CESTAT Delhi Upholds ₹30.87 Lakh Excise Demand, Quashes Broker Notebook Demand

JD Ispat Pvt. Ltd. Vs Commissioner of Central Excise (CESTAT New Delhi)

Summary: The Customs, Excise and Service Tax Appellate Tribunal, New Delhi, partly allowed the appeal of JD Ispat Pvt. Ltd. against an adjudication order confirm-ing central excise duty of Rs. 55,18,911, interest and an equal penalty under Section 11AC of the Central Excise Act, 1944. A separate appeal challenged a penalty of Rs. 11,00,000 im-posed on its director, Shri Shiv Kumar Goel, under Rule 26 of the Central Excise Rules, 2002. Following searches at the manufacturer’s factory and its broker M/s Bajrang Enter-prises in March 2013, the Department alleged unaccounted manufacture and removal of MS ingots and billets, relying on stock shortages, a factory slip pad and a bro-ker’s note-book.

The Tribunal upheld the demand of Rs. 22,68,214 on a shortage of 601.680 MT of MS in-gots, noting that the company’s representatives participated in stocktaking and that Shri Goel had expressed satisfaction with the method used. It rejected objections based on the Panch witnesses signing in Hindi and on calculating stock using the average weight of standard-size metal pieces. It also sustained duty of Rs. 8,18,468 on 222.660 MT of MS billets recorded as cleared in excess of invoices on four dates in March 2013. The slip pad was recovered from JD Ispat’s own premises, and its authenticity and maintenance by the company were not disputed. The absence of the year on the pad did not displace its eviden-tiary significance in the circumstances.

However, the Tribunal set aside the demand of Rs. 24,32,229 on 551.640 MT of billets al-legedly removed on the basis of a notebook recovered from the broker. Although the bro-ker’s proprietor had explained its entries in an investigative statement, the Commissioner had not admitted that statement in evidence through the prescribed procedure under Section 9D of the Cen-tral Excise Act. Without the statement, the third-party notebook lacked sufficient probative weight to sus-tain the demand. Accordingly, duty of Rs. 30,86,682 on 824.340 MT was up-held, and the mandatory penalty under Section 11AC was reduced correspondingly to Rs. 30,86,682.

The Tribunal separately allowed Shri Goel’s appeal and set aside the Rs. 11,00,000 penalty imposed under Rule 26, holding that the required confiscation-related basis for such a penalty was not established. Both appellants were granted consequential relief, if any, in accordance with law.

Cases Discussed

No named judicial precedents are cited in the supplied order. The decision discusses statu-tory provisions and evidence without identifying any earlier case by name.

Five Alternative SEO Titles

1. CESTAT Sets Aside ₹24.32 Lakh Excise Demand Based on Broker’s Note-book
2. JD Ispat: CESTAT Upholds Stock Shortage and Factory Slip Pad Duty De-mands
3. Section 9D Non-Compliance Defeats Broker Notebook Excise Demand: CESTAT
4. CESTAT Reduces Section 11AC Penalty and Cancels Director’s Rule 26 Penalty
5. Clandestine Removal: ₹30.87 Lakh Excise Duty Upheld Against JD Is-pat

FULL TEXT OF THE CESTAT NEW DELHI ORDER

M/s JD Ispat Pvt. Ltd. and its Director Shri Shiv Kumar 2 Goel filed these two appeals to as-sail the order dated 3 26.09.2016 passed by the Commissioner of Customs and Central Excise, Raipur in which he decided the proposals made 4 in the show cause notice dated 11.4.2011 issued by the 5 Directorate General of Central Excise Intelligence to JD Ispat and to Shri Goel and confirmed demand of duty of Rs. 55,18,911 on JD Ispat under section 11A of the Central Excise 6 Act, 1944 along with interest under section 11AA of the Act and im-posed an equal amount as penalty under section 11AC of the Act and imposed penalty of Rs. 11,00,000/-under Rule 7 26 of the Central Excise Rules, 2002 on Shri Goel.

2. Excise Appeal No. 50318 of 2017 has been filed by JD Ispat to assail the confirmation of duty with interest and penalty. Excise Appeal No. 50040 of 2017 has been filed by Shri Goel to assail the penalty imposed on him.

3. JD Ispat manufactures mild steel (MS) ingots and billets and was reg-istered with the central excise department. Acting on intelligence, the officers of DGCEI searched the premises of JD Ispat and also the business premises of its broker M/s. Bajrang Enterprises on 20 & 21 March 2013 and recovered several documents which led it to believe that JD Ispat had clandestinely manufactured and removed MS ingots and billets without paying central excise duty as follows:

4. DGCEI recorded the statements of various persons including Shri Goel and Shri Gunjan Ralhan, the proprietor of JD Ispat’s broker Bajrang Enterprises and issued the SCN the pro-posals of which were confirmed in the impugned order.

