TaxTMI 
TaxTMI 
2017 (11) TMI 257
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....e 1985 and prior to that it was a partnership firm started in 1969. M/s.Vira is using Vira brand under the name of its proprietor since 1973. Under a family settlement deed dated 25.3.2001, the said brand name is also used by another partnership firm established in the year 1980 named M/s.Shanu Auto Traders (Shanu). Shanu is a partnership firm of Shri Amit Jain, Smt.Gyani Devi and Shri Darshan Lal. Shanu is also engaged in the trading of auto parts, which are procured from the open market and are sold after being packed and affixed Vira brand. Shanu is also procuring (approx) 1% of its turnover of auto parts from M/s.Vira and 99% of auto parts procured from the open market and are sold under the brand name Vira which means that few clearance made by Shanu which were manufactured by M/s.Veera. 3. On 30.6.2005, the official of DGCEI visited the factory premises of M/s.Vira, residence of the proprietor, premises of various dealers across the country dealing with goods supplied by M/s.Vira and Shanu and few of the transporters transporting goods supplied by M/s.Vira and Shanu. They also visited and searched another premises in Ludhiana occupied by Shri Darshan Lal and his sons Shri ....
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....s cleared by M/s.Vira or without any reference. Hence these appeals are before us. 5. Learned Counsel for M/s.Vira and co-appellants submitted that: (i) No incriminating documents/ material was found from the premises of M/s.Vira (ii) Almost all the documents were resumed/seized from the Sh. Naveen Sharma proprietor of M/s. Lakhanpal Auto. No statement of Sh. Naveen Sharma was recorded nor any investigation with respect to the conduct of M/s. Lakhanpal Auto carried out by the Department. (iii) Show cause notice does not propose any clubbing of clearances of M/s.Vira and Shanu. (iv) Not even a single live consignment was seized from any transporter or any dealer across the country under invoices related to M/s.Vira. All such goods were under the invoice of Shanu. (v) All the dealers have retracted from their statements either through affidavit or during cross-examination. (vi) Technical reports by two different authorities were not questioned by the department and stand affirmed. (vi) Cash of Rs. 65.70 Lakh recovered from Mr. Rajneesh Jain was duly justified and same was duly acknowledged by the Adjudicating Authority....
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....e has to be substantiated with complete chain of corroborative evidences. In the present case, department has failed miserably on this count. Few of the cases on this legal principle are as under: a. Century Metal Recycling Pvt. Ltd. Vs. CCE, Delhi IV, 2016(333)E.L.T.483(Tri.DEL) b. M.Veerabadhran Vs. CCE, Chennai, 2005(182) E.L.T.389. Upheld by Hon'ble Supreme Court in 2006 (197) E.L.T.A34(S.C.) 9. He further submits that that the whole case of the Revenue is based on the private records maintained by a third party and the department has failed to prove that the private records maintained by Sh. Sanjay Sharma wee supported with corroborative evidence. Therefore, it is a settle proposition of law that private records of third party cannot be relied to confirm the demand on the charge of clandestine manufacture in view of the Tribunal in the case of Bearing Manufacturing Company- 2000(123) ELT 1148 wherein it has been held that charges of clandestine removal based only private records of an employee made for his own purpose are not sustainable unless corroborative evidences are found. He also relied on the decision of the Tribunal in the case of Savitri Concast ....
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....nment was recovered having invoice in the name of M/s.Vira. However, the goods cleared under the invoice of Shannu but there is no evidence to prove that the said goods were clandestinely manufactured by M/s.Vira. Moreover, all those dealers have retracted from their earlier statements, therefore, the demand is not sustainable. He also submitted that there is no proposal in the show cause notice to club clearances made M/s.Vira with Shanu. Moreover, it has been held that SHANU is a separate legal entity having its own trading business and as per the statutory records, it has 99% purchases from sources other than M/s.Vira. As Shanu is legally using the Vira brand, it cannot be alleged that all the goods under brand of Vira one manufactured by M/s.Vira. Therefore, the Revenue s appeal is not sustainable. 14. He further submits that no specific role of Co-noticees has been explained in the show cause notice or in the impugned order, therefore, the penalty is not sustainable. Moreover, as the demand is not sustainable, the penalties are not imposable. 15. In these terms, he prayed the impugned order quo demanding duty on account of clandestine removal on the basis of resumed reco....
