TaxTMI 
TaxTMI 
2025 (3) TMI 1058
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....ve two more partnership firms, namely, M/s Meena Fire Works and M/s Meena Sparklers with their relatives as partners; that these firms were used as conduit to split up their total turnover and they have been raising bills for all the items of fireworks in each firm irrespective of factory of manufacture of said items and thus resorting to evasion of duty payable on the fireworks cleared. Therefore, on 20.10.2010, the DGCEI officers searched the premises of these firms, their office premises, residences of the partners and the premises connected with them in their business activities and recovered incriminating documents which were seized under mahazars dated 20.10.2010 drawn in the presence of independent witnesses. Statements were also recorded from various individuals on different dates. 2. Based on the investigation undertaken by DGCEI with the active and inactive partners of three firms' suppliers of raw materials, supplier of packaging materials and their customers (Dealers & Traders), statements recorded, and on scrutiny of the documents recovered from various premises, officers of DGCEI were of the view that: a) Shri S. Meenrajan and his brothers Shri S Bha....
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....orks, effected from their three factories, among themselves maintaining an equilibrium with one another. This could be seen from the turnover submitted to the Commercial tax authorities and for the year 2009-10 the sale turnover of M/s Sparklers was even more than that of other two factories. f) They have procured raw materials such as Aluminium powder, Titanium powder, Barium Nitrate, and packaging materials such as gift boxes and corrugated cartons without bills as reflected in the two long size note books received from M/s Meena Trading Company vide their letter 4-10-2011(marked as Sl. No 19 of Annexure-B to the SCN) and in the file bearing SI No.23 recovered from Office premises (marked as Sl. no 9 of Annexure-B to the SCN). g) The documents contained in the file bearing Sl. No 16 (marked as Si no 18 of Annexure B to the SCN) revealed the manufacture of fireworks in M/s Meena Fire Works Industries and M/s Meena Fire Works and brought to the magazine at M/s Meena Fire Works Industries, which were cleared either under invoice or without invoices as discussed in the notice. h) The statements of Smt. Jeyanthi, Smt. B Sermaselvi, & Smt. K. Nithya re....
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....Estimate-Memo in the file bearing Sl. No. 30-2/2 (marked as Sl. no 11 of Annexure-B to the SCN) recovered from the office premises. These documents showed not only double consignments but also their realization. o) The small note books bearing: Sl. No 15 2/10, 15 3/10, 15 4/10, 15 5/10 and 15 8/10 & 7 (marked as Sl. no.3&2 of Annexure-B to the SCN) recovered from the office premises reflect the unaccounted transactions such as payments made towards the purchase of raw materials without bills, payment of coolie charges to the labourers, receipt of amounts against the illicit supply of fireworks from the customers establishing the clandestine removal of fireworks from all the three factories, as could be seen that there was no indication in the said documents showing reference to the sale of fireworks from the factory of manufacture. p) Thus from the documentary evidences available and evidences collected from all concerned and statements recorded from all concerned reveal the fact of unaccounted manufacture, unaccounted clearances, unaccounted purchase of Raw materials and Packing materials and realization of sale proceeds in cash and the deposit of such sale....
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...., available among the miscellaneous document with page Nos 44,70,71 & 72 in a file bearing Sl. No.4 recovered from the factory premises of M/s Meena Sparklers, the transaction value for the year 2010-11 was determined as detailed in the notice, considering coolie charges including the bonus attributed to 20% of the actual turn over as being determined as shown in para 5.6 of the notice. t) Thus, Shri S Meenrajan, Shri S Baskaran and Shri S. Kannan are effectively managing the entire affairs of three firms namely M/s Meena Fireworks Industries, M/s Meena Fire Works and M/s Meena Sparklers manufacturing different variety of fireworks. Investigation revealed that all the three units procure raw material, sell excisable goods and receive sale proceeds without any distinction between each other. They are managed as a single financial entity by the three brothers Shri S. Meenrajan, Shri S Baskaran and Shri S. Kannan. As such, it appears they are the one manufacturer manufacturing fireworks falling under heading No. 3604 of CETA 85 in three factories and cleared all varieties under the invoices of all the three firms irrespective of place of manufacture without distinction and ar....
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....nnan, are also individually liable for penal action under Rule 26 of CER and also liable to pay interest on the duty not paid under Section 11AA of CEA. 5. Therefore the three units represented by the three brothers were issued SCN No.81/2012/CE dated 13.08.2012 requiring them to show cause why the three firms should not be treated as one single manufacturer manufacturing and clearing fireworks from their factories in terms of section 2(f) of CEA read with para 2(v) of the Notification 8/2003-CE dated 01-03-2003, why the value of clearance of fireworks including sparklers from the three firms should not be clubbed together in terms of para (v) of the notification 8/2003-CE ibid to determine the aggregate value of clearance for demanding duty from the said three firms represented by the three brothers as they have jointly and severally indulged in the licit and illicit activities of the said three firms, why an amount of Rs.1,97,59,664/- towards duties and cesses payable should not be demanded from them under section 11(4) of CEA and the amount of Rs.15,00,000/- paid under various challans as detailed therein should not be appropriated against the said duties payable, a pen....
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....h his brother S/ Shri. S/. Kannan and S. Baskaran. viii) Penalty of Rs.19,00,000/- in terms of Rule 26 of CER is imposed on Shri. S. Baskaran, one of the three brothers and partner of M/s. Meena Fire Works for having masterminded the entire activities of three factories jointly in association with his brother S/ Shri. S. Meenrajan and S. Kannan. ix) Penalty of Rs.19,00,000/- in terms of Rule 26 of CER is imposed on Shri. S. Kannan, one of the three brothers and partner of M/s. Meena Fire Works for having masterminded the entire activities of three factories jointly in association with his brother S/ Shri. S. Meenrajan and S. Kannan (sic). 7. Shri N. Viswanathan, Ld. Advocate appeared on behalf of the appellants and argued the matter. He filed written submissions of the details of the appeal, details of the units and contentions as under: a) Appeal No: E/42077/2015 DB. Filed by M/s Meena Fire Works Industries [MFWI] for short] Demand for duty of Rs. 1,97,59,664/- covering the period from April 2007 to March 2012 but proposed and confirmed on group of three persons not partners of Meena Fire Works but partners in the other two units mentioned infra....
