TaxTMI 
TaxTMI 
2011 (4) TMI 971
X X X X Extracts X X X X
X X X X Extracts X X X X
....t company was evading payment of duty through clandestine removal, officers attached to the Directorate General of Anti-Evasion (DGAE), Chennai visited the factory premises on 10-10-1995 and conducted search operations. During the course of search operations, the officers recovered certain incriminating documents from the table drawer of Shri Deepak Kumar Shah, Senior Executive and his briefcase. Various statements were recorded by the officers of DGAE during investigation. On the same day, as an immediate follow-up, transporter's godown of M/s. Carryco Road Carriers was searched and certain incriminating documents were recovered. On a follow-up of operation, C & F Agent and purchasers of the appellant's cigarettes were summoned and statements were recorded. On conclusion of the investigation, show cause notice dated 12-12-1996 along with the statements of grounds and facts were issued to the assessee-appellant, in which they were called to show cause as to why the Central Excise duty amounting to Rs. 5,91,01,920/- (BED Rs. 4,01,89,305.60 and AED of Rs. 1,89,12,614.40) should not be demanded under Rule 9(2) of the Central Excise Rules, 1944 read with proviso to Section 11A(1) of Ce....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and Shri S. L. Dugar would assail the order on the following grounds. 5.1 It is his submission that entire demand of duty is completely barred by time. He would submit that the period of demand is September 1994 to 9th October 1995 and show cause notice was issued on 12-12-1996 i.e., after a lapse of 14 months from the date of raid. It is his submission that the sole ground of the demand for the extended period is suppression of production and clandestine removal of cigarettes. He would submit that during the relevant period, the factory of the appellant was under 24 hours of physical control by 8 Central Excise Officers and two Central Excise Sepoys, posted as well as living and also eating in the factory and always present in the Central Excise office or in the guesthouse, both situated within the factory itself, round the clock; it is impossible for the assessee-appellant to suppress any activity of clandestine manufacture of cigarettes and cut tobacco. It is also his submission that it remains undisputed that all the Central Excise personnel were always present in the factory and carrying out the prescribed mandatory checks as per the Cigarette Manual and Supplementary ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... been addressed by the adjudicating authority. It is his submission that the show cause notice was issued by the Commissioner when he was holding additional charge of Guntur Commissionerate. It is his submission that while holding additional charge of Guntur Commissionerate, the Commissioner has no jurisdiction to issue the show cause notice, as his appointment was not notified in the gazette, unlike in the case of other officers. He would rely upon the following Office Memorandums. (i) M. F. (D.R.) F. No. 15/3/58-Co-ord, (99), dated 12-2-1958 (ii) M. F. (D.R.) F. No. 15/3/58 (Co-ord.) (192), dated 27th March, 1958 (iii) M. F. (D.R.) F No. 15/3/58 (310), dated 28-5-1958 5.4 It is also his submission that the impugned order passed by the Commissioner of Central Excise, Visakhapatnam is also without jurisdiction on the ground that there is no statutory function that could be exercised for want of gazette notification appointing him as Central Excise officer. He would rely upon the following case laws. (i) 2008 (229) E.L.T. 375 (T) (ii) CCE, Kolkata-III v.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o had authored the rough scribbling said to have been recovered from the premises of M/s. Carryco Road Carriers are not offered for cross-examination and the account which has been relied upon is for a limited period of May 1995 to 3rd week of July 1995 and hence, cannot be applied for the entire period of demand. It is also his submission that rough scribbling also do not mention any cigarettes have been transported between the places of alleged loading and their destination and no document was found in the factory evidencing any payment made to the mini-vans. 5.7 It is also his submission that the reliance placed by the adjudicating authority on the 'freight letters' as full truck loads cannot be transported through three different States crossing the Sales tax check post. It is also his submission that the said freight letters were not indicating any quantities of cigarette-cartons and the figures therein were put subsequently. 