TaxTMI 
TaxTMI 
2014 (2) TMI 1094
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....9A of the Central Excise Rules; (iv) confiscated 5 air conditioners with an option to the appellants to redeem the same on payment of redemption fine of Rs. 30,000/- and on payment of appropriate amount of Central Excise duty. (v) confiscated 2 air conditioners from M/s. Kashi Electricals (dealer) with an option to them to redeem the same on payment of redemption fine of Rs. 50,000/-; and (vi) confiscated excisable goods, semi-finished goods and raw material seized from the factory premises of M/s. Thermotech with a redemption fine of Rs. 1 lakh and payment of appropriate duty of excise. 2. While dealing with said set of appeals, it is seen that M/s. Thermotech are engaged in the manufacture of washing machines, room air conditioners, cooler trolleys with cooler. The said unit was floated in March, 1990 with Ms. Neera Khanna being sole proprietor of the same. It is also seen that earlier proprietary unit of Ms. Neera Khanna under the name of M/s. Jass Kann International, was closed in December, 1989. There is another unit of Shri Pradeep Khanna husband of Ms. Neera Khanna, engaged in the manufacture of air conditioner....
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....re to be clubbed, in which case clearances exceed the eligibility criteria of Rs. 1.50 crore Rs. 2 crores so as to debar the assessee from availing the exemption during the next financial year. 4. Based upon the above investigation, proceedings were initiated against the appellants by way of issuance of a show cause notice (SCN), dated 25-8-1992 proposing clubbing of clearances of all the four units, raising demand of duty against the appellants on the said ground to the extent of Rs. 83,60,821/-; proposing imposition of penalty upon them; and proposing imposition of penalty on Shri Pradeep Khanna under Rule 209A of Central Excise Rules. Notice also proposed confiscation of the various goods seized either in transit or from the said factory of appellants. 5. In their defence pleadings, the appellants submitted that all the three units owned by Ms. Neera Khanna are independent units having independent existence. In fact it was pleaded that M/s. Jass Kann International stopped manufacturing activities in the year 1989 itself. The appellants started manufacturing washing machines, room air coolers, cooler trolleys from 1990 onwards and the goods were being cleared by t....
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....arate entity owned by husband of Ms. Neera Khanna and the clearances of the same cannot be held to be the clearances of the other three firms. They also contended that there is no financial flow back between the three units and as such no mutuality of interest was there. Reference in this regard is made to para 38.3 of the Commissioner's order. The contention of the ld. Advocate appearing for the appellants is that merely because Shri Pradeep Khanna was visiting the units owned by his wife, by itself cannot be taken as a factor to arrive at a finding of mutuality of interest between the three units. As regards, the use of brand name of Thermoking, it is submitted that even if the Revenue's contentions are accepted to be correct, such use of brand name of Thermoking will not disentitle them from the benefit of SSI Notification No. 175/86 inasmuch as during the relevant period, Thermoking was itself entitled to the benefit of Notification. He further submits that the cross-examination of the deponent of the various statements has revealed that Thermotech was not having sufficient installation of power required for manufacture of air conditioners as such the Revenue's contention that ....
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....ion of clubbing of clearance despite units having independent registration under the Sales Tax and Income Tax law [(Refer Quality Steel Industries v. CCE - 1989 (43) E.L.T. 775 which was upheld by the Supreme Court vide 1999 (107) E.L.T. A61]. In United Chemicals v. CCE - 1998 (103) E.L.T. 551 (CEGAT), the clubbing of the clearance was upheld when the control of management, production and sales of the 3 units was found in the hands of one person only, though there were no evidences of financial flow back. In this respect the observation of Hon'ble Tribunal in CCE v. Element Industries - 2000 (120) E.L.T. 1989 (CEGAT) would be most appropriate. In this case, the Hon'ble Tribunal observed that facts in totality have to be seen. While financial flow back could be one important consideration, it could not be made sole basis for arriving at the decision this way or that way. With reference to isolated facts, the units may appear to be distinct and separate, but when the facts and circumstances are seen in totality, seemingly distinct and separate units may turn out to be one common manufacturing entity. Thus the guiding factor has to be a careful consideration of all the facts and circu....