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....to VAT. 7.4 Meena Sparklers, [MS] the third manufacturing unit which was started during 2003 with S/Shri S. Meenarajan, S. Kannan & S. Baskaran as its partners was producing fireworks. Only in this unit all the three brothers were partners and not in the other two units mentioned supra. The composition of the various units is furnished below: Sl. No Name of the Unit Constitution Management composition S/Shri/Ms. Remarks 1 Meena Fireworks Industries Sole Proprietor S. Kannan Started in March 2007 and continued as a proprietary firm till Feb 2010. Availed SSI exemption. Partnership firm S. Meenarajan, S. Kannan, S. Baskaran, Smt. M. Jayanthi, Smt. Sermaselvi & Smt. K. Nitya. Converted as partnership firm in Feb 2010 and continued to avail SSI exemption. 2 Meena Fireworks Partnership firm S. Meenarajan, S. Baskaran & T. Selvaraj. Started in 1981. Had six sh....
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....ai Regional Unit that MFWI had been procuring raw materials without bills and clearing their finished goods clandestinely by keeping their turnover within the SSI exemption and that there are two other partnership firms with their relatives as partners and are splitting up their turn over, the officers conducted simultaneous search operation at 11 premises on 20/10/2010 which included the factory premises of MFWI, MF, MS, their office and the residential premises of the partners, [para 3 of the notice at page no 2] to recover certain private documents under a panchanama claiming the said documents to be of incriminating nature. 8.1 The above documents seized were diaries and a hand written long size note books marked as Sl.no: 25 - 1/4 to 25 - 4/4 and a small size account note book Sl. No: 15 - 2/10, 15 - 3/10, 15 - 4/10, 15 - 5/10 and 15 - 8/10 detailing the stock of raw material held marked as A-1. The entries found in the various above note books was assumed by the investigation as containing the details of unaccounted removal of fireworks from all the three units for the period between 01/04/2007 to 31/09/2009, based on which only the demand for....
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....e learned counsel submits that the appellants cross examined the dealers and raw materials suppliers whose statements were relied in support and brought on record that the said statements obtained from the said persons were not based on the true facts. The respondent however on refusing them to cross examine the investigating officer, they filed their reply dated 30/03/2015 stoutly contesting each of the allegations made against them both on facts and law supported by evidences. However, the respondent passed the impugned order verbatim confirming the proposals made in the notice and the quantum of duty confirmed and the penalties imposed are detailed as below: Sl. No Name Amount of Duty Rs Amount of penalty Rs Period of demand Issue 1 Group of three brothers has been regarded as a single financial entity under Section 2 [f] 1, 97,59,664/- 1,97,59,664/- 2007-08 to 20112011. Clubbing of the alleged clandestine removal of the firework from the three units 2 ....
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....mption. 10.3 That the scope of Section 2 [f] and para 2 [v] of Notification No 08/2003 CE are distinct and different. Section 2 [f] deals with the person to be deemed as a manufacturer whereas notification no 08/2003 CE dealt with the determination of the aggregate value of clearance effected by a manufacturer from one or more factories. A person who is deemed as a manufacturer is liable to discharge duty under rule 8 of CE Rules and such person is also eligible to avail SSI exemption. In this case each of the above three units were the manufacturers of the excisable goods at their respective factories in their own right and are eligible to avail the SSI benefit as such manufacturer which they had availed for each of the financial years 2007-08 to 2010-11 in as much as their value of clearances for each of the above financial years was much below the thresh hold limit. Neither the Partnership Act of 2015 nor the Central Excise Act of 1944 empowered the central excise officers to create a separate financial entity consisting of three individuals to hold them liable for the payment of duty for the clearances effected from the three independent factories &nb....
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....f fireworks. There was nothing inherently wrong or sinister in the said observation and in fact it supports the case of the appellants. 11.1 The ld. Counsel submits that once the above facts are undisputed, the law requires that each of the said firm should be given a separate notice as to why they cannot be regarded as truly independent or to treat them as either dummy or a legal façade with no separate existence or legal status. The issue of the notice with such a proposal would be legal mandated in as much as each of the unit was admittedly in possession of legal documents such as PAN card, VAT registration, SSI certificate and Explosive licence etc., clearly affirming their independent and individual existence holding proper legal status more particularly when the notice had admitted to their undertaking the production of the fireworks at their respective factory/ies. The position of law in this regard is also fairly well settled in the following cases. • Commr. v. Unitech Containers Pvt. Ltd. - 2017 (358) E.L.T. 99 (Del.) • Premier Heavy Engineering Corpn. v. CCE - 2016 (337) E.L.T. 332 (Guj.) • CCE v. Urbane I....
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....i] 2015 [317] E L T 277 [Tri. -Chennai]; and [ix] 2009 (243) E L T 79 [Tri. - Chennai] and (vi) Board's circular no. 6/1992 dated 29.05.1992. 13. The Ld. Counsel submits that the notice issued to the appellants being full of assumptions and presumptions without any corroborative evidences being brought on record, defying even the application of the principles of pre-ponderance of probability, the notice itself is not maintainable in law. Reliance in this regard is placed on the following judicial pronouncements. (a) Tinkoot Iron and Steel Casting Limited Vs. CCE [2015 (315) ELT 65 [Tri. -Del] (b) Golden Steel Corporation Vs. CCE [2017 (347) ELT 570] (c) Capital Ispat Ltd., versus CCE, Jaipur [2016 (340) E L T 697 [Tri. - Del] (d) Sourav Ganguly Vs. CCE [2016 (43) STR 482] 14. The Ld. Counsel submits that, without prejudice to the objections to the clubbing of the value of clearances as proposed in the notice and as confirmed verbatim by the respondent, the very unreasonableness and presumption and assumption of the investigation is clearly revealed from how the quantification of the demand has been done. 14.1. The quantification of the d....
