M/S Mahalaxmi Dyeing Mill vs Commissioners Of Central Excise, ...

[ Arising out of OIO-07/MP/2008 dtd 27.11.2008 Passed by the Commissioners of Central Excise, Customs and Service Tax-SURAT-I ]

1. M/s Mahalaxmi Dyeing Mill - Appellant(s)

2. Shri Ramchandra Malchand Agarwal (Partner)

Vs

Commissioners of Central Excise, Customs and Service Tax-SURAT-I - Respondent (s)

Represented by:

Assessee : Shri W Christian (Advocate) Revenue : Shri K Shivkumar (Authorised Representative)

For approval and signature :

Mr. P.K. Das, Hon'ble 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?

No 2 Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

No 3 Whether their Lordships wish to see the fair copy of the Order?

Seen 4 Whether Order is to be circulated to the Departmental authorities?

Yes

CORAM :

Mr. P.K. Das, Hon'ble Member (Judicial)

Date of Hearing / Decision : 27/2/2015

ORDER No. A/10321-10322 / 2015 dtd 19/2/2015

Per : Mr.P.K. Das,

The applicant filed the application for recalling the Miscellaneous Order No M/10004/2015 dtd 6.1.2015 where the application for extension of the stay order was rejected. As the appeal has already been listed in the regular list, which is taken up for hearing and therefore, there is no need to go into the said application.

2. The relevant facts of the case, in brief, are that the appellants were engaged in the manufacture of Man Made Fabrics (Processed) classifiable under Heading No. 54.06 of the Schedule to the Central Excise Tariff Act 1985. They received Grey Fabrics and processed the same in their factory and cleared on payment of duty. On 9.7.1998 the Central Excise Officers visited the appellants factory and carried out search in their premises. The Central Excise Officers after verification of stock prepared a panchnama and recorded excess stock of 254 pcs of MMF (grey fabric) and 4124 L.Mtrs of semi processed fabrics over and above the stock register, which were seized. They also found a pocket diary from the procession of Shri Ramchandra Megraj Sharma, Excise Clerk. The said officers recorded the statements of the Excise Clerk and partner of the Appellants (Appellant No.2) on 9.7.1998 and 10.7.1998. Further, on 1.1.1999 a statement was recorded of Appellant No. 2. The said officers also visited the premises of transporter.

3. A show cause notice dtd 5.1.1999 was issued proposing demand of duty alongwith interest and penalty on the basis of the pocket diary on Appellant No.1. It has also proposed to impose penalties on Appellant No.2, Shri Ramchandra M Sharma, Excise Clerk and M/s Moongipa Roadways Pvt Ltd, transport company. It was further proposed to confiscate the seized goods and plant and machinery. By the impugned order, the Commissioner of Central Excise & Customs, Surat, confiscated the seized goods and imposed redemption fine of Rs 2,60,000/- and also confirmed the demand of duty Rs 21,30,806/- alongwith interest on the finished products removed illicitly on the basis of pocket diary and imposed penalty of equal amount of duty on the Appellant No.1. It has also confiscated the land, building, plant and machinery used for manufacture, production, storage, removal of offending goods under Rule 173(Q)(2)(a) of the erstwhile Central Excise Rules 1944 and imposed a redemption fine of Rs 50,000/-. A penalty of Rs 4,00,000/- imposed on Shri Ramchandra Agarwal, Partner of the appellant firm (Appellant No 2) under Rule 209 A of the erstwhile Rule 1944.