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....rial period, they were trading in goods similar to one being manufactured by them cannot be accepted inasmuch as for trading in the same type of goods, permission in terms of Rule 51A is required to be taken. 12. As regards, the extended period plea, he submits that since the issue involved is illegal availment of Notification No. 175/86, the same amounts to mala fide on the part of the appellants, thus justifying invocation of longer period. 13. We have considered the submissions made by both the sides. 14. The demand stands confirmed against M/s. Thermotech by clubbing the clearances of all the units. Inasmuch as the total clearances from all the four units exceeded the eligibility criteria of Rs. 1.5 crores or Rs. 2 crores, the benefit of Notification No. 175/86 stands denied to them during the next financial year. We find that admittedly M/s. Jass Kann International stopped its manufacturing activities w.e.f. December, 1989 and M/s. Thermotech came into existence in the year 1990. Further M/s. Thermoking which is a unit of Shri Pradeep Khanna was working continuously w.e.f. 1977 onwards. The Revenue proposing to club the clearances of M/s. Thermoking whi....
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....ce on record to show that there was any mutuality of interest between the units except for the fact that Shri Pradeep Khanna was sometimes looking after the affairs of the units belonging to his wife which, as already discussed by us, cannot be made the basis for clubbing the clearances of the units owned by husband and wife. 17. We further note that identical case was made out against M/s. Jass Kann International proposing the clubbing of clearances of M/s. Thermoking with their clearances. Such charges were dropped by Commissioner vide his order dated 30-9-2002, who held that clearances of M/s. Thermoking under the proprietorship of Shri Pradeep Khanna cannot be clubbed with the clearances of M/s. Jass Kann, a unit owned by his wife. In such a scenario to restart the identical proceedings in respect of another unit of Ms. Neera Khanna, i.e., M/s. Thermotech, proposing clubbing the clearance of M/s. Thermoking cannot be appreciated. 18. We further note that the appellants have taken a strong objection to the fact that while show cause notice (SCN) proposed clubbing of clearances of M/s. Thermoking, M/s. Flevel International and M/s. Jass Kann International with the....
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....e goods in the invoices, the appellants have taken a stand that the same were in respect of room air coolers and not air conditioners. The confirmation of demand of Rs. 3,18,946/- on the said ground is not sustainable in as much as Shri Rajesh Kumar during the course of his cross-examination has very clearly deposed that all the goods manufactured by the appellants were being cleared on proper invoices and they do not have sufficient installation of power required for manufacture of air conditioners. The Revenue has not placed any evidence on record to reflect upon the fact that RAC referred to room air conditioners and not room air coolers. We note that even the value reflected in the invoices is not corresponding to the value of the air conditioners. We note that the Revenue has not approached any of the buyers to substantiate the allegation that RAC referred to room air conditioners. In the absence of any evidence to reflect upon the said issue, the demand cannot be confirmed on the basis of doubts. Similarly the job work challans produced by the appellants cannot be dismissed lightly on the basis of mere visual examination that all of them stands made by one person. Help of no ....
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....n 28-2-1992 who found 36 numbers of air conditioners totally valued at Rs. 7,92,000/- lying in the factory. In addition 281 compressors valued at Rs. 47,77,000/- and four fan motors and four deep freezers were found in the factory. Inasmuch as the officers entertained a view that such 36 numbers of air conditioners have not been entered by the appellant in their RG-1 register, they were seized along with seizure of other goods found in the factory premises. Subsequently the residential premises of Shri Pradeep Khanna, Proprietor, M/s. Thermoking and husband of Ms. Neera Khanna, proprietor of M/s. Flevel International were put to search and 24 numbers of air conditioners were seized from the said premises on the reasonable belief that the same were manufactured by the appellant and cleared clandestinely. However, it is seen that on subsequent production of records, 281 compressors detained on 28-2-1992 were released by the department unconditionally. 24. The statement of Shri Pradeep Khanna was recorded on 28-2-1992 wherein he deposed that 24 air conditioners recovered from the residential premises were manufactured by the appellant and cleared by them without payment of dut....
