Case Law Details
Rajhans Impex Pvt Ltd Vs C.C.- Mundra (CESTAT Ahmedabad)
Charges of clandestine removal cannot be sustained as the evidences brought into the record by the department are incomplete, inconsistent and not a reliable piece of evidence.
Facts-
The appellant is engaged in the manufacture of Brass Rods. The scrutiny of the documents revealed that the appellant cleared Brass and Copper Alloys Rods to 100% EOUs and SEZ and availed the benefit of Deemed Exports and subsequently claimed Advance
Authorization from the DGFT, for duty-free import of raw materials i.e., Brass/ Copper Scrap/ Zinc Scrap.
It was contended that Appellant is not eligible for advance authorization for duty free imports of Brass/Copper/Zinc Scraps against the deemed export clearances shown to the 100% EOUs namely M/s Shrijkrupa Exports, M/s Apple International, M/s Jakap Metind Pvt. Ltd. and M/s Srijan Exports. Appellant showed deemed export clearance of total 248204 Kgs. of Brass Rods /Brass Hollow Rods /Copper Alloys Ingots to said four 100% EOUs which were fictitious and only on records. By doing this Appellant have grossly misused the provisions of the Advance Authorization scheme effective in the instant case under Notification No. 98/2009-Customs dated 11.09.2009 ibid read with provisions of para 4.1.5, 4.2.1 & 4.2.2 of the FTP 2009-14. By above acts Appellant showed the fictitious clearance of 248204 Kgs. of Brass Rods/ Brass Hollow Rods/ Copper Alloys Ingots on records i.e. ARE-3 and invoices, however actually cleared the same into open market clandestinely. Against these fictitious clearances not only Appellant secured 11 nos. of Advance Authorisation from the DGFT but they have also wrongfully availed Refund of Rs. 90,59,957/ – as TED from DGFT.
Appellants were issued show cause notice proposing confiscation of goods u/s. 111(o) of the Customs Act, 1962 and u/r. 25 of the Central Excise Rules, 2002, in addition to the recovery of custom duty on imported material as also Central Excise Duty on the material cleared with payment of duty under valid duty paying documents to the tune of Rs. 1,26,99,092/- and Rs. 90,59,957/- along with interest and penalty.
Conclusion- Held that the entire case of the Revenue is based upon the surmises and conjectures. No concrete, positive and tangible evidence appears on record. The evidences brought into the record by the department are incomplete, inconsistent and not a reliable piece of evidence to prove charges of clandestine removal. We hold that the charges of clandestine removal of the alleged goods not sustainable in the present matter.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
All these appeals have been filed by the appellants against impugned common Order-In-Original No. MUM-CUSTM-000-COM-030-16-17 dated 31.03.2017 passed by the Principal Commissioner of Customs, Mundra. The impugned order has demanded Customs duty in respect of the imported raw materials and Central Excise Duty in respect of the finished goods.
1.2 Briefly stated facts of the case are that the appellant are engaged in the manufacture of Brass Rods. Based on the intelligence that Appellant had indulged in gross misuse of Advance Authorisation scheme, the factory premises of Appellant was searched by the officers of DRI, Jamnagar and documents were recovered. The scrutiny of the documents revealed that, besides physical exports, Appellant also cleared Brass and Copper Alloys Rods to 100% EOUs and SEZ and availed the benefit of Deemed Exports thereon and subsequently they claimed Advance Authorization from the DGFT, Rajkot for duty free import of raw materials i.e. Brass/Copper Scrap/Zinc Scrap; that they had done physical exports under claim of Rebate and also clearances were made to 100%EOU and SEZs on payment of Central Excise Duty which was later claimed back through refund from the DGFT (in case of EOU units) and their Jurisdictional Central Excise Division (in case of SEZ units); that they have availed the Cenvat Credit of CVD and SAD on imports of Brass scrap after payment of duty and same was later shown as utilized for payment of duty on clearances made for domestic sales as well as exports and deemed exports; that the clearances were mostly done to 100% EOUs without any CT-3 and on payment Central Excise Duty which was later claimed back through refund of Terminal Excise Duty (TED) from the DGFT, Rajkot and in a few cases the clearances were made to 100% EOUs under CT-3 and similarly where clearances of Brass Rods and Copper Alloys Ingot were shown to have made to 100% EOUs on payment of duty without cover of any CT-3, they post of such clearances claimed Advance Authorisation from DGFT Rajkot and also refund of TED from DGFT. Investigation were carried out in cases where Appellant had shown the deemed export clearances to the various 100% EOUs in terms of Para 8.3 of the FTP incorporating verification of these clearances and also recording of the statements of the concerned persons of the recipient EOUs. Letters were also written to the Jurisdictional Central Excise officers of recipient EOUs to ascertain the facts with regard to actual clearance of the Brass Rods and Copper Alloys Ingots. The investigation also include statements of some of the vehicle owners which were also recorded to ascertain the actual transportation whether made or not as shown by Appellant. Investigation revealed the fact that, the deemed exports clearances shown to the 100% EOUs were not genuine and were on paper only. It appear that Appellant is not eligible for advance authorization for duty free imports of Brass/Copper/Zinc Scraps against the deemed export clearances shown to the 100% EOUs namely M/s Shrijkrupa Exports, M/s Apple International, M/s Jakap Metind Pvt. Ltd. and M/s Srijan Exports. Appellant showed deemed export clearance of total 248204 Kgs. of Brass Rods /Brass Hollow Rods /Copper Alloys Ingots to said four 100% EOUs which were fictitious and only on records. By doing this Appellant have grossly misused the provisions of the Advance Authorization scheme effective in the instant case under Notification No. 98/2009-Customs dated 11.09.2009 ibid read with provisions of para 4.1.5, 4.2.1 & 4.2.2 of the FTP 2009-14. By above acts Appellant showed the fictitious clearance of 248204 Kgs. of Brass Rods/ Brass Hollow Rods/ Copper Alloys Ingots on records i.e. ARE-3 and invoices, however actually cleared the same into open market clandestinely. Against these fictitious clearances not only Appellant secured 11 nos. of Advance Authorisation from the DGFT Rajkot but they have also wrongfully availed Refund of Rs. 90,59,957/ – as TED from DGFT.