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....erage value of the preceding year clearances namely clearances for Oct 2007 to March 2008 and October 2008 to March 2009 to arrive at average value clearances per day to presumptively work out the value of clearances for October 2009 to March 2010. Reference is invited to the remarks col in work sheet Ann C [i]. and para 15.3 of the notice pg. 84-85. This proposition is not only erroneous but also illegal as it is not based on any credible evidence but on hypothesis which has no place while charging alleged evasion on the part of the appellants. Without prejudice, if the accounted turnover of Rs. 1,13,06,797 is excluded from the total turnover of Rs.1,74,81,626/- which according to the appellant is inclusive of accounted turn over, even then they are eligible to avail SSI exemption for 2009-2010 also. Reference is invited to Ann C [i] at page 100 and Ann C [ii] for work sheet. 14.3. The Ld. Counsel further states that similarly the quantification for the period 2010-11 and 2011-12 is also equally wrong. For the said period also, the notice has not adduced any evidence. Hence the notice has gone on to quantify the value based on the coolie or wages and bonus paid to w....
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....elow the SSI exemption limit of Rs.1.5 cr. per year. If each of the said unit is treated as a separate legal entity, then the gross turnover of each of the unit will fall below the limit of exemption in each of the financial year. With a view to deny the exemption the department has attempted to club the clearances of all the three units and projected the case as involving large-scale evasion of duty for which they treated the three brothers as a single manufacturer inspite of the existence of three independent partnership firms, which is highly improper and totally erroneous. 15. It is further submitted by the Ld. Counsel that the various case laws referred to and relied upon in para 37 of the impugned order to sustain the proposals are distinguishable since those decisions were rendered in a totally different context and on a totally different set of facts and circumstances which are not so in the present case. Very recently the Hon'ble CESTAT, Chennai Bench in a case involving similar facts investigated by the DGCEI, pertaining to one Vadivel Pyrotech private Limited distinguished the law laid down in the above cases to hold that the demand for duty based on the proposa....
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....clubbing of the value of clearances and denying the benefit of the exemption availed by the three units, was made out based on the summary of findings available in para 14 of the show cause notice relying upon the following facts and documents namely i. All the units were managed by the group of three persons and other partners did not have any role to play. ii. Accounts of all the units were maintained in common. iii. Documents in the form of long sized and short sized note books. iv. Statement of S/Shri S. Meenarajan, S. Kannan and S. Bhaskaran; v. Statements recorded from the raw material suppliers; vi. Statements recorded from the traders and buyers of fireworks from the appellants; vii. Bank statements evidencing receipt of consideration, viii. Register/evidence for payment of coolie and bonus to workmen. 18.2. The learned counsel submits that assuming without admitting that the three units were managed by the three brothers and the other partners did not have any role to play, yet it would not be anything wrong or impermissible in law more particularly in terms of th....
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....four long registers it is alleged that the appellants have made unaccounted removals of the finished fireworks. Though the availability of the said long registers and the entries made therein are not denied, it was the contention of the appellants that the said long note books was nothing but an order recording book containing entries of the orders placed on the units for the supply of fireworks. The reconciliation of the details contained in the said books in terms of the accounted sales with reference to the invoices were not considered by the respondent at all. It is submitted that the mere placement of orders for the supply of fireworks from the various buyers and its recording does not translate into actual removal of goods without bills. Equally the mere making of entries in the order book cannot form the basis for raising a demand of duty assuming that the order book represented the actual sale of unaccounted removal of fireworks. It is common in commercial practice that many a times the order so placed may not translate into an actual supply. Price negotiations take place after receipt of order and the price differs based on the brand sought for and its quality. ....
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....supplying chemicals only on invoices and very rarely a small quantity will be supplied without bills and excepting a case of 45 bags of Bariam and Strontium valued at Rs.60,000/-, all supplies have been made on bills only. The so-called supply of small quantity of chemical valued @ Rs.60,000/- is too small and insignificant when compared to the purchases made during the past three years to even comment. In any event, the officers did not seize or rely upon any of the records including the private records maintained by the said suppliers to substantiate their allegation or to corroborate his statement. Hence the deposition has no face value. With regard to M/S Lakshmi Metal Products, the ld. Counsel submits that even though they had initially stated that most of their sales are through bills only and only a very less quantity will be supplied without bills, but later they adopted the version of the department and confirmed that they had supplied chemicals without bills as per the entries found in the records shown to them by the officers. The version of the deponent is not convincing for the reason that he has not referred or relied upon any of the records/ledger or any ....
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....209-212]. Further, Shri. T. Krishnamurthy, Partner of M/S Sri Krishna Packaging Industries in his statement dated 0802.2012 admitted to have supplied packing material to all the three units mostly with bills and occasionally without bills. Ld. Counsel submits that with reference to question no 10 regarding the small chittas, he had clarified during cross examination that he did not see all the entries in the computer printout [ pp289-290] and admitted that most of the entries available in the computer printout does not relate to his company and he has singed the statement without proper verification. His statement coupled with the deposition during cross examination does not corroborate the alleged extensive evasion of duty and unaccounted sales of Meena Group of companies. It is the submission of the Ld. Counsel that the statement given by shri. M. S. L. Sheik Mydeen, Partner of M/s M.S.L Packaging Industries dated 24.05.2021 is too brief. It does not contain any serious incriminating stuff. He seems to have towed the line of the officers by merely accepting their suggestion in reply to question no 4. 19. As regards the statements/records fro....
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....osed that they had procured firework from each of the three units. If the statements given by the five alone is reliable and shown as representative, then the respondent out to have dropped the demand pertaining to the other such alleged buyers. One cannot assume that that the same tie up would be maintained with all the other buyers also. Even with respect to the said five customers, excepting their statement no other records either private or official maintained by them for their purchase was procured, relied or even referred. A bald statement without corroboration with their purchase records is next to nullity and lacks credibility. It is only the local customers who had deposed that fireworks were supplied in their own van and this may not hold good for supply to the out-station buyers. Out of five only three local buyers have deposed that they received their supplies in the van owned by the appellant. None of the out-station buyers have said so. The finding of the respondent that the appellants had been supplying fireworks in their own van hence they could not get any transport documents is totally devoid of truth. Without placing reliance on the transport document....
