Case Law Details
Metal Alloys Industries Vs Commissioner of Central Excise (CESTAT Delhi)
Held that the goods were brought in the factory premises without having proper invoices/documents with intent to clear them clandestinely. Accordingly, confiscation and the redemption fine as well as the penalty imposed u/s. 11 AC of Central Excise Act read with Rule 25 of Central Excise Rules, 2002 is absolutely justified.
Facts- The appellant is engaged in the manufacture of copper rods, lead alloys, ingots, re-melted copper ingots, re-melted lead ingots falling under Chapter 74 and 78 of the First Schedule to the Central Excise Tariff Act, 1985.
During the investigation, lead ingots weighing 1926 kgs. approximately valued at Rs.2,31,120/- were found to be unaccounted for at the factory premises, which was kept there for clandestine removal.
Show cause notice dated 12.09.2016 was issued to the appellant as to why the seized goods be not confiscated under Rule 25 of the Central Excise Rules, 2002 and why penal action under Section 11 AC (1)(c) of the Central Excise Act, 1944 be not initiated. Further, penalty was proposed on the Proprietor as well as on the Accountant.
The Adjudicating Authority on considering the totality of the facts concluded that the appellant has indulged in fraudulently passing the cenvat credit through fake invoices without manufacturing the goods in contravention of the provisions of the Central Excise Rules and accordingly, confirmed the show cause notice.
Commissioner (A) set aside the penalty on the proprietor and Accountant. However, confirmed the other demands. Being aggrieved, the present appeal is filed by the assessee.
Conclusion- Held that the goods were brought in the factory premises without having proper invoices/documents with intent to clear them clandestinely. During the visit, the said goods were seized as no record was found to be maintained. Further, the modus operandi of the appellant as revealed from the statement made by the Accountant, Shri Aviraj Jain that the goods purchased from the market were entered in the finished goods register and also entered the same in the register at the time of sale; clearly shows that the manufacture was shown only on the paper. In the entirety circumstances, the lead ingots seized were rightly confiscated and the redemption fine as well as the penalty imposed under Section 11 AC of Central Excise Act read with Rule 25 of Central Excise Rules, 2002 is absolutely justified and no interference is called for.
FULL TEXT OF THE CESTAT DELHI ORDER
The appellant has challenged the order-in-appeal No.57-59(SM)/CE/JPR/2021 dated 17.03.2021, whereby the Commissioner (Appeals) dismissed the appeal filed by the appellant.
2. The appellant is a proprietorship concern owned by Shri Mohit Gupta and the excise and accounts work is looked after by Shri Aviraj Jain under the supervision of Shri Amit Gupta, who is brother of Shri Mohit Gupta. Sales and purchase of the firm is being looked after by Shri Aviraj Jain. The appellant is engaged in the manufacture of copper rods, lead alloys, ingots, re-melted copper ingots, re-melted lead ingots falling under Chapter 74 and 78 of the First Schedule to the Central Excise Tariff Act, 1985. The appellant was registered in December, 2014 under the Central Excise Act and subsequently in July, 2015 for service tax with Registration No.AAGP6286J001.
3. Acting upon an intelligence that the appellant is involved in fraudulently passing the cenvat credit through fake invoices without actually manufacturing the goods, the Unit was kept under surveillance by the Officers of Preventive Branch of Central Excise Division. During the visit of the factory premises on 14.03.2016 by the Officers, Preventive Branch, it was noticed that the appellant was getting the raw materials mainly from Bawal and Sonepat and was selling it to Mumbai, Sonepat and Delhi. It was also found that the Unit is non-functional since its inception, yet two furnaces were installed in the Unit in July, 2015. From the electricity bills, it was observed that there was no consumption of electricity in the manufacture of finished goods. The DG set found to be installed in the factory premises was installed on 19.02.2016. On further verification of the premises, it was found that the Unit did not have the facility to manufacture the goods i.e. copper wire, rods and copper ingots though the appellant has shown manufacture and clearance of copper rods, lead, alloys, ingots, etc. During the investigation, lead ingots weighing 1926 kgs. approximately valued at Rs.2,31,120/- were found to be unaccounted for at the factory premises, which was kept there for clandestine removal. During the visit of the Unit, statements of Shri Ashok Kumar Bhagat, Guard at the factory premises and the Technical Operator, Shri Sonu were recorded. Subsequently, the statements of the Proprietor, Shri Mohit Gupta and Accountant, Shri Aviraj Jain were also recorded.