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....rty to the show cause notice as he was involved in the activity of clandestine removal of the goods on the basis of investigation. Further, M/s.Shanu whose invoices were recovered for the live consignments was not made party to the show cause notice. The department was having lenient view towards M/s.Shanu which shows that the whole of the investigation was conducted by the Revenue was to drag M/s.Vira in litigation to allege clandestine removal of the goods. 20. In the impugned order, we have seen that the ld. Commissioner has examined the issue and observed as under: 3.15 First of all, the show cause notice has alleged that a sum of Rs. 62.40 lacs unaccounted cash (sale proceeds of clandestinely manufactured and sold auto parts) was recovered during search operations at the residential premises of Sh Ravinder Jain and the same was subsequently deposited as Central Excise Liability by the Noticee vide TR-6 challan No. 1/2005-06 dated 5.7.2005. In this regard the Noticee has pleaded that out of the said amount, Rs. 47.40 lacs belonged to M/s Dr R. C. Jain Charitable Trust with its office at 164-G, Bhai Randhir Singh, Nagar, Ludhiana. Late Dr R.C. Jain was father of Shri....
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....eparation Sh Vijay Jain now prop of M/s Vira Scooters has started using a slightly different brand as VIRA-S. And as per a family settlement document dated 25.3.2001 produced before me, Sh Ravinder Jain has allowed his son Sh Amit Jain (a partner of M/s Shanu Auto Traders) to use brand VIRA for his commercial operations including use in trading of auto parts. The packing of auto parts in brand owned by some other person did not amount to manufacture under Section 2(f) the Central Excise Act, 1944 during the relevant period. The applicability of deemed manufacture for purpose of leviability of excise duty on auto parts has become operative for the first time vide Notification No. 12/2006 w.e.f. 29.5.2006. As per these facts, I observe that M/s Shanu Auto Traders were using brand VIRA as per provisions of the prevalent Central Excise law and this during period prior to 29.5.2006 did not invite levy of Central Excise duty. 3.18 The next point to be examined is the provisions of Central Excise law applicable and authority to collect government duties. Collection of Central Excise duties is a tax levied on production and clearance. It implies that some product specified in the ....
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....ord to suggest that any unaccounted raw material was detected during the search operations. There is also nothing on record to suggest that during investigation any evidence was collected regarding purchase of unaccounted raw material. The total evidence of procurement of raw material for the manufacture of alleged unaccounted goods is in the form of unsubstantiated part of the statement of Shri Ravinder Jain and which too had been retracted the very next day. The statement in these circumstances looses its evidenciary value because no other corroborative evidence has been placed on record to substantiated the charge of unaccounted purchase of raw materials. Sh.Sanjay Sharma, hwo claimed to have managed all the transactions of M/s.Vira Industries, did not threw any light on the operations connected with procurement of unaccounted raw material or the sources of supply of unaccounted raw materials. From the proceedings, it appears that Mr.Sanjay Sharma was fully co-operating with the investigating officer, then it is strange that the investigating officer never questioned him about the source of raw materials which VIRA used in the manufacture of unaccounted finished goods. If Mr.San....
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....rently unproportionate. The Noticee has pointed out that total production and sale during the year 2004-05 was Rs. 91,86,420/- (domestic sale) and Rs. 3,43,248/- (export sale). Surprisingly, the investigating agency has not taken into account the export sale while appointing the expenditure towards production. For a total production and sale of auto parts collectively valued at Rs. 4,35,83,668/- the proportionate sale for seven months comes to Rs. 41.58 lacs is not excessive but rational. Since procurement of unaccounted raw material is not established, consumption of alleged unaccounted raw material has not also been substantiated in the show cause notice. I observe that excess consumption of raw material or other inputs is not substantiated. 3.22 PACKING MATERIAL: The show cause notice has not alleged excess clandestine purchase of packing material by the Noticee No.1. It is admitted that the auto parts cannot be sold all over India without proper packing. The packing has to be quite elaborate. First of all the auto parts are wrapped and packed in corrugated boxes. Such boxes are further packed in wooden boxes for safety of auto parts. The Noticee No 1 has worked out det....