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....e dealers for their purchases either statutory or private including the purchase ledger which they are, as per the commercial practice, required to maintain to corroborate their version. The department also did not obtain any of their private or statutory records/ledgers etc to substantiate the charge of supplies by the appellants without issue of bills or for the receipt of payment of the consideration either in cash or through accounts. The dealers being traders merely towed the line of the officers to escape the wrath and punishment. During the cross examination all of them have deposed and clarified that they did not verify or check the various entries said to have been found in the computer print outs containing 19 pages which was in the possession of the officers which is said to contain information about the supplies alleged to have been made without bill and the corresponding payment in cash but admitted that they have merely signed the statement as suggested by the officers which clearly show that the information contained in their statements were neither true nor voluntary. Curiously enough the respondent also did not refer in his order about the said depositi....
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.... dealers or at least with main dealers along with their purchase records or quantification of the receipt of additional consideration with reference to the admitted excess purchase of fireworks without bills etc. The various statements and documents relied upon are in bits and pieces and no cohesive and justifiable evidence has been let in to justify the huge evasion of duty alleged against them. 21.2. The Ld. Counsel submits that in any event since the statements stand uncorroborated in the manner known to law, its credibility is doubtful but, in this case, the entire case of the department rests on the statement and on the long and short note books seized from their premises. 22. The Ld. Counsel submits that as regards the Bank Statements, the notice has referred to the maintenance of 29 accounts both current and savings bank accounts by the three units, their 7 partners and few others. In annexure C [iii] pp 102 - 103 the total amount found in the credit side of the said account were listed alluding to the fact that they may pertain to cash receipts on account of sales without bills. While there are cash deposits pertaining to the large no of sales ....
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....ny reference or rely upon the said bank statements in his findings. Hence the reference to the bank accounts/bank statements and annexure C [iii] is not relevant to the issue in question. 23. On the imposition of penalties, it is the submission of the Ld. Counsel that the impugned order has imposed equal penalty of Rs. 1, 97, 59, 664/- on the above three persons under Section 11 AC apart from imposing a separate penalty of Rs 19,00,000/- on each one of them invoking Rule 26 of CER 2002. It is the submission of the Ld. Counsel that the said group of three persons cannot be at one stroke regarded as the manufacturer and a single financial entity and at the same time, on the other hand, treated as separate individuals concerned with the alleged illegal removal of the goods so as to invite a penalty under Rule 26. Rule 26 is applicable to persons other than manufacturers only and imposition of penalty under Section 11 AC and Rule 26 ibid therefore is bad in law and not maintainable. 24. The Ld. Counsel also submits that when the very demand confirmed by the adjudicating authority is erroneous and un-sustainable in law for the for the aforesaid reasons, the penalty imp....
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....case. The ld. AR emphasises the findings of the Adjudicating Authority at para 31, 34 and 35. 27. The Ld. AR submits that in para 31 the Adjudicating Authority has held that Shri S. Kannan claimed that the registers said to contain clandestine removals of fireworks are rough note books and were maintained for all the three units to have track of the orders and supplies; the diaries and note books recovered, from the residential premises of Shri S. Kannan containing the details of debtors/creditors, stock of finished products and raw materials after each Dewali, were also claimed to be in the nature of including the income & expenditure concerning their textiles business, agricultural income earned and the business of fireworks; the file bearing Sl. No. 26-1/2 and 26-2/2 (Sl. No. 14 & 30 of Annexure B to the SCN) containing the torn invoices were raised just 3 to 4 days prior to search operation and such of those invoices made out were torn on account of the fact that those invoices were prepared in anticipation that goods would be made ready by the units before the close of the day whereas on account of shortage of as productions, such quantity could not be made due to reasons s....
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....hough Shri S. Kannan matched some of the entries in the register with invoices, all the entries in those 4 registers must be the consignment of fireworks cleared to the customers in an illicit manner as admitted by the triads in their respective statements, for the reason that in as much as two consignments were cleared under one invoice, which was accounted, the other consignment found place in the said four registers must have been unaccounted one. The Ld. AR submits that the statements were retracted only in reply after more than two years and that in so far as the quantification is concerned it can be remanded for reverification of the quantification. 28. The ld. AR submits that clubbing of the clearances was in order as the three brothers handled the administration, finance and production separately for all three units but proper books of accounts unit wise was not maintained. He draws attention to para 34 of the impugned order where the adjudicator has held that the investigation also brought out the unaccounted purchase of raw materials such as Aluminium and Magnesium alloy powder, Barium and Strontium Nitrate and Packing materials which were found recorded in the 2 long ....
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....san for Rs 60,541/- and Rs. 85,895/-; those orders also reflected an amount of Rs. 59,110/- and Rs. 83,956/-which did not include the Mahamai and Sales Tax; those data denoted the supply of 2 consignments against each order; one supply was made under the cover of invoice and the other consignment with the same contents supplied without invoices, this practice was followed by them in respect of all parties; the consignment of fireworks mentioned in 4 registers (25-1/4 to 25-4/4) were unaccounted dispatches of fireworks from the factories; the payments received in cash towards illicit sale of fireworks were handed over to Shri S. Meenrajan who deposited it in anyone of the personal accounts; such cash receipts were also used for payments to the suppliers of raw materials; fireworks such as Lars/Wallas were brought from M/s Meena Fireworks to M/s Meena Fireworks Industries; the amount deposited in the account of Shri S. Kaliswaran, partner of M/s Sri Balaji Traders were payments received towards the illicit removal of fireworks from their factories; small note book bearing Sl. Nos 15-2/10 and 7 were written by him and the contents therein represented the unaccounted income and expendi....
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....rives home the point that all these 3 units are inter depended on each other and hence, the value of clearances accounted and unaccounted sold by all the 3 firms are clubbable and the transaction value determined based on the price list giving normal discount of 30% on such clandestine removals arrived at by the investigation appeared to be in order. It is seen from the show cause notice and the reply submitted by one of the partners Shri S Kannan, the allegation levelled by the investigation were all based on the documentary evidences and the statements from the partners, the suppliers and the customers were also confessing those evidences and as such statements are only corroborative in nature which cannot be considered to be recorded under the threat of arrest as claimed by the partner; and the course of recording the statements also seemed to be very cordial as the deponents are replied on their own way to the questions posed to them therefore reject the request of the partner to cross examine the officers which would delay the process of adjudication which has been so far delayed by more than 2 years. Further, the right to cross-examination is not an absolute right. The questi....
