AI Drafter 
TaxTMI 
TaxTMI 
2015 (10) TMI 2142
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....ssium silicate is added to the mixture and it gets converted into the form of a paste. Such a paste is put on the wire rod and baked in the oven to the required temperature and period. Thereafter the welding electrodes are put in the boxes and number of boxes into cases. 1.1 Appellant No.2 is another private limited company with appellant No.3 and appellant No.4 being the Director of the said company. It is claimed by them that earlier they were in the manufacture of flux and later on they started manufacturing MS wires. 1.2 In brief the case of the Revenue is that appellant No.1 was not showing the entire production of welding electrodes in their books of account and other statutory records thereby evading payment of duty. It is the case of the Revenue that the wire rods being manufactured by appellant No.2 were being used by appellant No.1 for unaccounted production of welding electrodes. It also the case of the Revenue that for some period when appellant No.2 was manufacturing flux, almost the entire production of the flux was being used by appellant No.1 for unaccounted production. It is also the case of the Revenue that for selling the unaccounted production of welding e....
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....i godown of appellant No.1, 340 boxes of welding electrodes valued at Rs. 6,22,200/- were seized. Similarly, 202 boxes of welding electrodes valued at Rs. 3,15,420/- from the godown of appellant No.15 were also seized. Similarly, 223 boxes and 13 packs of welding electrodes valued at Rs. 2,50,000/- were seized from the godown of appellant No.16. On the day of the visit, statement of one Shri Pradeep D. Savarkar, Quality Control In-charge of appellant No.1, was recorded, wherein he explained the manufacturing process. Shri Pradeep Savarkar further stated that only part of the production is being recorded in the books and the remaining goods manufactured are cleared without paying any central excise duty or making invoices. It was also stated by Shri Savarkar that appellant No.1 is receiving wire rods from appellant No.2, N.R. Wires and D.M. Engineers, Bhilai, and rutile was received from Indian Rare Earth Ltd., Tamil Nadu and Orissa and other minerals from various companies. Shri Savarkar also stated that they are receiving the wire rods from appellant No.2 without cover of any documents. Similarly, rutile is being received from some other companies but the same is not being recorde....
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....or of appellant No.1 was recorded on 22.1.2003 wherein he stated the details given by appellant No.5 in his statement are true and correct. He also stated that the welding electrodes manufactured by appellant No.1 are sold in the name of appellant No. 6, 7 and 8 without accounting/payment of duty, the purchases done by the marketing firm are bogus. It was also stated that raw materials have been purchased in cash or in the name of other companies. Statement of appellant No.4 who is also the Director of appellant No.1, was also recorded on 21.2.2003, who confirmed the details given by appellant No.3 and appellant No.5. Investigations were also taken up regarding procurement of raw material. During search on 20.8.2002, certain raw materials were found in excess in appellant No.1s unit. Similarly, the manufacturing unit of appellant No.2 was also searched. However, in the manufacturing unit of appellant No.2, records were not updated but it was found that appellant No.2 has procured wire rods in the name of Malvi Wires Pvt. Ltd., Nagpur from D.M. Engineering Ltd., Bhilai and it was observed that even though the said invoices were in the name of Malvi Wires Pvt. Ltd., Nagpur, the good....
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.... No.11, in his statement stated that due to financial difficulties he has sold rutile to appellant No.1 and for this purpose he got some premium. He also stated that appellant No.1 used to deposit cash in his bank account and later on he started getting demand drafts made themselves and sent them to Indian Rare Earth Ltd. Further investigation relating to payment of rutile led to the account of one Orange City Traders, Nagpur. Investigation revealed that there is a bank account in Dena Bank, Itwara Branch, Nagpur, which has been opend in the name of Orange City Traders and one Shri Sushil Soni has signed the application for opening the account as a proprietor of the said firm. It was also found that number of DDs were made from the said bank account in the name of Indian Rare Earth Ltd. and on checking up with Indian Rare Earth Ltd., it came out that these DDs are relating to purchase of rutile by M/s. Rhodonite, M/s. Sanjhi Foodco Ind., Nagpur and M/s. Ayush Enterprises, Meerut. Appellant No.12's statement was recorded on 30.9.2003 wherein he denied the sale of rutile to appellant No.1 but could not produce proof of payment etc. to Indian Rare Earth Ltd. Appellant No.13 did not tu....