4. Show cause notice dated 12.09.2016 was issued to the appellant as to why the seized goods be not confiscated under Rule 25 of the Central Excise Rules, 2002 and why penal action under Section 11 AC (1)(c) of the Central Excise Act, 1944 be not initiated. Further, penalty was proposed on the Proprietor as well as on the Accountant. The show cause notice directed the appellant to produce all the evidences, on which they intent to rely upon in support of their defence. The show cause notice was adjudicated by the Asstt. Commissioner. The appellant had chosen not to participate in the proceedings, which is evident from para-15 of the order-in-original dated 25.04.2019, which is quoted hereinbelow:-
“15. The assessee did not submit any reply to the show cause notice till date. An opportunity of personal hearing was afforded to the assessee and fixed date for personal hearing on 16.02.18, 20.02.18 and 23.02.2018 but neither the assessee nor their representative have turned up for personal hearing. Hence, the case is being decided ex parte on the basis of evidences already available on record.”
5. The Adjudicating Authority on considering the totality of the facts concluded that the appellant has indulged in fraudulently passing the cenvat credit through fake invoices without manufacturing the goods in contravention of the provisions of the Central Excise Rules and accordingly, confirmed the show cause notice. The appellant challenged the said order before the Commissioner (Appeals) raising several grounds. The Commissioner (Appeals) modified the order-in-original to the extent that the penalty imposed on the Proprietor, Shri Mohit Gupta and the Accountant, Shri Aviraj Jain was set aside. However, the confiscation of the goods, imposition of fine on the goods and penalty upon the appellant was affirmed. The appellant has now challenged this order-in-appeal dated 17.03.2021 before this Tribunal.
6. I have heard the learned counsel for the appellant and the authorised representative for the Revenue and have perused the case records.
7. The first contention raised by the learned Counsel for the appellant is that the authorities below have erred in relying on the statement of the witnesses without first cross examining them and the same is contrary to the provisions of section 9D(1) of the Central Excise Act, 1944. From the records, I find that the officers of Preventive Branch visited the unit of the appellant on 14.3.2016 and recorded the statement of the Guard, Technical Operator on the same day, thereafter statement of the Proprietor Shri Mohit Gupta and the Accountant Shri Avirag Jain was recorded on 28.3.2016 and 6.4.2016 respectively. The show cause notice was issued on 12.9.2016 , however the appellant did not submit any reply in response thereto and subsequently when the case was fixed for personal hearing on 16.2.2018, 20.2.2018 and 23.2.2018 neither appellant nor his representative appeared and hence the case was proceeded ex parte by the adjudicating authority. When the appellant had chosen not to participate in the proceedings, there was no scope to call for the witnesses for cross examination. I am of the considered view that the appellant have to be blamed for the violation alleged by them. Secondly, the witnesses examined are not any third parties but the proprietor of the company and their paid employees being the Accountant, Technical Operator and the Guard who are actually aware of the working of the unit. The evidentiary value of their statement is not lost for the reason that the same could not be proved on cross examination. The provisions of section 9D of the Central Excise Act, 1944 were examined by the High Court of Delhi in JK Cigarettes – 2009 (240) ELT 189 and while upholding the validity of the said provision it was observed as:
“24. We may also point out at this stage itself that the power of the Parliament to make such a provision is not in question. It is also conceded by the learned senior counsel appearing for the petitioners in this case that such a provision could be incorporated in the statute, which is pari materia of Section 32 of the Evidence Act viz., to rely upon statements of certain persons even when they have not been produced for cross-examination, under the given circumstances. Thus, though it cannot be denied that the right of cross-examination in any quasi-judicial proceeding is a valuable right given to the accused/noticee, as these proceedings may have adverse consequences to the accused, at the same time under certain circumstances, this right of cross-examination can be taken away. Of course, the circumstances have to be exceptional.
25. Section 9D of the Act stipulates following five circumstances, already taken note of, under which statements previously recorded can be made relevant. These are :-
(a) when the person who had given the statement is dead;
(b) when he cannot be found;
(c) when he is incapable of giving evidence;
(d) when he is kept out of the way by the adverse party; and
(e) when his presence cannot be obtained without an amount of delay or expense, which the Officer considers unreasonable.”
8. The learned Counsel for the appellant has referred to the decisions in the case of Jindal Ltd. V UOI 2016 (340) ELT 67 (P&H) and Manek Chemicals Pvt. Ltd. Vs UOI 2016 (334) ELT 302 (Guj). Both the cases are distinguishable for the simple reason that the appellant herein had chosen not to participate in the proceedings as he neither submitted his reply to the show cause notice nor appeared to contest the case or seek permission before the adjudicating authority to cross examine the persons who have made the said statements. The appellant having missed the bus himself cannot now turn around and take benefit of his own wrong. In the case of Manek Chemicals (supra), the assessee specifically prayed to cross examine the Chief Chemist, who made the report against him.