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....were expected to pack auto worth Rs. 35.64 crores (alleged domestic sales and recorded exports) during the relevant period. From the descriptive details given in the show cause notice, I find that packing was an important step in dispatch and transportation of manufactured auto parts. To pack auto parts valued at Rs. 35.64 crores, a large number of packers were required in M/s.Vira Industries. Evidence regarding sufficient number of packers working in M/s.Vira Industries is also not available. 13.23 In paara 35 (ii) (vi) of the show cause notice, it is also mentioned that M/s.Vira Industries employed 58 persons during the period and record of overtime payments, 58 employees handling 105 machines in the unit of Noticee No.1 appears quite reasonable. Out of these some were looking after office work, packing operations, loading/unloading, electrical operations and outside work of the factory. The Noticee No.1 has contended that they are registered with PF and ESI authorities and regularly filed returns of employees. There are period checks exercised by those departments. As per their records, they had not paid any overtime in their unit. The loose papers recovered from the re....
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....e notice has produced their electricity consumptions figures which are as follows: Year Electivity Bill amount (Rs.) 2002-03 16,75,571/- 2003-04 22,26,512/- 2004-05 24,26,792/- 3.26 They worked out of details of material used and electricity consumed for manufacture of each auto part. The electricity consumed per part in relation to total electricity consumed was used to work out total possible production in the unit. The conclusion drawn by the report is that the sales made by Vira Industries during the year 2004-05 can safely be taken as their actual production with expected variation ranging from 3 to 4%. The unit of the Noticee consumes electricity on regular basis, as all the machines are dependent upon electricity motors. The electricity consumption by the Noticee No.1 could have been an important indication of scale of production. I observe that this aspect has not been touched upon in the show cause notice except for the 7 month s electricity expenses details of Rs. 14,08,158/-. The evidence regarding capacity of generator installed in the factory premises of M/s.Vira Industries and the quantity of diesel consumed durin....
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....of the studies conducted to determine the production capacity of the manufacturing unit, the alleged total production and sale of goods worth Rs. 35.64 crores is not feasible. The alleged production and sales of auto parts worth Rs. 35.64 crores during the relevant period required purchase of raw materials, adequate installed machinery, manpower, proof of electricity consumption or generator expenses, other consumables and packing materials. The Noticee pleaded that these factors have not been taken into consideration before creating tax liability against them. 3.31 No production records (pacca or kacha), slips, pads, register etc. were resumed/recovered during search operations. I observe that the investigation has not even got the production capacity of the unit assessed through some technical agency/prsn. It is a matter of common knowledge that production process of auto parts normally consists of more than one operation. In some cases the number of operations can stretch to handling at all the machines functioning in the unit. In the absence of recovery of production records, the actual assessed production capacity could have thrown authentic light on the extent upto w....
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....the consignor and its disposal. 25. Further, we find that in the case of Arya Fibres Pvt.Ltd. time and again, the Tribunal has observed as under: 40. After having very carefully considered the law laid down by this Tribunal in the matter of clandestine manufacture and clearance, and the submissions made before us, it is clear that the law is well-settled that, in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenue which mainly are the following : (i) There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions; (ii) Evidence in support thereof should be of : (a) raw materials, in excess of that contained as per the statutory records; (b) instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty; (c) discovery of such finished goods outside the factory; (d) instances of sale of such goods to identified parties; (e) receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons ....
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....matter was referred to a third Member, who held that clandestine manufacture and clearances were not established by the Revenue. We are not going into it in detail, since the learned Counsels on either side may not have had the opportunity of examining the decision in the light of the facts of the present case. Suffice it to say that the said decision has also tabulated the entire case-law, including most of the decisions cited before us now, considered them, and come to the above conclusion. In yet another decision of a co-ordinate Bench of the Tribunal [Pan Parag India v. CCE, 2013 (291) E.L.T. 81], it has been held that the theory of preponderance of probability would be applicable only when there are strong evidences heading only to one and only one conclusion of clandestine activities. The said theory, cannot be adopted in cases of weak evidences of a doubtful nature. Where to manufacture huge quantities of final products the assessee require all the raw materials, there should be some evidence of huge quantities of raw materials being purchased. The demand was set aside in that case by this Tribunal. 26. Although the adjudicating authority has touched certain points for co....