1.3 On the basis of above investigation, Appellants were issued show cause notice dated 10.04.2015 proposing confiscation of goods under Section 111(o) of the Customs Act, 1962 and under Rule 25 of the Central Excise Rules, 2002, in addition to the recovery of custom duty on imported material as also Central Excise Duty on the material cleared with payment of duty under valid duty paying documents to the tune of Rs. 1,26,99,092/- and Rs. 90,59,957/- along with interest and penalty. The said show cause notice was also proposed penalty on the Director as well as respective EOUs. The show cause notice was adjudicated by the Principal Commissioner vide impugned order dated 31.03.3017, wherein he passed order as under:
(i) Hold that goods of 261009 Kgs. of Brass Scrap imported is liable for confiscation under the provision of Section 111(o) of the Customs Act, 1962. Since the goods are not available either physically or released after seizure through bonds, refrain from the imposing any redemption fines under the provisions of 125 of the customs Act, 1962.
(ii) confirmed the demand of Customs duty amounting to Rs. 1,26,99,092/- leviable on import of total 261009 Kgs. of Brass Scrap imported under the provisions of Section 28(4) of the Customs Act, 1962.
(iii) recover interest at the appropriate rate on above amount of Custom Duty under the provisions of Section 28AA of the Customs Act, 1962.
(iv) Impose penalty of Rs. 1,26,99,092/- and an amount equivalent to interest payable under Section 114A of the Customs Act, 1962.
(v) Impose penalty of Rs. 50,00,000/- under Section 112(a) of the Customs Act, 1962.
(vi) Hold that the goods of 248204 Kgs. Brass Roads /Brass Hollow Rods/ Copper Alloys Ingots is liable for confiscation under Rule 25 of the Central Excise Rules 25 of the Central Excise Rules, 2002. Since the goods are not available either physically or released under bonds, refrain from the imposing any redemption fines under the provisions of Section 34 of the Central Excise Act, 1944.
(vii) Confirmed the demand of Central Excise Duty amounting to Rs.90,59,957/- payable on 248204 Kgs. of Brass Rods/Brass Hollow Rods/ Copper Alloys Ingots under Section 11A(4) of Central Excise Act, 1944.
(viii) recover interest at the appropriate rate, in respect of above Central Excise Duty under Section 11AA of the Central Excise Act, 1944.
(xi) Impose penalty of Rs. 90,59,957/- under Section 11AC of the Central Excise Act, 1944.
(x) Impose penalty of Rs. 10,00,000/- under Rule 26 of the Central Excise Rules,2002
In addition, he also imposed the penalties on co-notices under Section 112 (a) of the Customs Act 1962 and separate penalties under Rule 26 of Central Excise Rules, 2002. Hence, the appellants filed the present appeals before this Tribunal.
2.1 Shri Paresh Sheth and Shri Amal Dave, Learned Counsel appearing on behalf of the appellant submits that Appellant supplied materials to 100% EOUs against CT-3 form issued by the said EUOs, without payment of duty as also with payment of duty without cover of CT-3 certificate, under cover of invoices and form ARE-3 prescribed under the provisions of Central Excise Rules. Appellant claimed the deemed export benefits in terms of chapter 8 of Foreign Trade Policy 2009-15 and claimed TED refund from DGFT. Appellant was clearing duty paid goods to all the EOUs against the application for advance license filed before Director General of Foreign Trade. Most of the Advance licenses were obtained after completion of obligation as determined under the advance license, and on receipt of Export Obligation Discharge Certificate. Appellant after procuring Export Obligation Discharge Certificate imported material without payment of duty by claiming exemption under Notification No. 96/2009. After importation of material in terms of para 4.1.5 of the policy, utilized such materials in manufacturing of final products and cleared the same in domestic market with payment of duty. In view of para 4.12 of HBP Exporters are allowed to export material in anticipation of authorization.
2.2 He submits that Appellant transported materials to M/s Jakap Metind Pvt. Ltd. and M/s Apple International in his own vehicle and to M/s Shrijikrupa Exports through either M/s Haresh Transport or M/s Shree Laxmi Transport Co and to M/s Srijan Exports through M/s Jaipur Golden Transport Co. Pvt. Ltd., which is an admitted facts and the department has questioned transportation of materials only to M/s Srijan Exports and M/s Shrijikrupa Exports. The explanation for transportation of goods by the owner of the transport agency was not questioned. On the contrary the statement of authorized person of such transportation agency were conveniently ignored and proves beyond doubt that material has been transported to M/s Srijan Exports and M/s Shrijikrupa Exports.
2.3 He further submits that on 5-9-2013, the officers visited the factory premises and impounded certain documents including statutory record, copy of ARE-3 etc. That officers recorded statement of authorized persons of the aforesaid 100% EOU as well as Director. The EOUs have accepted the fact of receipt of material in their factory premises and recorded that the said material is duly accounted for in their statutory record. The transporters and the truck owners have also supported the same. Officers had also requested jurisdictional Assistant Commissioner’s to certify whether the material covered under the respective ARE-3 were physically verified by the Range Officer or not. On such inquiry, all the concerned officers have certified that the respective EOUs have received the materials from Appellant.
2.4 He also submits that Appellant has produced certificate of Chartered Accountant, certifying there in the use of materials imported as per the requirement of Policy. All the clearances are with payment of duty and therefore cannot be treated as clandestine removal. Further central excise duty demanded is equal to refund claimed from DGFT and since the refund is sanctioned by the DGFT, cannot be recovered by the Customs Department and therefore the show cause notice is beyond the scope of Jurisdiction. Further, the Assistant Commissioner of Jamnagar has also certified that no refund/ rebate of duty paid on supplies to EOUs has been granted by them.