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....ntral Excise Act read with para 2(v) of the Notification No.8/2003-CE dated 01.03.2003 as amended, is tenable. 2) Whether the finding of the Adjudicating Authority that the value of clearances of fireworks including sparklers manufactured and cleared from M/s. Meena Fire Works Industries, M/s. Meena Fire Works and M/s. Meena Sparklers during the period 2007-08 to 2011-12 should be clubbed together in terms of para 2(v) of the Notification No.8/2003-CE dated 01.03.2003 as amended to determine the aggregate value of clearances for demanding duty from the said three firms, is tenable. 35. The other findings of the adjudicating authority of confirmation of the demand along with order of appropriation, imposing of penalties are all consequential and their tenability would hinge on the determination of the above two issues. 36. At this juncture, it becomes necessary to juxtapose certain paragraphs of the SCN and the findings of the Adjudicating authority consequent to the SCN proposals, which are tabulated as under: SCN Paragraphs Paragraphs of the Findings in OIO 21. From the above it appears that the three brothers viz, Shri S. Meenrajan, Shri.....
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....r it appears that Shri. S. Meenrajan Shri. S. Bhaskaran and Shri. S. Kannan have associated themselves with the common understanding to evade duty by indulging in illicit activities of manufacturing fireworks in all the said three factories and selling them without valid invoices and without payment excise duty and thereby they are individually liable for penal action under rule 26 of CER 2002. 24*. Further it appears that they are liable to pay interest on the duty not paid under Section 11AA of Central Excise Act, 1944. * As numbered in SCN 25. Now, therefore M/s. Meena Fire Works Industries, M/s. Meena Fire Works and M/s. Meena Sparklers represented by the three brothers viz., Shri. S. Meenrajan, Shri. S. Baskaran and Shri. S. Kannan, Elayirampannai sons of Shri. T. Selvaraj are required to show cause to the Commissioner of Central Excise, Office of the Commissioner of Central Excise, C.R. Building, Bibikulam, Madurai within 30 days of this notice as to why: (emphasis supplied) (i) M/s. Meena Fireworks Industries, M/s. Meena Fire Works and M/s. Meena Sparklers represented by the three brothers viz., Shri. S. Meenrajan, Shri. ....
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....nety seven lakhs fifty nine thousand six hundred and sixty four only) payable on the total value of the fireworks cleared unaccounted and accounted during the period from April 2007 to 31-03-2012 (as detailed in Annexure-D to the SCN) should not be demanded from them under sub section 4 of Section 11A of Central Excise Act, 1944 iii) I confirm the demand of Rs.1,97,59,664/-[(Rupees one crore ninety seven lakhs fifty nine thousand six hundred and sixty four only)( Central Excise duty Rs.1,91,84,139/- + Educational Cess Rs.3,83,682/- + Secondary & Higher Education Cess Rs.1,91,843/- )] payable on the total value of the fireworks cleared unaccounted and accounted during the period from April 2007 to 31-03-2012 from them under 11A(10) of Central Excise Act, 1944 (vi)* a penalty should not be imposed on them under Section 11AC of the Central Excise Act, 1944 * As numbered in SCN v) I impose a penalty of Rs.1,97,59,664/-(Rupees one crore ninety seven lakhs fifty nine thousand six hundred and sixty four only) on them under Section 11AC of the Central Excise Act, 1944 for the contravention of Section 11A(4) of Central Excise Act, 1944 37. We....
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....cating authority, as can be seen from paragraph 40 wherein the adjudicating authority holds the three brothers as one single manufacturer in terms of section 2(f) of Central Excise Act read with para 2(v) of the notification No.8/2003-CE dated 01-03-2003 and further that the value of clearances made are to be clubbed together and duty demanded from them under the provisions of section 11A(4) and they are liable for penal action under Section 11AC of Central Excise Act, 1944 and Rule 25 of CER, 2002 and further they are individually liable for penal action under rule 26 of CER 2002 and also they are liable to pay interest on the duty not paid under Section 11AA of Central Excise Act, 1944 and then while passing the order at 40(i) holds that M/s. Meena Fireworks Industries, M/s. Meena Fire Works and M/s. Meena Sparklers, are to be treated as one single manufacturer manufacturing and clearing fireworks from their factories in terms of section 2(f) of Central Excise Act read with para 2(v) of the Notification 8/2003-CE dated 1-3-2003 as amended and that the value of clearances of fireworks including sparklers manufactured and cleared from M/s. Meena fire Works Industries, M/s. Meena Fi....
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....e Department is also unclear as to whether the demand would sustain if it considers the three brothers together as one single manufacturer or whether it is required to consider the three firms together as a single manufacturer and seemingly with marked caution while stating both the contentions in the SCN, decides to call upon only the units to answer why the three units ought not to be taken together to be a single manufacturer and why the aggregate value of clearances ought not to be taken for demanding duties from the said three firms and at the same time in the quantification shown in annexure D to the SCN titled it "Worksheet showing duty liability of three brothers viz. S/Shri. S. Meenrajan, S. Baskaran and S. Kannan payable on the fireworks manufactured and cleared from M/s. Meena Fireworks Industries, M/s. Meena Fire Works and M/s. Meena Sparklers, Elayirampannai." However, when the confirmation of demand was to be made, the uncertainty continued to plague, and the demand is confirmed "from them" and penalty under section 11AC of the Central Excise Act, 1944 is also imposed "on them", leaving it to anybody's guess whether "them" is to be taken as the three brothers or the t....
