M/S. Radhika Hydraulics vs Commissioner Of Central Excise & S.T., ...

(Arising out of OIA-55-67/2010/COMMR-A-/RAJ dated 19.02.2010, passed by Commissioner (Appeals) Central Excise, & S.T., Rajkot)

M/s. Radhika Hydraulics : Appellant (s) Shri Raju Punjarambhai Patel Shri Alpesh S Zalavadia Shri Ramesh U Zalavadia Shri Suresh G Vekaria Shri Purshottamdas Ram Kumar Agarwal Shri Nitin G Vekaria Shri Rambhakt Goyal Shri Rajesh Kumar Sharma Shri Suresh G Patel

VERSUS

Commissioner of Central Excise & S.T., Rajkot : Respondent (s)

Represented by :

For Appellant (s) : Shri Hardik Modh, Advocate For Respondent (s) : Shri T.K. Sikdar, Authorised Representative

For approval and signature :

Mr. H.K. Thakur, Honble Member (Technical)

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. H.K. Thakur, Honble Member (Technical)

Date of Hearing : 17.07.2015

Date of Decision : 22.07.2015

ORDER No. A/11058-11067/2015 Dated 22.07.2015

Per : Mr. H.K. Thakur;

These appeals have been filed by the appellants against Orders-in-Appeal No. 55 to 67/2010/Commr(A)/Raj dated 19.02.2010 passed by Commissioner (Appeals) Rajkot under which demand of Rs. 34,89,818/-, alongwith interest and equivalent penalty imposed by Adjudicating authority have been upheld against the main appellant M/s. Radhika Hydraulics, Rajkot. Penalties imposed by the Adjudicating authority, against the other appellants for aiding and abetting the main appellant, have been modified by the first appellate authority.

2. Shri Hardik Modh, (Advocate) appearing on behalf of all the appellants argued that the main appellant is engaged in the manufacture of parts of Hydraulic Jacks for Trailers falling under CETH 87169090 and are also trading in Hydraulic Jacks of Trailer and its accessories, manufactured by others/ got manufactured from job workers. That appellant is not having machinery to manufacture complete Hydraulic Jacks for Trailer and different processes are being got done from job workers or from three other small factories owned by the family members of the main appellant. That Shri Nitin G. Vekaria is the proprietor of M/s. Radhika Hydraulics. That value of clearances of the main appellant is less than the exemption limit.

2.1 That on 26.4.2006, officers of Central Excise (AE), Rajkot conducted the search of main appellants premises and found a certain diaries/ chits. That certain excess stock of raw materials and finished goods were also placed under seizure. That statements of two raw material suppliers of the main appellant were also recorded. That statements of four buyers and two transporters were also recorded to the effect that goods cleared by the main appellant were sent from the premises of the main appellant. That an amount of Rs. 24.32 lakh has been paid by the main appellant during the course of these proceedings.

2.2 It is the case of the Advocate that the main appellant had no capacity to manufacture the complete Hydraulic Jack; that only parts of Hydraulic Jacks are manufactured and other processes are got done from the job workers. That after all the processes of assembly are complete finished goods are brought to the factory premises/godown of the main appellant and sold by affixing the brand name Radhika of the main appellant. That main appellant also furnished a copy of Chartered Engineer certificate to the lower authorities to establish that main appellant does not have the capability to manufacture the entire Hydraulic Jack and also to the effect as to what processes are undertaken by the main appellant. That during the course of proceedings before the lower authorities main appellant gave details of machineries available with sister concerns of the main appellant alongwith details of processes undertaken in each of the sister concerns. Photocopies of bills raised by job workers were also furnished. That request was made before the lower authorities to the effect the processing capabilities on the machines/ equipments available on the date of Panchnama may be got verified as the same are still operational with the main appellant.

However the same was not entertained by the lower authorities. It was also argued that cross-examination of the crucial witnesses were not allowed who maintained the diary from which duty is calculated. That when the manufacture of goods is not established then there can be no cause for demanding duty. That details of finished goods manufactured and shown in the diary were not segregated as to how much of the goods entered therein were presumed to have been manufactured and cleared clandestinely by main appellant. That how much raw materials procured was used for making finished goods by the main appellant is also not coming forward from the statements of the proprietor of the main appellant. Learned Advocate made the Bench go through the statements of Shri Nitin G. Vekaria (Proprietor of the main appellant) recorded on 26.04.2006 and 09.05.2006. It was his case that buyer of the goods can only confirm the source of receipt of Hydraulic Jack but can not say as to from where the supplied goods were manufactured i.e. whether the same were manufactured by the main appellant or got manufactured from the job worker and thereafter embossed/ marked with the brand Radhika name of the main appellant.