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....2015, 6.7.2015 and 9.7.2015. 4. The learned senior counsel for the appellants submitted that the case is based upon assumptions and presumptions and there is no concrete evidence for alleged clandestine removal. It was submitted that in the five years for which the demand is raised, there has not been a single case of illicit removal where the goods have been detained or apprehended. The whole case is based upon weak circumstantial evidence and it is a settled law that in case of circumstantial evidence, every link in the chain must be established pointing to the guilt of the accused, as held by the Hon'ble Supreme Court in the case of Jian Mahtani vs. State of Maharashtra reported in 1999 (110) ELT 400 (SC). It was further submitted that relying on one bank statement of one vendor ignoring the affidavits filed by eight others to the contrary and not cross-examining them, relying on one sales tax return and inferring the same in case of balance 11 dealers and barring a few sporadic and random transactions relating to some inputs of insignificant quantity for which appellant No.1 has provided a complete answer, there is no evidence from where the steel wires which constitute 72% ....
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....destine removal undertaken by appellant No.1. It was submitted that Shri Sushil Soni has stated in his statement that he is in charge of the operations of Vidarbha Enterprises (appellant No.8) and Shri Sanjay Malu is in no manner connected with the procurement of electrodes from various purchasers and he denied the contents of the statement of Shri Sanjay Malu. Shri Sushil Soni also mentioned the details of various brand names of electrodes other than the brands owned by appellant No.1, which itself corroborates that the purchases were made from genuine companies. It was also submitted that the department made no enquiries with the buyers who purchased electrodes from Vidarbha Enterprises which could have explained the origin of welding electrodes. The learned senior counsel also submitted that Orange City Traders was engaged in the business of bill financing and it cannot be considered that demand drafts were issued to such third parties for further procurement of raw materials on behalf of appellant No.1. It was also submitted by the learned senior counsel that strangely enough the department has not recorded any statement of appellant No.10 who was the proprietor of appellant No....
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.... the purchase of flux from appellant No.2 and the sale of flux is evident from the ledger maintained by appellant No.2. Further, the reliance on LRs of Kerala Transport Corporation to conclude that one Shri Rathod, an employee of appellant No.1, acknowledged the receipt of unaccounted rutile, is erroneous as a careful scrutiny of LRs would reveal that the acknowledgement on LR of Rhodonite was not of Shri Rathod and was not similar in manner to the acknowledgement given by Shri Rathod. Learned senior counsel further submitted that the steel comprises 72% by weight of the final product. There is no allegation of unaccounted procurement of steel by appellant No.1. It was submitted that unaccounted quantity of steel was recovered from the premises of appellant No.2 and the same cannot in any manner be relied upon to conclude that such huge quantities of steel has been diverted by appellant No.2 to appellant No.1. It was also submitted that no action has been taken against appellant No.2 for removal of unaccounted steel. The senior counsel also submitted this Tribunal's decision in the case of Lily Foam Industries (P) Ltd. vs. CCE reported in 1990 (46) ELT 462. The learned senior cou....
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....is concerned, learned counsel submitted that this is based upon handwritten chit of Shri Chunilal Sahu, which has not been verified/authenticated and is, therefore, unsustainable. He relied upon the decision of this Tribunal in the case of Mahesh Silk Mills vs. CCE, Mumbai reported in 2014 (304) 703 (Tri.-Ahmd.), wherein it is held that charge of clandestine removal cannot be sustained based on private records without corroborative evidence. It was submitted that during the course of examination of Shri Chunilal Sahu, he was unable to substantiate the factual details stated by him in the statement. It was further submitted that the demand has been computed based upon invoice No.87 from which the highest per unit price has been taken by the department. Adoption of such highest per unit rate is contrary to statement of Shri Chunilal Sahu. As far as the demand under Annexure A-IV is concerned, the learned senior counsel submitted that this demand is based upon merely handwritten chits of the transporter and is not even based upon LRs of the transporter and the said chits have not been verified/authenticated by the Revenue. It was also submitted that the LR transport document alone can....