5.8 It is his submission that the department's reliance on Shri Deepak Kumar Shah's statement is misconceived inasmuch as the said statements were not voluntary and were given under the threat of arrest. It is his submission that the said ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat they have not been properly accounted for. It is his submission that the transporter's i.e., M/s. Sree Kanaka Durga Lorry Services, Bangalore have admitted to have transported filter rods from M/s. Hitkari Hitech Filter (P) Ltd. to the appellant factory. It is his submission that identical evidences are available in respect of cigarette papers, cork tipping papers and cardboard boxes. He would submit that the Adjudicating Authority on the basis of various documents recovered in this case has rightly recorded the actual receipt of raw materials tallied as recorded by Shri Suryanarayana and as evidenced from the annexures of the statements to the show cause notice and there seems to be a large difference while comparing these figures with Form-IV Register (account of raw materials and components) and they were not matching. It is his submission that the mini van transport accounts were maintained by Shri Deepak Kumar Shah for transportation of cigarettes from the factory premises to the M/s. Carryco Road Carriers and also were dispatched on the freight letters, which are all corroborative evidences. He would take us through the entire evidences and submit that there was definitel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the evidences like statements of the suppliers or the purchasers who had paid the consideration in cash to the representative of the assessee-appellant. It is his submission that the modus operandi was such that the responsible person always used to travel with the truck to the C & F agent or the purchaser or the dealer and deliver the goods and collect the consideration in cash and hand it over to Shri S. L. Dugar and Shri Deepak Kumar Shah. It is his submission that initially Shri S. L. Dugar and Shri Deepak Kumar Shah have retracted the statements made by them. Subsequent statements recorded would indicate that they admitted that there was clandestine removal of the goods. 6.4 It is his submission that though the factory premises of the appellant was under physical control, it would not mean that the revenue officers were required to policing the factory. It is his submission that the factory was working in two shifts only and the officers may not be aware that appellant is manufacturing cigarettes in night shift. 6.5 He would place reliance on the following case laws for all his above submissions : (i) Pahwa Che....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d Supplementary Instructions. It is to be noted that the show cause notice dated 12-12-1996 includes statement of allegation of clandestine manufacture and removal as has been made for the period September 1994 to October 1995 by invoking extended period of limitation. From the bare reading of the show cause notice, it is seen that the said show cause notice is issued only to M/s. New Tobacco Company Limited (Sales), RDB one of the appellant herein, Shri Deepak Kumar Shah, Senior Executive, Shri S.L. Dugar, Chairman and Managing Director and Shri B.N. Kedia, Director. Apart from these people, the said show cause notice has not been issued to anyone i.e., departmental officers. The entire show cause notice has only invoked the proviso to Section 11A(1) of Central Excise Act, 1944 as regards suppression, misstatement, with intention to evade the Central Excise duty. 8.3 It is seen from the show cause notice that there is no allegation of collusion against the assessee-appellant for clandestine removal of the goods. As against these allegations and the defence put forth by the assessee, as to there cannot be any demand of duty by invoking the extended period of limitation when....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cking of cigarettes; (d) Physical control over stocks deposited in the room of the factory; and (e) Check of goods leaving the factory to prevent clandestine removals. It is also indicated in the said Standing Order that the Superintendent will be the officer overall in-charge of the factory and he will be assisted by inspector/s posted to each factory. On perusal of the Standing Order, we find that the said Standing Order clearly instructs that the officers must be present to supervise the operation of the cut tobacco, storage, manufacturing room or manufacturing hall, finishing and packing department and shipping department. The said Standing Order also requires the officers posted in cigarette factory to maintain Survey Books, XT-I returns, and XT-I diaries and they should religiously record the same as and when they do the certification and should not be filled from memory. It is also seen that the Cigarette Manual specifically mandates the officers to be present and ascertain the number of cigarettes turned out every two hours when the machine is working and compare the result with the manufacturer's declaration already availa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ded in the manufacturers account. 33. Check on removals : The Superintendent personally check at least 10% or one whichever is greater, of daily deliveries under A.R.1 or gate passes by surprise examination of the cases prior to removal. 