2.5 He also submits that the adjudicating authority while making an observation on the supplies made to M/s Shrijikrupa Export has observed that Appellant has shown 23 Nos. of clearance to M/s Shrijikrupa Export through vehicle No. GJ-10X-5021 and the capacity of such vehicle is 4550 Kg and therefore Appellant could not have transported the goods. While making such observation has ignored the facts that Shri Siraj Mamadbhai owner of Truck No. GJ-10X-5021 is his statement dated 30.12.2013 recorded before the officer under Section 108 of the Customs Act, 1962 has clarified beyond doubt that the capacity of his truck is about 7 ton. This fact proves beyond doubt that the adjudicating authority has not only misrepresented the facts but has demonstrated wrong facts. Shri Siraj while giving statement on cross-examination has also agreed to the list of transportation of goods produced by Shri Jaswantlal authorized person of M/s. Shri Laxmi transport and have agreed to have consigned 31 consignments.
2.6 He submits that the adjudicating authority referred to notification No. 98/2009-CUS dated 11.09.2009 and Para 4.1.5 of FTP for the year 20092014 and has observed that Appellant has not fulfilled the condition prescribed under the said notification i.e. has not produced certificate issued by the Jurisdictional Central Excise Officers certifying the use of materials within 6 months from the date of clearance. However, he has overlooked the facts that Appellant have not availed the exemption under notification No. 98/2009-CUS dated 11.09.2009 but have availed the exemption under Notification No. 96/2009 -CUS dated 11.09.2009 and have obtained certificate from Chartered Accountant certifying the fact that the material imported is used in manufacturing of final product. In terms of Notification No. 96/2009 clause (v) the importer is required to obtain the certificate either form Jurisdictional Central Excise Officer or from the Chartered Accountant.
2.7 He argued that for the charges of clandestine removal positive evidence required. He placed reliance on the following decisions:
- Commissioner of C.Ex. Vs. P.D. Industries Pvt. Ltd. 2016-340-ELT 249 (Tri. Del)
- Davinder Sandhu Impex Ltd. Vs. CCE 2016(337) ELT 99
- Century Metal Recycling Pvt. Ltd. Vs. Commissioner of C.Ex. 2016(333)ELT483
- Commissioner of C.Ex. Vs. Bihariji Manufacturing Co. Pvt. Ltd. 2015(323) ELT 106
- Commissioner of C.Ex. Vs. Saakeen Alloys Pvt. Ltd. 2014(308)ELT 655.
2.8 He submits that demand cannot be confirmed, since the advance authorization issued are still valid. He placed reliance on the following decisions.
- C. (Export Promotion), Mumbai v. Koatex Infrastructure Ltd., 2015 (323) E.L.T. 169 (Tri. – Mumbai),
- Collector of Customs, Bombay v. Sneha Sales Corporation, 2000 (121) E.L.T. 577 (S.C.)
- Titan Medical Systems Pvt. Ltd. v. Collector of Customs, New Delhi, 2003 (151) E.L.T. 254 (S.C.)
- Commissioner of Customs v. Rajnarayan Jwalaprasad, 2014 (306) E.L.T. 592 (Guj.);
- Simplex Infrastructure Ltd. v. Union of India, 2016 (342) E.L.T. 59 (Del.)
- Bianani Cement Ltd. Vs. Commissioner of Customs, Kandla 2010(259)ELT 247
3. Shri Vinod Lukose, Learned Superintendent (AR) reiterated the findings of the adjudicating authority and submit that DRI investigation revealed that Appellant had clandestinely disposed of the goods in the open market instead of actually supplying the goods to EOUs and had fraudulently showed clearance of brass/copper alloys rods to EOUs and availed the benefit of deemed export in the form of advance authorization. Thus the deemed export clearance, were not even genuine and were shown only on papers. DGFT mainly monitors and sees that the provisions with respect of the license are duly complied with and in case of any breach powers are also conferred on it. Hence, the contention that the advance authorization has not been cancelled and that the license is not cancelled by the authority is not justified owing to the fact that since the appellant failed to discharge the post import condition, the customs was well within its right to demand the customs duty forgone. He placed reliance on the following decisions:
- Lumbini Industries Pvt. Ltd. 2017(349)ELT 232
- Patel Engineering Ltd. Vs. Commissioner of Customs 2013(295) ELT 243
- Shesshank Sea Foods Pvt. Ltd. 1996(88) ELT 626(SC)
3.1 Learned AR also submits that the appellant’s contention is that Central Excise Duty demanded is equal to duty refunded by DGFT. In this connection Revenue’s submission is that the duty of Central Excise demanded vide impugned order is on different point from the refund (TED). The Customs duty has been demanded on the goods which were imported by wrongly availing customs exemption notification and the central excise duty has been demanded on clandestine clearance of the finished goods in the open market.
4. We have considered the submissions made by both the sides and perused the Appeal records.As regard the demand of customs duty we find that the case of the department is that Appellant have obtained 11 Advance Authorization from DGFT for duty free import of raw material under Notification No. 98/2009 -CUS. dated 11.09.2009. The said Advance Authorization and subsequent Export Obligation Discharge Certificate have been obtained by Appellant on the basis of clearance shown to have made to four 100% EOUs and claimed the same a Deemed Export Benefits. It has been alleged that in actual no such clearances have taken place and accordingly the exemption of customs duty for the imports made under the said 11 Advance Authorization has been wrongly availed and the same is required to be rejected. Whereas, here Appellant produced the sample copy of Bill of entry and claimed that they have not availed the exemption under Notification No. 98/2009 -CUS. dated 11.09.2009 but has availed exemption under Notification No. 96/2009-CUS dated 11.09.2009.Clearly, the foundation of the case of the department itself defective, the proper allegations are very important for foundation of any case. If the allegation itself is defective, any decision rendered would not be correct. In the present case from the perusal of the Bills of entry it is clear that for exemption of custom duty appellant claimed the Notification No. 96/2009-CUS dated 11.09.2009, department has not issued impugned show cause notice for denial of benefit of notification claimed by the Appellant, therefore, clearly the show cause notice itself is defective and the proceeding is vitiated , Consequently, the demand was not maintainable. We also find support from the judgment of Hon’ble Supreme Court in the matter of COMMISSIONER OF C. EX. & CUSTOMS Vs. SURESH SYNTHETICS 2007 (216) E.L.T. 662 (S.C.) which held as under:
”Before the Tribunal the short point raised by the assessee was that duty to be paid by a 100% export oriented unit for clearance in the Domestic Tariff Area is the duty of excise and not customs duty. There is merit in the above contention. The duty in question is excise duty and not customs duty. Even the investigations were made under the Central Excise Act, 1944. Therefore, the show cause notice was defective in law and since it was defective notice the demand was not maintainable. For the aforestated reasons the Tribunal was right in coming to the conclusion that the show cause notice was defective.
