Addition merely based on SCN issued by Excise Department not sustain if CESTAT decided in favour of assessee

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Case Law Details

Case Name : Zirconia Cera Tech Glazes Vs DCIT (ITAT Ahmedabad)

Appeal Number : I.T.A. Nos. 376 & 377/Ahd/2016

Date of Judgement/Order : 30/11/2017

Related Assessment Year : 2007-08

Courts : All ITAT ITAT Ahmedabad

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Zirconia Cera Tech Glazes Vs DCIT (ITAT Ahmedabad)

ITAT find that in this case the basis of addition is contents of show-cause notice issued by the Excise Department. An investigation was carried out by DGCEI at assessee premises, wherein it was alleged by the Excise Department that assessee has not declared actual assessable value of goods manufactured and cleared from factory. Based on the same DGCEI issued show-cause notice, Excise department concluded that assessee was engaged in under valuation of sales and clandestine removal of goods. Only on the basis of same Assessing officer reopened assessee’s income tax assessment for the years under consideration and made addition of estimated Gross Profit on under valuation sales and clandestine removal of goods.

The Revenue has brought nothing on record that it has applied it’s mind over and above the contents of show-cause notice in question thus there is lack of independent application of mind on behalf of revenue in these matters.

We also find that in Excise proceedings, concerned authorities passed order against assessee and matter was carried up to concerned Hon’ble CESTAT. Hon’ble CESTAT passed an order dated 12/05/2015 as discussed above, has decided the issue in favour of the assessee holding that Excise Department could not estimate value of alleged suppression of sales as well as clandestine removal of goods merely on the basis of assumption and surmises. The CESTAT having considered the relevant facts of the case and statement recorded by the Excise Department has decided the matter in favour of the assessee as discussed in the order of the CESTAT. In our considered opinion and in the facts and circumstances of the case ld. CIT(A) was not justified in observing that relief granted by Hon’ble CESTAT was highly technical.

It is pertinent to mention here that in connected matter we also find that Excise Department carried matter before Hon’ble Supreme Court wherein same was dismissed as withdrawn. Nothing contrary was brought to our knowledge on behalf of Revenue in this regard.

We also find in connected matter that Tax Appeal being Tax Appeal No.733 and 734 of 2016 preferred by the Ld. Excise Department before Hon’ble Gujarat High Court came to be dismissed vide order dated 07/12/2016 as discussed earlier. Again nothing contrary was brought to our knowledge on behalf of Revenue in this regard as well.

In this background, in our considered opinion orders passed by the Hon’ble CESTAT in these years have achieved finality against the revenue. As we have observed earlier that only Excise Department action was basis of additions in all the three years which does not survive for the reasons stated therein, so the basis of additions made by the Revenue does not survive.

In view of the above observation, addition made by the revenue has alleged undervaluation sales and Clandestine removal of goods do not survive and same are directed to be deleted in all the three years. Therefore, All the three appeals are allowed.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

These five appeals are by the assessee against the separate orders of the Commissioner of Income Tax(Appeals)-Gandhinagar, Ahmedabad. Two appeals in case of Zirconia Cera Tech Glazes vide order dated 22/01/2016 for Asst. Year 2007-08 anddated 22/01/2016 for Asst. Year 2008-09. Three appeals in case of Growmore Ceramics Pvt. Ltd. vide orders dated 11/03/2016for Asst. Year 2006-07, 14/03/2016 for Asst. Year 2007-08 and 15/03/2016 for Asst. Year 2008-09.Since issues are common in both these groups and same were heard together so they are being disposed off by way of a common order for sake of convenience.

2. First we take up the appeals of M/s. Zirconia Cera Tech Giazes in ITA No.376 & 377/Ahd/2016 for Asst. Years 2007-08 & 2008-09. Assessee has taken following Grounds:

2.1 For Asst. Year 2007-08:

1. The learned C.I.T.(A) has erred in law and on facts in holding that the reasons recorded by the Assessing Officer are proper and that the proceedings u/s.147 of the Act are valid and thereby rejecting the appellant’s ground against the reassessment proceedings.

2. The learned C.I.T.(A) has further erred in law and on facts in upholding the addition of Rs.88,03,348/- on the ground of alleged undervaluation of sale and of Rs.2,08,00,924/- being the estimated G.P. on alleged clandestine removal of goods.

3. On the facts and in the circumstances of the case and in law the learned C.I.T.(A) ought to have quashed the proceedings u/s.147 of the Act being invalid and ought to have annulled the assessment made in pursuance of invalid proceedings, and ought to have deleted the addition of Rs.88,03,348/- and 2,08,00,924/-.

4. It is therefore prayed that the proceedings u/s.147 may be quashed being assessment made in pursuance thereof may be annulled and the addition of Rs. 88,03,348/- and Rs. 2,08,00,924/- may be deleted.

