AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (2) TMI 330
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....s. 60,08,544/- and education cess of Rs. 1,20,171/- under section 11A of the Central Excise Act, 1944. iii) I order recovery of interest at the appropriate rate in terms of section 11AB of the Central Excise Act 1944. iv) I impose penalty of Rs. 15,00,000/- on the notice under Rule 25 of the Central Excise Rules. " 2. The Revenue has also filed an appeal against the impugned order for release of menthal, piperita oil, spearmint oil, etc. 3. As both the appeals are arising from a common order, therefore, both the appeals are taken together for disposal and are being disposed of by a common order. 4. The facts of the case are that M/s. Sharp is engaged in manufacture and export of menthol crystals and essential oils. The basic raw material used in the manufacture of goods is menthol, demetholised oil, spearmint oil, mentha oil and menth piperita oil. The crude mentha oil has been processed to manufacture menthol and dementholised oil by chilling and Centrifuge Processes. These raw materials were fractionated to remove the low boiling fractions i.e. Terpene / Residue for obtaining the enriched material. 5. DGCEI gathered intelligence that the manufacturer....
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....at 1629 filled steel drums, contents of which could not be ascertained and no documentary evidences of all three godowns could be produced, therefore, goods lying in godowns were seized under section 110 of the Customs Act. The said godown were sealed and the panchnama was drawn. The statement of Shri Kamal Kumar and Shri Balwant Singh Rana were recorded. Shri Ram Ratan Gupta, Chartered Accountant and Shri Dayashankar Yadav, chowkidar of Godown no. 1,2, and 16 were recorded. On 24.07.2006, 19 representative samples were drawn as per the chart below in the presence of Dr. Kamal Kumar and Shri Balwant Singh Rana. These Samples were sent to IIT Delhi for examination and samples were tested. Summary of test report is as follows: 6. As per the report of IIT Delhi, samples marked as 1B and 1C were found mixtures mainly consisting of B-pipenane and speinene. Samples marked 1A, 16D and 16E seems to represent unprocessed menthe piperita oil. Samples marked 2F & 2G found to be natural spearmint oil samples marked 2F to 2S found to be terpenoidal rejects usually encountered in Menthol industry. These terpenes are normally observed in residues in procedures involving menthol crystalisatio....
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....hat said one drum represent all the drums (453 or 454 of the group). Same treatment was given to the 578 drums in godown 16 by dividing into 2 groups of 289 drums each and, the 462 drums in godown 2 were divided in 5 groups of 92, 92, 93, 93 and 93 drums each and 1127 drums in godown no.2 were divided into 7 groups of 159, 159, 159, 160, 160, 160 and 160 drums each and in each case one drum from the group was tested and assumed to be representative of that group. The said method is totally illogical and in fact practically obsolete. Therefore, the tax liability cannot be fastened by resorting to such random sampling as contents of any one group of 453 cannot be basis for presuming that remaining 452 to contain the same item for raising tax demand. Quite possibly the testing of one drum could afford a legitimate basis to determine whether the remaining drums were need to be tested or not. If however, testing of one drum give rise to the suspicion of remaining 452 drums the tax authorities are duty bound to test remaining 452 drums and cannot presume that contents of one drum determine the contents of remaining 452 drums. Therefore, the tax demand has been raised on assumption and pr....
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....ned order. He further submits that M/s. Sharp has contended that drums mentioned at Sl. No. 2 and 3 of the table above is menthe piperita oil is purchased from traders in UP against H Form of export but the revenue alleges that said drums did not contain mentha piperita oil but contains mixture of Beta pinene and Sebenetol which was in nature of terpene / residue, which has been manufactured by M/s. Sharp and clandestinely removed to the godown for onward supplies to customers. In this regard, he submits that M/s. Sharp has approached to Honble High Court in Writ Petition (C No. 5904/2007) for permission to process the 1938 drums in godown no. 1 & 16 to make them export worthy. The Honble High Court vide its order dated 14.08.2007 granted permission to M/.s Sharp to distill said mentha piperita oil in its factory under supervision of responsible Custom Officer. The said order reveals that the Counsel appearing for the Revenue never disputed the fact that goods in these 1938 drums is mentha piperita oil. In fact, mentha piperita oil in 1938 drums was distilled and subsequently exported as per the export documents. Bank realization cheque also evidence such export which were submit....
