TaxTMI 
TaxTMI 
2017 (5) TMI 85
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....ithout payment of duty. For the removal of cotton yarn and for the receipt of hank yarn, STL were following the procedure prescribed under Rule 96E of the erstwhile Central Excise Rules, 1944 (hereinafter referred to as 1944 Rules), and Rule 20 of the erstwhile Central Excise (No.2) Rules, 2001 (hereinafter referred to as 2001 Rules). In terms of the said Rules, cotton yarn can be cleared (in cheese form or in cop form) to a place outside the factory of production without payment of duty for conversion into plain reel hanks. The goods, after such conversion, can be returned to the factory of production for further use in the manufacture of excisable goods or can be cleared from the job workers premises under proper central excise invoices. 2. Central Excise Officers conducted surprise checks at the factory premises of STL on 21.09.2001 and verified stock and accounts in the presence of Shri N. Subramanian, Deputy General Manager of the said factory. The details of stock as per books, physical stock and the discrepancy noticed during the said stock taking were recorded under a Mahazar dated 21.09.2001 on the spot and the discrepancies noticed in stock were as follows:- Sl. No ....
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....3 353457 2709840 IV Duty on cotton yarn removed to Sankar Tex, Thiruchengode 236990 35532 272412 TOTAL 7345058 1101757 8446815 The said SCN dated 18.05.2004 accordingly proposed demand from STL of the aforesaid duty liabilities thereon and imposition of penalties on them under Section 11 AC of the CEA, 1944 and under erstwhile Rule 173Q/Rule 25 of Central Excise Rules. The SCN also proposed imposition of penalties under erstwhile Rule 209A/Rule 26 of the Rules on Shri E.L. Gunasekar, Proprietor of M/s. Bannari Amman Reeling Unit and M/s. Sri Dhanalakshmi Yarn Agencies, Erode, and Shri V. Ramakrishnan, Proprietor of M/s. R.R. Reeling Unit, Erode. 4. After due process of adjudication, the Commissioner of Central Excise, Chennai-II Commissionerate, vide order dated 30.01.2006 (impugned order) confirmed the demands proposed in Annexures I, II and III of the SCN, totalling to Rs. 75,73,534/-, dropped proceedings in respect of demand proposed in Annexure IV of the SCN, and also imposed the following penalties: a) Penalty of Rs.75,73,534/- on M/s. STL under Section 11 AC of the Central Excise Act, 1944 b) Penalty of Rs.15,00,000/- on ....
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....e AR 3A, invoices, delivery challans and D3 intimations. b) Though initially some statements were made by R.R. Reeling Unit (RRR Unit) that they have done conversion to hank yarn, in the cross examination it was stated that they had done so. As far as the statement of M/s. Bannari Amman unit (BA Unit) is concerned, appellant has categorically stated that he has converted the goods received from M/s. STL into hank yarn in the ratio of 70:30. In the cross examination he has also stated that he had the Diesel Engines to carry out conversion process and some of the goods were cleared as such in cheese form to the hank yarn conversion to other customers. c) Show cause notice dated 18.05.2004 was issued 18 months after the date of the visit of the officials,. d) The entire demand is confirmed by denying the benefit of exemption merely on the ground of procedural lapse. The adjudicating authority went only with regard to the allegations in the show cause notice and did not consider the statements recorded during the cross examination. e) Appellant produced all the evidences for the supply of goods to the job working units for the conversion into hank yarn and such job working ....
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....ed any lorry receipts showing movement of cotton yarn/hank yarn. The cross examination of Shri V. Ramakrishnan was considered and discarded (Ref. to 23.1 & 23.2 of O-in-O). c) Verification at BA unit and statement of Shri E.L. Gunasekar, Proprietor, has revealed that he has prepared documents as if hank yarn was manufactured in his unit, whereas only 70% of the cones received from STL was converted into hank yarn and the balance 30% was not at all received. The 70% converted into hank yarn was not sent to STL but was sold locally and the documents were sent to STL through courier. The above facts were reiterated during cross examination on 19.10.2005. Further no lorry receipts were available showing movement of hank yarn. d) Verification of buyers' premises, Siva Traders, Erode revealed there is no such company at the declared address. e) In the light of shortages found at the job worker premises, verification conducted at a various job workers and buyers of hank yarn (who are found to be fictitious) and in the absence of evidence of lorry receipts indicating cone yarn/hank yarn movement by the appellant, the extended period is rightly invokable and the demand is sustainab....
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....lable for physical verification but there were entries showing balance of stock for the month of 09/2001 in the RG-1 register, hence stock was verified and recorded in the mahazar only in respect of those four varieties of yarn. 10.2. In respect of 30s cotton yarn, as there was neither physical stock or entries in RG-1 register, hence, stock thereof was not verified on 21.09.2001 and not obviously recorded in the mahazar also. Only on subsequent verification of records, it was found that a balance of stock of 62425 kgs of 30s cotton yarn as per folio No.20 of RG-1 register was found which was not updated for subsequent months of July and August, 2001. Kum. Malarvizhi, Clerk of STL in her statement dated 26.09.2001, admitted the shortage of 62425 kgs of 30s cotton yarn and attributed to over sight for not carrying over it on the books of stock. The said shortage of 30s cotton yarn in addition to the shortages recorded in the mahazar dated 21.09.2001 was also admitted by Shri N. Nainar, Director of STL. This being so, the aforesaid contentions of STL in this matter do not carry any merit. Their claim of shortages as attributable to pilferage also does not appeal to common sense si....