5. Your appellant craves leave to add, alter or amend any ground of hearing.

2.2 For Asst. Year 2008-09:

2. The learned C.I.T.(A) has further erred in law and on facts in upholding the addition of Rs.93,30,925/- on the ground of alleged undervaluation of sale and of Rs.2,53,46,163/- being the estimated G.P. on alleged clandestine removal of goods, and withdrawal of set off of loss of Rs.8,57,147/-.

4. It is therefore prayed that the proceedings u/s.147 may be quashed being invalid and the assessment made in pursuance thereof may be annulled and the addition of Rs.92,30,925/- and of Rs.2,53,46,163/- may be deleted.

5. Your appellant craves leave to add, alter or amend any ground of hearing.

3. Brief facts of the case are that assessee is engaged in business of ceramic tiles etc. Assessee has filed return of income on 30/01/2007 declaring total income at NIL. Assessment u/s.143(3) of the Act was made on return income so filed, on 25/05/2009 determining total income at NIL.

4. Assessing Officer stated that he received letter dtd.14/02/2013 from Dy. Director of Income Tax(Inv.), Unit-II, Ahmedabad forwarding the show-cause notice issued by the Directorate General of Central Excise Intelligence, Ahmedabad(here-in-after called in short DGCEI).

5. The Assessing Officer noticed from show-cause notice regardingunder valuation resulting the escapement of income for the year under consideration. Assessing Officer has mentioned that based on show-cause notice hereinafter called (SCN), issued by DGCEI. The assessment was reopened u/s.147 of the Act and notice u/s.148 was issued on 21/03/2013. Assessee challenged the reopening and assessment thereof but same was not accepted by the Assessing Officer. Same was upheld by the CIT(A). At the outset of hearing ld.Authorised Representative did not press issue of re-opening. So same is dismissed us as not pressed.

6. Coming to the facts of the case on merit, we find that assessing officer referred to the allegations contained in show-cause notice issued by DGCEI and called upon assessee to explain as to why alleged under valuation of sales and alleged value of clandestine production should not be considered for addition in computation of income for year under consideration. For the sake of convenience the contents of said notice are reproduced as under:

1. “An investigation has been carried out by DGCEI, Zonal Unit, Ahmedabad in respect of under-valuation and clandestine manufacture/clearance of Ceramic Glaze Mixture(Frit) by Manufactures of Frit in Gujarat. The show-cause notice (SCN) issued by the office of the DGCEI has been obtained in the case of M/s. Zirconia Cera Tech Glazes. As per the SCN issued by the DGCEI, the assesseei.e M/s. Zirconia Cera Tech Glazes had Glazes had evaded Central Excise duty during the period from 01/04/2006 to 31/03/2007 by way of following activities.

a. Undervaluation (i.e. not declaring the actual assessable value of excisable goods manufactured) and

b. Clandestine removal i.e. removing the Frit Manufactured clandestinely without payment of excise duty, under parallel invoices.

The value of clandestinely cleared Frit as well as the differential value of undervalued Frits, over and above the value declared in the invoices, was collect by M/s. Zirconia Cera Tech Glazes from its buyers (dealers) in cash. As per the SCN, the total amount of central excise duty evaded by M/s. Zirconia Cera Tech Glazes during the F.Y. 2006-07 towards undervaluation and clandestine removal, as calculated in the Annexure C.1 and C.2 of SCN, is worked out at Rs.5,79,93,067/-.

2. On verification of the above details it is found that the Amount of Rs.5,79,93,067/- is the difference of total assessable value of Rs.3,60,10,500/- as shown by the assessee and the assessable value of Rs.9,49,75,427/- as per actual rate as worked out by Excise Authority. Vide this office letter dated 11/12/2013 you had been show-caused as why amount of Rs.5,79,93,067/- should not be added to your total income treating the same as income from undisclosed sources.

3. You are once again requested to show cause as to why amount of Rs.5,79,93,067/- should not be added to your total income.

4. You are requested to submit your explanation and attend the office of the undersigned on 21/02/2014 at 11:00 AM. If no reply is furnished or reply furnished is found unsatisfactory/unacceptable necessary adjustment/addition will be made with the material record available to this office and issue will be decided on merits.”