Submissions on behalf of the appellant

5. The following submissions have been made on behalf of the appellants:

(i) The appellants deny the charge of clandestine manufac-ture and removal of MS Ingots and billets without paying duty.

(ii) There is no evidence of purchase of raw material, sale of goods said to have been clandestinely manufactured, their transportation as well as the profit or gains from the sale of those goods.

(iii) The appellant’s records were regularly audited and hence the department cannot allege suppression of facts. Therefore, extended period of limitation was wrongly invoked in the matter.

(iv) The Panchas were not residents of the locality of the site of the Panchnama. The Panchnama was typed in English whereas the panchas signed in Hindi which shows that the Panchas could not read or write in English. The factory of JD Is-pat was searched first on 20.3.2013 and again on 21.3.2013 by two different sets of offic-ers and the Panchnama was drawn on 21.3.2013. For these reasons the Panchnama is without authority of law.

(v) The SCN is time barred and beyond jurisdiction. The Panchnama was drawn on 21.3.2013 and the SCN was issued on 30.6.2014 beyond 6 months from the date of Panchnama. As per section 110 of the Customs Act, 1962 as made applicable to Central Excise, where any goods are seized under sub- section (1) of section 110, an SCN under section 124 must be issued within six months (extendable by another six months) or the goods shall be returned to the person from whom the goods were seized.

(vi) The panchnama states that the billets were of two sizes 100×100 and 125×125 and after checking the weight of each type, the variation in stock of MS billets was calculated which is unsustainable. The shortage of 415.700 MT of sponge iron is not based on actual weighment but based on assumptions and presumptions.

(vii) The SCN states Shri Goel admitted to the shortage but Shri Goel never admitted to removing the goods without payment of duty.

(viii) The Central Excise invoices mentioned in paragraph 6.1 of the SCN have not been found false. Assuming that JD Ispat had cleared MS Ingots and MS Billets as alleged in paragraph 6.16 of the SCN, the officer ought to have found the source and supply of raw materials required to manufacture MS Billets supplied to M/s. MK Re-rolling Pvt. Since the officers could not find any unaccounted for raw materials, the alle-gation in paragraph 6.16 of the SCN is not sustainable. The name of the typist is not men-tioned on the statements enclosed as RUD 6, RUD 8 and RUD 11 and therefore, they are not admissible.

(ix) If the statement of billets shown in paragraph 6.1 of the SCN is treated as having been cleared on payment of duty, the demand of duty of RS. 22,68,214/- on 601.680 MT of MS ingots found short is incorrect.

(x) The statutory records maintained by the appellant were incorrectly disbelieved in the impugned order.

(xi) The slip pad is a private document and it does mention the date, month and goods cleared but it does not mention the year and therefore the de-mand cannot be sustained on this basis.

(xii) Shri Ravi Soni, the purchase supervisor has, in his statement dated 5.12.2013 said that date wise consolidated loading figures have been rec-orded by the loading supervisor but the statement of the loading supervisor was not record-ed.

(xiii) The slip pad also mentions the vehicle numbers in which the goods were cleared but the officers did not trace the vehicles.

(xiv) Slag metal is an inevitable waste arising from the kiln. Since slag is not a manufactured good, JD Ispat had not maintained records as per Rule 10 of the Excise Rules.

(xv) JD Ispat started production of ingots on 25.1.2012 and MS Billets on 1.8.2012 and consumption of electricity during the initial months was more than in subsequent months.

(xvi) There is no evidence of payment to any supplier by JD Ispat.

(xvii) There has been gross violation of principles of natural justice as no opportunity to cross examine some of the following persons was provid-ed.

a) Shri Ashok Kumar, authorized signatory of M/s. Ram Power and Steel Pvt. Ltd. Raipur (RUD 6)

b) Shri Pankaj Rungta, authorized signatory of M/s. M K Re-rolling Mills Pvt. Ltd. Raipur (RUD 8) c) Shri Pankaj Rungta, authorized signatory of M/s. M K Re-rolling Mills Pvt. Ltd. Raipur (RUD 8) d) Shri Sandeep Agarwal, Director of Hariom Ingots & Power Private Limited (RUD 11)

e) Shri Gunjan Ralhan, Proprietor of M/s. Bajrang (RUD 27 & 28)

f) Shri Ajay Kumar Hatwar, Manager, M/s. Chacha Transport, Bhilai (RUD 31)

g) Shri Om Prakash Mishra, assistant of Shri Gunjan Ralhan of M/s. Bajrang Enterprises (RUD 34)

h) Shri Anupam Singh Thakur, Proprietor, Thakur Road Lines (RUD 37)

(xviii) The statements recorded during investigation will be relevant only if the procedure prescribed under section 9D of the Act is followed and admitted in evidence which has not been done in this case but the statements were directly admitted as evidence.

