2015 (10) TMI 2142 - AT - Central Excise

Importance of Concrete Evidence in Alleged Clandestine Activities

Malu Electrodes Pvt. Ltd. And others Versus Commissioner of Central Excise, Nagpur

The Tribunal's judgment emphasized the necessity of concrete evidence in cases involving alleged clandestine removal and unaccounted production. While ... Denial of SSI Exemption - manufacture of welding electrodes - Clandestine removal of goods - Imposition of penalty - Held that:- It is an admitted fact that all the 12 companies had bank accounts and transactions were made through cheques/DDs. It is not coming out from the show cause notice or the impugned order whether any effort was made through the banks to find out the precise address and the persons behind them who has withdrawn the money given to these 12 companies/firms. We also note that all these firms were registered with the Sales Tax department and also had filed the sales tax return. It is stated in the show cause notice that these firms were mainly engaged in the trading of coal. In our view, if the department had been able to find out that these 12 companies were involved in the trading of coal, it should have been possible for the department to locate the companies and record the statements of the proprietors to find out from whom the said supplier companies have purchased the welding electrodes. Results of such investigation could have helped in arriving the correct and true factual position. No enquiries have been made with the buyers of welding electrodes of the three marketing companies. If enquiries were made at least with some buyers and it was found that the buyers have received the goods carrying the brand name of appellant No.1 alone, perhaps the case of the Revenue would have been on much stronger footing. - In the absence of these details, it cannot be concluded with certainty that all the goods that have been sold by the marketing companies were manufactured by appellant No.1 and appellant No.1 alone and were representing their unaccounted production. In the absence of details of procurement of these two critical inputs (wire rods and rutile) and input-output correlation as also the factors mentioned earlier, we are of the view that the Revenue has not discharged burden of proving the quantum of clandestine production and clearance of the final product. We may hasten to say here though we are of the view that there are pointers to indicate that the appellants have indeed indulged in the clandestine clearance of the goods without payment of duty, however, it is equally important to have a reasonable if not correct quantity and value of the goods clandestinely cleared. Sometimes it may be difficult to have the correct figures but in such cases the estimation has to be based upon a very very reasonable basis. In view of the above analysis, we are of the view that the demand raised in annexure-I of the demand notice does not survive and we accordingly set aside. In the absence of any proof of transportation or even admission in their statements, in our view, it will not be appropriate to assume that rutile/illmenite covered by the cases listed in the show cause notice had come to the factory of appellant No.1 and thereafter used in the production of welding electrodes which were cleared clandestinely. There are number of other raw materials and there are few evidences which indicate that some other raw materials had come to appellant No.1. However, these are few stray cases and do not account in substantial way to the clandestine clearance of quantity alleged in the show cause notice. These observations are applicable for demands covered by annexure-I as also annexure-V - welding electrodes manufactured by appellant No.1 were manufactured under the cover of documents of Vidarbha Enterprises and the said sale is not accounted for in the statutory records of appellant No.1. It was also observed that the documents of Vidarbha Enterprises were also having the same serial number and the said documents are also not recorded in the books of account of either Vidarbha Enterprises or appellant No.1. We also note that in the statements, the Directors have admitted that they had clandestinely cleared the goods in the name of marketing agency and as noted earlier, there are indications that the appellants had received the unaccounted raw material and manufactured and cleared the goods unaccounted. We are, therefore, of the view that the demand made in this annexure is required to be upheld. Revenue has gone by the statement of Shri T.K. Rajgopal who has stated that he has sold about 400 MT of rutile to appellant No.1. We find that the Revenue has not found the details from the bank account of Rhodonite that in how many cases the drafts were made by depositing the cash amount by Shri Sanjay Malu. Further, on number of occasions drafts have been made from the account of Orange City Traders for which the goods were supplied by Indian Rare Earths Ltd. to Rhodonite, Sanjhi Foodco and Ayush Enterprises. We find that no attempt has been made to find out which of these consignments of Rhodonite were sold to appellant No.1. Neither Shri T.K. Rajgopal has been asked these details. All that Shri Rajgopal