9. Needless to say, there are several other factors which establish clandestine removal of goods in the present case. During the visit of the unit by the officers of Preventing Branch, it was specifically noted that:
i) the unit was non-functional since inception. Out of the two furnaces installed in the unit, only one had been used only once and the other one has not been used at all.
ii) The unit did not have the facility to manufacture copper rods.
iii) On perusal of the electricity bills, it was observed that the electricity has not been used in the manufacture of finished goods though the appellant has shown manufacture of copper rods, lead alloys ingots, re-melted copper ingots, re-melted lead in goods.
iv) The DG set found installed in the factory premises was installed only on 19th February 2016 which is not even a month from the date of visit to the factory.
10. Considering the decision of Delhi High Court in JK Cigarettes wherein it had been observed that right of cross examination can be taken away, I am of the considered opinion that test of cross examination in the given circumstances be superfluous. Consequently, the contention of the appellant that no opportunity has been granted to cross examine the witnesses needs to be rejected.
11. The next contention made by the learned counsel for the appellant is that merely because an entry could not be made in RG-1 register, the said goods cannot be termed as unaccounted. The omission, if any, was only a failure to make the entry of the goods in the production register and such omission being of technical nature at best can fall under the ambit of rule 27 of the Central Excise Rules, 2002, distinguishing the penalty imposed in terms of section 11 AC, on account of fraud, collusion or wilful miss statement. The appellant relied on several decisions on the principle that accounting has much wider meaning than merely making entry in the RG1 register. On examining the case records, I find that it is not a simple case of not accounting the goods in the accounting register but a deliberate attempt to mislead the department, particularly in view of the facts which came to light during the visit to the factory premises as referred to above. Here on the basis of an intelligence that the assessee is involved in fraudulently passing the Cenvat Credit through fake invoices without manufacturing the goods, the unit was kept under surveillance and during the visit by the officers of Preventive Branch, lead ingots weighing 1926kgs valued at Rs. 231120/ were found unaccounted as compared to the recorded balance shown in their statutory records. The learned adjudicating authority rightly observed that from the categorical admittance of non-accountal of their main raw material, i.e. lead ingots, it is established that the assessee was indulging in suppressing the production of finished goods and clearance of finished goods with fraudulent intention of passing the Cenvat Credit in contravention of the provisions of Rule 4,8,10 & 11 of Central Excise Rules, 2002.
12. The learned counsel for the appellant has cited various judgments in support of his contention that unaccounted goods in the factory not entered in RG-1 register is not enough to sustain confiscation i.e. (i) Commissioner of Central Excise & Customs, Surat Vs. Roma Plastics Pvt. Ltd. – 2016 (334) ELT 68 (Tribunal-Ahmd.), (ii) Cubex Tubings Ltd. Vs. Commissioner of Central Excise, Hyderabad – 2008 (223) ELT 406 (Tribunal-Bang.), (iii) Zincollied (India) Vs. Commissioner of Central Excise, Vapi, (iv) Commissioner of Central Excise Vs. S. Channi Steel Pvt. Ltd. and (v) Commissioner of Central Excise, Kanpur Vs. Trela Footwear Exports (P) Ltd. – 2013 (295) ELT 316 (Tribunal-Delhi). On perusal of these judgments I find that in those cases there was no other evidence available on record to corroborate the charges and there were concurrent findings in favour of the assessee.
13. The glaring facts of the present case are that in a factory premises where neither electricity is used nor there is any facility to manufacture the goods i.e., copper wire rods and copper ingots, yet the appellant is claiming to have manufactured lead ingots. The installation of the two furnaces, which are not in use and similarly the D.G. set is only to give a deceptive picture of manufacturing activity. It is nothing but a camouflage with fraudulent intention to avail the Cenvat credit without accounting for the goods. The act of the assessee and the modus operandi adopted was with intent to avail undue benefit which is nothing but playing fraud on the department. It is a settled principle of law that fraud vitiates all solemn acts. Relying on the observations of the Apex Court in the case of Meghmala & Ors. Vs. G. Navasimha Reddy & Ors. – 2010 (8) SCC 383 that dishonesty cannot be permitted to bear the fruit and benefit to the person who played fraud and in such circumstances I am not inclined to accept the submissions of the learned counsel for the appellant. The learned counsel during the course of arguments have referred that the entries were made in the computer and have now placed on record certain documents. It is a well-known principle that suppression of material document amounts to fraud and the same cannot be relied on Gowrishankar & Anr. Vs. Joshi Amba Shankar Family Trust – 1996 (3) SCC 310.
14. The appellant has now taken a stand that the statements recorded were taken under threat or coercion and hence the same cannot be relied upon. The said contention is to be rejected outrightly as the same appears to be just an afterthought as it has never been taken earlier. If the statements were taken under threat or coercion, those persons could have taken objection and retracted those statements at the earliest point of time, however, no such steps were taken in that regard.
15. Strangely, the appellant has submitted that as per the allegations in the show cause notice and the findings of the authorities below, the appellant is not a manufacturer, he therefore falls under the category of a ‘dealer’ and hence the goods seized are not liable to duty and cannot be confiscated under rule 25. The observations of this Tribunal in the case of Ex, Chandigarh Vs. Surya Cotspin, 2015 (320) ELT 650 that revenue need not prove its case with mathematical precision squarely applies. Further, the observation that once the evidence gathered by the investigation brings out preponderance of probability and nexus between the modus operandi of the respondent with the goods it dealt and movement of goods from origin to destination is possible to be comprehended, it cannot be ruled out that circumstantial evidence equally play a role, clearly governs the present case. The appellant was registered with the Excise Department as a ‘manufacturer’. It is not open to the appellant to change his status now as a dealer, just to escape from the clutches of law.
16. The learned counsel has next pleaded that the order of confiscation of goods is unsustainable as there is no evasion of duty on account of fraud, collusion, wilful mis-statement, suppression of facts or contravention of provisions of rules with intent to evade payment of duty. The learned Counsel has also challenged the imposition of redemption fine and penalty being highly excessive and incommensurate with the gravity of offence. I am of the considered opinion that the goods were brought in the factory premises without having proper invoices/documents with intent to clear them clandestinely. During the visit, the said goods were seized as no record was found to be maintained. Further, the modus operandi of the appellant as revealed from the statement made by the Accountant, Shri Aviraj Jain that the goods purchased from the market were entered in the finished goods register and also entered the same in the register at the time of sale; clearly shows that the manufacture was shown only on the paper. In the entirety circumstances, the lead ingots seized were rightly confiscated and the redemption fine as well as the penalty imposed under Section 11 AC of Central Excise Act read with Rule 25 of Central Excise Rules, 2002 is absolutely justified and no interference is called for. In this regard, I would like to refer to the findings of the impugned order as under:-
“6.4 I find that the facts of the case clearly show that the appellant was indulged in passing cenvat credit fraudulently through fake invoices, without manufacturing the goods and only managed records and invoices of raw materials just to corroborate the manufacture, which has not been actually carried out. I find that in absence of any manufacturing activity, storage of the lead ingots, that too without any document, was with intent to camouflage the activity being carried out in contravention of the provisions of the Central Excise Act, 1944 and the Rules made thereunder. I, therefore, hold that the goods seized from the premises of the appellant are liable for confiscation. I further hold that as the goods have been held liable for confiscation, penalty equal to the amount of duty is imposable under Rule 25 of the Central Excise Rules, 2002 read with Section 11 AC of the Central Excise Act, 1944. Further, considering the nature of activity, the appellant has been found indulged in. I find the amount of redemption fine is justified. My views find support from the judgement of the Hon’ble High Court in the case of Magnum Steels Ltd. Vs. Union of India – 2019 (367) ELT 725 (M.P.), wherein observed as under:-
“12. It is apparent from the judgement rendered by the Gujarat High Court and Allahabad High Court that to attract the provisions of Rule 25(1)(b) mens rea is not required to be proved and it has been held by the Supreme Court in case of Zunjarrao (supra) that the word ‘liable’ used both in Rule 173Q and Section 11 AC make such unaccounted goods liable to confiscation as well as penalty. The interpretation of word liable has been given by the Supreme Court that the interpretation of the provisions is that not only finding goods liable to confiscation but shall be liable to penalty up to the amount specified in the Rule. It has held that levy of penalty is not discretionary but the amount of penalty is discretionary. In the present case, since goods were not accounted for, therefore, they were liable to confiscation and payment of fine and penalty upon which such goods could have been redeemed as has been mentioned by the original authority in the show cause notice.”
17. I do not find any substance in the arguments advanced by the learned Counsel for the appellant. The appeal is accordingly dismissed and the orders passed by the authorities below are affirmed.
(Order pronounced on 18th July, 2023).
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