4. The Learned Advocate on behalf of the appellants submits that the Tribunal by Final Order No A/562&563/WZB/AMD/07 dtd 27.2.2007 remanded the matter to the Adjudicating Authority for denovo adjudication to consider the request of the appellant for cross examination. He submits that the Adjudicating Authority had not granted the cross examination of the transporters and had only allowed the cross examination of some officers and one supplier. He further submits that the no panchnama was prepared as per law. It is clear from the record that the Central Excise Officers had taken the signature on blank paper and prepared the panchnama. In this context, he drew the attention of the Bench to the relevant portion of the panchnama as well as the statements of the supplier and the partner of the appellant firm. He further submits that the pocket diary was not maintained by the Excise Clerk. The entire case was made on the basis of the pocket diary and the documents of the transporters. The contention of the Learned Advocate is that the Central Excise Officers purchased the pocket diary from the shop opposite to the company and the Excise Clerk was directed to write these figures.

He further submits that statements were recorded on 9.7.1998 and 10.7.1998 and these statements were retracted by the appellant on 10.7.1998 and on 14.7.1998. They have also lodged a complaint before the First Class Magistrate, Bardoli. It is contended that the appellant by letter dtd 17.9.1998 complained to the Commissioner of Central Excise and Customs, Surat, explaining the above facts. Thereafter, on 1.1.1999 a statement of Appellant 2 was recorded, where he categorically disowned the pocket diary. In this context, the Learned Advocate drew the attention of the Bench to the relevant portion of the reply to show cause notice. There is a clear discrepancy between the pocket diary and the transporters documents. In any event, the cross examination of the transporters were not allowed and therefore the transporter documents cannot be relied upon. He submits that the Central Excise officers had not examined the supplier of raw materials and the buyer, to establish the clandestine removal of goods. Learned Advocate also submits that confiscation of raw material is contrary to the provision of Rule 173 (Q) of the Central Excise Rule 1944. He relied upon the decision of the Tribunal in the case of Arya Fibres Pvt Ltd vs CCE, Ahmedabad II  2014(311)ELT.529 (Tri.

Ahd.).

5. On the other hand, the Learned Authorised Representative for the Revenue drew the attention of the Bench to the relevant portion of the adjudication order in so far as the investigating officers during the cross examination had deposed that the panchnama was prepared in the presence of panchas and partner. Thus, there is no irregularity in the preparation of panchnama. He further submits that the pocket diary was recovered from the socks of the Excise Clerk. The contents of the pocket diary are corroborative with the transporters grey register. He further submits that the Excise Clerk admitted the recovery of pocket diary in his statement dtd 9.7.1998 and 10.7.1998, which was not retracted by him. The partner of the appellant firm also admitted in his statement and belated retraction of the statement has no evidentiary value. He also drew the attention of the Bench the corroboration of the pocket diary with the transporters document from the adjudication order.

6. After hearing both the sides and on perusal of records, I find that the appellant is disputing the authenticity and preparation of Panchnama. It is also contended that the pocket diary is a fabricated document. The Adjudicating Authority proceeded on the basis of the Panchnama and the statements of the Excise Clerk and the partner of the appellant firm recorded on 9.7.1998 and 10.7.1998, the pocket diary and the transporters document namely, grey register. The appellant in their reply to show cause notice stated that the statements were recorded under duress and the pocket diary was purchased by the officers on 9.7.1998 from the shop opposite to the appellants factory and the Excise Clerk was directed to write pocket diary. In support of their contention, they have produced evidences as under :

i) Complaint dated 17.7.98 filed with the Judicial First Class Magistrate, Bardoli.

ii) Letter dtd 17.9.98 addressed to Commissioner of Central Excise & Customs, Surat 1,. Explaining the facts about their meeting with higher officials and high-handedness and threatening approach of the investigating officers and about absence of any seizure proceedings including absence of any handing over of any seized goods.

iii) Letter dtd 29.7.98 addressed to the Grievance Committee, Surat.

iv) News paper cuttings of news papers regularly published in Surat City.

v) Affidavits dtd 10.7.98 and dtd 14.7.98 of Shri Ramchandra Agarwal and Affidavit dtd 14.7.98 of Shri Ramchandra Sharma.

vi) Affidavit dtd 20.7.98 of Shri Sitaram M Kamiya, owner of M/s Shyam Stationary Mart from whom pocket diary was purchased by the Officers on 9.7.98 in night.