That the concept of manufacture is different in Central Excise and the Income Tax laws. That the seized goods on the date of visit were the Hydraulic Jacks manufactured by job workers/ sister concerns which were brought to the godown of main appellant for embossing brand name before they could be sold. That appellant would also be eligible for cum duty benefit and 25% reduced penalty, which the lower authorities have not extended, in case their submissions on merit are not considered. Learned Advocate also made the Bench go through paras 23 and 24 of the show cause notice dated 17.10.2006 to argue that all the three sister concerns were held to be independent and within SSI exemption limit of Rs. One Crore and that clearances of all these units with the main appellant were not proposed to be clubbed for denying exemption. That similarly M/s. Patel Plastics, M/s. Maruti Agro Industries and M/s. Sardar Agro were held to be within SSI exemption limit as manufacturers.

3. Shri T.K. Sikdar (AR) appearing on behalf of the Revenue argued that as per 3 CD report dated 05.12.2006 filed by the main appellant with the Income Tax department (for the Assessment Year 2006-2007), the main appellant has claimed himself to be the manufacturer of Hydraulic Jacks. That the balance sheet of the main appellant indicate that no trading activity is undertaken. That proprietor of the main appellant in his first statement has admitted to have undertaken the manufacture of Hydraulic Jacks and subsequent rejection of the statement is only an after thought on legal advice. It was also argued by the learned AR that no job charges were paid by the main appellant to M/s. Maruti Agro Industries, M/s. Patel Plastics Products and M/s. Sardar Agro Industries and the contention of the main appellant is that with the sister no job charges were paid due to undertaking mutual job work free for each other. That raw materials for all four units within Gujarat were purchased by Shri Nitin G. Vekaria. That all the raw materials for the four units were procured from outside Gujarat by Shri Rameshbhai Partner of M/s. Patel Plastics Products, as per his statement. That Shri Suresh G. Vekaria, Proprietor of M/s. Maruti Agro Industries, the elder brother of Shri Nitin G. Vekaria of M/s. Radhika Hydraulic, in his statement dated 26.4.2006 confessed that he was keeping record about the clandestine clearance of all the four units. Learned AR, therefore, strongly defended the order passed by the first appellate authority. For this purpose, Shri T.K. Sikdar (AR) made the Bench go through paras 12.3 to 12.7 of the Order-in-Appeal dated 19.02.2010.

4. Heard both sides and perused the case records. The issue involved in the present proceedings is whether main appellant has manufactured and cleared Hydraulic Jacks clandestinely as per the investigation carried out by officers of Central Excise (AE), Rajkot. The first argument taken by the main appellant is that there are inadequate manufacturing facilities to manufacture complete Hydraulic Jacks and that only certain parts of the Hydraulic Jacks are manufactured at the premises of the main appellant. It is also Appellants argument that certain processes are got done from three of its sister concerns (M/s. Maruti Agro Industries, M/s. Sardar Agro and M/s. Patel Plastic Products) and other job-workers as none of their four units have facilities to manufacture complete Hydraulic Jacks. Main appellant relied upon Chartered Engineers certificate dated 29.4.2006 before the lower authorities in support of their claim that machines existing in appellants factory and the activities which are possible with those machines. It is observed from the certificate specifically certified by CA that other machining and assembling are not possible in M/s. Radhika Hydraulics.

Main appellant also requested before the lower authorities that its manufacturing activity may be assessed by visiting the factory as the same machines, as on the date of Panchnama, are still existing and working. It is observed from the records of the case that lower authorities; instead of making any such verifications based their findings on circumstantial evidences; like intimations filed with Income Tax department and statement of the Proprietor of main appellant and held that main appellant has the capabilities of manufacturing Hydraulic press. The concept of manufacture and manufacturer given in Section 2(f) of the Central Excise Act, 1944 is based on the manufacturing activities undertaken in a factory. But the concept of manufacture under Income Tax law may be regarding income generated by a legal entity which may include the manufacturing activity done himself or also got done from others etc. Therefore, main appellant declaring himself as a manufacturer before Income Tax authorities can not be interpreted to mean that all Hydraulic Jacks shown in the balance sheet of the main appellant were manufactured in the same factory of the main appellant.