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....anufacturing unit of menthol and its derivatives'. The identity of such 'other manufacturing unit' or the source of the value relied upon is not revealed in the show cause notice or in the impugned order. Therefore, demand on these grounds is also not sustainable. 7.5 With regard to the appeal filed by the Revenue in respect of Sl. No. 1A, 16D, 16E, 2F & 2G the ground taken by the Revenue is that as per the statement of persons from M/s. Vishal Chemicals and M/s. Krishan Flavour that these goods have not been purchased from them. In the reply to the show cause notice, M/s. Sharp has submitted that these goods have been purchased from M/s. Sona chemicals and their ledger account was produced and on relying on these evidences the adjudicating authority has correctly arrived at the decision that these are the inputs produced by M/s. Sharp and are found to be as declared. Therefore, he has rightly dropped the demand on these goods. 7.6 In these terms, he submits that the appeal filed by M/s. Sharp is to be allowed and appeal filed by the Revenue is to be dismissed. 8. On the other hand, Ld. AR in support of the appeal of the Revenue submits that goods mentioned at Sl. No. 1,4,....
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.... a) To deal with the issue of method adopted for taking samples we find that in godown no. 1 - 1360 drums were stored without any identification mark. In godown no. 16 - 578 drums were stored and no proper sign was marked for the same. Further, in godown no. 2 -50,462,1117 drums were stored in three lots and M/s. Sharp has shown a lot of 50 drums as spearmint oil, the lot of 462 drums as residue and a lot of 1117 drums as terpene. But, except this, there is no other identification mark to divide the drums into separate groups. 13.1) We find that in this case, the samples were drawn on random basis and groups were made by the inspecting team without identifying any plausible reason to decide into different groups and the samples were drawn from one drum of the said group. The method of segregating the sample is totally illogical as tax liability cannot be fastened on the basis of random sampling. Moreover, if the goods in one drum of the said group is not found to be as declared then it is the duty of the investigating team to draw another sample from the another drums of the same group from the remaining drums to find out the correctness of the declaration of the goods. That me....
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.... In these circumstances, the grounds taken by the Revenue deserves no merits. In these circumstances we hold that adjudicating authority has rightly dropped the demand against M/s. Sharp on the drums of marking samples 1A, 16D, 16E, 2F & 2G. With these terms, we hold that the appeal filed by Revenue deserves no merits, hence the same is dismissed. Issue No. c) 15. We find that the Adjudicating authority with regard to sample No. 1B & 1C has held that these goods are mixture mainly consisting B Pinene & Sabinene and these are manufactured goods. Therefore, duty is to be demanded. In this regard, the contention of M/s. Sharp is that these goods were purchased from traders of UP against H Form for export. M/s. Sharp has also approached to Honble High Court of Delhi in writ petition No. (C.No. 5904/2007) for permission to process to make them export worthy and the Hon'ble High Court vide order dated 14.08.2007 granted permission to M/s. Sharp to distill the said goods in their factory under the supervision of responsible Central Excise officer and the said goods after distillation were exported. The BRCs were also produced to show the evidence of realization of payment against s....
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.... having any place to store the same in the gutted factory and the said goods are lying in the godown as dead stock not intended for sale. The Ld. Cousnel also submitted during the course of argument that M/s. Sharp has filed a claim of loss before the insurance company on account of the fire incident took place in 1998 in their factory but fairly admitted that the appellant has not produced any evidence to that effect whether M/s. Sharp has filed any claim of insurance or not. Moreover, merely saying that fire took place in their factory does not absolve them from the liability of payment of duty. Therefore, the fact is to be ascertained whether fire took place in 1998 by adducing evidence with regard to the same. As M/s. Sharp have not produced the evidence of filing of insurance claim for loss of fire in their factory before the adjudicating authority, the adjudicating authority have no occasion to examine the said document. 16.3. In these circumstances, we are of the considered opinion that the verification of the evidence that insurance claim has been filed by M/s. Sharp is required to be done by the Adjudicating authority. Therefore, we set aside the impugned order to exami....