise Act, 1944 & also imposed equal penalty under Section 11AC of the Central Excise Act, 1944.

- Aggrieved by the same, appellant are in appeal before the Commissioner (Appeal).

Appellant’s Contention:-

- Appellants submit that they do not possess the facility of processing of fabrics with the aid of power or steam. The processing of fabrics without the aid of power or steam is exempt from levy of Excise duty at that time. They were printing the fabrics on tables only. The matter was remanded on these grounds: -

“The subject Show Cause Notice was also said to be received by them. I find that there is no finding of the Adjudicating Authority whether the fabrics processed without the aid of power or steam attracts duty or not. The appellants have also questioned the service of notice to them. However, the claim of the appellants has to be examined.”

Thus, it is clear that the matter was remanded on two points. First the service of notice and other on the point of processing of fabrics without the aid of power of steam attracts duty or not. The appellant submit that they have clearly pleaded before the Adjudicating Authority that processing of fabrics is exempt from duty. But the impugned order does not have facility to process the fabrics. But the appellants have never contended the same. They have contended that they are processing the fabrics without the aid of power of steam and as such exempt from payment of duty. But this was never discussed in the order. Such an order is going totally against the basic facts and liable to be set aside.

- That the matter was remanded with specific terms to see whether the processing of fabrics without the aid of power or steam is exempt from payment of duty. But there is no finding of the Adjudicating Authority have made a totally new case. The impugned order has gone beyond the scope of remand order. It is settled principle that the order has to be passed in terms of remand order. But this is not done and as such the order deserves to be set aside.

- That the impugned order is passed as fresh. Even it has been passed for the other party M/s Shree Rohit fab Tex Pvt Limited. But it was not remanded for this party. Thus, the whole order does not seem to be passed for the remand order. The whole order has been passed afresh. Such an order simplicitor is liable to be set aside.

- That this order is also not legally sustainable. The penalty is already imposed on them for the same offence and duty is confirmed against M/s Shree Rohit Fab tex (P) Ltd. The duty cannot be demand from both the parties for the same offence. Further, the Cenvat will be available to us but the benefit of the same is not extended to the appellants. Thus, the Adjudicating Authority has clearly erred in passing the order. Such an order is liable to be set aside.

- Appellant submit that the benefit of the cum-duty price was not extended to them by the Adjudicating Authority which is an established law. The benefit of this legal point should be extended to the appellant.

- It was submitted that the duty cannot be confirmed against them as they are processing the fabrics without the aid of power or steam. As such the penalty cannot be imposed on them. As such the penalty should be set aside.

Reasoning of the Commissioner (Appeal):-

- The Commissioner (Appeal) noted that the initial point raised by the appellants that the compliance of the remand order was not made by the Adjudicating Authority. It was stated that in his remand order dated 31.05.2006, specific direction was given to the Adjudicating Authority as: -

“The appellants have vehemently pleaded that they do not posses the facility of processing of fabrics with the aid of power or steam which is exempt from levy of excise duty. These facts were stated to be narrated by the proprietor in his statement. The subject Show Cause Notice was also said to be not received by them. I find that there is no finding of the Adjudicating Authority whether the fabrics processed without aid of power or steam attracts duty or not. The appellants also questioned the service of show cause notice to them. However, the claims of the appellants have to be examined.”

- The Commissioner (Appeal) found that the Adjudicating Authority at para 25 of the impugned order in his findings mentioned as such “the facts of the case and statements of Shri Ashok Doshi, director of M/s Shree Rohit Syn Fab Pvt Ltd, pali and the confessions of Shri. Mohd. Sabir, Porp. of M/s Sunlight Indutries, Mandia Road, pali have cleared 50100 meters (taking an average of 100 meters in one than as stated by them) of processed Man made Fabric to M/s Shree Rohit Syn Fab (P) Ltd after carrying out the process of printing without payment of duty of Rs. 107014/-.” In this regard on going through thesaid statement, it was found that Shri Mohmd. Sabir, proprietor of appellants firm no where stated that they processed the fabrics with the aid of power or steam.

- It was found that the Adjudicating Authority has also held that “there is no force in the contention of the assessee that they do not have the facility to process the fabrics. In case they do not have the facility to process the fabrics how they cleared the processed man made fabrics to M/s Rohit Fab.” Thus, it is clear that the Adjudicating Authority without going through the main issue i.e. whether the process carried out by the appellants with the aid of power or steam.

- The Commissioner (A) also found that in the Show Cause notice dated 04.07.2005 issued to the appellants it was alleged that appellants clandestinely removed processed man made fabrics. The department has nowhere established that the process carried out by the appellants was with the aid of power or steam. Also at the time of passing the impugned order it was not mentioned that the process carried out by the appellant’s does amount to manufacture and why the demand was raised only for 50100 meter and not for the other quantity lying in stock as on the date of visit of departmental officers to their factory.

- It was held that from the above it is clear that the departmental case is only on the basis of assumptions/presumptions. Inspite of clear directions given in the remand order the Adjudication Authority has not followed the same but passed the impugned order on the assumptions/presumptions. It is settled principle of law that no demand can be confirmed/recovered only on the basis of assumptions/presumptions.

- It was held that in view of the above, impugned order set aside.

Decision of the Commissioner (Appeal):-

Appeal allowed.

Conclusion:-

The charge of clandestine removal is a serious charge and it is required to be proved with cogent evidence beyond any doubt that there was clandestine removal of goods without payment of duty. The Commissioner (Appeal) rightly held that the demand of duty cannot be confirmed based on presumptions and assumptions. The Adjudicating Authority should have ascertained the basic fact that whether the assessee was processing the fabrics with or without the aid of power or steam.

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PJ/CASE STUDY/2011-12/43
01 January 2012

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