It is seen from the record that after the aforesaid complaint, on 1.1.1999 a statement of Appellant No 2 was recorded, where he disowned the pocket diary and clarified other issues.

7. On perusal of the Panchnama, I find that there are some blanks in the panchnama. The investigating officers during cross examination deposed that the blanks were due to an oversight. Shri Man Singh Yadav Inspector, Central Excise (now Superintendent), deposed on 21.8.2008 that regarding some blank space left in the panchnama was by an oversight. Shri Sandeep Hooda, Inspector, Central Excise (Now Superintendent) deposed on 21.8.2008 that he participated in the preparation of the panchnama and conducting inventory of stock in the factory. On being asked as to why 320 pcs were seized when as per diary there should be physical stock of 973 pcs and as per lot register, there should be 976 pcs, he stated that the seizure of that quantity of unaccounted goods were affected, which were available in the factory. Further, on being asked, on other issues, he stated that since considerable time has elapsed, he was unable to explain the exact reason, and he did not prepare the Annexure-A of the Panchnama. There is no dispute that some spaces in the Panchnama were left blank, which could not be explained by the investigating officers during the cross examination, appears to be a casual approach.

8. The Learned Advocate drew the attention of the Bench to the discrepancies between pocket diary and the transporters documents. I find that the appellant in reply to the show cause notice stated that by separate affidavits of partner and Excise Clerk, they categorically affirmed that they were totally ignorant of the contents of diary and the Central Excise officers had brought the diary with them. Without going into the controversies of the recovery of the diary, the matter may be decided on the basis of the contents of the diary and transporters documents. The appellant raised several discrepancies and contradictions on the pocket diary and the transporters documents, which are as under :

i) Exb 1, Sr No 6 as per LR No 700831 of transporter, 27 bales of fabrics were allegedly received by the Mill, whereas according to the said private diary vide he said LR No 700831 only 3 bales of fabrics were allegedly received by the mill.

ii) Exb 3 Sr NO. 1 & 2 no name of consignor or party code can be known from the Grey Register of M/s Moongipa while as per diary party codes are NBC and SM.

iii) Further in Exb 2 as per Sr No 3 as per Grey Register the mill allegedly received 2 bales of fabrics under cover of LR No. 700398 whereas as per diary the said fabrics were allegedly received under cover of LR No 700581.

iv) Further in Exb.2 as per Sr No 6 according to Grey Register vide LR No 700625, the mill allegedly received total 62 bales of grey fabrics whereas according to the pocket diary under cover of the said LR No 700625, the mill allegedly received only 17 bales of fabrics.

v) Exb 4 except at Sr No 5 the No of bales dispatched as per pocket diary are different from those as per loading register. At Sr Nos 1,2,3,7 and 8 the No of bales as per pocket diary are less than those as per loading register and at Sr No 4 and 6 the No of bales as per pocket diary are more than those as per loading register.

vi) Further, in Exb 4, as per Sr No 9 vide LR No 934385 details of how much fabrics were allegedly dispatched by the mill is not available whereas no corresponding entry is available in the loading register.

9. The Adjudicating Authority observed it might be mistakenly shown as 3 bales against 27 bales in the pocket diary. In some cases, it is observed that the name of the consigner or the party code was not mentioned in the lorry receipts but the other details of lorry receipts are tallied with the gate-pass book of the transporters. It is relied upon the grey register recovered from the transporters to corroborate the pocket diary. The appellant disputed grey register of the transporters and requested the cross examination of the transporters, which has not been allowed.

