Central Excise

1. Whether entries in private register and entries in dispatch register without mention of Invoice number and vehicle number are sufficient evidence to prove clandestine removal?

Held : No.

Whether additional evidence in the form of use of input, use of electricity proof of clandestine removal after manufacture required?

Held : Yes.

The allegation of clandestine removal was made by a show cause notice by department on the basis of dispatch register where some entries were made without mentioning any invoice and vehicle member.

The dealer contended that the register was meant for goods to be dispatched. No further verification was done by department at the address of the parties, as to whether any goods were received by them or not. The statement of one Mr. Poddar was taken and relied upon, where Mr. Poddar had no knowledge about the entries made in the register. No statement was taken of the person in charge of the register. It was contended by the dealer that no evidence of purchase or manufacturer of goods being the allegation cannot be sustained. Clandestine removal is a serious charge, which is required to be proved by the revenue by production of sufficient and tangible evidence. Absolute proof and not the basis of preponderance of probabilities are required. In support of these arguments the following decisions were relied upon:–

1. 148 ELT 967 (TRI-Del).

2. 167 ELT 91 (TRI- Chennai)

3. 168 ELT 454

The Tribunal accepted the contention of the dealer and set aside the impugned order.

Tijiya Steel Pvt Ltd. vs. CCE HALDIA (185 ELT, 425 (TRI- Kolkata)

2. What is sufficient evidence for clandes-tine manufacture and removal? Mathema-tical precision not required, establishment of link between supplier, manufacture and sale of unaccounted goods along with monetary proof is overwhelming evidence

Retractions at a later date and not turning up for cross examination, whether dilutes the evidence?

On facts: - Matter remanded

The issue relates to the alleged procurement of unaccounted raw materials and production and clearance of unaccounted finished products by M/s. Anjaneya Steel Rolling Mills (M/s. ASRM), Trichy. The Revenue conducted investigations on the basis of information received. Investigation revealed that M/s. ASRM received MS ingots from M/s. Elango Industries Ltd. (M/s. EIL), Karaikal. The unaccounted ingots were used for manufacture of finished product, which were cleared clandestinely. M/s. EIL also had illicitly manufactured and cleared a quantity of 1,526.96 MTs of MS ingots without accounting them in the statutory records.

Documentary evidence for removal of the goods clandestinely from M/s. EIL to M/s. ASRM from the transporter of the goods was found.

Managing partner of ASRM Shri G. Odayappan, admitted receipt of raw materials from M/s. EIL which were not accounted for. Evidence for the sale proceeds in respect of unaccounted purchase from M/s. EIL by M/s. ASRM also furnished and an employee, M. Muthuswamy, admitted that he used to deposit money in cash in the account of Shri Prem Kumar, Director (Technical) of M/s. EIL who has admitted sale. All the statement were recorded under section 14 of the Central Excise Act, 1944. Shri Jaganmohan, Managing partner of M/s. Rajarathina Transport admitted transport of ingots and removal to super sale, Trichy and M/s. MSR Steel Agencies. Mohanmed Nazeer, partner of M/s. MSR Steel and Sarfudeen, Managing Partner of M/s. Super Sales, both dealers of M/s. ASRM in their statements admitted receipt of re-rolled product from M/s. ASRM. Shri S. Tamiulselvan, Office Assistant of M/s. EIL admitted that he used to accompany the lorries loaded with unaccounted ingots with dummy bills in his custody. M/s. ASRM manufactured 1,434.402 MTs of MS rods and angles and cleared them without payment of duty and an amount of Rs. 1,25,01,626/- was transacted from bank A/c No. 5527, 1024 of Karur Vyasa Bank in the name of S.A. Prem Kumar, Director of M/s EIL, towards part payment for transactions in unaccounted MS Ingots.

On appeal before the CEGAT, Chennai, the Tribunal remanded the matter to the original authority for de novo consideration after affording the appellants’ opportunities including cross – examination of the person who were not cross examined earlier and to enable appellants to put forth their defence effectively in the de novo proceedings.

One witness appeared for cross – examination out of the seven in de novo proceedings.

It was contended by the appellants that the case built up on the statement has not been proved with corroborative evidence by the revenue. The statement were not corroborative with documentary evidence of any kind to prove clandestine removal.