Analogy drawn by the lower authorities based on declaration made before Income Tax department is not proper and misdirected. For determining, whether manufacturing facilities available with the main appellant were sufficient to carry out the entire process of manufacture of Hydraulic Jacks, it was essential to study the activities undertaken in main appellants factory when a Chartered Accountant specifically certified that main appellant does not have assembling facilities for complete Hydraulic Jacks in the same factory. Further, clubbing of clearances of al the three sister units with the main appellant have not been proposed by the investigation to hold that all activities are undertaken as one unit. Revenue has thus, failed to factually establish that all activities relating to manufacture of Hydraulic Jacks are done by the main appellant in his factory.

5. Revenue has based its case on the admission statements of persons managing the main appellant and other three sister concerns. Statement dated 26.04.2006 of Shri Nitin G. Vekaria, Proprietor of Radhika Hydraulics was the first to be recorded in which he admits clandestine manufacture and clearance of Hydraulic Jacks. But in this statement, he also said that record of clandestine clearances are kept by his elder brother Shri Suresh G. Vekaria, Proprietor of M/s. Maruti Udyog. The duty quantification has been got confirmed from Shri Nitin G. Vekaria on the basis of a record maintained by Suresh G. Vekaria. Interestingly statement of Shri Suresh G. Vekaria (mentioned in Para-4 of the show cause notice dated 17.10.2006) does not get the clandestine clearances quantified to have been manufactured by M/s. Radhika Hydraulics. In the second statement dated 09.5.2006, Shri Nitin G. Vekaria is confronted with statement dated 26.4.2006 of his elder brother, wherein, he also says that the records pertaining to the clandestine clearance of his firm are maintained by his elder brother and that he does not have any knowledge of the same and any clarification to that extent should be had from his elder brother only.

In another statement dated 16.5.2006. Shri Suresh G. Vekaria, inter-alia, stated that he keeps record of clandestine clearance of all the four firms. In the light of there investigation the correctness of statement dated 26.4.2006 of Proprietor of M/s. Radhika Hydraulics, regarding quantities of clandestine clearances, is questionable. There is no quantification of clandestine clearance and duty liability made by the author of the account, Shri Suresh G. Vekaria, who was keeping the diary. Further, main appellant by a letter dated 15.5.2006 claims that transactions shown in chits/ diaries mentioned at Sr. No. 8, 9 and 10 of Annexure A to Panchnama dated 26.04.2006 also include transactions of M/s. Patel Plastic Products, M/s. Sardar Agro Industries and M/s. Maruti Agro Industries. The same was considered to be correct by investigation as per Para 7 of the show cause notice dated 17.10.2006 and again Notice No. 2,3,4 and 5 were summoned. In a further statement dated 16.05.2006, Shri Suresh G. Vekaria stated that he maintains the record of clandestine clearance of all the four units including the main appellant.

In this regard, it is relevant to observe that main appellant was also getting Hydraulic Jacks manufactured from other 15 job workers as per Para 12.6 of the OIA dated 19.02.2010. Nothing is reflecting in the last statement dated 16.05.2006 of Shri Suresh G. Vekaria whether the clandestine clearances recorded in the diary also contained the goods manufactured on job work basis from other job workers mentioned in Para 12.6 of the OIA dated 19.02.2010. For this purpose the cross-examination of the authors of the diaries was essential which has not been allowed to the appellant. Even if it is presumed that appellant was capable of carrying out all the processes leading to manufacture of Hydraulic Jacks then also it has not been established by the Revenue as to how much finished goods were the clandestine clearance made by the main appellant. Whatever was said by Proprietor of main appellant earlier in statement dated 26.4.2006 is not reliable when Para 7 statement of investigation in show cause notice dated 17.10.2008 say that partys plea may be correct. In view of the above observations the fact of manufacture of Hydraulic Jacks and quantification of clandestine clearances by the main appellant fails miserably.

Secondly, it is now a well established law that cases of clandestine removal can not be established only on the basis of few statements, especially in this case where the first recorded statement is held to be incorrect and given by a person who is not the author of the diary. Appeal filed by the main appellant is, therefore, required to be allowed as the case of clandestine manufacture and clearance by the main appellant is not established and corresponding penalties are also required to be set-aside.

6. So far as penalties imposed upon the other appellants is concerned, it is held that no penalties are imposable on these appellants once issue on merits has been decided in favour of the main appellant.

7. This Bench has not gone into the aspect of cum-duty-benefit and option of 25% reduced penalty not given, as the main issue on merits is decided in favour of the main appellant.

8. In view of the above observations appeals filed by all the appellants are allowed with consequential relief, if any.

(Order pronounced in the Court on 22.07.2015)

(H.K. Thakur) Member (Technical) .KL

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