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....e case of M/s. Balaji Packagings v Commissioner of GST & Central Excise, the relevant portions of which are as under: "25. The Ld. Counsel for assessee has relied on Board Circular No.6/92 dated 19.05.1992 issued under Section 37B of Central Excise Act, 1944 to argue that Board has given instructions that different firms have to be treated as different manufacturers for the purpose of SSI limit. The said circular reads as under : "The question whether different partnerships having common partners, are treatable as separate manufacturers of the same manufacturer, would be a question of fact in each case to be determined on the basis of such factors among other, like composition of the partnership, existence of the factory, licence, nature of goods manufactured etc. Different firms will be treated as different manufacturers for the purpose of exemption limit. But if a firm consisting of certain partners say A.B. & C. has got more than one factory, all these factories should, of course, be combined. Limited companies whether public or private, are separate entities distinct from the shareholders composing it. Hence each limited company is a manufacturer by itself and....
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....income tax return etc. separately. We do not find any evidence indicating mutuality of interest." The tribunal then went on to hold as under: "30. From the discussions made above, we find that department has failed to establish the allegations raised in SCN for clubbing of clearances of the 11 firms. Further, the creation of a fictitious/deemed group (GTP) to be responsible for clandestine activities also does not find favor with us. As per the provisions contained in the Partnership Act 1932, persons can come together to form a partnership firm. Such a partnership can be terminated or dissolved only as per law. An external agency like the department cannot constitute or disturb the constitution of the partnership by removing certain persons for the purpose of casting duty liability. The department has, in fact, made all eleven units to be dummy units and created a new entity 'BPKG run and operated by GTP' to be responsible for the clandestine activities. The provisions of law do not permit the same. 31. From the foregoing we are of the considered opinion that the impugned order dt. 13.07.2016 cannot sustain and requires to be set aside which we hereby do. For ....
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....h it contains and provides for various scenarios in the sub-sections thereto at (a) and (b). It is only when the Department first adduces evidence in the proceedings before the adjudicating authority, of the existence of the aforementioned scenarios in section 9D(1)(a) that the deponent's statement is taken as a substantive piece of evidence, without the deponent deposing thereto before the adjudicating authority. That would still not obviate the requirement of the Gazetted officer before whom the statement was given, deposing the factum of such statement having been recorded from the deponent- which is the method or manner of proving the recording of the statement, which statement under section 14 is already considered relevant for the purpose of proving the truth of the fact it contains- that is to say, the said deposition of the Gazetted Officer stating that the deponent had indeed given the statement before him, would be the manner of admitting or mode of proof of the admissible substantive evidence. 58. Again, 9D(1)(b) provides for the deponent's statement given before the Gazetted Officer to be admitted as substantive evidence, when the person who made the statement ....
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.... Section 9D(2) not only legislatively mandates the adjudicating authority to apply the provisions of S.9D(1), depending on the facts and circumstances of the case, to the extent possible, but also when read along with Section 9D(1)(b), leads to the inexorable conclusion that the adjudicating authority necessarily has to conduct an examination in chief of the deponent of the statement so as to determine not only the voluntary nature as well as truthfulness of the facts the statement given under Section 14 before the Gazetted Officer contains, but also to determine whether or not the witness is hostile, and to decide whether or not to place reliance on the statement as per the mandate of Section 9(1)(b) in the circumstances of the case, as has been elaborated supra. This interpretation is also in consonance with the decision of the Honourable Apex Court in K I Pavunny's case as stated supra, wherein the Apex Court emphasised that in the case of a retracted confession the court should examine whether the confessional statement is voluntary; in other words, whether it was not obtained by threat, duress or promise and if the Court is satisfied from the evidence that it was voluntary, th....
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.... in the scenarios given in 9D(1)(a), for the purposes of evaluating whether the statements are voluntary, whether they depose to having made the recitals in the statement recorded under Section 14/Section 108 and then take a considered decision whether the truth of the facts contained in the statement stand proved or disproved in the facts and circumstances of the case. In other words, it is only after such examination in chief, that the adjudicating authority can arrive at a decision whether or not to declare the witness appearing before it as a hostile witness and then to decide in the facts and circumstances whether to rely on the earlier statement or not, as more elaborately elucidated supra. Needless to say, such examination in chief has to be conducted by the adjudicating authority in the presence of the assessee/representative of the assessee. This is in accordance with the decision of the Honourable High Court of Punjab and Haryana in Jindal Drugs Pvt Ltd v. UOI, 2016 (340) ELT 67 (P & H) F. When the adjudicating authority is examining the witness, it should be noted that minor contradictions, inconsistencies or embellishments of venial or trivial nature which do n....
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.... has, by the answers elicited in cross examination of Shri. T. Krishnamoorty, of Sri Krishna Packaging Industries, Shri. R. Srikanth of Jai Krishna Packaging Industries (both aforementioned are manufacturers of packing materials), S.Kaleeswaran of M/s. Balaji Traders,(agent cum trader), Shri S. Subramani of M/s.Nithin Enterprises, Shri. K Raja Mohammed Sait of M/s. Shifa Stores, Chennai, Shri. C Sundaresan of M/s. Asian Crackers, Sivakasi, (all three aforementioned are stated as Dealers of M/s Meena Fire Works Industries) Shri. S. Balakrishnan of M/s. Sri Krishna Chemical Industries,(supplier of raw materials); evidenced that these deponents have more or less resiled from their statements deposed under Section 14 before the Departmental Officers. 48. In such circumstances, the request of the appellant for cross examination of the Investigating Officer, after having given up his request for cross examination of the other Departmental Officer sought, cannot be said to be unreasonable. We therefore hold that the denial of cross-examination of the investigating officer by the adjudicator is a violation of the appellant's right in this regard as held by the Honourable High Court of A....
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....e from October 2007 to March 2008 and October 2008 to March 2009 to arrive at an average value of clearances per day and then to presumptively quantify the unaccounted clearance for the period October 2009 to March 2010, as is evident from the remarks in the column in the worksheet at Annexure C(i) and para 15.3 of the SCN at page 84-85. Similarly, for the period 2010-11 and 2011-12 the show cause notice has not even an iota of evidence to rely on for determining the quantification of the alleged clandestine removals. For the year, 2010-11, as indicated in Annexure C (iv) the Notice premises calculations on a ratio of coolie charges paid to factory labours vis a vis contract labours as deposed by Shri. Meenarajan in his statement dated 22.05.2012. After noting the actual coolie charges paid to factory labour during 2010-11 (upto 25.09.10) based on the aforesaid ratio, the officers proceed to arrive at the coolie charges paid to contract labour. The figures of the coolie charges paid to factory labour and the figures of coolie charges paid to contract labour so worked out are totalled and to such a total the actual bonus paid to factory labour is added to then arrive at the total am....