(xix) There was violation of principles of natural justice as an opportunity to cross examine the panch witnesses and the officers of DGCEI was not giv-en.

(xx) The impugned order may be set aside and both appeals may be allowed.

Submissions on behalf of the Revenue

6. Learned authorized representative for the Revenue made the following submissions:

(i) The demand of duty was confirmed on three counts-

(a) shortage of the MS ingots found during stock taking of JD Ispat;

(b) Clandestine removal based on the slip pad maintained by the JD Ispat showing the total clearances the clearances on which duty was actually paid; and

(c) clandestine removal of billets based on the information recovered from the broker of JD Ispat M/s. Bajrang Enterprises.

(ii) The stock of goods in the factory of JD Ispat was verified and 601.680 MT of MS Ingots was found short. The stock taking was undertaken under a Panchnama in the presence of the representatives of

JD Ispat including Shri Goel. They did not dispute the meth-od employed for taking stock and Shri Goel, in fact, had, in his statement, recorded satis-faction of the manner in which stock was taken.

(iii) The method of taking stock was never challenged by the appellants and the statements were also not retracted.

(iv) Admitted facts need not be proved.

(v) The slip pad recovered from the premises of JD Ispat (S.No. 18 of Annexure-I of the Panchnama dated 21.3.2013) showed clearance of 772.770 MT of MS Billets on four dates, 14.3.2013, 16.3.2013, 17.3.2013 and 18.3.2013 whereas the sales invoices showed only removal of 552.110 MT during the four days. Rest of 222.660 MT of MS Billets were removed without paying duty.

(vi) Clearances of billets recorded in the notebook of the broker Bajrang Enterprises showed clearances of the goods. Shri Gunjan Ralhan, the pro-prietor of Bajrang Enterprises, in his statement, confirmed that the goods sold were of JD Ispat. Of the total sales, some were cleared with invoices but 551.640 MT of MS Billets sold, which were recorded in the notebook had no excise invoices. Thus, these goods were clandestinely removed. Shri Gunjan Ralhan, has, in his statement confirmed that he had sold the goods in cash for JD Ispat and received commission for such sales.

(vii) JD Ispat had sought cross examination of Shri Gunjan Ralhan and others the details of which are recorded in paragraph 14.1 to 14.3 of the im-pugned order. Shri Gunjan Ralhan did not appear on 24.11.2015 for cross examination on medical grounds. Therefore, another date was fixed on 14.12.2015 on which neither Shir Ralhan nor the appellants had appeared.

(viii) Shri Ajay Kumar Hatwar, Manager of Chacha Transport and Shri Anupam Singh Thakur of Thakur Road lines were both cross examined by Shri Goel and neither retracted from their earlier statements. They both confirmed during cross-examination that they would only send blank bilties to JD Ispat without filling in the weight of the goods to be transported and the details would be filled by JD Ispat. Further, when they were asked if trucks would sometimes return without being loaded at all, both said that it would sometimes happen but it never happened with the trucks sent to JD Ispat.

Findings

7. We have considered the submissions advanced by both sides and perused the records. The allegation of clandestine removal of goods is on account of three factors:

(i) Goods found short when stock was taken in the factory of JD Ispat;

(ii) The slip pad found in the premises of JD Ispat showing details of goods cleared on four dates and the invoices issued on the corresponding dates and the difference between the two; and

(iii) The notebook found in the premises of the broker of JD Ispat M/s. Bajrang Enterprises giving details of the goods sold and the invoices for the cor-responding dates and the difference between the two.

Goods found short on stock taking

8. The stock taking was conducted on 20.3.2013 and 21.3.2013 and a Panchnama was drawn. It is undisputed that during stock taking the representatives of JD Ispat were present. Shri Goel had expressed his satisfaction at the method of taking stock. Learned counsel has now, before us, raised doubts about the method of taking stock adopted. His first ob-jection is that the Panchnama was drawn and typed in English while the panchas had signed in Hindi, which, according to the learned counsel is proof that the panchas did not know English. We find no reason to come to such a conclusion. A signature is a person’s own choice and it is not uncommon to find even senior officers signing in Hindi even official documents in English. The argument of the learned counsel that simply because someone signed in Hindi, it means that the person does not understand or know English has no ba-sis.