3. Before concluding we may refer to the judgment of the Division Bench of this Court in the case of Saci Allied Products Limited, U.P. v. Commissioner of Central Excise, Meerut reporting in 2005 (7) SCC 159 we quote herein below paras 16 and 17 of the said judgment.
“16. Thus according to the Appellate Tribunal, since the dealers in Uttar Pradesh who purchased the goods from Syndet, and independent dealers in other parts of the country to whom the appellants directly sold the goods are different class of buyers, the appellants‟ price to the independent dealers cannot be taken as the basis for assessing the appellants‟ sales to Syndet in Uttar Pradesh. This finding of the Appellate Tribunal is based on first proviso to Section 4(1)(a) of the Act. While the show-cause notice and the order of the Collector proceeded on the basis of the invocation of third proviso to Section 4(1)(a) of the Act, the Appellate Tribunal for the first time in the impugned order has sustained the proceedings on the basis of first proviso to Section 4(1)(a) of the Act. It was argued that the first proviso to Section 4(1)(a) of the Act was never invoked by the Department either in the show-cause notice or in the impugned order and it was for the first time that the Appellate Tribunal in the impugned order has sought to sustain the impugned order by invoking the first proviso to Section 4(1)(a) of the Act. It is thus seen that the Tribunal has gone totally beyond the show-cause notice and the order of the Collector, which is impermissible. The Appellate Tribunal cannot sustain the case of the Revenue against the appellants on a ground not raised by the Revenue either in the show-cause notice or in the order.
17. In this context, we may usefully refer to the judgment of this Court in the case of Reckitt & Colman of India Ltd. v. CCE. This Court held that it is beyond the competence of the Tribunal to make out in favour of the Revenue a case which the Revenue had never canvassed and which the appellants had never been required to meet.” [Emphasis supplied by us].
4. In view of the said decision of this Court in Saci Allied Products Ltd. (supra) there is no merit in these Civil Appeals filed by the Department. Accordingly, the same are dismissed with no order as to costs.”
4.1 In the case of Bhor Industries Ltd. v. UOI – 1991 (51) E.L.T. 284 (Bombay – HC) – the Hon’ble High Court observed that if the show cause notice does not fulfill the requirement of show cause notice (required as per correct rules) wrong mention of correct rule will be bad in law and notice can be set aside.
4.2 In the matter of Commissioner of Customs, Bangalore Vs. Bharavi Laboratories (P) Ltd. 2006 (201) E.L.T. 41 (Tri. – Bang) , the Tribunal held as under :
“The infringement arises on account of the Explanation given in Rule 6. These provisions have not been properly brought out in the show cause notice. Therefore we cannot fault with the findings of the lower authority given the way the show cause notice has been drafted. In other words, the show cause notice is defective as the same has neither invoked Section 11A nor Rule 6 of the above-mentioned Rules. Under these circumstances, we have no other option but to reject the Revenue‟s appeal.”
4.3 It is also significant to note that the Appellant were granted Advance Authorization by the DGFT for duty free import of raw materials in terms of provisions of Foreign Trade Policy and on that basis only Appellant claimed the exemption of custom duty on import of raw material. We find that DGFT itself not disputed on compliance of the Appellant related to Advance Authorisation and Export Obligation Discharge Certificates, further department also not produced any notice /letter issued by the DGFT to Appellant for no-compliance of the conditions or procedures, therefore benefit of exemption notification related to the import of raw material cannot be denied to the Appellant. We also noticed that Appellant had preferred an Special Civil Application No. 12550 of 2017 before the Hon’ble Gujarat High Court against the impugned order and the Hon’ble Court entertaining the petition of Appellant has also observed that
“35. It also reveals from the letter dated 27-10-2013 (page No. 167 of the petition) that the Central Excise Department has not sanctioned any refund/rebate of the duty paid on the supplies to the EOUs. It also appears that the refund of TED is sanctioned by the DGFT and if DGFT has acted under the different provisions and the refund is sanctioned under those provisions, the proper authority is DGFT who can initiate proceedings against the petitioners for violation of exemption notification and the Advance Authorization Licence. Now, it is an admitted fact that the Advance Authorization Licence of the petitioners is still valid and no action is taken by the DGFT for breach of condition thereof. As such, initiation of proceedings by the customs is nothing but an exercise of power in excess of jurisdiction. When the Custom Department has exercised power in excess of jurisdiction, than, this Court can exercise its extraordinary writ jurisdiction under Article 226 of the Constitution of India. Therefore, considering peculiar facts of this case, the impugned order-in-original is required to be set aside.
36. In view of the above, the present petitions deserve to be allowed. Accordingly, the petitions are allowed. The impugned Order-in-Original No. MUN-CUSM-000-COM-030-16-17, dated 31-3-2017 passed by respondent No. 2 is hereby quashed and set aside.”
4.4 Further, we also observed that Para 4.1.5. of Chapter 4 of the Foreign Trade Policy allowed the Advance Authorization holder to dispose off the product manufactured out of duty free materials if the export obligation is completed. Here, Appellant also produced the certificate of chartered accountant certifying that the use of the material imported as per the requirement of policy. Therefore, demand of customs duty not sustainable and on the above ground.
4.5 Without prejudice to the above finding, we also find that revenue has confirmed the demand of Custom duty on the raw material imported duty free on the ground that the appellant have cleared the goods in DTA without complying the provision of FTP and in contravention with the condition of the exemption notification of customs. There is no dispute in the facts that the imported Raw material has been consumed in the manufacture of Final Product and the excise duty demand was also raised on the finished goods. In such a situation the demand of Custom duty on the Raw material is not legal and proper. Therefore, in our view in the facts of the present case. Since, excise duty demand raised on the Finished goods no duty of customs can be demanded on raw material. The issue has been considered in various judgments as cited by the appellant. In the case of COMMISSIONER OF CUSTOMS Vs. SURESH SYNTHETICS 2007 (216) ELT 662 (SC) it was held by the Apex Court that customs duty is not sustainable on the raw material when the finished goods have been cleared on payment of excise duty in DTA.