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....al consequences, Courts have always tried to apply a qualified preponderance of probabilities standard. They have attempted to draw a fine line by saying that the burden on the revenue is not as high as that of a criminal trial given that it is a Fiscal statute (and the customs/excise officers being not police officers). However, they have also stated that in such matters involving financial penal consequences, especially penalty under S.11AC, it cannot be imposed on a mere suspicion without adequate proof and positive evidence must be established of the person's intent to commit fraud or wilful suppression or misstatement of facts etc., with intent to evade payment of duty. In Uniworth Textiles v CCE, Nagpur, 2013 (288) ELT 161 (SC), while considering the ingredients required to invoke the extended period of limitation, the Supreme Court observed that it is a cardinal postulate of law that the burden of proving any form of mala fide lies on the shoulders of the one alleging it. The Apex Court referred to its decision in Union of India v. Ashok Kumar & Ors. - (2005) 8 SCC 760 wherein it was held that "it cannot be overlooked that burden of establishing mala fides is very heavy on t....
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....materials have been purchased. (iii)To find out the dispatch particulars from the regular transporters. (iv)To find out the realization of sale proceeds. (v)To find out finished product receipt details from regular dealers/buyers. (vi)To find out the excess power consumptions. 13. Thus, to prove the allegation of clandestine sale, further corroborative evidence is also required. For this purpose no investigation was conducted by the Department."' 82. In Commissioner of Central Excise v. Brim Products, 2011 (271) ELT 184 ( Pat.), the Honourable High Court of Patna has held as under: 9. In our opinion, since the charge was for clandestine manufacture and surreptitious removal of finished final product, the same is required to be proved beyond doubt by the Revenue. One has to keep in mind that, though being the main ingredient, betel-nut is not the only raw material which is used in manufacture of Pan Masala. That apart, since the investigation has been carried only at the transporters end, no presumption could be drawn with regard to manufacture and removal of the final product. Presumptions and assumptions cannot take pl....
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....hat is necessary for manufacture of goods otherwise manufactured and validly cleared on payment of duty; (g) statements of buyers with some details of illicit manufacture and clearance; (h) proof of actual transportation of goods, cleared without payment of duty; (i) links between the documents recovered during the search and activities being carried on in the factory of production; etc. Needless to say, a precise enumeration of all situations in which one could hold with activity that there have been clandestine manufacture and clearances, would not be possible. As held by this Tribunal and Superior Courts, it would depend on the facts of each case. What one could, however, say with some certainty is that inferences cannot be drawn about such clearances merely on the basis of note books or diaries privately maintained or on mere statements of some persons, may even be responsible officials of the manufacturer or even of its Directors/partners who are not even permitted to be cross-examined, as in the present case, without one or more of the evidences referred to above being present." 53. We find that in the instant case the evidence adduced i....
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....ided along with the reply to substantiate their defence was also not controverted by the adjudicating authority. 54. The adjudicating authority in his findings has relied on the statements of the three brothers and the fact that diaries and other note books recovered from the residential premise of Shri. S. Kannan showed details of transactions of all the three units to hold that this proves that the triad have exercised financial control over all the 3 factories. Further he has found that the three partners were physically available in the factories one after the other which leads to drawing a conclusion that these three persons have exercised administrative, managerial and financial control over all the firms; further the dispatch of raw materials, delivery of finished goods from one unit to other and sale of fireworks of all varieties manufactured in all the three units under invoice of each firm irrespective of place of manufacture and the turnover of each firm, despite different production capacity, was more or less equal, drives home the point that the three units were interdependent on each other. We find that the adjudicating authority has not rebutted the appellant's co....
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....alaji Packagings reproduced supra, in the case of M/s. Vadivel Pyrotech Private limited v The Commissioner of CGST & Central Excise, vide Final Order No. 40295-40298/2022 dated 18.08.2022, has held as under: "38. One other ground for clubbing the clearances is that M/s.VPPL has been maintaining the accounts of all other units. As already seen from the above decisions, merely because one unit is maintaining the accounts of the other units, it cannot be said that the other units are dummy units. In para-10 of SCN, the account details obtained from various banks have been reproduced. However, there is no discussion that the amounts were paid to raw material suppliers for purchasing raw material in the name of dummy units so as to facilitate clandestine clearance in the name of the main unit. After discussing various bank details, in para 10.11 of the SCN, it is stated that Vadivel Group of firms have maintained various accounts not only in the name of their firms but also in the name of other units and received money and used in their business activities. These bank statements do not show that there is flow back of funds in the nature of transactions for purchase of raw mater....
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....if the partners in the different units are one and the same. 40. The Hon'ble High Court of Rajasthan in the case of Renu Tandon Vs Union of India - 1993 (66) ELT 375 (Raj.) held that in the absence of evidence of common funding and financial flow back two units cannot be treated as one and the clearances cannot be clubbed. 41. The Tribunal in the case of Coimbatore Engineering Works Vs CCE Coimbatore - 2009 (239) ELT 366 (Tri.-Chennai) held that borrowing funds in need is not a bar between two units eligible for SSI benefit. 42. In the case of CCE Kanpur Vs Sharad Industries - 2013 (294) ELT 561 (Tri.-Del.), it was observed that husband and wife are entitled to do their own business and if husband is looking after the business of wife, it would not make the unit owned by wife as dummy unit. The prime requirement, for clubbing the clearance of two units is that both the units do not have any independent existence or independent machinery and infrastructure to manufacture the goods. If both the units are complete by itself, capable of manufacturing the goods without any help from the other unit, it has to be held that both the units are independent units. T....