9. The second submission of the learned counsel is that the billets were of standard sizes of 100×100 and 125×125 and for stock taking the average weight of the billet was taken and multiplied with the number of billets to arrive at the weight of the stock and the entire stock was not weighed. This argument deserves to be rejected. There are various methods of tak-ing stock depending on the nature of goods. For instance, if one has to take stock of cement in a godown, one checks the weight of a bag, counts the number of bags and multiplies to check the stock. It is not necessary to keep weighing each bag. With liquids in tanks, a dip measurement is taken along with the ambient temperature to calculate the stock. For iron and steel products, the method employed is to take the weight of one piece (billet or bar or ingot) and multiply by the number of pieces. Since the density of iron is the same and the dimensions of each piece are standard, this is the way stock is taken in iron and steel in-dustry and in godowns.

10. If the appellants had any doubts about the method of taking stock at the time of Pan-chnama, they could have pointed out and explained and assisted in taking stock in the manner in which they think was correct. Having expressed satisfaction about the method of stock taking at the time of Panchnama and having never raised any objections at that stage, the appellants cannot be permitted to raise doubts about the method of taking stock at this appellate stage. There was a shortage of 415.700 MT of MS Billets. Shri Goel admitted that there was shortage.

11. Even in the submissions before us, learned counsel states that Shri Goel admitted that there was shortage but had not admitted to clearing the goods without paying duty.

12. Thus, there can be no manner of doubt that there was a shortage of 415.700 MT of MS Billets when stock was taken. In other words, of the goods which were manufactured some were cleared on paying duty and some were lying in stock but this 415.700 MT of MS Billets were, after being manufactured, neither cleared on invoices nor were they in stock. The irre-sistible conclusion is that they were removed without paying duty.

13. No other explanation whatsoever has been given even before us by the appellants for this shortage. Therefore, the demand of duty on this stock of MS Billets needs to be upheld.

Demand of duty based on the slip pad found in JD Ispat

14. There is no dispute that the slip pad was recovered under the Panchnama during search of the premises of JD Ispat. There is also no dispute that the slip pad contained details of goods cleared on four dates by JD Ispat and that the invoices were issued on the four days for much less quantities of MS billets. The submission on behalf of the appellants is that the slip pad was a private document and while it does mention the date, month and goods cleared but it does not mention the year and therefore the demand cannot be sustained on this basis. It is also the submission of the appellants that the statutory records showing clearances were wrongly disbelieved. It is further the submission of the appellant that Shri Ravi Soni, the purchase supervisor has, in his statement, said that date wise consolidated loading figures were recorded by the loading supervisor but the statement of the loading supervisor was not recorded. It is further submission of the appellants that the slip pad al-so mentions the vehicle numbers in which the goods were cleared but the officers did not trace the vehicles.

15. We find that the case of the department is that goods were clandestinely removed, i.e., removed without issuing invoices and without recording them in the statutory returns on the four dates. The dispute is not regarding what was reflected in the statutory returns but what was said to be cleared, in addition, without invoices. The evidence for this is the slip pad, undisputedly recovered from the premises of JD Ispat and undisputedly maintained by it. As per the statement of Shri Ravi Soni, purchase supervisor as submitted by the appel-lants before us, this reflected consolidated figures by the loading supervisor. The conten-tion of the appellants is that the statement of loading supervisor was also not recorded. The fact that the loading supervisor’s statement was also not recorded does not reduce the sig-nificance of the document admittedly recovered from JD Ispat, maintained by JD Ispat which reflected the daily consolidated loading figures.

16. The contention of the appellant is that while the slip pad did contain the day and month wise details but it did not contain the year. This submission does not carry the case of the appellants any further. If the slip pad was recovered during the Panchnama, it can only be reasonably assumed to pertain to that year unless there is any contrary evidence. In this case, not only is there is no contrary evidence but there is also no contrary assertion. Learned counsel did not even assert before us that the figures in the slip pad pertained to some other year.

17. In the facts of the case, the demand of duty based on the clearances of goods recorded in the slip pad recovered from JD Ispat deserves to be upheld.