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....y actual conversion. 11.2. It is also pertinent to note that no receipt showing the movement of hank yarn from Erode to the factory of STL was produced either by STL or by RR Reeling Unit-II. This aspect was confirmed by Shri S. Nainar, Director of STL in his statement dated 18.07.2002, wherein he had stated that they received only documents such as AR 3As and invoices raised by RR Reeling Unit-II and Bannari Amman and not hank yarn supposedly converted from cotton yarn sent by STL. 11.3. With regard to the retractions made during cross examination, ld. Adjudicating authority in para 23.2 of the impugned order has very adroitly pointed out that even though Shri V. Ramakrishnan stated that they had indeed done the job work, that assertion was untrue since only their source of income was a small tea-shop and that at the time of visit of officers, Shri V. Ramakrishnan had informed that the machines had been dismantled in order to sell them for repayment of loan. He could also not able to produce any material evidence during cross examination as to how they made expenses towards wages, power, maintenance etc., in connection with the job work. We therefore are unable to hold any q....
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....oductions of 114060 kgs shown in the RG-I Register of BARU; he however stated that in the absence of E.B. power, the unit was run on diesel generator. The above admissions made by Shri E.L. Gunasekhar were subsequently retracted by him in cross examinations during adjudication proceedings, when, inter alia, he stated that he does not know English; power connection was used only for lighting purposes; that reeling machines were run on 2 oil engines; that 70% of cone yarn had been converted into hank yarn and returned back and that 30% quantity was traded by him. However, we find that the ld. adjudicating authority has sufficiently demolished these revised assertions in para 24.6 and 24.7 of the impugned order, as follows: "24.6 Shri E.L. Gunasekar in his statement dated 15.10.2001 as proprietor of M/s. Sri Dhanalakshmi Yarn Agencies had stated that he could read and write English well. But he contradicted himself during cross-examination by stating that he did not know English. I find it very strange that a man who has written his statement in his own handwriting in English says that he does not know English. This only proves that during cross-examination he does not want to tell....
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....oices, description of goods was mentioned as hank yarn. In respect of one buyer M/s. Sri Siva Traders, Erode, to whom STL claimed to have been sold hank yarn to the tune of 156002 kgs. In 2000-01 and 225158 kgs. during 2001-2002 (upto 9/2001), however, investigation has revealed that the firm was not functioning in the said address and existed only on paper; occupant of the premises admitted that he had given his address to one Shri Kandasamy, Commission Agent in yarn, who had used the address for business correspondence in the name of Sri Siva Traders and that no yarn was received from STL at the premises; it was therefore clear that STL had used the name of Sri Siva Traders to raise fictitious invoices to sale of hank yarn. 12.4 Revenue has thus has been able to satisfactorily established that there is no evidence for movement of hank yarn from the job worker' to the factory of STL and that entries in RG-1 register to the contrary are doctored to cover up their actual modus. STL have also contended to have entered removal of converted hank yarn to buyers at Erode in their RG-1 register and that they had raised Central Excise invoices for such removals. However, there is no tru....
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.... on the said activity. That may well be so. However, in the instant case, the issue pertains to clandestine removal of cotton yarn as such, in the guise of sending yarn to job workers for conversion into hank yarn. This being so, appellant's attempt to clutch the said circular is mis-conceived and will not help their case. 14. Appellant has contended that goods were cleared following Rule 96E procedure that under cover of AR-3As forms after intimation to the department, that periodical returns intimating clearance of goods under the exemption has been availed, that further, D-3 intimations were also filed by the job working unit about the goods under the exemption and that respective jurisdictional central excise officials have also verified and acknowledged the receipts of the goods. However, it has been conclusively established that these purported clearances of cotton yarn under AR-3As that claimed conversion by RR Reeling Unit and BARU, they are returned under D-3 intimations, the entries in RG-1 register at STL, and "purported" hank yarn to buyers was only a paper exercise without any such actual movement of goods for conversion. In the light of these discussions, what come....
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....xcise duties of Rs. 10,42,361/-, Rs. 40,49,636/- Rs. 24,81,537/- totalling Rs. 75,73,534/- under proviso to Section 11A of the erstwhile Central Excise Act, along with interest liability thereon and imposition of equal penalty of Rs. 75,73,534/- is upheld and the appeal by STL in that regard dismissed. However, in view of equal penalty having been imposed under Section 11AC, we are of the considered opinion that additional penalty of Rs. 15,00,000/- imposed under erstwhile Rule 173Q/Rule 26 of Central Excise Rules is not required and hence we set aside the same. 15.3 Appellant Shri V. Ramakrishnan, Proprietor of RR Reeling Unit and Shri E.L. Gunasekha, Proprietor of BARU have also filed appeals respectively against penalty of Rs. 2,00,000/- and Rs. 1,00,000/- respectively imposed on them under erstwhile Rule 9A, Rule 26 of the Central Excise Rules. 15.4 In his appeal Shri V. Ramakrishnan interalia referred to retraction of the statement given on 13.10.2001. He has further contended that it has been proved by documentary evidence that he had not entirely undertaken the conversion job and has argued that when all records have been seized he was not in a position to produce any ....