stated that he sold about 400 MT of rutile to Shri Poonamchand Malu. We also note that Shri Poonamchand Malu in his statement has denied this part of the statement of Shri T.K. Rajgopal and he has stated that he has purchased few consignments through broker alone. Thus there is a vast difference between what is admitted purchase of rutile from Rhodonite as claimed by Shri Sanjay Malu or Shri Poonamchand Malu As far as the show cause notice dated 21.11.2003 is concerned, we set aside the demands covered by annexure-I, annexure-IV and annexure-V. The demands raised in annexure-II and annexure-III are upheld. Coming to the penalty amount, the penalty imposed under Section 11AC of the Central Excised Act, 1944 read with Rule 25 of the Central Excise Rules, 2002 is reduced to the duty amount covered by annexure-II and III - there is no evidence that the unit would have crossed SSI exemption limit, we reduce the fine in lieu of confiscation to ₹ 1,00,000/-. The unaccounted drawn wire rods were also not recorded in any books of account. The confiscation is in order and the fine imposed is not on the higher side and the same is upheld. As far as penalty under Rule 26 on appellant No.2 is concerned, in our view, without any evidence whether the turnover of appellant No.2 would cross the SSI exemption limit and also keeping in view the duty involved on the goods seized, we reduce the penalty imposed to ₹ 1,00,000/- under Rule 26. Penalties have also been imposed on appellant No.3 and 5 under Rule 26 read with Rule 209A of the Central Excise Rules, 1944. Keeping in view the overall facts of the modus operandi etc. and their active involvement, the penalty imposed on them is reasonable and is, therefore, upheld. - Decided partly in favour of assessees. Issues Involved:1. Alleged clandestine removal and unaccounted production of welding electrodes.2. Procurement of raw materials through fictitious firms.3. Use of marketing firms for selling unaccounted production.4. Seizure of goods and raw materials.5. Penalties imposed on the appellants.Detailed Analysis:Issue 1: Alleged Clandestine Removal and Unaccounted ProductionThe Revenue alleged that Appellant No.1 was not showing the entire production of welding electrodes in their books of account, thereby evading payment of duty. The wire rods and flux manufactured by Appellant No.2 were purportedly used by Appellant No.1 for unaccounted production. The Tribunal found that while there were indications of unaccounted production, the evidence provided was insufficient to conclusively determine the quantum of clandestine production. The demand based on the sales of three marketing firms was set aside due to lack of concrete evidence linking the sales to unaccounted production by Appellant No.1.Issue 2: Procurement of Raw Materials Through Fictitious FirmsThe Revenue claimed that raw materials were being purchased in the name of fictitious firms, and payments were made in cash. The Tribunal noted that there were some indications of unaccounted procurement of raw materials like rutile and wire rods. However, the evidence was not concrete enough to establish a direct link to the alleged unaccounted production. The Tribunal set aside the demands based on the assumption that all the raw materials procured were used for unaccounted production.Issue 3: Use of Marketing Firms for Selling Unaccounted ProductionThe Revenue alleged that Appellant No.1 used three marketing firms (Appellant Nos. 6, 7, and 8) to sell unaccounted production. The Tribunal found that the statements of the involved parties were contradictory and not sufficiently corroborated by other evidence. The Tribunal emphasized the need for concrete evidence linking the sales by these marketing firms to the unaccounted production by Appellant No.1. Consequently, the demand based on the sales figures of these marketing firms was set aside.Issue 4: Seizure of Goods and Raw MaterialsDuring the investigation, goods and raw materials were seized from various premises, including the factory of Appellant No.1 and the godowns of Appellant Nos. 15 and 16. The Tribunal upheld the seizure and confiscation of goods found to be removed without payment of duty. The penalties imposed for these seizures were also upheld, as they were found to be reasonable and justified.Issue 5: Penalties Imposed on the AppellantsThe Tribunal reviewed the penalties imposed on the appellants under various sections of the Central Excise Act and Rules. The penalties on Appellant Nos. 2, 3, and 4 were reduced, considering the substantial reduction in the demand. The penalties on Appellant Nos. 6, 7, 8, 9, 10, 11, 12, and 13 were set aside due to lack of concrete evidence linking them to the alleged clandestine activities. The penalties on Appellant Nos. 15 and 16 were upheld, as they were found to be reasonable.Conclusion:The Tribunal's judgment highlights the importance of concrete and corroborative evidence in cases of alleged clandestine removal and unaccounted production. While some demands and penalties were upheld, many were set aside due to insufficient evidence. The judgment underscores the need for thorough investigations and clear linkages between alleged activities and the parties involved.