4.6 In the case of SAHIL SYNTHETICS PVT. LTD. vs. CCE, Surat-I 2001 (139) ELT 594 the following order was passed:
“Saheli Synthetics (Appeal C/398/2001) is a 100% export oriented unit at surat. It is engaged in printing and dyeing of fabrics which it imports, predominantly for the purpose of export. It also sells part of the production on the domestic tariff area. The notice issued to it demanded duty under Section 28 of the Customs Act, 1962 on the ground that it had removed quantities of such processed fabrics to the domestic tariff area without payment of duty and on the further ground that it has short paid customs on some other quantities which is sold. Penalty under Section 112 of the Act was proposed on it and on R.R Agarwal, its director for its contravention. Penalty under Section 112 was also proposed on Gajanand Fabrics, Kamdhenu Textiles and Shalimar Fabrics, for having purchased such goods.
2. The contention of the common counsel for the appellants is that no duty under the Customs Act, 1962 could be demanded on these goods which the appellant manufactures in its factory in India and sells in the domestic Tariff area and therefore no penalty can be imposed on the appellant, or anyone else for this contravention. We are not able to understand the rationale for demanding duty on the goods under consideration under Section 28 of the Customs Act, 1962. The Show cause notice does not propose to demand custom duty on the Fabrics the appellant imported on any ground such as that they were not utilised in the manufacture of exported goods. Such a demand could be justified where goods are manufactured by a 100% export oriented unit in a factory in a free trade zone using imported raw materials or components are cleared to a buyer in the domestic tariff area they are not imported.The 100% export oriented unit and a free trade zone are located in India. What is correctly payable is excise duty. The proviso under sub-section (1) of Section 3 of the Central Excise Act, 1944 provides that the duties of excise payable on such goods manufactured in a free trade zone or by export oriented unit shall be equal to the aggregate of the customs duties leviable under Section 12 of the Customs Act, 1962 on like goods imported into India. It also provides that where such duties are ad valorem the value shall be determined in accordance with the provision of the Customs Act, 1962 and Customs Tariff Act, 1975. The measure, therefore, in the statute for the calculation of duty is the customs duty payable on such goods if they were imported. The levy and collection of duty is covered to be governed by the provisions of enactments relating to Central Excise. The provisions of the Customs Act, 1962 and Customs Tariff Act, will have no application in this regard.
3. On this point, without going to the merits of the issue, we hold that the show cause notice demanding duty and proposing penalty under the Customs Act is not maintainable, set aside the order confirming this notice and allow this appeal. We however make it clear that the department is at liberty to proceed to recover excise duty, if any, payable in the goods and initiate facts for contravention of the Central Excise Act and the rules there under in accordance with law.”
The above judgment has been upheld by the Hon’ble Supreme Court reported in 2015 (316) A29 (SC)
4.7 The identical issue has also been considered by this Tribunal in the case of Sanjari Twisters- 2009 (235) ELT 116 (Tri.- Ahmd) wherein the Tribunal passed the following order:
“This is a department‘s appeal against the order of the Commissioner No. 03/Dem/2002, dated 13-2-02.
2. Heard the Ld. SDR. None appeared for the respondent.
3. The Commissioner vide his impugned order confirmed the demand of duty on certain finished goods, wastes and rejects cleared by the respondent who are a 100% EOU. These clearances were effected by them into DTA. However, he did not demand the duty on the duty free imported raw material used in the manufacture of such goods on the ground that the respondents being a 100% EOU, only Central Excise duty in terms of Section 3 of the Central Excise Act, 1944 can be recovered.
4. The department being aggrieved with the said portion of the impugned order by which no duty stand was confirmed in respect of raw materials, has filed the present appeal. The appeal has been filed on the ground that non-duty paid raw materials were admittedly used in finished products which were cleared to DTA in contravention of provisions of law. Such raw materials, which were imported by availing the benefit of notification No. 53/97-Cus. dt. 3-6-97, should have discharged the duty.
5. After hearing the ld SDR, we find that the main issue involved relates to the determination of FOB value of export to arrive at the quantum of eligible domestic clearances and whether the same should include only physical export or it should include deemed export as well. If deemed exports are held to be not included, then the quantum of clearances permitted in DTA will be accordingly reduced. This issue has been decided by the Tribunal in favour of the assessee on a number of precedent decisions, holding that the value of deemed export should be included while determining the FOB value of export, based on which DTA clearances are permitted. However, in this case, the assessee is not in appeal before us. The duty on finished goods stands demanded on the ground that the same is in excess of the permissible limit for the purpose of DTA clearance. The department‘s claim is to the effect that the raw material used in such finished products cleared in DTA should be treated as not used for the intended purposes and the duty on import should be demanded. We do not agree with this view. In this case, it cannot be said that the raw materials have not been used for the intended purpose. Even if there was clearances in excess of permissible limit it may amount to be case of diversion of finished goods, the duty shall be payable in respect of finished goods and no duty become demandable on the raw material used in the manufacture of such diverted goods.
6. Therefore, the appeal by the department is rejected.”
The above decision of the Tribunal was maintained by the Hon’ble Supreme Court by dismissing the revenue’s appeal reported at COMMISSIONER V.SANJARI TWISTERS- 2010(255) ELT A15 (S.C)
4.8 In view of the above judgments, it is settled that once in the 100% EOU the raw material imported duty free is used in the manufacture of final product and final product is cleared on payment of duty in DTA, for any reason the customs duty on the raw material which was used in the finished goods cannot be demanded therefore, the demand of Customs Duty on this ground also is clearly not sustainable.
4.9 As regard the demand of Central Excise duty, we find that the case of the department is on the ground that deemed export clearance were not genuine and were shown only on paper and finished goods were clandestine cleared in the open market. We find that during the investigation, the department has sought verification report from the Jurisdictional Authority of EOUs units. It also appears that all the Concerned Officers have certified that EOUs have received the goods. In the said verification reports, officers, no-where pointed out that the EOUs have not received the materials form the Appellant. Further Authorized persons of EOUs units accepted the facts of receipts of materials and transporters and truck owners also accepted the transportation of goods from the factory of Appellant to EOU units. We also find that in the present matter Appellant had received payment for the said transaction by cheque and the said transaction were recorded in statutory books & accounts of the Appellant. We, further find that in support of their contention department nowhere produced any corroborative evidence to show that the Appellant have cleared alleged finished goods in open market. No statement of any buyer recorded to whom clearance was allegedly made, no transportation details provided, no evidence of any receipts of payment from open market buyers produced. Therefore, in the given set of facts and in absence of any adverse evidence, it cannot be said that finished goods were clandestinely cleared in open market. There are several judicial pronouncements of the Hon’ble Apex Court, High Courts and Tribunal wherein it has been consistently held that in the case of clandestine manufacture and removal of goods, Revenue has to prove it beyond doubt.
We rely on the Hon’ble High Court judgment in the case of Commissioner of Central Excise v. Brims Products – 2011 (271) E.L.T. 184 (Pat.) wherein it was held that:-
“8. Facts emanating from the records, disclose that the Central Excise authority itself has held with regard to two consignments out of four, that the investigation is incomplete and has been carried out only at the transporters end, thus, does not reveal actual purchase by the buyers. The authorities with regard to the aforesaid two consignments have also extended benefit of doubt to the respondent. We are of the opinion that there could not have any reason for arriving at different conclusion with regard to the remaining two consignments.
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 place of positive legal evidence, which are required for proving the charge. Even if, it is assumed that some raw materials were received at the factory of the respondent during the said period, the same cannot become conclusive proof of production and clandestine sale to different parties. Due to lack of positive evidence, benefit of doubt will always go in favour of the assessee.
10. Accordingly, we answer the reference against the Revenue and in favour of the assessee and it is held that the receipt of one of the raw materials, does not conclusively prove clandestine manufacture and surreptitious removal of finished final product. Further, since the charge is regarding clandestine manufacture and removal of finished product for evading excise duty, the same cannot be held to be proved on the basis of principle of preponderance of probabilities and the Revenue has to prove the same beyond doubt. The reference is answered accordingly.”
4.10 In the matter of M/s. Sakeen Alloys Pvt. Ltd. v. C.C.Ex. 2013 (296) E.L.T. 392 (Tri.) which was upheld by the Gujarat High Court [2014 (308) E.L.T. 655 (Guj.) and subsequently by the Hon’ble Supreme Court reported at [2015 (319) E.L.T. A-117 (S.C.)], the Tribunal held that:
“5. We have carefully gone through the rival submissions and perused the records. In this case, the case of clandestine removal has been made out against the appellant M/s. Sakeen Alloys Pvt. Limited on the basis of records/pen-drive recovered from the business premises of M/s. Sunrise Enterprises. In the statements of Managing Director and the Excise persons of M/s. Sakeen Alloys Pvt. Limited and Shri Mukeshbhai V. Patel of M/s. Sunrise Enterprises it has been admitted that they have clandestinely manufactured and cleared CTD/round bars but they have retracted their statements immediately after recording the statements. It is the case of the appellants that request for cross-examination of the persons whose statements were recorded has not been made available to them by the adjudicating authority. In view of the various judgments relied upon, it was also argued that no investigation has been extended to the suppliers of raw materials or purchasers of finished goods to establish whether such clandestine removal of excisable goods have actually been undertaken by the appellants or not. It was emphasized that cross-examination of the persons whose statements have relied upon is obligatory to be provided especially when the statements are retracted by the appellants.
6. It is observed from Para 3.1 of the show cause notice dated 1-5-2009 issued to the appellants that stock yard of M/s. Sunrise Enterprise, Mehsana was searched by the departmental officers and during such checks it was found by the officers that TMT Bars lying in the stock were embossed with „VARSANA‟ on each bar which was explained by Shri Mukeshbhai Virabhai Patel of M/s. Sunrise Enterprise have been manufactured by M/s. Varsana Ispat Limited, Kutch. Further, this paragraph also states that the stock lying in the stock yard of M/s. Sunrise Enterprise also had the stock received from M/s. Sakeen Alloys Pvt. Limited, but on verification of the stock with the invoices, the stock was found to have tallied with the documents available with M/s. Sunrise Enterprise. When the stock lying in the stockyard of M/s. Sunrise Enterprise was found to have tallied with the invoices available with M/s. Sunrise Enterprise then the request of the appellants for cross-examination of Shri Mukeshbhai V. Patel of M/s. Sunrise Enterprise was necessary to bring out the truth whether the records/pen-drive maintained by M/s. Sunrise Enterprise pertained to same stock which is received under duty paid invoices or otherwise.
7. It is also observed from Para 14.4 of the show cause notice that names and address of M/s. Siddhi Industries Pvt. Limited and M/s. Mahavir Alloys, Dabhol, Nani Daman are manufactured who were alleged to have supplied the excess raw materials to the appellants from which clandestinely removed goods were manufactured. Their addresses were made available to the department but no enquiry was conducted at the supplier‘s end to establish that excess materials in fact were supplied to the appellants. Similarly, no investigation has been extended to the buyers of the finished goods whose names are in the records/pen-drive of M/s. Sunrise Enterprise. This part of the investigation was necessary to establish that clandestinely removed goods have reached to the buyers and they have confirmed to have received such goods. Appellants herein have filed affidavits from some of such buyers which the adjudicating authority has not accepted. It would have been in the interest of justice to call some of these purchasers for cross-examination so that true picture of the entire activities undertaken by the appellants was made clear. Appellants also requested for cross-examination of the Chartered Engineer who gave them the certificate regarding manufacturing capacity and consumption of electricity.
8. In the cases relating to clandestine removal of excisable goods, following are the indicators of clandestine removal activities by a manufacturer :-
(i) Excess stock of raw materials found in the factory premises.
(ii) Shortage of raw materials in the records of manufacturer.
(iii) Excess/shortage of manufactured goods found in the factory premises.