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....d or erroneously refunded. - (9) The proper officer shall determine the amount of duty or interest under sub-section (8), - (a) within six months from the date of notice in respect of cases falling under clause (a) of sub-section (1); (b) within one year from the date of notice in respect of cases falling under sub-section (4)." 9. He specifically placed reliance on the limitation contained therein. He, therefore submitted that there is no basis on which the show cause notice proceeding beyond the period of limitation prescribed under Section 28(9) can be preceded long after the limitation expired. 21. Reliance placed on the provisions of Section 28(9) of the Customs Act, 1962, is also misplaced. The time line prescribed under the aforesaid provision is elastic and not rigid. It cannot be invoked by the appellant to assail the continuance of the show cause notice proceeding dated 27-1-2005 as it is based on the decision of the Learned Single Judge in W.P. No. 18918 of 2000 vide order dated 24-6-2005. The hands of the adjudicating authority cannot be tied and shackled. If any error is committed by an adjudicating authority while passing it is alwa....
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....ed. (9) The proper officer shall determine the amount of duty or interest under sub-section (8)- (a) within six months from the date of notice, in respect of case falling under clause (a) of sub-section (1); (b) within one year from the date of notice,, in respect of case falling under sub-section (4); (provided that where the proper officer fails to determine within the specified period, any officer senior in rank to the proper officer may, having regard to the circumstances, under which, the proper officer was prevented from determining the amount of duty or interest under subsection (8), extend the period specified in clause (a) to a further period of six months and the period specified in clause (b) to a further period of one year; provided further that where the proper officer fails to determine within such extended period, such proceedings shall be deemed to have concluded as if no notice had been issued]. 5.1 The above amendment in the 2nd Column came into force only on 29.03.2018. Explanation 4 to Section 28 was also amended. In the year, 2018, Explanation 4 read different from Explanation 4, as it reads now. They read as under :- Explana....
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....Delhi High Court in its judgement dated 16-08-2023, in Swatch Group India Pvt Ltd v. UOI, 2023 (386) ELT 356 (Del): (2023) 10 Centax 5 (Del) has held as under: "32. The unamended Section 28(9) of the Customs Act, specifically provides that the proper officer 'shall' determine the amount of duty within six months or within one year, as the case may be, from the date of notice. It only provides certain degree of inbuilt flexibility by incorporating the words 'where it is possible to do so'. 33. The phrases "as far as possible" and "as far as practicable" appear in other statutes as well came up for consideration before the Apex Court in C.N. Paramasivam and Another v. Sunrise Plaza : (2013) 9 SCC 460/[2013] 30 taxmann.com 320 (SC). It is observed that the words "possible" and "practicable" are more or less interchangeable along with the other words such as feasible, performable etc. The incorporation of such words gives certain degree of flexibility to the Department such as if some circumstances or insurmountable exigencies arise, which makes the recourse unpracticable or not possible, the authorities can deviate from what was required to be done in terms of the st....
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....1A for the Adjudicating Authority to adjudicate the show cause notice but no reason has been given in the impugned order as to why it was not feasible or practicable for the Adjudicating Authority to adjudicate the show cause notice. It was incumbent upon the Adjudicating Authority to have clearly spelt out the "insurmountable exigencies" leading to delayed adjudication but none has been pointed out in the impugned order. The Adjudicating Authority has to record reasons in the order adjudicating the show cause notice and not leave it to the department to speculate why the Adjudicating Authority could not adhere to the time limit provided to it under a Statute to adjudicate the show cause notice. 29. Learned authorized representative appearing for the department only submitted that the delay occurred on account of the appellant as the appellant did not file a reply to the show cause notice within the period of one month stipulated in the show cause notice and, in fact, no reply was filed till 07.09.2016, which was the date fixed for hearing by the Adjudicating Authority. In this connection, learned authorized representative appearing for the department not only placed relia....
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....the reason that the adjudication was not completed within the time limit prescribed under sub-section (11) of section 11A of the Central Excise Act." (emphasis supplied) Thus, the fact that "There is absolutely no reason assigned in the written submissions or in the date and event chart as to why the cross-examination process continued for almost three years from 2018 upto 2021, when the adjudication itself was required to be completed within one year" and that nothing was forthcoming from the order impugned therein, has decidedly weighed with the Tribunal while setting aside the order impugned therein. It is also pertinent that the Tribunal had reiterated the observation of the Delhi High Court, namely, "The facts of each case have to examined to find out whether there were circumstances or insurmountable exigencies which made it impracticable for the adjudication to take place, as has been held by the Delhi High Court in Swatch Group." in para 40 thereof. 58. We are therefore of the view that the aforesaid decision of this Tribunal in Kopertek Metals Pvt Ltd, which turns on the peculiar facts and circumstances of that case, cannot be construed as laying down ....
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....ng either under the Customs Act, the 1994 Act or the CGST Act. 86. When we revert to the facts that obtain in this batch, we find that the respondents have clearly failed to establish the existence of an insurmountable constraint which operated and which could be acknowledged in law as impeding their power to conclude pending adjudications. In fact, and to the contrary, the frequent placement of matters in the call book, the retrieval of matters therefrom and transfer all over again not only defies logic it is also demonstrative of due application of mind quite apart from the said procedure having been found by us to be contrary to the procedure contemplated by Section 28. The respondents have, in this regard, failed to abide by the directives of the Board itself which had contemplated affected parties being placed on notice, a periodic review being undertaken and the proceedings having been lingered unnecessarily with no plausible explanation. The inaction and the state of inertia which prevailed thus leads us to the inevitable conclusion that the respondents clearly failed to discharge their obligation within a reasonable time. The issuance of innumerable notices would a....
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....ng and are to be equally treated fairly. Therefore, in case the challenge to the act of the authority deviating from the rule, which having been not raised before the authority, is being raised before us, then given that the onus then shifts to the authority to prove it was not practicable to follow the rule in terms of the observations of the Delhi High Court cited supra, requirements of fair imparting of justice makes it incumbent, nay imperative, for this Tribunal, then to call for such reasons for delay from the concerned adjudicating authority through the Departmental representative before this Tribunal, and then to arrive at a considered decision whether or not such explanation is tenable. 62. We also hold the view that if the adjudicating authority has stated/narrated in the order, the time line of events which transpired leading to the delay in the final adjudication, that itself would permit an examination of the facts and circumstances or insurmountable exigences which made it impracticable for the adjudication to take place and if prima facie it meets our satisfaction, then the requirement to seek such explanation from the adjudicating authority would be obviated. ....