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....w reported in 2004 (168) ELT 494 (Tri.-Del.) statement of Shri Sanjay Malu has to be read while keeping in mind the contents of cross-examination. (vi) Sanket Food Products Pvt. Ltd. vs. CCE, Aurangabad reported in 2005 (188) ELT 107 (Tri.-Del.) Mere allegation of common directors and common control between appellant No.2 and appellant No.1 not enough to sustain charge of clandestine removal of unaccounted steel/drawn wire rods. (vii) CCE, Chennai-IV vs. B.K. Office Needs (P) Ltd. reported in 2015 (318) ELT 288 (Tri.-Chennai). 5. The learned AR reiterated various findings in the impugned order. He took us through the various statements particularly the two statements of Shri Sanjay Malu as also the statement of Shri Poonamchand R. Malu and Shrawankumar R. Malu. He further submitted that these statements are claimed to be retracted. However, no such retraction was filed before the investigating officer or any officer of the department. The retraction was in the form of affidavits which were produced only at the time of adjudication. Such a retraction cannot be taken into consideration. It was also submitted that Shri Sanjay Malu in his second statement has confi....
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.... out to Rs. 5,087.50. The total central excise duty demanded in this show cause notice is Rs. 3,79,39,861/- which will work out to clandestine clearance of 7459 tons. If we divide the figure by 45, it will amount to clandestine clearance of 165.76 tons. Shri Pradeep Savarkar, Quality Control Manager, has indicated the capacity as 226.83 per month and in view of this fact, the alleged clandestine clearance broadly correlates. 5.2 Learned AR further submitted that it is not possible in the case of clandestine clearance to find every link as these links are in the knowledge of the assessee. Further, in the present case, Shri Sanjay Malu has admitted that they were not keeping the record of the clandestine clearance or purchase of unaccounted raw material and as soon as the transactions were complete, the relevant documents were destroyed by them. Under the circumstances, it is not practically possible for the department to unearth such documents. He further submitted the following case laws in support of his various contentions including relating to admission of clandestine clearance etc.:- (i) Lucky Dyeing Mills P. Ltd. vs. CCE, Surat reported in 2008 (222) ELT 543 (Tri.-....
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....ri.-Del.), wherein the Tribunal has held that charge of clandestine removal cannot be based on retracted statement even if retraction is intimated at the time of adjudication. It was submitted that the various judgments quoted by the learned AR are distinguishable in the facts of the present case as the retraction has been submitted before the same authority who had relied upon the statement. It was also submitted that the contention of the learned AR that burden of proof of clandestine removal is discharged by the Revenue by adducing insufficient circumstantial evidence leading to a probability of such alleged offence is erroneous and for this purpose, the learned senior counsel relied upon this Tribunal's decision in the case of Aum Aluminium Pvt. Ltd. vs. CCE, Vadodara reported in 2014 (311) ELT 354 (Tri.-Ahmd.). The learned senior counsel submitted that in view of these contentions, the demands do not hold good and the demands are required to be set aside and consequently penalties and redemption fine imposed are also required to be set aside. 7. We have gone through the submissions made by both the sides. We have also gone through the various statements and other records ad....
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....1.1.2002 to 19.8.2002 is concerned, invoices were available and the demand from April 2002 onwards is based upon invoices. It would thus be seen that annexure A-I demand is based upon the assumption that all the sales made by the three marketing companies are of welding electrodes alone and nothing else. Further, in respect of three years, the figures have been taken from the balance sheets and not from the sales invoices. For April 2002 onwards it is based upon the invoices. It is further presumed that all the sales are based upon the welding electrodes manufactured by appellant No.1. As far as annexure-II is concerned, it is based upon certain documents recovered during the search operation on 20th August 2002 from the office premises of appellant No.1 where the offices of three marketing companies viz. appellant No.6, 7 and 8 also operated. The set of documents relating to annexure-II gives the details of transportation, invoice details, value, purchaser etc. The demand in annexure-III is based upon a document recovered during the search. The said document was maintained by one Shri Chunilal Sahu. The document indicated the clearance of welding electrodes cleared clandestinely d....
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....oking after or doing some work in the said firm. We also note that as a proprietor, in his statement he has claimed that he has actually purchased the goods i.e. welding electrodes from the 12 firms. Thus we find that the statement of Shri Sanjay Malu is contradictory to the statement of Shri Sushil Soni. We also note that during the course of cross-examination, Shri Sanjay Malu has stated that the statement was given under duress and he backed out from his statement. As far as other two marketing firms are concerned, we find it strange that no statement of the proprietor Shri Purushottam Malu was recorded. This was particularly necessary as in respect of Vidarbha Enterprises, statement of Shri Sanjay Malu was contradicted by Shri Omprakash Soni. It is not the case of the Revenue that Shri Purushottam Malu was not available. We also note that Shri Purushottam Malu has been made a co-noticee and had replied to the show cause notice and also submitted an affidavit. However, during adjudication proceedings, the adjudicating authority did not examine him. Be that is it may be, we note that even if we take the say of Shri Sanjay Malu, it was incumbent on the part of the Revenue to call ....
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....iving the correct and true factual position. 8.2 We also note that 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. 8.3 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. 8.4 We note that investigations relating to procurement of rutile particularly by appellant No.2 and also M/s. Rhodonite Pvt. Ltd. suggest that appellant No.1 did get the said critical material indirectly from sources other than Indian Rare Earth Ltd. directly, but the question is how much of the unauthorized rutile was received by appellant No.1 and whether this quantity of rutile received would correspond to the alleged production of welding electrodes in the name of three marketing companies. We do not find any correlation or any at....
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....ence to understand his version. In the absence of any statement from Shri Anil Singhal or any admission on the part of Directors of appellant No.1 or Shri Sanjay Malu, one cannot conclude that all the rutile/illmenite purchased by Ayush Enterprises was diverted to the appellant. We note that the very fact that the drafts were made from the account of Orange City Traders, Nagpur, the least that was expected is to question Shri Omprakash Soni about these transactions. However, nobody seems to have been confronted about these transactions. Moreover, there are no evidences to indicate that all these consignments indeed have come to Nagpur and that also to appellant No.1. 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 an....
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....ellant 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 and we accordingly uphold this part of the demand. 8.7 Another demand is covered by Annexure-III. This part of the demand is based upon a paper recovered from one Shri Chunilal L. Sahu who was the production supervisor. The said document indicates datewise the details of clandestinely cleared goods. Shri Chunilal Sahu in his statement has confirmed that the goods covered by the said document were produced and ....
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....the absence of any corroborative evidence, the demand in annexure-IV is not sustainable. We therefore set aside the demand covered by annexure-IV. 8.9 We find that the demand in Annexure-V is based upon amount deposited in Orange City Traderss account. What Revenue has done is that all the cheques which have been deposited in the said account has been assumed to be sale proceeds of the welding electrodes cleared unaccounted by appellant No.1. We find from the investigation that the said firm is a proprietorship firm of Shri Sushil Omprakash Soni. There is no evidence that the said firm was actually engaged in the trading of any goods. Neither any of the Directors of appellant No.1 or Shri Sanjay Malu or any other person has at any point of time in any statement has admitted that the amount deposited in the account of Orange City Traders are nothing but the sale proceeds of the goods manufactured and cleared clandestinely by appellant No.1. Even Shri Sushil Soni has not said anything of this type in his statement. In fact we find that the Revenue has not confronted either the proprietor of Orange City Traders or the Directors of appellant No.1 or Shri Sanjay Malu or any other of....
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....T.K. Rajgopal). 8.11 To sum up, 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. As far as the other noticees are concerned, our observations are as under:- (i) Penalty under Rule 26 read with Rule 209A has been imposed on appellant No.2. Penalty under Rule 26 is imposable on the excisable goods. In this case the goods involved are welding electrodes. Appellant No.2 is not concerned with either with the manufacture, sale or any other activity of the welding electrodes. Even as per the Revenues contention, appellant No.2 was involved in either diverting the rutile/illmenite or flux or wire rods to appellant No.1. In view of the said position, the penalty imposed on appellant No.2 is set aside. (ii) As far as appellant No.2, 3 and 4 are concerned, in view of the substantial reduction in the demand as....
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....the higher side. Penalties imposed on appellant No.1, 15 and 16 are also not on the higher side. Similarly, the raw materials are finished goods which were found in excess of what was recorded in the statutory records and are confiscable under Rule 25(1)(b) and Rule 25(1)(a). The redemption fine imposed in lieu of confiscation is in order and is not on the higher side. Penalties have also been imposed on appellant No.3 who is the Director of appellant No.1, 2, penalty on appellant No. 5, who was supervising the work and similarly penalties have been imposed on appellant No.15 and 16 under Rule 209A/26. Penalties imposed are not on the higher side. The order of the Commissioner in respect of the above show cause notice is upheld and the appeals as far as these relate to the above show cause notice are rejected. 10. In respect of show cause notice F.No. DGCEI/PRU/INT/33/2002/235 dated 17.2.2003, this show cause notice is relating to appellant No.2. As mentioned earlier. Appellant No.2 is a private limited company and the two Directors of this company are Shri Poonamchand Malu and Shrawankumar R. Malu who are also the Directors of appellant No.1. The said unit is not registered wit....