(iv) Excess consumption of electricity/power used in the manufacture of finished goods.
(v) Any transit seizure of clandestinely removed goods made by the investigating authority.
(vi) Any cash amounts seized from the factory premises or dealer‘s premises or residential premises searched during investigation.
(vii) Confessionary statements of the persons concerned with the clandestine manufacture/removal of excisable goods.
9. It is observed from the case records that in the present proceedings, there are few confessional statements of the persons which were later retracted by the persons concerned. The confessional statements subsequently retracted can be argued to be an afterthought under a proper legal advice but to observe the principles of natural justice, it becomes necessary to provide cross-examination of such witnesses, as held by various judicial courts including the Hon‘ble Supreme Court relied upon by the appellants. In the case of CCE v. Omkar Textiles – 2010 (259) E.L.T. 687 (Guj.), it was held by the Jurisdictional Gujarat High Court that onus is on the Revenue to furnish the evidence to prove the charges of clandestine removal and it is not sufficient if some confessional statements have been given by the Director of the Company. Similarly, in the case of CCE v. Arsh Casting Pvt. Limited [2010 (252) E.L.T. 191 (H.P.)], the Hon‟ble High Court of Himachal Pradesh held that the private records maintained by the staff of the company cannot be made as the sole evidence to hold that clandestine removal of the goods is established and accordingly, the following point of law was decided in favour of the assessee:-
“Whether on the basis of private records, the Central Excise duty can be demanded or not when these private records show higher production than that reflected in the statutory records resulting into removal of the excess stock clandestinely i.e. without issue of invoice and without making entries of production and clearance in the statutory records?”
10. Similarly, in the case of CCE, Chandigarh-1 v. Shingar Lamps Pvt. Limited [2010 (255) E.L.T. 221 (P&H)], the Hon‟ble High Court held that the private records which have been discovered during the raid may not be sufficient for holding clandestine production and removal but there should be some positive evidence suggesting clandestine production and removal. The Hon‟ble Supreme Court in the case of Shalimar Rubber Industries v. Collector of Central Excise, Cochin [2002 (146) E.L.T. 248(S.C.)] has also held that once the statement is retracted and the assessee asked for cross-examination then if such cross-examination is denied, the department cannot make such statements as the basis for concluding that there was clandestine removal. It is further observed that the Hon‟ble CESTAT in the case of Rama Shyama Papers Limited v. CCE, Lucknow [2004 (160) E.L.T. 494 (Tri.-Del.)] came to the following conclusion in Paras 9 and 10 of the judgment which are reproduced below:-
“9. We have considered the submissions of both the sides. The Revenue has charged the Appellants with clandestine manufacture and removal of paper mainly on the basis of documents seized from the premises of Chitra Traders and Transporters and the various statements recorded from the Proprietor of Chitra Traders, transporters and labourers working in the factory of the Appellants and also the driver or cleaner of the Truck which was in the process of loading on 22-6-2001 when the Central Excise Officers visited their factory premises. The Appellants, on the other hand, have contended that most of the persons whose statements have been relied upon have not been produced for cross-examination and the documents seized from third parties‟ premises have not been corroborated by adducing evidence of any of the customers though the enquiries were conducted at different places as deposed by Shri Anurag Sharma, Inspector, in his cross-examination on 4-3-2002. Out of 19 consignments said to have been cleared by the Appellant No. 1 without payment of duty on the basis of five transporter, we observe that in respect of two consignments, it has been mentioned by the Revenue that the same may not pertain to the Appellants. Further, only one transporter Shri Sanjay Garg of M/s. Balaji Transporter Co. was produced for cross-examination which accounts for only two consignments out of 19 consignments in question. Shri Garg, it is observed from the record of cross-examination, has deposed that they generally work as commission agent and provide transport to Appellant No. 1; the payment is used to be received directly by the drivers after delivery of the goods at the consignee‟s end and in case the driver did not report back for the next 3-4 days, it was presumed that the goods had reached the consignees end. Further, the name of the Applicant No. 1 on one GR No. 34 had been written not by Shri Sanjay Garg, but by his brother, whose statement has not been recorded and on GR 187, there is no mention of the name of the Appellant No. 1 at all. No statement of the drivers concerned has been recorded by the Revenue to establish that the finished goods manufactured by the Appellants were removed without payment of duty. The other transporters have not been produced for the purpose of cross-examination nor the statements of drivers who might have actually carried the goods, had been recorded. Moreover no statement of any of the recipients of the goods had been brought on record. Thus the statements of the transporters have remained uncorroborated and also suffers from the shortcoming of being not being cross-examined by the Appellants. It has been the settled law that the liability cannot be fastened on an assessee on the strength of documents seized from the possession of third party. There should be some corroborative evidence/material. The Tribunal has in the case of Emmtex Synthetics Ltd., supra, when the charge of clandestine removal was made against the Appellants therein out of yarn received from a third party based on the diary, loose documents and packing slips allegedly recovered from Shri B.M. Gupta, Vice President of the Supplier Company, held that “no presumption on the basis of uncorroborated, uncross-examined evidence of B.M. Gupta and the alleged entries made by him in the private diary, loose sheets, charts, packing slips could be drawn about the receipt of polyester yarn by the Appellants from the company, M/s. HPL, in a clandestine manner during the period in question. Similarly, no inference could be legally drawn against the Appellants of having manufactured texturised yarn out of the said polyester yarn and the clearance thereof, in a clandestine manner without the payment of duty.” The Tribunal had also referred to the decision in Oudh Sugar Mills Ltd. v. Union of India, 1978 (2) E.LT. (J172) wherein “the Apex Court has observed that no show cause notice or an order can be based on assumptions and presumptions. The findings based on such assumptions and presumptions without any tangible evidence will be vitiated by an error of law”. The Tribunal also took note of the decision in Kamal Biri Factory and Shri Khushnuden Rehman Khan v. CCE, Meerut – 2003 (161) E.L.T. 1197 (T) = 1997 (23) RLT 609 (CEGAT) wherein view has been taken that the allegations of clandestine removal of the goods will not stand established when based on the entries made by the assessee‘s employee in a diary or on the basis of third party‘s record in the absence of any corroborative evidence. It has also been the consistent view of the Tribunal that the statements of the witnesses, without allowing the assessee to test the correctness of the same by cross-examining those witnesses; cannot be made the basis for holding the allegation against the assessee. (Takshila Spinners v. CCE, supra). Similar views have been expressed by the Tribunal in the case of Haryana Petrochemicals Ltd., supra wherein the Tribunal has held that reliance cannot be placed on the documents maintained by a third party “who did not have the courage to come forward for cross-examination in order to test the veracity and correctness of the private record maintained by him.” It has also been held by the Tribunal in the case of Kothari Synthetics Industries v. CCE, Jaipur – 2002 (141) E.L.T. 558 (T) that entries made in the transport Register of the transport company could not be accepted as a conclusive proof of clandestine receipt of goods from that transport company for want of corroboration from any tangible evidence. Following the ratio of these decision, the duty demand cannot be upheld solely on the basis of uncorroborated statements and records of transporter. The statements tendered by the labourers can also not be relied upon by the Revenue as these persons were not produced for being cross-examined. Moreover, there is no corroboration of their statements with regard to the Trucks by which the goods were allegedly removed or the persons who received the goods. The Truck driver Shri Shiv Bahadur Yadav has also not been cross-examined and cleaner Shri Rakesh Kumar had deposed that the Bills/Invoices are supposed to be with the Driver and he being cleaner had no knowledge.
10. The confirmation of duty in respect of 149 consignments is also based on the records seized from the premises of M/s. Chitra Traders and not on the basis of any record seized from the premises of the Appellant-company. The Revenue has not been able to adduce any corroborative evidence to show the movement of goods from the premises of the Appellant-company to the premises of M/s. Chitra Traders or the Customers whom the goods were sent directly to as per the direction of Chitra Traders. No inquiry has also been made into these Customers who ultimately received the goods. There is no substance in the reasoning given by the Commissioner in the impugned order to the effect that “as the party did not challenge the fact of their business association with M/s. Chitra Traders, Delhi, the enquiry further down the line was not considered necessary.” The onus of proof that the goods were removed by the Appellants without payment of duty and without entering the same in their records is upon the Revenue which cannot be discharged merely on the strength of the entries made in the records of a third party without linking the removal of goods from the premises of the Appellant-company. The mere fact that the Appellant-company had business relation with Chitra Traders, does not mean that they will be liable to each and every entry made by Chitra Traders in their books of account. It is also noted that none of the transporters and none of the labourers whose statements have been relied upon by Revenue have mentioned that the goods in question were delivered to Chitra Traders from the premises of the Appellants. The material brought on record may at the most create a doubt only. But doubt cannot take the place of evidence. The Revenue has, thus, not proved its case against the Appellants in respect of 149 consignments. We, therefore, set aside the demand of duty and penalty imposed on Appellant-company and consequently the demand of interest.”
11. From the above settled law, it is clear that in a clandestine removal case, the facts of clandestine removal of excisable goods cannot be established only on the basis of certain statements which are retracted later but there has to be positive evidences like purchase of excess raw materials, shortage/excess of raw materials/finished goods found in the stock/factory premises of the appellant, excess consumption of power like electricity, any seizure of cash during the investigation when huge transactions are made in cash. In the present case also, it is observed, from the annexures to the show cause notice dated 1-5-2009 issued to the appellants, that there were huge cash transactions to the tune of Rs. 11.23 Crores. When such large number of transactions involving huge amounts are being undertaken in clandestine removal activities, it is very likely that some cash would have been seized. There is not a single instance where either seizure of cash is made or any clandestinely removed goods are seized or raw materials/finished goods were found either short or in excess in the factory premises of the appellant or at any other place. As per the Panchnama drawn at the factory premises it is shown that there was no excess/shortage of the raw materials or finished goods found. The documentary evidences collected from the business premises of M/s. Sunrise Enterprise and the statements recorded by investigation, can at the most raise a reasonable doubt that some clandestine removal activities are undertaken by the appellant. However, such a suspicion or doubt has to be strengthened by positive evidences which seem to be lacking in this case. Any suspicion whosoever cannot take the place of evidence regarding clandestine removal of excisable goods. Moreover, after having positive evidences, quantification of duty on clandestinely removed goods also becomes essential. As already mentioned above, the stock lying in the stock yard of M/s. Sunrise Enterprise, Mehsana was found containing the goods received from M/s. Sakeen Alloys Pvt. Limited under proper invoices. When the goods received under proper invoices are found in the stock yard of M/s. Sunrise Enterprise, then it is possible that out of such goods certain quantities were sold to various customers by accepting payment in cash. In such a situation, the quantification undertaken by the investigation becomes doubtful and incorrect. For this purpose cross-examination of the person Incharge looking after the records of M/s. Sunrise Enterprise was must, which was not allowed by the adjudicating authority. In view of the above observations, the demand of duty of Rs. 1,85,10,861/- is not sustainable and is required to be set aside.”
In the light of the ratio of law declared in the above judgments, we find that the entire case of the Revenue is based upon the surmises and conjectures. No concrete, positive and tangible evidence appears on record. The evidences brought into the record by the department are incomplete, inconsistent and not a reliable piece of evidence to prove charges of clandestine removal. Relying on these judgments, we also hold that the charges of clandestine removal of the alleged goods not sustainable in the present matter.
4.11 By following the ratio of above decisions, we hold that the central excise duty liability cannot be fastened upon the appellant.
4.12 In view of the above discussion, demand of Customs duty and Central Excise duty along with interest and imposition of penalties related to the raw materials and the finished goods are not sustainable.
4.13 As regards the penalties imposed on other Appellants, we find that in view of the foregoing, the demand itself is not sustainable against the main Appellant, hence the question of penalties on other Appellants does not arise.
5. We, accordingly, set aside the impugned order and allow the appeals of the assessee. As regard the department’s appeal since the demand is not sustainable department’s appeal being consequential proposing penalty and redemption fine are also not maintainable. Accordingly the Revenue’s appeal is dismissed.
(Pronounced in the open court 06.06.2022)
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