10. The Honble Delhi High Court in the case of J & K Cigarettes Ltd vs Collector of CE  2009(242)ELT.189 (Del) held that if the cross examination is not permitted, the documents cannot be relied upon. The Honble Delhi High Court in the case of Basudev Garg vs CC  2013(294)ELT.353 (Del.) allowed the appeal of the appellant held that documents cannot be used without giving them opportunity of cross examination. Hence, in the present case, there were discrepancies in the pocket diary and grey register as well as the documents of the transporters cannot be accepted as the cross examination of the transporters was not allowed. It is also disputed the contents of Lorry Receipts recovered from the transporter in so far as out of 17 LRs not a single LR is in the name of the Appellants either as consignor or as consignee. Further as per the said LRs deliveries were made from Bhiwandi to Saroli and no consignment was delivered from/to the Appellants address. As regards Grey Register, the said register is maintained truck-wise by Moongipa Roadways P Ltd. Further in the said register, nowhere the Appellant name was mentioned.

11. I find that the Adjudicating Authority had proceeded only on the basis of the statements dtd 9.7.1998 and 10.7.1998 of the partner and Excise Clerk. It is seen after the various complaints lodged by the appellants as mentioned above the Central Excise Officers again on 1.1.1999 recorded the statement of the Appellant 2, who disowned the pocket diary and receipt of the grey fabric from M/s Gadia Synthetics. Then, it is not clear why the statement of Excise Clerk was not recorded, when both were in the same footing as they lodged complaints. The adjudicating authority observed that after about six month Appellant No. 2 retracted his original statement dt 9.7.1998. It is evident from the record that after the statement dated 9.7.1998, the appellant made complaints and then, the Central Excise Officers again recorded statement after about six months on 1.1.1999, which cannot be treated as retraction of statement.

12. The Tribunal in the case of Arya Fibres Pvt Ltd vs CCE  2014(311)ELT.529 (Tri. Ahd) and other decisions consistently viewed that the clandestine manufacture and removal of goods cannot be sustained merely on the basis of pocket diary recovered from the premises of the manufacturer unless it is corroborated by the substantial evidences. It is noticed that one of the suppliers of grey fabric Shri Mahendra Kumar Gadia, C/o M/s Gadia Synthetics during cross examination on 14.7.2008 deposed that he was asked to sign without allowing him to read the same and without giving him a copy thereof even though he had asked for the same specifically. The Adjudicating authority observed that Shri Gadia had not retracted his statements immediately. In any event, there is no corroborative and cogent material available, to raise the demand of duty on the basis of pocket diary. So, the demand of duty alongwith interest and penalties cannot be survived.

13. Regarding confiscation of seized goods, I find that the officers seized the grey fabric and semi processed fabrics, where the appellant had not availed any benefit of cenvat credit. Rule 173 (Q) of the erstwhile Rule 1944 provides confiscation and penalty. Sub-Rule (1) of Rule 173 (Q) of the said Rules provides if any manufacturer, produce or a registered person removes any excisable goods in contravention of the provisions of these Rules or does not account for any excisable goods manufactured, produced or stored or takes Credit in respect of input or capital goods, any wrong or incorrect particulars in the gate pass or engages in the manufacture, production or storage of any excisable goods, then all such goods are liable to confiscation. In the present case, none of the ingredients of sub rule (1) of 173(Q) of the said Rules would be applicable, and no Modvat Credit was availed by the appellant on the seized raw materials. So, confiscation of raw material and imposition of redemption fine would not sustained. The Tribunal in the case of Aishwarya Plast Exporters Pvt Ltd vs. Commissioner of Central Excise, Vadodara  2009(246)ELT.728 (Tri.Ahmd.) held that excess raw material lying in factory premises, non-recording would not invite confiscation. So, the confiscation of the raw material, plant and machinery would not be sustained.

14. In view of the above discussions, the confiscation of seized goods, plant and machinery etc., and imposition of redemption fine and demand of duty alongwith interest and penalties on the appellant are not sustainable. Accordingly, the impugned orders are set aside. Both the appeals filed by the appellants are allowed with consequent relief. The application filed by the appellant for recalling Miscellaneous Order dt 6.1.2015 is dismissed as infructuous.

(Dictated and pronounced in the Court)

(P.K. Das) Member (Judicial)

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