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....ground that the appellant could not produce RG-1 registers at the time of visit of the officers. The fact that such registers were sent to their Range office for filing budget day declaration was not revealed by the appellant in their various statements recorded on the spot. The report of Shri Ram Singh, sector in charge of the appellant unit informed that pre-budget day declaration of Flevel was filed by Shri Dhram Veer, a part time employee and had no excise register was produced by him along with the said declaration. 28. We find that admittedly 28-2-1992 was a budget day and Central Excise assessee were required to file budget day declaration. The said declaration was indeed filed by the appellants. The appellant's stand that the RG-1 registers were taken to Range office cannot be doubted on the sole ground that the report of Ram Singh, range in charge is to the effect that the said registers were not produced before him. It may be possible that the registers were taken along with a budget declaration on the belief that the same are also required to be produced before the Range office. The same might not have been produced before him. However, the appellants have produc....
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....g place but the same were recovered from the basement of residential premises of husband and wife. He has chosen to rely on initial statement of Shri Pradeep Khanna on the ground that usually normal person tells the facts truthfully in his first statement. As such, he has observed that the statement of Shri Pradeep Khanna has a higher evidentiary value than the subsequent statement made by him and the appellants' stand that incorrect/false statement was made under the pressure and mental tension does not stand accepted by the Commissioner. 32. We find apart from the retracted statement of Shri Pradeep Khanna, there is no other evidence on records to support the Revenue's charge that the air conditioners recovered from the residential premises were manufactured by the appellant and cleared clandestinely by them. Admittedly Shri Pradeep Khanna has got nothing to do with the factory of Flevel International and is not related to said manufacturing unit except for the fact that he is the husband of proprietor of M/s. Flevel International. 33. There is no statement of Smt. Neera Khanna, proprietor of the unit, and other employees of the units indicating that the said air ....
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....g to Mrs. Neera Khanna are clubbed, they exceed the eligibility criteria of Notification No. 75/87-C.E., dated 1-3-1987. 36. The appellants' contention is that the value of the geysers, compressors and washing machines seized is not to be included in the total clearance value while examining the benefit of Notification No. 75/87. On the other hand, it is the contention of the ld. SDR that while computing the aggregate value of clearances in terms of the said Notification, clearances of all excisable goods have to be taken into consideration. 37. We find that para 2 of the Notification No. 75/87 reads as follows :- "the aggregate value of the clearances of all excisable goods for home consumption by a manufacturer from one or more factories or from a factory by one or more manufacturer, does not exceed Rs. 50 lakhs in the preceding year." 38. As is clear from the above, it is the aggregate value of clearances of all excisable goods for home consumption by a manufacturer from one or more factories have to be taken into consideration. Inasmuch as all the three units were owned by one proprietor Ms. Neera Khanna, the aggregate value of all the units which adm....
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.... the entire demand on account of allegation of clandestine removal stands made on the basis of entries in the ledger account. Inasmuch as there are no corresponding entries in the central excise records, the Revenue has held that the said difference is on account of clandestine removal of the ACs. The appellants have categorically taken a stand that they have sold compressors and not ACs as alleged by the department. We find that the price range of the goods as reflected in the ledger account is the price range of compressors. But the adjudicating authority has held that the said price as reflected in the ledger account has been intentionally kept close to the values of compressors. He also relied upon the statement of one Shri Pradeep Bhargava recorded on 30-4-1992 that compressors were being received by Thermoking under chapter X procedure from Shri Ram Refrigeration and Kirloskar Brothers but he had never seen manufacturing activities of water coolers in which compressors were to be used in Thermoking's premises. In his subsequent statement which was recorded on 1-5-1992, he has deposed that such compressors obtained by Thermoking were diverted to Flevel International who manufa....
