Tribunal Upheld Duty Demand & Penalty, Reduced Personal Penalties to Ensure Justice

The Tribunal upheld the duty demand and penalty under Section 11AC of the Central Excise Act, 1944, due to the appellant's evasion of duty by clearing cone yarn as hank yarn. However, additional penalties under Rule 25 and Rule 173Q were set aside. Personal penalties on individuals were reduced to ensure justice, with Sh. K. Periasamy's penalty reduced to Rs. 5 Lakh, Sh. C. Elango's to Rs. 25,000, and Sh. R. Ganesan's to Rs. 25,000. The case was disposed of with any consequential reliefs, and the court pronounced the operative part of the order in open court.

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Issues Involved:
1. Whether the appellant had the facility to manufacture hank yarn during the disputed period.
2. Whether the appellant cleared cone yarn in the guise of hank yarn to evade payment of duty.
3. Whether the appellant clandestinely cleared cone yarn without payment of duty and proper accounting.

Issue-wise Detailed Analysis:

1. Facility to Manufacture Hank Yarn:
The department alleged that the appellant (ETM) did not have the facility to manufacture hank yarn during the disputed period. This was based on the Energy Audit Report dated 22/1/2002, the statement of Sh. N. Muruganandam, and correspondence with TNEB. The Energy Audit Report indicated no reeling activity in the factory, and TNEB confirmed no reeling machines were connected to power. The appellant's reliance on a stock-taking report dated 11/11/2000 was found unconvincing as it showed no hank yarn in stock, suggesting no hank yarn was manufactured. The evidence led to the strong inference that the appellant was not manufacturing hank yarn during the period of dispute.

2. Clearance of Cone Yarn in the Guise of Hank Yarn:
The department's investigation revealed that the appellant cleared cone yarn in the guise of hank yarn to evade duty. The personal diary of the Managing Director, Sh. K. Periasamy, was key evidence showing production and clearance of cone yarn, although it was accounted for as hank yarn in RG1 registers. The diary entries matched the production figures, indicating that the appellant was clearing cone yarn while falsely accounting it as hank yarn. The lack of purchase of packing materials for hank yarn further supported the department's case. The modus operandi involved raising parallel invoices with the same serial numbers and using group companies like KPK Exports to create fictitious transactions.

3. Clandestine Clearance of Cone Yarn:
The department found substantial evidence of clandestine clearance of cone yarn without payment of duty. Documents seized from the administrative office, such as Kalaas Coolie vouchers, indicated unaccounted clearances. Statements from employees and buyers corroborated the findings. The appellant used double sets of invoices and destroyed the ones used for actual deliveries. The seizure of 10 bags of cone yarn at Saranya Impex without any invoice further evidenced clandestine activities. The note book of Sh. C. Elango, a yarn broker, and the diary of Sh. Periasamy revealed unaccounted transactions and meetings to arrange for the clearance of cone yarn without duty.

Penalties and Orders:
The Tribunal upheld the duty demand and the penalty under Section 11AC of the Central Excise Act, 1944, citing the appellant's contumacious conduct in evading duty. However, additional penalties under Rule 25 and Rule 173Q were deemed unwarranted and set aside. Personal penalties on individuals were reduced to meet the ends of justice:
- Sh. K. Periasamy: Reduced from Rs. 10 Lakh to Rs. 5 Lakh.
- Sh. C. Elango: Reduced from Rs. 50,000 to Rs. 25,000.
- Sh. R. Ganesan: Reduced from Rs. 50,000 to Rs. 25,000.

The appeals were disposed of with consequential reliefs, if any. The operative part of the order was pronounced in open court.

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