Case Law Details
Hightension Electrical Equipments Pvt. Ltd. Vs Commissioner of Central Excise (CESTAT Kolkata)
The appeals arise from an order confirming central excise duty demand of Rs. 3,19,84,038 (including cess), along with interest and penalties, against the appellant-company for the period April 2009 to March 2013, along with a penalty on its Director. The appellant-company was engaged in manufacturing and trading electrical overhead materials and hardware fittings used in transmission lines. It availed Small Scale Industry (SSI) exemption and maintained that it manufactured some goods while procuring others from the market and supplying them directly to customers under separate invoice series marked “M” (manufactured goods) and “T” (traded goods).
The Department conducted an investigation, recorded statements of company personnel, and alleged that goods shown under “T” series invoices as trading were actually manufactured by the appellant. Based on this, the Department combined both manufacturing and trading turnover, denied SSI exemption, and alleged clandestine manufacture and removal of goods without payment of duty. A show cause notice was issued demanding duty, interest, and penalties, including penalty on the Director for alleged involvement. The adjudicating authority confirmed the demand, appropriated an amount deposited during investigation, and imposed penalties.
The appellant contested the findings, stating that it lacked capacity and infrastructure to manufacture the entire quantity of goods and that a portion of supplies was procured from third-party suppliers and delivered directly to customers. It was argued that no investigation was conducted at the suppliers’ end or with transporters to verify the Department’s allegations. The appellant also contended that statements relied upon were inconsistent, recorded after delays, and not compliant with statutory requirements. It further argued that audited balance sheets clearly distinguished between manufacturing sales and trading sales, but the adjudicating authority failed to consider them properly.
The appellant also submitted that purchase orders containing terms like manufacturing, testing, or supply did not establish that all goods were manufactured by it. It emphasized that traders can also supply goods under such contracts. It challenged the invocation of extended limitation, stating that the Department was already aware of its activities and that similar proceedings had been initiated earlier. The appellant further argued that the deposit made during investigation did not amount to admission of liability and that no shortage or excess of goods was found.
The Tribunal examined the submissions and observed that the core issue was whether goods supplied under “T” series invoices were actually traded or manufactured by the appellant. It held that if the appellant’s claim of trading was correct, then the value of manufactured goods would fall within the SSI exemption threshold, and no duty would be payable. Therefore, it was essential for the Revenue to establish that the goods categorized as trading were actually manufactured by the appellant.
The Tribunal found that no investigation was conducted to determine whether the appellant had the capacity or infrastructure to manufacture the entire quantity of goods. It also noted that no verification was carried out at the suppliers’ end to confirm whether goods were procured from the market, nor was any investigation conducted with transporters to establish the movement of goods directly from suppliers to customers. These omissions were considered significant gaps in the Department’s case.
Further, the Tribunal observed that audited balance sheets produced by the appellant clearly indicated separate figures for manufacturing sales and trading sales. These documents were relevant for determining the nature of transactions but were not properly considered by the adjudicating authority. The Tribunal emphasized that such documents should have been examined to ascertain whether trading activities were genuinely carried out.
The Tribunal also referred to earlier decisions where similar issues were examined and held that documents must be considered in their entirety and that reliance on selective portions is not sufficient. It noted that the Revenue’s conclusion that all goods were manufactured by the appellant was based on assumptions and presumptions rather than conclusive evidence.
FULL TEXT OF THE CESTAT KOLKATA ORDER
The appellants are in appeal against the impugned order wherein central excise duty amounting to Rs.3,19,84,038/- (inclusive of cess), along with interest, for the period from April, 2009 to March, 2013, has been demanded from the appellant-company, namely, M/s. Hightension Electrical Equipments Pvt. Ltd. and penalties of Rs.3,19,84,038/- under Section 11AC of the Central Excise Act and Rs.1,00,00,000/- have been imposed on the appellant-company and Shri Suresh Kumar Jaiswal, Director of the appellant-company respectively.
