2018 (10) TMI 16 - AT - Central Excise

Tribunal Decision: Duties confirmed for Emcee Crowns & Metal Closures, penalties imposed.

The Tribunal partially allowed the appeals, confirming duty and penalties as follows: M/s. Emcee Crowns (P) Ltd. was liable for duty of Rs. 3,57,314.05 ... Clandestine removal - crown corks - shortages and excesses of goods - PP caps - dummy units - clubbing of clearances - appellants were vehemently contending on the fact that there was no facility to manufacture crown corks in the factory of M/s. MCPL. Therefore, it cannot be alleged that they have manufactured and cleared crown corks. Held that:- The Commissioner in the de novo adjudication order had cursorily mentioned that “the productivity status register and production register of the assessee’s unit (M/s. MCPL) confirm the view that the crown corks were manufactured by M/s. MCPL, therefore, it can be inferred that though part of the activity like punching has been undertaken at M/s. ECPL and invoices were raised by M/s. WC, the crown corks cleared were manufactured at M/s. MCPL. Since the manufacture was done in the assessee’s premises, the duty of demand raised in the show-cause notice with regard to manufacture and clearance of crown corks” confirmed. It is pertinent to see that neither the mahazar or any subsequent statement or investigation conducted have given reasons for this inference. The show-cause notice alleges that the manufacturing activity was done by M/s. MCPL, without giving any concrete proof to the effect that M/s. MCPL had any facility to manufacture the same - Department did not issue any show-cause notice to M/s. WC. Even assuming that the Department has considered M/s. WC, a non-existing unit, the issue required to be investigated deeply whether such goods were manufactured at M/s. ECPL, this investigation was not conducted. Moreover, no SCN was given to M/s. ECPL alleging manufacture of crown corks that was ultimately alleged to have been cleared by M/s. MCPL in the name of M/s. WC. The SCN acknowledges the fact that M/s WC was started in 1983 and was functioning from the premises of M/s MCPL and was closed down in 1987. Shei Ananth Rao has stated that he has started the unit M/s WC again in 1991-92 from premises at Murgeshpalya. The Revenue has not taken any steps to come to a definitive conclusion as to whether the impugned crown corks were manufactured at M/s. MCPL or at M/s. ECPL. This being not done, arriving at a conclusion that the goods have been manufactured at M/s. ECPL and cleared later by M/s. MCPL in the name of M/s. WC does not stand the scrutiny of law. As far as the allegation of manufacture and clearance of crown corks by M/s. MCPL, in the name oif M/s WC is concerned, it is found that the appellants have a point. The SCN and the order in de novo are silent on the claim that the appellants had no manufacturing activity. Whereas, the show-cause notice alleges that the crown corks have been manufactured in the premises of M/s. MCPL, the Order-in-Original talks of crown corks have been manufactured in the premises of M/s. ECPL. - The Department has not issued show-cause notices either to M/s. WC or to M/s. ECPL. - thus, the assessee’s contentions on this ground too are strong. Existence of unit by name M/s. WC - Held that:- Both the Karnataka Electricity Authority and Central Excise having jurisdiction over Murugeshpalya, did not come to the categorical conclusion that the unit by name M/s. WC did not exist there. Whereas, Karnataka Electricity Authority has only given that the premises had an electricity connection in the name of Shri E. Hanumantha Rao and have given certain details of electricity consumption from which it could only be inferred that the electricity consumption was less and infrequent - Also, the appellants have produced various correspondences between M/s. WC and the bankers and have also brought on record the fact that the payments by customers of M/s. WC were made into the Bank accounts of M/s. WC. On this count also, the appellants have a case. Financial dealings - Held that:- The show-cause notice does not provide any proof regarding the accrual of such sums to M/s. MCPL. In the absence of any financial flow in both directions, we are afraid that this much would not suffice to establish mutuality of interest between M/s. MCPL and M/s. WC. Removal of PP caps clandestinely by M/s. MCPL - clearance of scrap clandestinely by M/s. MCPL - irregular availment of MODVAT credit by M/s. MCPL - irregular availment of MODVAT credit by M/s. ECPL - Held that:- The show-cause notice was able to bring out from various records and statement of the officers of M/s. MCPL that clandestine removal of PP caps and scrap has taken place. No entries have been made in the statutory records like RG-1 Register - demand on all counts upheld. Penalties on the M/s. ECPL and M/s. MCPL and various personal penalties - Held that:- Looking into the amount of duty confirmed on M/s. MCPL, we reduce the penalty imposed on M/s. MCPL from ₹ 5,00,000/- to ₹ 2,00,000/- and the penalty imposed on Shri Prasanth Hegde, from ₹ 2,00,000/- to ₹ 1,00,000/- - We do not interfere with the penalties imposed on M/s. ECPL. However, looking into the role of various persons involved, we find that penalties imposed on Shri Mahesh Hegde (E/1174/2005) and Shri K. S. Dilip (E/1175/2005) are harsh - It was brought on record that Shri Mahesh Hegde used to sign differently in different documents and the same was confirmed by Government Examiner of Questioned Documents. However, it is not clear as to any criminal proceedings have been initiated against him - As far as the instant proceedings are concerned, nothing was brought on record to show that as to how they were benefitted by the alleged evasion by M/s. MCPL or M/s. ECPL, to substantiate the penalties levied on them, hence, we set aside the penalties. Appeal allowed in part. Issues Involved:1. Clubbing of clearances of M/s. WC with M/s. MCPL.2. Existence and operations of M/s. WC.3. Allegations of clandestine removal of PP caps and scrap.4. Irregular availment of MODVAT credit by M/s. MCPL and M/s. ECPL.5. Imposition of penalties on various appellants under Rule 173Q and Rule 209A.Detailed Analysis:1. Clubbing of Clearances:The appellants argued that clubbing of clearances of M/s. WC with M/s. MCPL cannot be sustained as no show-cause notice (SCN) was issued to M/s. WC, and there was no evidence that M/s. WC was a non-existent entity. The Tribunal noted that the SCN and the subsequent order did not provide concrete proof that M/s. MCPL had the facility to manufacture crown corks. The Tribunal relied on various case laws to assert that in the absence of common funding, mutuality of interest, and financial flow back, clearances of an independent unit cannot be clubbed.2. Existence and Operations of M/s. WC:The Department alleged that M/s. WC was a fictitious entity created only on paper, with records maintained by M/s. MCPL personnel. However, the appellants presented evidence of electricity connections and other statutory recognitions for M/s. WC. The Tribunal found that the Department did not conclusively prove that M/s. WC did not exist, as both the Karnataka Electricity Authority and Central Excise did not categorically confirm its non-existence. The Tribunal concluded that the Department's investigation was insufficient to establish that M/s. WC was a dummy unit.3. Clandestine Removal of PP Caps and Scrap:The Department alleged that M/s. MCPL clandestinely removed PP caps and scrap without payment of duty, supported by job registers, productivity status registers, and statements from various officers. The Tribunal found that the appellants did not provide satisfactory explanations for these allegations. The Tribunal upheld the duty demand of Rs. 4,49,056/- for clandestine removal and Rs. 299/- for the shortage of 2036 PP caps.4. Irregular Availment of MODVAT Credit:The Department alleged irregular availment of MODVAT credit by M/s. MCPL and M/s. ECPL. The Tribunal found that M/s. MCPL had to reverse Rs. 83,936/- of MODVAT credit wrongly availed. Similarly, M/s. ECPL was required to pay Rs. 3,57,314/- for credit availed on goods not utilized in their factory. The appellants failed to produce evidence to substantiate the correct availment of credit.5. Imposition of Penalties:The Tribunal reduced the penalty on M/s. MCPL from Rs. 5,00,000/- to Rs. 2,00,000/- and on Shri Prashanth Hegde from Rs. 2,00,000/- to Rs. 1,00,000/-. Penalties on Shri Mahesh Hegde and Shri K. S. Dilip were set aside, as there was no clear evidence of their benefit from the alleged evasion. The penalty on M/s. ECPL was upheld at Rs. 1,00,000/-.Conclusion:The Tribunal partially allowed the appeals, confirming the duty and penalties as follows:- M/s. Emcee Crowns (P) Ltd.: Duty Rs. 3,57,314.05, Penalty Rs. 1,00,000/-.- Shri Mahesh Hegde: No penalty.- Shri K. S. Dilip: No penalty.- Shri Prashanth Hegde: Penalty Rs. 1,00,000/-.- M/s. Metal Closures (P) Ltd.: Duty Rs. 4,49,056/-, Reversal of MODVAT credit Rs. 83,936/-, Penalty Rs. 2,00,000/-.