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....lishing that there was clandestine manufacture and clearance. There is no evidence of procuring excess raw materials required for production of such huge number of ACs. The statement of any employee has not been recorded. There is no incriminating statement of proprietor of the units or any of the authorized representatives. No buyers of ACs stands identified by the Revenue. It is well settled law in case of clandestine removal; the department is required to produce positive evidence to establish the same. We find that the entire case in the present matter is made out on the basis of doubt and not on evidence on records. The demands cannot be made on presumption and is required to be made on the actual evidence available on record. 44. At this stage, we may refer to the recent decision of Hon'ble High Court of Gujarat in the case of Nissan Thermoware Pvt. Ltd. - 2011 (266) E.L.T. 45 (Guj.) wherein it was held in para 16 as under :- "In the absence of any tangible evidence which would indicate that there was clandestine manufacture and clearance of the goods from the factory premises of M/s. VTPL, in the peculiar facts and circumstances of this case, we hold that the impu....
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....ed bags dispatched from the factory would require some transportation arrangement for delivery from the factory. However, any reliable evidence about any vehicle coming to or going out of the factory without proper entries is not forthcoming. There is also no cogent evidence about any freight payment for any such movement. 30. I do not find cogent evidence of disproportionate and unaccounted receipt and consumption of the basic raw materials and packing material, required for manufacturing alleged quantity of unaccounted finished goods. I do not find tangible proof of unauthorized payment for procuring such unaccounted raw material and packing material. I do not find cogent evidence of disproportionate power consumption, capacity utilization and labour employed, or any cogent evidence of clandestine manufacture of unaccounted quantity alleged as clandestinely removed. I find that unaccounted production in the factory of the appellant company has not been established. 31. My above views are fortified by a recent case in the case of Viswa Traders Pvt. Ltd. & others v. CCE Vadodara being Final Order No. A/1846-1851/WZB/AHD/2011, dated 1-11-2011, a similar issue of clan....
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....d 28-2-1992 and claimed that these 24 air conditioners had been manufactured by M/s. Thermoking through a contractor - M/s. Nikhil Refrigeration out of the compressors purchased from M/s. Shriram Refrigeration and M/s. Kirloskar Brothers, no evidence has been produced by Shri Khanna that his statement dated 28-2-1992 had been obtained under threat, coercion, pressure or inducement, and on inquiry, the address of M/s. Nikhil Refrigeration given in the contract of M/s. Thermoking with M/s. Nikhil Refrigeration was found to be false. 48.1 Under Section 14(2) of Central Excise Act, 1944, a person summoned by an empowered Central Excise officer for conducting inquiry under Section 14(1) - "shall be bound to state the truth upon any subject respecting which he is examined". Under Section 14(3), every inquiry conducted under Section 14 shall be deemed to be "judicial proceeding" within the meaning of Section 193 and 228 of the Indian Penal Code, 1860. Section 193 of IPC provides for punishment for intentionally giving false evidence in any stage of a judicial proceeding. Since a person who has given a statement before an investigating officer under Section 14, unless contrary is p....
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.... was got manufactured by him from M/s. Nikhil Refrigeration on job work basis is difficult to accept when the address of M/s. Nikhil Refrigeration, on inquiry was found to be a non-existent. No evidence regarding any payments having been made to M/s. Nikhil, movement of compressors and other raw material to M/s. Nikhil and movement of ACs to M/s. Thermoking has been produced. It is also seen that Shri Devender Oberoi, claimed to be the Proprietor of M/s. Nikhil, is an employee of M/s. Flevel and therefore no credibility can be attached to the so called contract between M/s. Thermoking and M/s. Nikhil Refrigeration, produced by Shri Pradeep Khanna. On the other hand, statement dated 9-6-1992 of Shri Shiv Prasad, Manager, M/s. Kirloskar Brothers and statement dated 26-4-1992 of Shri K.V. Subba Rao, Deputy Manager, M/s. Shri Ram Refrigeration indicate that M/s. Flevel were engaged in the manufacture of Air conditioners. In view of this, I uphold the Commissioner's finding that the 24 air conditioners, seized from the residential premises of Shri Pradeep Khanna/Mrs. Neera Khanna had been manufactured by M/s. Flevel and had been clandestinely removed without payment of duty. Accordingly....