2. The facts of the case in brief are that the appellant-company was engaged in the manufacture and re-sale of Electrical Overhead Materials/Hardware Fittings of Electrical Transmission Line, namely, 11 KV, 33KV Strain Hardware, D.O. Fuse, H.T. Fuse, A.B. Switch, M.S. Stay Set, G.I. Pin of 200 Amps., 400 Amps., etc., falling under Chapter 85 of Central Excise Tariff Act, 1985. The basic raw materials were M.S. Channel, Insulator, Gun Metal, Copper, Bolts and Nuts, G.I. Pipe, etc. They manufacture, amongst other things, A.B. Switch, D. O. Fuse, H.G. Fuse, Insulator, etc. The appellant-company availed the benefit of SSI Exemption and thus they did not pay any central excise duty so long as their clearance value did not exceed the SSI Exemption Limit. They were also undertaking trading of goods. They were maintaining the records properly. They were procuring orders from different Electricity Boards of different States namely Madhya Pradesh State Electricity Board, Maharashtra State Electricity Distribution Co. Ltd., Madhya Pradesh Paschim Kshetra Vidyut Vitaran Co. Ltd., Chhattisgarh State Power Transmission Co. Ltd., Larsen and Toubro Ltd., Kirloskar Brothers Ltd. and Power Grid Corporation of India Ltd., etc., and supplying the goods partly manufacturing by themselves and partly by procuring from the market and re-selling the same to keep their commitments since the appellant had no capacity and infrastructure for manufacturing such a huge quantity of goods. Since they were availing SSI Exemption, the appellant-company did not avail any credit of duty paid on inputs. In case of trading (purchasing & re-selling) of finished goods no credit was also passed on to the buyers. The appellant-company was also not undertaking any further activity on those purchased finished goods. The appellant had intimated the Department vide their Letter Ref No. HIEI/CE/459/93-94 dated 21.02.1994 that they were undertaking trading activities also.
3. On 10.12.2012, officers of the Department visited their factory and obtained copy of Invoices, Purchase Orders, Inspection Certificates etc. They also recorded the statement of Shri Sanjib Halder, Authorised Signatory of the appellant-company, on different dates, when Shri Halder inter alia explained that their company was manufacturing the goods and also undertaking trading activities; that for this purpose, they were maintaining separate series of invoices for clearance of their manufactured goods and trading goods accompanied by Test/Inspection Report; that they issued two types of bills ‘M’ for manufacturing and ‘T’ for trading; regarding trading business, he stated that after receipt of the buyer’s order, they placed order to their suppliers for complete materials and advised them to supply the said materials to the buyers directly and they did not bring such materials in their factory; regarding manufactured goods, he stated that they purchased raw materials from the market and processed the same in their factory and completed the goods.
3.1. In his statement dated 20.11.2013, Shri Sanjib Halder indicated the clearance value for the period 2009-10 as Rs.1,32,15,100/- instead of Rs.1,60,15,534/- clarifying that Rs.28,00,434/- was the clearance value under Notification No.108/95; that testing of the goods were being carried out at agreed point (CIP-Customers Inspection Point). In the said statement, it was also inter alia stated by him that the appellant-company was shown as ‘supplier’ in the Test Reports when the goods were trading goods and as ‘Vendor’ or ‘Manufacturer’ where the goods are manufactured by the appellant-company; it was also informed by him that the T-Series and M-Series activities were done as per the direction of the Director of the Company, namely, Shri Suresh Kumar Jaiswal.
3.2. In the course of further investigation, the statement of Shri Suresh Kumar Jaiswal, Director of the appellant-company (co-appellant herein) was recorded on 09.01.2014.
3.3. Thereafter, summons were also issued to various parties who procured materials from the appellant-company and statements were also recorded.
3.4. Although the appellant contended that they did not bring the traded goods to their factory and supplied it from their supplier’s end, the Revenue alleged that the said goods claimed to have been supplied out of their trading account were actually supplied from their factory premises. Thus, it was alleged that the goods covered under both M-Series invoices and T-Series invoices were the goods manufactured by the appellant.
3.5. It is the case of the appellants that the goods mentioned in T-Series Invoices were not manufactured by the appellants in their factory at 101, ‘C’ Road, Howrah 711105; that the M-series of Invoices represents the clearance of manufactured goods which were within the SSI Exemption Limit and no duty was paid. The Department did not make any investigation in respect of major purchaser of the goods. The appellant was made to deposit an amount of Rs. 10,00,000/- vide letter dated 11.01.2013.
3.6. Upon completion of the investigation, it was alleged that the appellant-company is the actual manufacturer of said the goods and manufactured the goods at their works at Unit No. 1, 2 & 3 and cleared the goods from their place of removal which is at 101, “C” Road, Howrah; that in spite of above facts the said appellant-company did not pay excise duty on the plea of availing exemption under Notification No. 8/2003-CE dated 01.03.2003 (as amended) on the clearance made by them with intent to evade payment of appropriate central excise duty leviable on the said goods, though their total sale value in all of the years covered in said Notice has exceeded the threshold limit for availing the exemption. Therefore, it appeared to the Revenue that the appellant-company had effected removal of finished goods from their factory/place of removal without payment of duty under the cover of invoices bearing sl. No. prefixing “M” series and “T” series.
3.6.1. It was also alleged that Shri Suresh Kumar Jaiswal, Director of M/s. Hightension Electrical Equipments Pvt. Ltd. (co-appellant herein) definitely had knowledge of the above evasion of duty attempted by way of surreptitious manufacture and clandestine removal by the appellant-company and for his active involvement in such activities, it was alleged that the Shri Suresh Kumar Jaiswal had rendered himself liable to penalty in terms of Rule 26 of Central Excise Rules, 2002.
4. Pursuant to the above, a Show Cause Notice was issued on 11.04.2014, inter alia demanding central excise duty of Rs.3,19,84,038/- (inclusive of cess), along with interest and penalty of an equal amount under Section 11AC of the Central Excise Act, 1944, for the period from April 2009 to March 2013 from the appellant-company and proposing recovery thereof under proviso to Section 11A(1) and 11A(4) of the said Act; the amount of Rs. 10,00,000/-deposited was proposed to be appropriated; the said Notice also made the proposal to impose penalty on Shri Suresh Kumar Jaiswal, Director of the appellant-company under Rule 26 of the Central Excise Rules, 2002. The Show Cause Notice alleged that the appellant-company had manufactured the entire quantity of the goods in their factory and had shown some quantity of the goods in the guise of re-sale/trading of the goods. The manufacturing sales and trading sales have been taken together and SSI Benefit was denied. Manufacturing of the goods was inferred from the language of the Purchase Orders issued by different State Electricity Board Authorities/Power Project etc.
4.1. The appellants submitted their reply to the said Show Cause Notice contending, inter alia, that they were supplying the goods to different Electricity Boards by manufacturing and also purchasing and supplying part of the said goods due to their incapacity and insufficient infrastructure; that the appellant was availing the benefit of Small Scale Exemption Notification; they were not availing any CENVAT Credit of duty paid on inputs nor did they charge any central excise duty from their customers or passing on any credit to the Purchaser/Buyers; the formality of testing and inspection was done as per terms of the Order; the statements of Shri Sanjib Halder given on different dates were nothing but the improved statement and cannot be relied upon. It was also stated by the appellant that they had no capacity to manufacture huge quantity of goods and the appellant had no infrastructure for the same; that the terms and conditions of Purchase Order for designing, manufacturing, testing, assembling, etc., and the signature on the CIP/Test Report has nothing to do with the manufacturing of the goods since subsequently some goods were purchased from the market and supply was made in terms of verbal order of the parties; the entire trading goods were delivered from the supplier’s premises to the customers but the Department chooses not to make any investigation; the Department cannot rely on a portion of the input statement and part of the Balance Sheet figure; further, that the mentioning of the status of the appellant in the Purchaser Order as manufacturer also does not make the appellant a manufacturer, if the goods are not actually manufactured by them; in their reply, it was also contended that the Show Cause Notice was also pre-judged and demand was also barred by limitation; that the Officers of the Department had visited the factory on 10.12.2012 and the Show Cause Notice was issued on 11.04.2014 for the period from April, 2009 to March, 2013; that an identical Show Cause Notice was also issued on 18.03.2010 for the period from 2005-06 to 2006-07; that the extended period could not be invoked since the entire fact was known to the Department; the deposit made at the instance of the Officers of the Department cannot be amounting to admission of any allegation; there was no shortage of excess of raw-materials or finished goods. The appellant also took the stand that if the appellant was required to pay the duty, the appellant would be eligible for taking credit on the inputs; that they were also eligible for cum duty price benefit. Accordingly, both the appellants had prayed for dropping the proceedings initiated against them.
5. The matter was adjudicated vide the impugned Order-in-Original No. 12/COMMR/CE/KOL-II/Adjn/2015-16 dated 19.01.2016 wherein the ld. adjudicating authority has confirmed the demand of central excise duty of Rs.3,19,84,038/-, charged interest thereon and also imposed a penalty of Rs.3,19,84,038/- under 11AC of the Act, against the appellant-company herein; he appropriated the amount of Rs.10,00,000/- deposited during the course of investigation; the ld. adjudicating authority has also imposed a penalty of Rs.1,00,00,000/- on the Shri Suresh Kumar Jaiswal, Director of the said company, on the basis of his findings therein.
5.1. Against the said order, the appellants are before us.
6. During the course of hearing, the Ld. Counsel appearing on behalf of the appellants inter alia made the following submissions: –
(i) The Order passed by the Commissioner is wholly on the basis of assumption and presumption that all clearances made under the cover of T-series of Invoices are actually their manufactured goods though it was claimed that those were treaded goods. Such adverse inference had been made from the terms of delivery instruction.
(ii) Statement of Shri Halder stating that goods cleared under CIP/Joint Inspection Report were their manufactured goods cannot be relied upon since the said statement was recorded after 2 years of the visit of the Officers; the said statement was also an improved statement and cannot be relied upon. The initial statement of Shri Halder was recorded on 10.12.2012. His subsequent statements on 17.01.2013, 18.11.2013 and 20.11.2013 and impugned statements. The initial statement of Shri Jaiswal was taken on 12.12.2012 and subsequent statement taken on 09.11.2014 after about two years is nothing but impugned statements. The statements are to be read as whole also. The statements cannot be relied upon. The ld. adjudicating authority also did not follow the mandate of Section 9D of the Central Excise Act, 1944. The only contention of the Ld. Commissioner is that the Purchase Orders contained the terms which includes designing, manufacturing, testing, assembling and supply of the materials and hence, the appellant had supplied the goods entirely by manufacturing the same.
(iii) The Ld. Commissioner also did not consider the Balance Sheet, as a whole. The said Balance Sheet was audited Balance Sheet by Chartered Accountant. He had considered the sales figure but did not consider the purchase figure also. The Ld. Commissioner did not assign any reason why he did not find any reason to incline to the contention of the appellant-company in respect of the consideration of the Balance Sheet as a whole and statement of Shri Sanjib Halder.
(iv) That Order was placed on them for supplying the manufactured goods and the Purchase Order was also containing Guarantee/Warranty Clause, which by itself cannot make the appellant-company as the manufacturer of entire quantity of the goods, where the fact remains that the appellant-company had purchased and supplied the goods also under T-series Invoices. A trader cannot be considered as a manufacturer. The entire proceeding is based on incomplete investigation. The appellants had no capacity and infrastructure for manufacturing the entire quantity of the goods. No investigation was made at the supplier’s end and also at the end of transporters who transported the traded goods. The adjudicating authority while admitting this had observed that this would be a never ending procedure.
(v) The amount deposited during investigation cannot be amounting to acceptance of the allegation. The appellant had relied upon some decisions in support of this contention also but the adjudicating authority chooses not to advert anything on this point.
(vi) In Paragraph 6.19 of the impugned order, the point of limitation was recorded but the adjudicating authority did not deal with the same by making some irrelevant observation and relying one decision in the case of Neminath Fabrics [2010 (256) ELT 369 (Guj.)] which has no manner of application in the facts and circumstances of this case.
(vii) Reliance has been placed on the Audited Balance Sheet for the years 2008-09, 2009-10 , 2010-11, 2011-12 and 2012-13, to contend that the said Balance Sheet specifically mentioned about the manufacturing sale and trading sale and also the value of the purchased goods (inputs and finished goods).
(viii) Reliance has also been placed on the following:-
-
- Wintek Enterprises v. Commissioner of C.Ex., Kolkata-II [Final Order No. 7584-75842 of 2024 dated 30.04.2024 in Excise Appeal No. 76229 of 2016 & anr. – CESTAT, Kolkata];
- Oryx Fisheries Pvt. Ltd. v. Union of India [2011 (266) E.L.T. 422(S.C.)];
- Super Poly Fabriks Ltd. v. Commissioner of C.Ex., Punjab [2008 (10) S.T.R. 545 (S.C.)];
- Commissioner of Cus. (Prev.), W.B. v. Rajesh Polyfilm [2002 (147) E.L.T. 425 (Tri. -Kol)]
- Collector of C.Ex. v. Auro Food Products Pvt. Ltd. [1989 (44) E.L.T. 261 (Tri)]
- Basant Industries v. Collector of Central Excise, Kanpur [1995 (75) E.L.T. 21 (S.C.)]
- Motilal Lalchand Shah v. L.M. Kaul & anr. [1984 (17) E.L.T. 294(Guj.)]
-
- R. K. Patel & Company v. Commissioner of Cus. & C.Ex., Nashik [2008 (227) E.L.T. 558 (Tri-Mum.)]
- Kundan Rice Mills Ltd. v. Union of India [2008 (232) E.L.T. 14 (P&H)]
- Nizam Sugar Factory v. Collector of C.Ex., A.P. [2006 (197) E.L.T. 465 (S.C.)]
(ix) The demand is thus not maintainable. Question of charging interest and imposition of penalty does not arise.
(x) Regarding imposition of penalty on the Director of the appellant-company, it is submitted that the finding contained in Paragraph 6.21 of the impugned order is not sufficient for imposition of penalty under Rule 26(1) of the Central Excise Rules, 2002 without satisfying the condition precent as contained in Rule 26(1) of the Central Excise Rules, 2002. The said findings do not show or justify that the Director of the company had ever acquired possession of or in any way concerned in transporting, removing, depositing, etc., knowing that said goods are liable for confiscation. No finding has been given in the said Paragraph to that effect. The statement of Shri Halder after two years on 09.01.2014 has been made the basis which cannot be tenable in the eye of law since Section 9D has not been complied with.
6.1. In view of these submissions, the Ld. Counsel for the appellants prayed for setting aside the impugned order and allowing the appeals, with consequential reliefs to the appellants.
7. On the other hand, the Ld. Authorized Representative of the Revenue supported the impugned order.
8. Heard the parties and considered their submissions.
9. We find that in this case, the claim of the appellants is that they are receiving various tenders, through work orders, for supply of various Electrical Overhead Materials / Hardware Fittings of Electrical Transmission Line to various Electricity Boards, for supply of electricity. It is the claim of the appellants that (i) some of the items which they have supplied to the various Electricity Boards on the basis of work orders issued to them, are manufactured by them and (ii) some of the items have been procured from the open market and supplied directly to the Electricity Boards, under the invoice marked as “T” series. The “T” series is meant for trading of goods. If the above claim is taken as correct, the appellant’s contention is that the value pertaining to the items manufactured by them falls well within the threshold limit for exemption provided under Notification No. 08/2003-C.E. dated 01.03.2003, as amended from time to time.
9.1. We find that if the appellant’s claim that they have procured certain items from the open market and supplied directly to the Electricity Boards against their work orders, is correct, then their manufactured items shall fall within the threshold limit of exemption provided under Notification No. 08/2003-C.E. dated 01.03.2003, as amended, and there is no case for the Revenue.
9.2. Therefore, it was necessary to identify as to whether the appellants had actually engaged in the activity of trading or not. For identifying the said activity, the Revenue was required to duly verify the claim of the appellants of trading of the said goods by ascertaining as to whether these ‘traded’ goods could have been manufactured in the premises of the appellant-company or not. It was incumbent upon the Revenue to find out as to whether the appellants were having the capacity or infrastructure to manufacture those items in their factory, or not. However, no investigation has been done to that extent.
9.3. Further, as regards the claim of the appellant that these items have been procured from the open market, we find that no investigation has been conducted at the end of the supplier. Moreover, investigation of the transporters and as to whether they had supplied the said items from the supplier’s place directly to the Electricity Boards/ buyer’s place is also absent.
9.4. We find that all these investigations are missing in this case.
10. Therefore, it cannot be concluded that the appellant-company has ‘manufactured’ whole of the items as per the work orders received by them.
11. Moreover, we also find that the audited Balance Sheets were produced by the appellants during the course of adjudication itself. In the said audited Balance Sheets, it has been clearly specified as to “manufacturing sale” and “trading sale”, but the same has not been considered by the adjudicating authority and the Revenue. Some of such manufacturing and
—
11.1. The above documents were very much essential to ascertain the fact as to whether the appellants had engaged in trading activities as well or not.
12. Further, the same issue has been examined by this Tribunal in the case of M/s. Wintek Enterprises v. Commissioner of Central Excise, Kolkata-II in Excise Appeal No. 76229 of 2016 & anr. decided vide Final Order No.75841-75842 of 2024 dated 30.04.2024, wherein this Tribunal has observed as under: –
“9. We find that during the course of investigation initial statement of Shri Rathi was recorded wherein he has stated that during the impugned period the appellant has manufactured goods amounting to Rs.43,34,716/- and traded the goods of an amount of Rs.1,38,84,089/. The said statement is supported by the various documents recovered during the course of investigation namely statement of finished goods, their balance sheet, purchase invoices and sale invoices. In that circumstances, the order of the Ld. Commissioner (Appeals) is not sustainable as the Ld. Commissioner (Appeals) has not considered the documents recovered during the course of investigation and merely held that the appellant has failed to produce the evidence regarding the quantum of manufacturing and trading during the impugned period. As the order of Ld. Commissioner (Appeals) is without any basis, therefore, the order passed by the Ld. Commissioner (Appeals) is set aside and the order of the adjudicating authority is affirmed dropping the proceedings against the appellant which was passed after verification of the records produced by the appellant during the course of adjudication as well as thereafter. Therefore, we hold that the appellant is entitled for benefit of SSI exemption Notification No.8/2003-CE dated 01.03.2003.”
12.1. Further, in the case of M/s. Super Poly Fabriks Ltd. v. Commissioner of C.Ex., Punjab [2008 (10) S.T.R. 545 (S.C.)], the Hon’ble Apex Court has observed as under: –
“There cannot be any doubt whatsoever that a document has to be read as a whole. The purport and object with which the parties thereto entered into a contract ought to be ascertained only from the terms and conditions thereof. Neither the nomenclature of the document nor any particular activity undertaken by the parties to the contract would be decisive.”
12.2. In this case, the figures of sales available in the Balance Sheets were required to be taken as sales against manufacturing as well as trading activities and not as a whole figure pertaining to manufacturing activity. Therefore, on the basis of the Balance Sheet figures itself, the Revenue have no case.
13. As admittedly no investigation has been conducted qua the suppliers and transporters of the goods from the supplier’s place to the buyer’s place or as to the manufacturing capacity and infrastructure of the appellant-company in this regard, in such circumstances, we hold that the whole of the demand raised against the appellants is on assumptions and presumptions. Therefore, we do not find any merit in the allegation of the Revenue that the trading sales of the appellant-company were part of their manufacturing sales for the purpose of adding the same together and holding the appellants liable to pay central excise duty, by denying the benefit of SSI exemption. There is no doubt that if the value of the traded items is deducted from the total turnover of the appellant, then the value of manufacturing sales comes within the purview of SSI Exemption in terms of Notification No. 08/2003-C.E. dated 01.03.2003, as amended. We take note of the fact that the appellant has not availed any credit on the inputs received by them or the traded items in question. In these circumstances, we hold that the appellant is entitled to the benefit of SSI Exemption as provided under Notification No. 08/2003-C.E. dated 01.03.2003, as amended.
14. In view of the discussions hereinabove, no demand of duty is sustainable against the appellant-company and consequently, no penalty can be imposed on the appellants herein.
15. In the result, we set aside the impugned order and allow the appeals, with consequential relief, if any.
(Order pronounced in the open court on 16.04.2026)
Author Bio