7. The said show-cause notice was replied by the Assessee as under:

“With reference to the above mention subject we beg to state that the Show Cause Notice issued by the DGCEI is merely based on assumptions only and they are not holding any documentary evidences to support the demand raised in SCN. We have briefly summarized the facts / contentions as shown below:

i. The DGCEI in the course of its investigation at the company’s premises could not find any material/documents showing clandestine receipt of raw material or production or removal of frit.

ii. The DGCEI got hold of 12 customers/buyers of ‘frit’ and their statements to the effect that they paid something over and above the invoice price for the purchase so as to use these statements to allege suppression of sales price in our case. The fact of the matter is that such statements are recorded at the instance of the officers and are not free and fair in nature. Such oral statements have no evidentiary value, as the same are not corroborated by any independent material particulars. We rely on the judgment of Madras High Court in case of Commissioner of Income Tax vs. VigneshkumarJewellers.

iii. The statements of buyers would also reveal that they are also almost same word to word. Further the name of any representative, who collected cash amount, has not been revealed, it is unimaginable that such huge amount of cash could be paid to an unknown person.

iv. The DGCEI during the course of framing SCN however ignored these facts and proceeded to use the statements, and estimated the alleged assessable value of the entire production of ‘frit’ of the whole year working out the huge difference of Rs.5,79,93,067/- treated as suppression of sales for the F.Y.2006-07 relatable to A.Y. 2007-08. Further in SCN the DGCEI has estimated the entire sale at flat rate without considering the fact that sale rate to different parties may differ at different times.

v. It was also pointed out that out of the 12 parties, three parties namely Anmol Ceramics, Leo Ceramics &Omson Ceramics had not made any transaction at all with us during the year under consideration. Accordingly it was shown that the working of difference relatable to the other parties (other than 9 parties) is based on no material, rather entirely based on surmises and conjectures.

vi. Without prejudice to the above stated it may also be submitted that if addition ought to be made then also it should be restricted to the element of Gross Profit thereon. G.P. ratio in our product ranges from 6% to 7%. In this regard we rely on judgement of Hon’ble Gujarat High court reported in 258 ITR 654 and 326 1TR 410.

vii. We further would like to draw your attention to the matter that we do not agree with the contentions raised by DGCEI in SCN and the said matter is still subjudice. We therefore state that such huge addition should not be made merely on the basis of show-cause notice of DGCEI. We request you to drop re-open proceedings u/s.148 of the Income tax Act.”

8. The assessee also made various submissions in response to relevant quarries raised by the assessing officer, however assessing officer rejecting the contention of the assessee made addition of Rs.88,03,348/- on account of alleged under valuation of sales and Rs.2,08,00,924/- on account of alleged clandestine removal of goods was made for Asst. Year 2007-08. Similar additions of Rs.92,30,925/- on account of alleged under valuation of sales and Rs.2,53,46,163/- on account of alleged clandestine removal of goods was made for Asst. Year 2008-09.

9. Matter was carried out before the first appellate authority, wherein ld.Authorised Representativefor assessee retreated submission as raised before the assessing officerand submitted that assessing officer has not considered the fact that in case of M/s. Zirconia Cera Tech Glazes, 3rd Party statement obtained in coercive manner by the DGCEI were retracted at relevant point of time. Therefore allegations contained in Show-cause notice were not sound basis of making additions in question. However rejecting the contention on behalf of the assessee, ld. CIT(A)confirmed the order of the ld. Assessing Officer on merit as well. The operative portion of CIT(A) order is reproduced as under :

“5.6 I have considered the facts of the case, assessment order, submission made by the appellant, remand report and rejoinder filed by the appellant.