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....and corroborated by the facts that - (a) receipt of compressor at concessional rate of duty by M/s. Thermoking from M/s. Shree Ram Refrigeration and M/s. Kirloskar, for manufacture of water cooler is not denied; (b) there was no manufacture of water coolers by M/s. Thermoking and the compressors received for which a separate show cause notice dated 30-7-1992 has been issued to M/s. Thermoking; and (c) the prices of the goods sold by M/s. Flevel, correspond to the price of ACs, not of compressors. Moreover, as per the statement of Shri Shiv Prasad of M/s. Kirloskar as per his company's policies, the OEM buyers were not permitted to trade in the product i.e. compressor and therefore M/s. Flevel could not sell the compressor purchased by them from M/s. Kirloskar and M/s. Shree Ram. In absence of any complaint from M/s. Kirloskar and M/s. Shree Ram in this regard against M/s. Flevel, it has to be presumed that M/s. Flevel have not traded in compressors received by them for M/s. Kirloskar and M/s. Shree Ram. All this evidence points to receipt of compressors, illicitly diverted by M/s. Thermoking, by M/s. Flevel who manufactured ACs out of....
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....respect of the same and imposition of penalty on M/s. Flevel under Rule 173Q(1) of the Central Excise Rules, 1944? (2) Whether there is sufficient evidence on record to uphold the duty demand of Rs. 58,44,825/- against M/s. Flevel in respect of 606 air-conditioners alleged to have been manufactured and cleared by them during 1988-1989 and 1989-1990? (Pronounced in the open court on 15-5-2012) Sd/- Sd/- (Rakesh Kumar) (Archana Wadhwa) Member (Technical) Member (Judicial) 52. [Per : Mathew John, Member (T)]. - I have gone through the records of the case, the differing opinions recorded by the two Members of the Bench which originally heard the matter and also the arguments on both sides during hearing before me. 53. My views are required to be recorded on the following two matters : (1) Whether there is sufficient evidence on record to uphold the confiscation of 24 air-conditioners seized from the premises of Shri Pradeep Khanna/Mrs. Neera Khanna on 28-2-1992 and also uphold the demand of duty in respect of the same and imposition of penalty on M/s. Flevel under Rule 173Q(1) of the Central Excise Rules, 1944? ....
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....tock by excise officers, gives basis for a prima facie case, that is to say the burden to prove the duty paid nature of the goods was heavily on the Khannas because it was a residential premises. If the goods were genuinely duty paid then the explanation along with duty paying documents would have been forthcoming quickly. That was not the case here. It as after 8 days that Shri Khanna came up with the argument that the goods were manufactured by Nikhil Refrigeration. After another two months or so he came up with argument that the goods were manufactured at the basement of C-106/1 Naraina taken on rent from Flevel International. All these factors clearly indicate that the goods were manufactured by M/s. Flevel International and on which applicable excise duty was not paid. 59. I note that one point taken note of by Member (Judicial) is that the departmental officers did not record the statement of Mrs. Khanna, the proprietor of M/s. Flevel International during the investigation stage and hence the investigation is flawed. What I find from paras 8.1 and 8.2 of the Show Cause Notice is that Shri Pradeep Khanna was holding to be a partner in M/s. Flevel International at the e....
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....ational. Also investigations were conducted with a few buyers of the goods. During such investigations it was seen that M/s. Flevel International was sometimes billing just for the compressor, while they were selling air-conditioners and taking the difference amount in cash. This may be seen from results of investigations recorded in para 17 of the Show Cause Notice as under : (1) One A.C. was found to be installed at the residence of Mr. Praveen Sabarwal of A-I/25, Paschim Vihar, New Delhi. This A.C. had been assembled by M/s. Flevel International and they had been rendering after sales services. He had paid Rs. 300/- towards service charges for next year. It is noticed from the statement that the A.C. was cleared from M/s. Flevel International in the guise of compressor and bill was raised only for compressor for an amount of Rs. 8,800/-. (2) One A.C. has been found to be installed at the residence of Shri Sanjiv Sethi, V-224, Rajouri Garden, New Delhi, Shri Sanjiv Sethi in his statement dated 26-5-1992 deposed that he had purchased a compressor for an amount of Rs. 8,000/- by bill No. 76 dated 21-5-1989. Out of which an amoun....
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....during Jan 89 and a police case was booked against him. So he had a grouse against the appellant. So his statement should not be relied upon. The Cross-Examination of Shri Pradeep Bhargava was sought by the Appellant and he did not turn up to face Cross-Examination. (iii) The statement of Shri Pradeep Bhargava does not name the Appellant. Such alleged statement refers to the premises at C-106/1, Naraina Industrial Area, Phase-I, New Delhi. This statement subsequently retracted by Shri Pradeep Bhargava. (iv) At no stage of investigation, the proprietor Mrs. Neera Khanna or any other person whose statement was recorded was ever confronted with the statement of Shri Pradeep Bhargava or even towards alleged diversion of 1022 compressors of Thermoking if diverted to C-106/1, Naraina Industrial Area, Phase-I. No statement of the workers of the Appellant was ever recorded even in respect of such alleged diversion or for alleged clandestine manufacture of 606 numbers of Air-Conditioners. It is only on issuance of Show Cause Notice that such an allegation of alleged manufacture and clearances of 606 numbers of Air-Conditioners was levell....
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....e Central Excise Rules from the factory in respect of similar goods as being manufactured in the factory. Compressor is not manufactured by the Appellants. Therefore, trading in compressors had no restrictions under erstwhile Rule 51A of Central Excise Rules, 1944. 65. The ld. AR for Revenue submits that the case is made on the basis of entries in the books of accounts of the appellant and not based just on statements. The appellant is a manufacturer of air conditioners. The manufacturers of compressors were selling compressors to the appellants treating them as an Original Equipment Manufacturer and not as a dealer in compressors as evidenced from statement of Shri Shiv Prasad Manager of M/s. Kirloskar Brothers. According to him it is very clear from the facts and circumstances of the case as brought out by the investigation the appellant was manufacturing air-conditioners and selling them and accounting realization of the cost of compressors only in many cases. When there are authorized dealers for compressors the defence set up that the appellant were selling compressors to individuals is not a story which can be given any credence. 66. I have considered argument....
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....e a technical defence that the matter does not concern the appellant. 71. It is claimed by the appellant that they were manufacturing other items like geysers, washing machines etc. and therefore all realizations of unaccounted money cannot be considered as due to clearance of air-conditioners. What I notice is that the demand for 303 numbers of air-conditioners are in cases where compressors are shown to be sold. Since geysers and washing machines do not require compressors, this defence is of no avail for 303 numbers. In 243 cases the demand relates to price realization in the range of Rs. 12000 to Rs. 18000 which is the price range for air-conditioners and not geysers and washing machines made by the appellant. The remaining 60 also is shown to be in respect of sales of air-conditioners where money is received but supplies are not recorded or where supplies have been made but money not received. No specific instances to create a doubt in favour of the appellant has been demonstrated in any of these instances. So I do not see much merit in this argument. 71. After appreciating the overall evidence presented by Revenue I am not able to agree with the contention of ....
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.... : (i) Collector v. D. Bhoormal - 1983 (13) E.L.T. 1546 (S.C.) (ii) Dewan Chand Builders & Contractors v. UOI - 2011 (274) E.L.T. 161 (S.C.) (iii) Peacock Industries Ltd. v. CCE - 2008 (228) E.L.T. 353 (Raj.). 73. I have also considered the observation of Member (Judicial) that no evidence regarding clandestine removals, procurement of all the raw materials required, power consumption, man-power deployed etc. has not been adduced by Revenue. This is not the factual position. The seizure of 24 air-conditioners manufactured by Flevel and stored at the residence of the Khannas is first held to be manufactured by somebody else to arrive at this logic. Further sales realizations are accounted in the ledgers. Many of the persons to whom goods were sold could not be located but where a few could be located it was found that sale of air-conditioners were involved. Secondly the major raw material required is compressors for which Revenue has shown the source. In a clandestine activity, it is not possible to unearth every piece of evidence and such standard of proof is not required for proving evasion of tax. So I do not agree ....