The Commissioner Appeal dropped the proceeding. The revenue again moved the Tribunal. The department contended before the Tribunal that it was incorrect to say that entire case is based only on statements. The case is built up with overwhelming evidence. It is not correct to state that documentary evidence furnished by the department is third party evidence having no direct link to the business of the dealer.

It was further argued that even in a criminal proceedings the prosecution is not required to prove mathematical precision, all that is required to be proved is to establish a degree of probability that prudent man, on its basis believe in the existence of the fact in issue. The Commissioner has wrongly accepted the retracted statements, when the retraction of the statement was done after a year. He should have rejected them as an afterthought. The Commissioner has stretched the principle of natural justice beyond reasonable limit to hold that statement by themselves do not constitute evidence. The department referred to Supreme Court decision in the case of Duncan Agro Industries 120 ELT 280 wherein it was held that statement given before a customs officer is admissible evidence.

The Tribunal agreed with the department that there were overwhelming evidence, however it emphasized that CEGAT had sent the matter back for cross-examination. They agreed that merely because witness did not turn-up for cross-examination the matter cannot be dropped. It needs to be pursued. They remanded the matter again for a de novo adjudication directing the authority to give notice to all witness to appear before him for cross-examination by dealers. They also directed that opportunity be granted to revenue to counter the points raised by the appellant.

CCE, Trichy vs. Anjanaya
Steel Rolling Mills (185 ELT 158 (TRI-Chennai))

3. Whether credit can be allowed to UPS and air-conditioners which are installed in the administrative block of appellant factory which are used for operations relating to design and production?

Held – Yes.

The credit was denied on UPS and air-conditioners installed in the administrative block of the dealers factory.

The appellants maintained that the UPS and air-conditioners are mainly used for production related activities like engineering, design, modifications, production planning and shop floor activities etc. The credit was denied on the ground that as per Rule 2 of Cenvat credit of rules, equipment and appliance used in office cannot be considered as capital goods. The Commissioner Appeal allowed dealers appeal.

The department went before the Tribunal. The Tribunal held that the assessing officer has himself recorded in the order that servers and other equipments are covering all operations of the company, including those relating to design and productions and since the administrative block is also within the factory premises. The tribunal rejected the department’s appeal and the credit was allowed.

[CCE vs. Ashok Leyland (185 ELT 330- TRI- Chennai)]

4. Whether Modvat Credit can be taken on machine bought and dismantled to know its various parts and components and with the knowledge assessee manufactured new machines in their factory?

Held : No.

The assessee brought a machine in the factory, which was dismantled to know its various parts and components. On the basis of this knowledge assessee manufactured similar types of machines. The Modvat Credit – was taken on the machine dismantled. The credit taken was denied on the ground that the capital goods are not used in the manufacture of goods, the dealer argued before the Tribunal that the knowledge acquired by dismantling the machine was used to manufacture goods and therefore the machine which gave this knowledge was used to manufacture goods.

The Tribunal denied the Modvat Credit. The credit under Rule 57Q is applicable on capital goods used for manufacture of specified goods. Since the machine was neither used for designing or developing of any goods nor it is used for manufacture of any goods, therefore the credit was correctly denied observed Tribunal.

New Era Industries vs. CCE Hudhian [185 ELT 327 (Tri – Del)]

5. Whether credit can be denied for clerical errors? Whether the assessee can be saddled with liability for failure to produce freight and octroi vouchers when the payment responsibility is that of the buyer? When the supplier’s invoices received for inputs mention incorrect thickness or do not mention thickness of plates and sheets used can the credit on those inputs be denied?

Held : No.

The factory premises of the dealer was visited and enquiries were made. A show cause notice was issued on the following grounds.

1. That HR/CR Sheets and coils mentioned in the duty paying documents issued by dealers were other than those received by the Appellants.

2. That the appellants require the sheets/plates of thickness 3.15 mm, 3.50 mm, 4 mm, 5 mm, 6 mm, 8 mm, 10 mm, which were received from the dealers, but duty paying documents were for the plates/sheets of thickness other than the required thickness mentioned
   above :

3. That appellants did not provide any evidence of payment of octroi, transportation, etc.

4. That the sub-heading Nos. mentioned in the dealers’ invoices indicate the thickness other than the one actually received.

The assessee submitted that they were properly recording the information available with them and communicating to the Department from time to time. They submitted that modvat documents received till July, 1999 have never shown any specific thickness.

The assessee required hot rolled/cold rolled sheets and coils as major raw material for the manufacture of ‘rubber to metal bonded sandwich mounting, rubber butter spring, metal bonded rubber pads for side bearer, modified elasonetric pad, etc.. on perusal of engineering drawings of the above mentioned products, it was seen that each and every product required hot rolled/cold rolled sheets and coils of thickness 3.15 mm, 33.5 mm, 4 mm, 5 mm, 6 mm, 8 mm and 10 mm. These goods are, accordingly, procured from manufacturers as well as various registered dealers. Once procured, these goods undergo test by the quality control department to see if the specifications are adhered to. During investigation, the details of the consignments procured from the registered dealers when compared with the purchase documents, revealed that the thickness of the goods (raw materials) received is different from the thickness mentioned in the corresponding purchase invoices. The assessee, submitted during personal hearing that the assessee does not have any machinery to flatten the strips/ sheets to make them thinner to suit their requirement.

The above facts are confirmed by the statement recorded by the department of the suppliers who supplied these goods . Again it is not the contention of the department that the quantum of duty depicted in the dealers invoices were incorrect or /and excess than as shown in the documents. Reliance was placed on the decision of G.M.I Super Sales Agencies 136 ELT 1022, Chaphekar Engineering 117 ELT 61 and Ajanta Composite 138 ELT 1031. The complete trial of the transaction was also brought on record. The suppliers invoice, the corresponding challan the corresponding weigh bridge record slip and entries in the books, thereby proving the chain of receipt of inputs on which credit was availed.

Assessee contended that the transactions were ex-godown basis and so they never paid freight and octroi. This fact was also confirmed by the statement of the supplier that payment of freight and octroi was their responsibility. The assessee cannot produce voucher for something which they have not paid for.

The Tribunal accepted the contention raised by the assessee dealer. It should be noted that allegation of a particular chapter heading been mentioned in the document to indicate the actual thickness and that was not the input received could be a result of the dealers not being very accurate in the noting of particulars on the invoices issued by them. There being no value/price differential evidence brought on record to show a deliberate beneficial attempt in such mistakes, allegations cannot defeat the credit and lead one to conclude that inputs did not come.

It is brought on record that Purchase Orders were placed for a specific thickness by the dealer ISO 9001 company in writing , after March 1999 in all cases. On receipt, goods receipt notes were prepared which show the thickness of the material received and after inspection entries are made in Credit Registers. The adjudicator’s findings, of no complaints about order placed and defects pointed out, therefore cannot be upheld.

The plea of limitation is also required to be upheld as no suppression /misdeclaration etc. by the assessee has been established. They have filed the declaration, copies of invoices, audited by the Department. For clerical errors, if any, on part of the supplier’s employees the assessee cannot be held responsible.

Basant Rubber Factory vs. CCE Mumbai-II [185 ELT 280 (TRI- Mumbai)]

6. Whether rectification of mistakes can be done on the ground that all the grounds of appeal raised before the Tribunal were not discussed in the order.

Held : No.

Whether allegation of bias against the member on the bench can be raised after passing of the order when the same is not raised at the time of hearing?

Held : No.

A Rectification Application is filled by the applicant dealer against the order in appeal passed by Hon'ble Tribunal. The grounds for rectification were,

The Member (Tribunal) who passed the Final Order dated 6-12-2004 was the Executive Commissioner of Customs, Kochi contemporaneously when these matters were investigated and adjudicated during this period. The tribunal has not considered all the grounds raised in the appeal.

The Tribunal considering the submission made held that the member technical has not acted in a bias manner or with prejudice as alleged by the council and the party. The objection was not at all raised when the appeal was heard. As Executive Commissioner of Customs the member has passed several orders. He would not remember the name of each and every person and finally the order in appeal has not been passed by member technical.

The Tribunal further held that it is not necessary that all the grounds raised by the appellant should be discussed in the order. It is sufficient if the relevant grounds are discussed and the matter decided. In any case when the appellant feels that the order is not legal and proper he cannot file an application for rectification of mistakes, he has to follow the other remedies provided by the law. The Tribunal quoted the following authorities to draw support

1. 163 ELT 403 (SC) 134 ELT 386
   (Tri-Kolkata)

2. 147 ELT 1257 (Tri-Delhi)

3. 151 ELT 481(SC)

ALEX- C Joseph vs. CCE Kochi [185 ELT 171 (Tri- Bangalore)]