From the assessment order it is perused that appellant had filed return of income on 30/10/2007 declaring total income at NIL which was finalized u/s.143(3) and order was passed on 25/03/2009 determining total income at NIL/-. Thereafter, a letter was received from the Deputy Director of Income-tax (Inv.), Unit-II, Ahmedabad along with Show Cause Notice issued to the appellant by Directorate General of Central Excise Intelligence, Ahmedabad (DGCEI). From the show cause notice, it was noticed that appellant was engaged in various types of modes & methods of tax evasion which resulted into escapement of huge tax for the year under consideration. In such facts, case of the appellant for the year under appeal was reopened u/s.147 of the IT Act. After recording the reasons for reopening, notice u/s. 148 of the Act was issued on 21/03/2013. In response to the notice issued appellant requested to treat the original return filed on 30/10/2007 as return filed in response to notice u/s.148. Further, statutory notices u/s.143(2) and u/s.142(1) were issued and served to the appellant. To elaborate the matter, it is perused that in this case on the basis of intelligence gathered by DGCEI as well asthe documentary evidences recovered from the premises, a searchoperation was conducted at the premises of the appellant on 28/08/2008.Investigation conducted by DGCEI against the appellant revealed thatthey had not declared the actual assessable value of goods manufacturedand cleared from their registered factory premises. The documentary aswell as oral evidences collected by DGCEI from various buyers clearlyindicated that appellant was declaring in their central excise invoices onlya part of the actual transaction value manufactured and cleared fromtheir factory. Differential value of 1 frit, over and above the valuedeclared in the invoices, was collected by them from their buyers in cash.The observation and finding given in Show cause notice was on the basisof investigations and evidences gathered by the officials of ExciseDepartment which clearly proved that appellant had suppressed the salevalue byway of undervaluation of invoices as well as clandestine removalof goods from their premises. The suppression was revealed on the basisof finding during the course of investigations by the DGCEI and asmentioned in detail in the Show Cause Notice contained in letter F. No.DGCEI/AZU/36(4) 130/2008-09/1836 to 1842 dated 19.04.2010. It was revealed from the Show Cause Notice of the DGCEI that appellant wasshowing sale value of Frit at Rs 10/- per kg whereas the actual price wasat Ks.20/- to 30/- per kg. The amount shown in the invoices were beingcollected through cheques whereas the remaining amount was beingcollected by cash. Further it was also found that appellant was declaringless production than the actual production. The company was showing consumption of 2414.14 SCM of natural gas for manufacturing of 1 MT offrit whereas on verification based on the figures of average Gasconsumption against one MT of frit manufactured during the period fromApril’2008 to December, 2009; when appellant had shown-higherproduction, and also in view of the statement of Sh. Pravinbhai N. Patel, Partner and Production In-charge, it was found that 400-500 SCM of natural gas was consumed for manufacturing of 1 MT of frit, It was proved beyond doubt that appellant was involved in undervaluation of sale invoices, thereby suppressing the sales and also had understated the production and its unaccounted sale of such clandestine production, For the year under appeal, the amount of under valuation has been worked out at Rs.5,79,93,067/- [as mentioned in Annexure C-1 (Sr. No. 1 to 124) of SCN issued by DGCEI and the amount of Clandestine removal goods has been worked out at Rs.13,70,28,488/- as mentioned in Annexure C2 (Apr-06 to Mar-07) of SCN issued by DGCEI. AO has concluded that appellant had shown G.P. at a rate of 15.18% for the year under appeal hence, for the purpose, 15.18% G.P rate adopted at 15.18%. Accordingly, 15.18% of total undervalued sales is worked out at Rs.88,03,348/- (15.18% of Rs.5,79,93,067/-) is added to the Total income of the appellant. Similarly 15.18% of the value of clandestine removal goods for the year under consideration is worked out at Rs.2,08,00,924/- (15.18% of Rs.13,70,28,488/-) and is added to total income of the appellant.

Appellant before me contended that AO in making addition of Rs.88,03,348/- being element of profit on the alleged undervalued sales of Rs.5,79,93,067/-and of Rs.2,08,00,924/- being element of profit on the alleged value of aalleged clandestine removal of goods of Rs.13,70,28,488/- has entirely relied upon the Show Cause Notice issued by the DGCEI for proposing the additions in his show cause notice dtd. 10/03/2014 reproduced in paragraph 4 (pages 3 & 4) of the order under appeal and also in making the impugned additions. Further, appellant has also contended that AO has not dealt with the contentions made in the written submissions dated dt.23/12/2013, 20/02/2014 and reply dated 18/03/2014 to the show cause notice of the AO and AO had proceeded extensively reproduce the paragraphs from the SCN issued by the DGCEI and relying upon the same has proceeded to make the additions referred to above. Further, it is contended that Excise Department had passed the adjudication order on Die basis of the SCN of the DGCEI determining the additional excise duty payable on the values as determined and had been subject matter of appeal before the Hon. Central Excise &. Service Tax Tribunal, WZB, Ahmedabad. It is stated that the Hon’ble CESTAT has decided the said appeals in favour of the appellants by a common appellate order dtd. 12/05/2015. The Hon. CESTAT has held that no case of undervaluation of sales or of clandestine removal of frit has been made out and accordingly quashed the adjudication orders passed by the Central Excise authorities on the basis of the Show Cause Notice of the DGCEI. It is also stated by the appellant that the proceedings under VAT Act were also initiated based on the Show Cause Notice of the DGCEI, which were quashed and set aside by the Hon’ble Gujarat High Court by its by judgment dated 13/11/2013. Further vide letter dated 23/07/2015, appellant has contended and relied on the decision of the Hon’ble ITAT Bench decision in the case of Prima Ceramics Pvt. Ltd, involving facts similar to the appellant’s case that the appeal should be decided in the light of the order of the Excise and Custom Tribunal. It is contended that Hon’ble ITAT had followed the above referred order in another case involving identical facts, M/s. Welsuit Glass & Ceramics Pvt. Ltd. while deciding cross appeals by the Department vide order dated 20/06/2014.

Having considered the facts of the case and submissions made and report submitted by the AO. It is seen from the common order passed by CESTAT, it is highly technical and relief is given to the appellant and other 22 appellants on the basis of technical grounds like-

- Whether the appellants had indulged in clandestine manufacture and clearance of Ceramic Glazed Mixture (Frit) in view of the adjudication orders passed on the basis of natural gas consumption norms per metric ton?
- Whether the appellants had indulged in undervaluation of frit and also clandestinely cleared frit as per personal ledgers retrieved from a pen-drive recovered and other personal records read with their statements?
- Whether the adjudicating authorities were justified in denying cross-examination of witness under the provisions of Section 9D of the Central Excise Act, 1944 read with the judicial pronouncements on the issue.
- It is perused from the common order of CESTAT that clandestine manufacture arid clearance of frit by the appellant have been estimated by taking different gas consumption norms which either got suggested by the appellant or worked out by the Investigation, Average gas consumption from 263 SCMs to 484 SCMs were fixed for different appellants and were considered by the adjudicating authorities for calculating/confirming the demands and imposing penalties. On the above lines, Hon’ble CESTAT has concluded in Paras. 8, 9 & 10 that the methodology adopted by the Adjudicating authorities in estimating and demanding duty from the appellants; based on consumption of natural gas electricity consumed and packing time taken, as not acceptable and required to be rejected. The paras, are reproduced hereunder:

“8. In view of the above observations and judicial pronouncements, methodology adopted by the Adjudicating authorities in estimating and demanding duty from the appellants; based on consumption of natural gas, electricity consumed and packing time taken; is not acceptable and is required to be rejected.

9. So far as points mentioned at Para 6(ii) and 6(iii) are concerned, it has been held by the adjudicating authorities that undervaluation and clandestine removal stand provided in view of the pen-drives, AJTAK XYZ of SANYO, personal ledger of Comet, private diaries/ writing pads and the statements of ceramic tile manufacturers. Appellants have argued that the print-out taken from the pen-drive AJTAK XYZ are not admissible as a piece of evidence as the same are not the documents admissible as evidence under the relevant Section of the Central Excise Act, 1944. It was also argued by the appellants that the number of Panchnamas recorded and the opening of the said pen-drive clearly suggest that the data recovered from the pen-drive is highly objectionable, suspicious and not acceptable. It is observed from the case records of Wellsuit Glass & Ceramic Pvt. Limited [E/13720/2014] that seizure of the said pen-drive was effected on 17.7.2008 under a Panchnama and it was not stated in this Panchnama that the pen-drive was put inside a sealed cover. It has been admitted by Shri V.N. Thakkar (Superintendent) DGCEI in the cross-examination before the Adjudicating authority that when an article is seized, the same is placed in a sealed cover and mention of the same is made in the Panchnama. It is also admitted by Shri Thakkar that as he remembers the seized pen-drive was placed in a paper cover and sealed with adhesive tapes. It is the claim of the appellants that the way the said pen-drive was handled, it is possible that the same could be tempered with as the same was kept in the paper cover sealed with adhesive tapes. A second Panchnama was made on 30.8.2008 where the said pen-drive was mentioned to have been taken out of a sealed cover when the first Panchnama never mentioned keeping the said pen-drive in a sealed cover. It is also observed that on 30.8.2008 the sealed cover was opened but contents of the silver pen-drive were not opened on 30.8.3008 but instead another black colour pen-drive was opened. On 06.9.2008 under a Panchnama the said silver pen-drive taken out of the sealed cover and on opening this pen drive in the Tally Folder, no data was found to be available. However, under another Panchnama dated 12.09.2008, when the said silver pen-drive was opened data was found in Tally Folder which is the relied upon as Aajtak XYZ. There is a strong force in the arguments made by the appellants that when no data was found in Tally folder on 06.9.2008, how the relied upon documents got generated on 12.09.2008. Shri V.N. Thakkar, Superintendent in his cross-examination explained the reason for non retrieval of data on 06.9.2008 to be due to operational lack, but he admitted that no mention of any operational lack is made in the Panchnama dated 06.9.2008. Further, it is observed that in Panchnama dated 12.09.2008, the print out of account AJTAK taken contained 52 pages and account of appellant Wellsuit appeared at page 30 out of 52 pages. Another Panchnama dated 24.09.2008 indicate in Annexure A3 that the number of pages of Account Aajtakwere 94 and the name of appellant existed at page 43 as against page 30 mentioned in Panchnama dated 12.09.2008. Appellants have also raised the issue regarding discrepancies in the name of the panch witnesses. It is also contended that Revenue had not followed the procedure as stipulated in Section 36B of the Central Excise Act, 1944. In view of the above discrepancies the authenticity and veracity of data retrieved by investigation from the silver pen-drive is not reliable and can not be accepted as a piece of evidence in deciding the case of undervaluation and clandestine removal against the present appellants with respect to point mentioned in Para 6 (ii).

10. So far as the question mentioned at Para 6(iii) regarding denying cross-examination of witnesses whose statements were used for establishing undervaluation/ clandestine removal of frit based on the private records, the statements of tile manufacturers and Shroff/ Angadias is concerned; it is argued by the appellants that the entire exercise of such quantification has been made as per the statements of the witnesses whose cross-examination has not been allowed by the adjudicating authority as per Section 9D of the Central Excise Act, 1944.”

From the above it is perused that the Hon’ble CETAT finding onthe order of the Commissioner of Central Excise-III, Ahmedabad is on highly technical grounds citing various decisions of tribunals and variousjudicial pronouncements regarding under valuation of goods and onaccount of Clandestine Removal of goods and also appellant was notgiven opportunity of cross examination on the statements recorded of various persons related to the appellant for the production of their goods.However, with due respect to Hon’ble CESTAT’s decision it is seen thatnowhere Hon’ble CESTAT has dealt the evidences collected by theInvestigating Authorities of Central Excise though mentioned in the bodyof the order by way of Annexures by the Commissioner of Central Excise-III, Ahmedabad which are still in the possession of Central ExciseDepartment like invoices which were prepared by the appellant in twofolds, under valuation of goods which were collected and on that basisAcdl. DGCE had show-caused the appellant. Various statements wererecorded of the partners and the technical persons of various concernsfrom whom appellant used to purchase or sold the products which arealso not cross examined as stated by the Hon’ble CESTAT. The Hon’blejurisdictional Tribunal has decided one M/s. Prima Ceramics Pvt Ltd in ITANo. 453/Ahd/2013, which is one of the 22 cases involved having identicalissue. Hon’ble Tribunal has given the directions to decide this case asunder:

“………. to decide the same afresh in accordance with law on merit in the light ofthe order of the Excise and Custom Tribunal, to be passed in this case, after allowing reasonable opportunity of hearing to both the parties. We direct accordingly.”

Following the above directions of the Hon’ble ITAT, the case of the appellant was remanded to Assessing officer and directed to give fresh opportunity to the appellant to produce books of accounts and to provide opportunity to cross-examine of various statements recorded and evidences collected during the action conducted by the Excise Department and the detailed Show Cause Notice prepared by the DGCEI and Followed by the Assessing officer. Assessing Officer has submitted a detailed remand report the relevant part is again reproduced hereunder:

“(8) Now coming, to the issues which were raised by the assessee during the appellant stage, first, issue regarding the deletion of all the addition by the Hon’ble Central Excise and Custom Tribunal, West Zonal Bench, Ahmedabad vide its order dated 12/05/2015 wherein the appeal of the appellant were allowed. In this respect, it is to state that although the appeal of the assessee has been allowed at the tribunal stage, on the basis of the information gathered from Custom, Excise and Sales Tax Department, vide their letter No.CCE-III/Legal/SLP/08/2015/1296 dated 26/10/2015 as under (Copy of the letter enclosed for ready reference)

“In the case, it may kindly be noted that in the case of M/s. Zirconia Cera Tech Glazes, Palaj, Mehsana of the final order No.A/10541-10571/2015, dated 12.05.2015 of CESTAT, Ahmedabad is being appealed against in the Hon’ble Apex Court

Tht proposal for appeal has been accepted by the Chief Commissioner, Central Excise, Ahmedabad Zone and has been sent to the Board for filing Appeal in the matter”

Thus, it is clear that the issue is still alive as per the above information received from the Customer & Excise Department.

(9) Regarding the rejection of books of account, it is pertinent to mention that in his order, the then A.O. clearly mentioned that the books of the assessee could not be relied, upon as the assessee was engaged in suppression of sales by way of under variation of sales invoices as well as clandestine removal of unaccounted production and its consequent unaccounted sales. The then A.O, also mentioned that in the case of assesses, a substantial part of expenses with respect to the suppressed sales were also not claimed to keep the G.P. at alower rate. And the assessee himself shown G.P. at a rate at 15.18% for the preceding year to the under consideration. And on this basis only the then A.O. take the G.P. at a rate of 15.18% for the purpose. Considering total undervalued sales for A.Y.2007-08 at Rs.5,79,93,067/- the Assessing Officer asses Rs.88,03,345/- being 15.18% as undervaluation of sale and clandestine removal goods addition of Rs.2,08,00,924/- was made taking the gross figure of Rs.13,70,28,488/ . Similarly, for A.Y.2008-09, considering the undervaluation of sale at Rs.6,08,09,785/- the then A.O added to the total income of the assesseeRs.92,30,925/- on account of under valuation. And similarly addition on account of clandestine removal which corner to Rs.2,53,46,163/- (i.e. 15.18% of Rs.16,69,70,770/-) was made to the total income of the assesses.

(10) Further, regarding the contention of the assessee that no opportunity of cross examination of details was accorded to the assessee during the assessment proceedings, it is to state that during the remand proceedings, vide this office order short entry dated 24/09/2015 the A.R. of the assessee was given the opportunity for cross examination of record. However, in response, the AR stated that since they have already received the relevant documents during the assessment proceedings. Thus, there was no need for further cross verification as the assessee has received the relevant documents during the assessment proceedings. However, the AR on that day only submitted the copy of order passed by the appellate Tribunal of Central Excise in which the issue in question was allowed in favour of the assessee in compliance to CIT(A) letter dated 08/05/2015, in which the assessee has been asked to furnish all the relevant paper/details as directed by ClT(A) Further as directed by Hon’ble CIT(A) that ate the details and books of account of theassessee to be called for therefore in compliance to the above direction, various documents were called for both the years from the assessee vide this office letter dated 12/10/2015.

In response the assessee submitted the same submission submitted during the assessment proceedings. No original bills/vouches were produced by the assessee. Therefore, it is presumed that the assessee do not have any material evidence on record which it can rely.

In view of the above factual and legal aspects of the case and taking into account the fact on record that the impugned issue under consideration with Central Excise Department is alive at their level and also the facts emerged during the assessment proceedings viz. rejection of books of accounts, etc. itan safely be said (hat the assessee cannot found to fan eligible to get any relief with respect to tin: impugned additions at this juncture. Accordingly, it is requested to kindly decide the issue in favour of the Revenue taking cognizance of tie case as discussed above.”

Appellant was provided opportunity to file rejoinder and a copy of the remand report of the Assessing Officer was provided to the appellant. Appellant has filed rejoinder dated 12/12/2015, which read as under:

“in this regard our para-wise submissions are as under:

Paragraph 2(1) to 2(7).

The learned assessing officer has stated that the issues emerging from the appraisal report of the DGCEI arc reiterated in these paragraphs These have been duly incorporated in the assessment order for these years did duly dealt with our written submissions, hence no comments. Paragraph 2(8).

As we understand no such appeal has been filed before the Hon. Apex Court as yet. Even if an appeal is filed later on, unless the order of the Hon. CESTAT is stayed,it remains operative and effective. The Excise Department has already given effect to the said order and issued refund of the taxes collected.

Paragraph 2(9).

As regards the AO’s observation about the AO making assessments under appeal having mentioned that the books of the assessee could not be relied upon,we have to submit that this observation is not relevant keeping in view thefact that the AO has computed the total income on the basis of the profit as per books of accounts. This would show that the books of accounts and the book result has been accepted. Paragraph 2(10)

The assessing officer has mentioned that opportunity for “cross examination of record” was given in remand proceedings and that the AR replied that the relevant documents have teen received during the assessment proceedings and therefore there wasno need for “cross verification of record”.

As is evident from the above, as per the direction of the Hon’ble ITAT vide order dated 05/09/2013 in the case of Prima Ceramics Pvt Ltd and other 22 cases including appellant, a reasonable opportunity of being heard and opportunity of cross examination on the basis of evidences collected by DGCEI and relied upon by the assessing officer was granted to the appellant by the assessing officer. The opportunity granted was denied by the appellant simply stating in his letter that since they already received the relevant documents during the assessment proceedings, there was no need for further cross verification as the appellant had received the relevant documents during the assessment proceedings. However, the AR on that day only submitted the copy of order passed by the appellate Tribunal of Central Excise in which the issue in question was allowed in favour of the assessee.

assessing officerhas further requested the appellant to produce the books of accounts and relevant documents to verify and examine the issues raised by the Addl. DGCEI in his show cause notice for determining the under valuation of goods and Clandestine Removal. In response thereto appellant submitted the same submission submitted during the assessment proceedings and no original bills/vouchers were produced before the assessing officer. assessing officertherefore was of the view that appellant do not have any material evidence on record which it can rely. Appellant vide letter dated 12/12/2015 before the undersigned in its written submission in para.2(1) has stated as under:

“The AO has mentioned that opportunity for “cross examination of record” was given in remand proceedingand that the AR replied that the relevant documents have been received during the assessment proceeding and therefore, there was no need for cross verification of record.”

The above plea of the appellant cannot be accepted in the light of the directions of the Hon’ble Tribunal wherein it is very specifically mentioned that “CIT(A) to decide the same afresh in accordance to law on merits in light of the order of Excise & Custom Tribunal to be passed in this case after allowing reasonable opportunity to both the parties”.

Considering the directions as well as after considering issues involved on the basis of facts covered and show cause issued, the following facts are revealed:

1) The reasons for providing the opportunity of being heard and cross examination to the appellant was as per the directions of the Hon’ble 1TAT and also to verify and examine various evidences which was mentioned in the show cause letter issued to the appellant by Addl, DGCEI like the evidences of under valuation of goods, under valuation of freight and evidences mentioned on page no.8, 9 & 10 in order dated 29/3/2014 of Commissioner of Central Excise, Ahmedabad.

2) Also, one of the issue like statement recorded of Partners, wherein the Partners have accepted modus operands of tax evasion by undervaluation of goods and freight and unaccounted production. It is not out of place to mention that these facts were not dealt by the Hon’ble ITAT in the order passed CESTAT has given relief on the basis of7 technical ground but Income-tax Department has not examined the Partners of the company and other persons whose statements were recorded on oath during the search action by the Excise Department as well as on those evidences which was collected and was in possession of Excise Department which were very well mentioned in the show cause letter of Addl. DGCEI and order passed by the Commissioner of Central Excise-III, Ahmedabad in the case of the appellant.

The case was remanded to the AO to confront the appellant on these issues as well as to give opportunity to the appellant to produce the books in support of the claim which was not relied upon by the AO and the books were rejected. Appellant has not availed the opportunity with the plea that the AO has to follow the order of the Hon’ble CESTAT and directions of Hon’ble Jurisdictional ITAT which is well discussed in above paragraphs. The denial of opportunity by the appellant indicates that the issue is still very live in the case of the appellant as reported by the AO also as Central Excise Department has further preferred appeal before the Apex Court against the order of CESTAT which was decided on the basis of technicalities and judicial pronouncements. The case was remanded to the AO with a specific direction to give opportunity of being heard and opportunity of cross examination on the basis of facts, findings given in Show Cause Notices issued by the by the Addl. DGCEI, Ahmedabad but appellant voluntarily denied to avail the opportunities and did not produce the books of accounts and on such facts, the appeal is decided on the basis of evidences gathered by the Excise Department which was followed by the AO and made the disallowance and addition to the total income of the appellant on the grounds that Partners of the appellant company and others in their statements had accepted and stated how the modus modus operandi was carried out by them for under-valuation of goods and clandestine removal; the statement recorded with regard to frit and Show Cause letter regarding books which was rejected by the AO.

During the course of Investigation a statement of Shri PravinbhaiNarshibhai Patel, Partner of M/s Zirconia was recorded on oath on31/3/2010 by the Central Excise Authorises and during the searchoperation he has very categorically admitted in his statement that duringthe period 2006-07 and 2007-03 they were showing assessable value offrit at Rs.10/- whereas during the year 2009-10- they have substantiallyincreased the value of frit upto 27.50 per kg. All the buyers of frit whosestatements were recorded had confirmed that the quality of frit beginningfrom 2006-07 to 2009-10 were similar and thus appellant undervalued thegoods. Similarly 8 to 10 persons statements were recorded which confirms this fact. In the statement recorded of Shri PiyushbhaiChandulalShah, partner of M/s Anmol Ceramics, Kalol which was recorded on13/01/2010 has admitted that they were purchasing ceramic frit from theappellant and in the invoices they were showing about Rs.7/- to Rs.12/-per kg and from 2008-09, increased the prices from Rs.20/- to Rs.30/-per kg which were the actual value and hence in the past period, overand above, the invoice amount, they were paying remaining amount in cash directly to the frit manufacturers.

Similarly in the statementrecorded of Shri JayendrabhaiKababhaiKalaria, partner of M/s.AtlasIndustries, Morbi, he has admitted that they had purchased opaquequality frits and sometimes transparent quality also. However, the qualityof both the opaque and transparent frit received were the same. He alsoconfirmed that there was undervaluation of ceramic frit as they weregetting invoices from the suppliers @ 7/- to Rs.12/- per kg, which waspaid in cheque. The balance was collected in cash and was also not shown in the invoices raised. In the statement recorded of Shri JagdishbhaiGovindbhai Patel, partner of M/s Satyam Ceramic, Lakhdirpur Road, Morbi, he has admitted that there was undervaluation of cermic frit as they were getting invoices from the suppliers @ 7/- to Rs.12/- which was paid through cheques, however for the difference in value of frit, which was Rs.20/- to Rs.30/- per kg, the balance was paid in cash. Similar Statement; has been given by Shri BalubhaiAmarsinhbhai Patel, partner of M/s. Leo Ceramic, Morbi; Shri KishorebhaiRaghavjibhai Patel, partner of M/s Priya Gold Ceramics, Morbi; Shri SureshbhaiKarsanbhaiFefar, partner of M/s Omson Ceramic, Morbi; Shri LaljibhaiVishrarnbhyai Patel, partner of AM/s Swagat Ceramic, Morbi; Shri JitendrabhaiPurchottamdasRojmala, partner of M/s. Silk Ceramics, Morbi; Shri ChhaganbhaiValjibhai Patel, Director of M/s Sacmi Ceramic Pvt Ltd, Morbi; Shri ChamanbhaiJirrajbhai Patel, Director of M/s Square Ceramic Pvt Ltd, Morbi and various other persons to whom appellant had business with. From the above, it is very clear that appellant was engaged in under valuation of goods and Clandestine Removal of frits. It was for the appellant to prove that the allegations made against it are not correct by producing books of accounts and the facts against evidences collected during the search operation by the Excise Department which was not done by the appellant and hence the only conclusion that can be drawn is that appellant was involved in the practice of undervaluation of goods and removal of clandestine of goods. In view of the above, action of the AO in making the addition of Rs,88,03,348/- on account of under valuation aid addition of Rs.2,08,00,924/- on account of Clandestine Removal of frits to the total income of the appellant is held justified and is hereby confirmed. