Deepak Maini (Partner) vs Cce- New Delhi

Pronounced on: 14.10.2015

Appeal No. E/58558-58559/2013

[Arising out of the Order-in-Appeal No. 45-46/CE/DLH/2013 dated 28.03.2013 passed by The Commissioner (Appeals) of Central Excise, New Delhi]

For Approval and Signature:

Honble Smt. Sulekha Beevi C.S., Member (Judicial)

1. Whether Press Reporter may be allowed to see the Order for Publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether their Lordships wish to see the fair copy of the order?

4. Whether order is to be circulated to the Department Authorities?

M/s. Sargodha Enterprises and

Deepak Maini (Partner) Appellant

Vs.

CCE- New Delhi Respondent

Appearance: Shri Naveen Mallick, Advocate for the appellant.

Shri B.B. Sharma, DR for the respondent.

Coram: Honble Smt. Sulekha Beevi C.S., Member (Judicial)

Final Order No. 53209-53210/2015

Per: Sulekha Beevi C.S.

The above two appeals were heard together and are disposed by this common order, as the appeals emanate from the same impugned order.

2. The appellant M/s. Sargodha Enterprises is engaged in manufacture of plastic moulded TV Cabinet. A search was conducted in the premises of the appellant on 10/3/2011. During the search, excess stock of finished goods collectively valued at Rs. 11,45,858/- were found, which were not recorded in the RGI-Register. So, also raw materials collectively valued at Rs. 1,41,750/- were found which was not supported by bills of procurement. The finished goods and raw materials were seized on the same day. On verification of records, it was also found that RG-I Register was updated only till 28/2/2011. Certain loose papers and Kacchi Parchi files (scrap paper) were also recovered. On the basis of these, proceedings were initiated against the appellant. A show cause notice proposing for confiscation of goods seized and for imposition of penalties was issued. The show cause notice culminated in the order-in-original dated 31/5/2011 which ordered confiscation of the goods with option to redeem the same on payment of redemption fine of Rs. 1 lakh in the case of finished goods and imposed redemption fine of Rs. 10,000/- in the case of raw materials. A further penalty of Rs. 2,50,000/- was imposed on the firm M/s. Sargodha Enterprises under Rule 25 of Central Excise Rules, 2002 besides separate penalty of Rs. One lakh imposed on Shri Deepak Maini Partner of M/s. Sargodha Enterprise under the Central Excise Rules. The appellants filed appeal before the Commissioner (Appeals) who modified the order by setting aside the confiscation and redemption fine in regard to raw materials. The confiscation of finished products and imposition of redemption fine of One lakh in lieu of confiscation of t he same, and the penalty imposed upon the appellants were upheld. Aggrieved the appellants are before the Tribunal.

3. At the outset, it has to be stated that as the confiscation of raw materials was set aside by the Commissioner (Appeals) the issue in the instant case is with regard to confiscation of finished products and penalty imposed upon appellants under Central Excise Rules. It is also to be mentioned that t he case pertains only to confiscation of goods. No further investigation was conducted and there is no case of clandestine removal of goods. On behalf of the appellants, the arguments advanced by the learned counsel Shri Naveen Mallick can be summarized as under:

i) The goods confiscated were not finished goods. It is the case of the appellants that as per Rule 10 of the Central Excise Rules, 2002 which deals with the mandatory requirement of maintaining daily stock register it is required to enter only account with regard to the finished goods. That the goods confiscated by the respondents were not finished goods as these goods had yet to undergo the process of painting and buffing. It is also submitted that the goods so confiscated included goods which were rejected.

ii) That section 110 of the Customs Act, provides that if the proper officer has reasons to believe that goods are liable to confiscation, the officer may seize the goods. The confiscation is illegal as there was no reasonable belief for confiscation as provided under section 110 of the Customs Act, 1962. The respondents have failed to record reasonable belief for confiscation of goods. As there is no allegation or investigation conducted in regard to clandestine removal of goods, there were no reasons to believe that goods are liable for confiscation.

iii) Under Rule 25 of the Central Excise Rules, penalty can be imposed only in the case of non-accountal of excisable goods. As the goods confiscated were not finished goods/excisable goods, their non-accountal in the registers will not attract confiscation and imposition of penalty. It is also argued that mere non-accounting will not attract the provisions of Rule 25. That penalty can be imposed only if the non-accountal of excisable goods are done with intention to evade payment of duty. As there is no intention to remove the goods clandestinely, there is no intention to evade payment of duty. The documents resumed at the time of search were returned to the appellant and no further investigations after confiscation was done to prove removal of goods clandestinely with intention to evade payment of duty. Though the statement of Shri Deepak Maini, Partner is recorded on 26.08.2011, it is not made part of RUD. Therefore, no reliance can be placed on such statement. The statement of Shri Deepak Maini and Shri Neeraj Khattar recorded on 10.03.2011 does not state anything about clandestine removal of goods. Therefore, allegation that appellant had intention for removal of excess stock clandestinely is without basis. It was also argued that in any case, the redemption fine and penalty imposed are not only unsustainable but also very high.

4. Against this, the arguments on behalf of the respondents is summarized as under:

i) The goods confiscated were actually finished goods. The contention of the appellant that the goods confiscated were not finished and that they needed further painting and buffing is not supported by any evidence. The statement of Shri Deepak Maini, partner of M/s. Sargodha Enterprises which was taken on the spot did not mention any such process needed and this would prove that goods are finished goods.

ii) The goods were confiscated on reasonable belief that the goods are liable for confiscation. At the time of search, the RG-I Register was updated only upto 28/2/2011. From 1/3/2011 to the date of serach, i.e., 10/3/2011, no entries were made in these registers. The lapse to update the register has been admitted by Shri Deepak Maini who is the partner and Shri Neeraj Khattar who was looking after the accounts. It is also admitted that the appellants have manufactured and cleared TV Cabinet in a routine manner from 1/3/2011 to 10/3/2011. But the relevant entries of production and clearance from 1.3.2011 to 10.3.2011 were not made in the RG-1 Register. Some Kaccha slips were recovered showing clearances from the factory against which invoices were not found. So, also the stock of raw materials in the premises was not supported by bills. The entries in the raw material register were made only upto 28/2/2011. But it is stated that raw materials were purchased during the period 1/3/2011 to 10/3/2011 and consumed in the manufacture of TV Cabinet. Loose papers containing accounts were also recovered. All these led the officers to a reasonable belief that the appellant has not been maintaining proper accounts as per the provisions of law. In such belief, the goods have been confiscated. The intention to evade payment of duty is clear.

iii) The appellants have indulged in not keeping proper accounts. Loose papers in file contained entries related to sale of TV Cabinet from their factory. The Cabinet sale file papers showed clearance on 1/1/2011. But as per records, no invoice was seen issued on 1/1/2011. Similarly, no invoice was seen issued on 4/1/2011 and 5/1/2011. Further clearance of 3/1/2011 did not cover the invoice no. 334 dated 3/1/2011. Again either no invoice has been issued or invoice for such quantity has not seen issued on various other dates. That the statement given by Shri Neeraj Khattar corroborates these loose papers found at the time of search. The maintenance of loose papers and also not accounting the raw materials and finished products in the concerned registers establishes the intention on the part of the appellant to evade payment of duty. Therefore, that the confiscation and imposition of penalty under Rule 25 is warranted and justified.

5. I have considered the rival submissions and perused the records. The foremost contention of the appellant is that the goods confiscated were not finished goods. In their reply to the show cause notice, the appellants have stated that the goods confiscated as finished goods were not actually finished goods but had to undergo further process of painting and buffing. That the goods not being finished goods, these were not accounted in RG-I Register. Though in the reply, the appellants are seen to have put forward such a contention, this contention is not supported by the statements given by Shri Deepak Maini and Shri Neeraj Khattar on the date of inspection. In their statements recorded on 10/3/2011, they have not stated that goods are unfinished goods and that such goods require further process of painting and buffing before sent to buyers. The process of manufacture explained by Shri Deepak Maini is that raw materials are put for heating and after heating they start moulding and then these are sent to print shop. After printing process, these are dispatched to parties. The process of manufacture as explained in their statements does not contain the process of painting and buffing.

It is also to be mentioned that the submission made by the counsel that the statement of Shri Deepak Maini recorded on 26/8/2011 is not made part of RUD is correct. In the show cause notice as well as in order-in-original, there is discussion/mention about statement of Shri Deepak Maini recorded on 26/8/2011. The list of relied upon documents shows only three documents. RUD does not mention about statement of Shri Deepak Maini taken on 26/8/2011. On perusal of the order-in-original it shows that in the statement dated 26/8/2011, Shri Deepak Maini has only restated some facts which he has stated on 10/3/2011. It is clear that there is no particular fact stated by Shri Deepak Maini on 26/8/2011 which has led to the conclusion for confiscation of goods. Therefore, even if the statement taken on 26/8/2011 was not placed in the list of RUD as no reliance has been placed on any particular aspect stated in such statement, it would not vitiate the proceedings. The fact that Shri Deepak Maini and Shri Neeraj Khattar in their statements taken at the time of search did not make any whisper regarding the further process of painting and buffing indicates that this contention raised by the appellants is only afterthought.

The same has to be considered along with the facts that the RG-1 Register was updated only till 28/2/2011 and also that loose papers containing entries of clearances were recovered from the premises. Further, apart from the reply, there is no documentary evidence or any other material furnished by the appellants to substantiate their contention. In such circumstances, the only conclusion that can be arrived is that the goods were finished goods and not unfinished goods as contented by the appellant. At this juncture, it has to be pointed out that the submission on behalf of appellant that goods confiscated included rejected goods is correct. From the details of finished goods seized on 10/3/2011, it is seen that the goods valued at Rs. 23,645/- are rejected goods. The rejected goods not being excisable goods their confiscation is not justified.

6. The appellants have further contended that the confiscation is illegal for the reason that the officer had no reasonable belief for confiscation of goods. What is reasonable belief in the mind of the officer is not a question this is to be judged by the Tribunal. Reasonable belief that goods are liable for confiscation can only mean that there must be some prima facie case for seizing the goods. In the instant case whether there was prima facie evidence for holding a reasonable belief, is a question that can be analyzed. The fact of recovery of unaccounted finished goods and raw material and the fact that the RG-1 Register was updated only till 28/2/2011 together with the fact of recovery of loose papers containing accounts of clearance of finished goods, purchase of raw materials, together with the statements given are sufficient materials to arrive at a prima facie conclusion or reasonable belief that the goods are liable for confiscation. It is also contented that the respondents have not recorded that there is reasonable belief to confiscate the goods. This argument does not appear to be convincing to me. As already discussed, there was enough material to affirm a prima facie case for confiscation. Shri Deepak Maini in his statement has stated that the officers on the reasonable belief that the excisable goods have been manufactured and stored with an intention to remove the same clandestinely and without payment of duty seized the finished goods as mentioned in Annexure-B. The statement given by Shri Neeraj Khattar is also in similar lines admitting the discovery of unaccounted finished goods and raw material. On such score, the contention of the appellant that there was no reasonable belief for confiscation is unacceptable.

7. The next argument advanced on behalf of the appellant is that mere non-accounting of goods will not attract the provisions of Rule 25 for imposition of penalty. That the element of intention to evade payment of duty also has to be established. It is the case of appellant as there is no case for the department that the appellant removed the goods clandestinely, there is no intention to evade payment of duty. For better appreciation, Rule 25 of the Central Excise Rules, 2002 is noticed as under:-

Rule 25. Confiscation and penalty. (1) Subject to the provisions of section 11AC of the Act, if any producer, manufacturer, registered person of a warehouse [or an importer who issues an invoice on which CENVAT Credit can be taken] or a registered dealer,-

(a) removes any excisable goods in contravention of any of the provisions of these rules or the notifications issued under these rules; or

(b) does not account for any excisable goods produced or manufactured or stored by him; or

(c) engages in the manufacture, production or storage of any excisable goods without having applied for the registration certificate required under section 6 of the Act, or

(d) contravenes any of the provisions of these rules or the notifications issued under these rules with intent to evade payment of duty,

then, all such goods shall be liable to confiscation and the producer or manufacturer or registered person of the warehouse [or an importer who issues an invoice on which CENVAT Credit can be taken] or a registered dealer, as the case may be, shall be liable to a penalty not exceeding the duty on the excisable goods in respect of which any contravention of the nature referred to in clause (a) or clause (b) or clause (c) or clause (d) has been committed, or [two thousand rupees], whichever is greater.

(2) An order under sub-rule (1) shall be issued by the Central Excise Officer, following the principles of natural justice.

8. To fortify his arguments, ld. Counsel for the appellant relied upon the decision reported in Bhillai Conductors (P). Ltd. Vs. CCE-Raipur, 2000 (125) ELT 781 (Tribunal) and argued that confiscation and imposition of penalty is not attracted by mere non-accountal of goods. That simple failure to maintain the accounts without intention to evade the duty will not attract the Provisions of Rule 25 of Central Excise Rules, 2002. I do agree that the Tribunal in the said case had held that in the absence of the element of mens rea, confiscation and imposition of penalty is not sustainable. The contention put forward by appellant is that as there is no evidence to establish that the appellant cleared the goods clandestinely, there is no intention on the part of the appellant to evade the payment of the duty. Mens rea or intention is something that has to be inferred from the facts, circumstances and evidence placed on records. The instant case is not a situation where there is mere non-accountal of finished goods. If the finished goods were not accounted in the register, the appellant should be able to give a plausible explanation for such non-accounting. In Pepsi Foods Vs. CCE-Chandigarh, 2002(139) ELT 658 (Tri-Del), the non-accountal was sufficiently explained by the assessee. The Tribunal therein observed that Rule 173Q cannot take in an accounting failure simplicitor and held in favour of the assessee. Failure to account goods or raw material may be due to different reasons. There may be instances where the person incharge of accounts is on leave or change of management etc. which may be valid reason for not updating the register. In the present case, the appellant has not been able to give any explanation for not updating the Register. The only argument advanced is that the goods are not finished/excisable goods. As already discussed, the statements given on the date of search do not give any such explanation for not accounting the excess stock of finished goods and raw material found on the date of inspection. Further, entries of clearances of finished goods were found in loose papers. From the totality of facts and evidence presented by the case, the intention to evade payment of duty can be safely inferred. In the show cause notice para 9, it is stated as below:

the unaccounted goods found in their premises were stored unaccounted with an intention of clandestine removal as appeared in their documents resumed and confront with Shri Neeraj Khattar during his statement dated 10/3/2011.

9. In view thereof the contention of the appellant that there is no intention to evade the payment of duty is not tenable. The judgment rendered in Bhillai Conductors (P) Ltd. (Supra) is thus distinguishable on facts. Therefore, I hold that the confiscation of goods and imposition of penalty is sustainable.

10. The ld. Counsel has also argued that the redemption fine and penalty imposed are very high. According to him, the seized goods included the rejected goods also. These submissions made by the counsel have some substance and the quantum of redemption fine and penalty warrants interference. The finished goods which were confiscated included rejected goods of the value of Rs. 23,645/-. The goods are collectively valued at Rs. 11,45,858/- for which the redemption fine imposed is Rs. One lakh. Taking into account, the submissions made by the appellant, reducing the redemption fine to Rs. 40,000/- would meet the ends of justice. The penalty of Rs. 2 lakh 50 thousand imposed on the appellant firm being on the higher side is reduced to Rs. One lakh. As penalty is imposed upon the firm, the separate penalty imposed on Shri Deepak Maini is set aside.

11. In the result the impugned order is modified as under:

(i) The redemption fine on finished goods is reduced from Rs. One lakh to Rs. 40,000/-

(ii) The penalty imposed on M/s. Sargodha Enterprises is reduced from Rs. 2,50,000/- to Rs. One lakh.

(iii) The penalty imposed on Shri Deepak Maini is set aside.

12. The Appeal No. E/58559/2013 filed by Shri Deepak Maini is allowed and Appeal No. E/58558/2013 filed by M/s. Sargodha Enterprises is partly allowed in the above terms.

(Pronounced in the open court on 14.10.2015)

(Sulekha Beevi C.S.)

Member (Judicial)

Ritu

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