Demand of duty based on the notebook recovered from M/s. Bajrang Enterprises, the broker of JD Ispat

18. This notebook was recovered from the premises of M/s. Bajrang Enterprises and it did contain details of goods sold. The statement of Shri Gunjan Ralhan, its proprietor, was rec-orded in which he explained that the notebook reflected the clearances of the goods and that they were of JD Ispat. Shri Ralhan’s cross examination was sought by the appellants but Shri Ralhan had not appeared on 24.11.2015 citing medical reasons. When the cross ex-amination was re-fixed on 14.12.2015, neither Shri Ralhan nor the appellant appeared. The submission of the learned counsel that no opportunity to cross examine Shri Ralhan was given is incorrect. When called for cross-examination, Shri Ralhan had not appeared on 2.11.2015 and on the second occasion on 14.12.2015, neither Shri Ralhan nor the appel-lant had appeared. Thus, the appellant did not avail the opportunity to cross examine Shri Ralhan.

19. However, the Commissioner did not admit the statement of Shri Ralhan as evidence af-ter following the procedure under section 9D of the Act without which the notebook itself does not carry much weight. The figures in the notebook coupled with its explanation by Shri Ralhan is what proves the case against the appellant.

20. Therefore, the demand on the basis of the notebook recovered from M/s. Bajrang En-terprises cannot be sustained.

21. Learned counsel for the appellants also submitted that he was not given an opportunity to cross examine some officers and transporters. He also submitted that the statements were not put through the process under section 9D of the Act and admitted in evidence. For these reasons, according to the learned counsel, the principles of natural justice were vio-lated. Be that as it may, we have only considered those documents, viz., the Panchnama showing the shortage of the goods in the factory of JD Ispat and the slip pad maintained by it and recovered from its premises which are not disputed even before us. What is admitted need not be proved.

22. Learned counsel also relied on section 110 of the Customs Act, 1962 as made applica-ble to Excise Act according to which, if no SCN is issued within six months from the seizure, the seized goods shall be returned to the person from whom they are seized. This section has no relevance to this case because no goods were seized or confiscated. This submis-sion of the learned counsel does not carry the case of the appellants any further.

23. Learned counsel also submitted that the appellant had not recorded the quantity of slag which is a byproduct in the central excise records and that its electricity consumption varied during the initial periods and later periods. These submissions are also not relevant because the demand is only based on the shortage noticed during stock taking and two documents- the slip pad recovered from JD Ispat and the notebook recovered from Bajrang Enterprises.

24. In view of the above, we find the demand of duty of the goods found short during stock taking (601.680 MT of MSth Ingots) and the clearances of MS billets on four days (14, ththth 16, 17 and 18 March) in excess of the invoices issued on these four days (222.660 MT) deserve to be upheld and are upheld. The demand of duty based on the notebook re-covered from the broker M/s. Bajrang Enterprises deserves to be set aside and is set aside. The mandatory penalty on JD Ispat under section 11AC is also reduced correspondingly.

25. Penalty of Rs. 11,00,000/- has been imposed on Shri Goel under Rule 26 of the Central Excise Rules, 2002 which reads as follows:

RULE 26. Penalty for certain offences.— (1)Any person who acquires possession of, or is in any way concerned in transporting, re-moving, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or these rules, shall be liable to a penalty not exceeding the duty on such goods or two thousand rupees, whichever is greater.

Provided that where any proceeding for the person liable to pay duty have been concluded under clause (a)or clause (d) of sub-section (1) of section 11AC of the Act in respect of duty, interest and penalty, all proceedings in respect of penalty against other persons, if any, in the said proceedings shall also be deemed to be conclud-ed.

(2) Any person, who issues –

(i) an excise duty invoice without delivery of the goods spec-ified therein or abets in making such invoice; or

(ii) any other document or abets in making such document, on the basis of which the user of said invoice or document is likely to take or has taken any ineligible benefit under the Act or the rules made thereunder like claiming of CENVAT credit under the CENVAT Credit Rules, 2004 or refund, shall be liable to a penalty not exceeding the amount of such benefit or five thousand rupees, whichever is greater.

26. Penalty under Rule 26 can be imposed for acts and omissions which rendered the goods liable to confiscation having reason to believe that they were liable to confiscation under Rule 25. In this case, no goods have been confiscated at all. Therefore, penalty under Rule 26 cannot be imposed.

27. In view of the above:

(i) Excise Appeal No. 50318 of 2017 filed by JD Ispat is partly allowed as follows:

(ii) Excise Appeal No. 50040 of 2017 filed by Shri Shiv Kumar Goel is allowed and the penalty imposed on him in the impugned order is set aside.

28. Both appellants will be entitled to consequential relief, if any.

(Order pronounced in open court on 09/03/2026.)