34. Check of Accounts : The Superintendent shall be wholly responsible for the correct maintenance of all accounts and records relating to unmanufactured tobacco as laid down in the tobacco Excise Manual and for performing daily checks of the manufacturer's accounts in accordance with the instructions in Section 8 of chapter IV." 8.5 As against the above strict instructions mandated in the Cigarette Manual and Standing Instructions, the revenue has to prove their case that the officers manning the factory of the assessee-appellant herein did not do their duty or did not discharge the duty as indicated in the above manual or were in collusion with the assessee to defraud revenue. It is undisputed in this case that the officer i.e., two Superintendents and one Inspector of Central Excise were allowed to be cross-examined by the advocate before the Adjudicating Authority and in their cross-examination, the said officers have ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....io. 8.7 We also find strong force in the submission made by the counsel for appellant-assessee that the ratio laid down by this Tribunal in the case of Godrej Soaps Ltd. (supra) would be applicable. We respectfully reproduce the same. "17. The show cause notice dated 1-7-1994 states the manufacturer as ASPL of the product DYNO synthetic detergent powder. It does not say anything about the appellant as the manufacturer. If that were to be told, how could the duty be claimed from the appellant. No doubt in the show cause notice the only charge is suppression of facts and mis-declaration to defraud the Government. Even if there is suppression regarding what could be suppression. If there is a suppression, it has been seen by the Custom Officer in 1989 when the export had taken place. If there is negligence of the officers, there could be charge of collusion, which is envisages under proviso to Section 11A of the Central Excise Act. The show cause notice is silent on this. In the absence of a specific charge of collusion, we cannot accept the argument of the department. Negligence of the officers cannot absolve the liability of the manufacturer. That argument simply may....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rendered by Hon'ble Supreme Court in the case of Padmini Product and Chemphar Drugs and Liniments cited by the learned advocate is applicable to the facts of this case. 41. In view of our findings given above, the appellants succeed and the impugned Order is set aside." 8.9 In the case of Abubakar M.Y. Shaikh v. CCE, Surat (supra) in an identical issue, the Tribunal held as under : "3. The assessee at the material time were operating under the physical control system where the clearance of any goods on payment of duty could be effected only under counter signature of the jurisdictional officer. When such counter signature was made, the consignment was assessed to duty. The gate pass was accompanied by an application for removal in the proper format. In this situation, it has to be held that the goods were cleared with the knowledge of the Department. Rule 9(2) speaks of a situation where goods are removed in a clandestine manner. In the cited judgment, it has been held that where goods have been removed with prior permission of the Central Excise authorities, Rule 9(2) would not apply. The ld. Collector was wrong in holding that the facts were different and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....blished, buyers of finished goods had not been contacted and the receipt of sale proceeds has not been proved. This is a case where investigation has miserably failed to get any corroborative evidence to strengthen the Revenue's case. The adjudicating authority, in his zeal to decide the issue in favour of Revenue, has not displayed a judicious approach and concluded that there has been clandestine removal in the absence of corroborative evidences. 9. In view of our observations, the OIO has no merits. It deserves to be set aside. Hence, we allow the appeals." 8.11 In the case of Lanyard Foods Ltd. v. CCE, Bangalore (supra), Tribunal held that larger period is invokable, if collusion is alleged, but if the departmental officers are not implicated in the show cause notice, the show cause notice is flawed. The findings are as under : "7.6 Though the department alleges suppression of facts and mis-declaration, it is on record that the jurisdictional Inspector visited the Unit for verification of the Annexure-V declarations. In some of the declarations, his endorsement "verified" appears. Even the Superintendent who investigated the case, took the recorded state....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as the departmental officers were kept informed of the receipt of goods by the appellants. In cross-examination, they had categorically stated that there was no discrepancy. Even the AC who cancelled the bond has satisfied himself that conditions of Notification/IGCRDMEG Rules have been complied with. Therefore, to invoke longer period, the department should necessary allege collusion. This has not been done. The conclusion is that, the longer period could not have been invoked. Moreover, if collusion is alleged, the departmental officers also would be party to the Show Cause Notice. In view of these defects, we are of the view that there is a very serious and fatal flaw in the Show Cause Notice itself. In the absence of charge of collusion and notices to the departmental officers, the longer period is not sustainable. In such circumstances, we are not in a position to uphold the impugned order." 9. It can be seen from the above reproduced ratio of various decisions of this Tribunal, that in the cases where assessee's factories are under physical control of departmental officers and if there is a demand by invoking larger period, the show cause notice has to allege collusi....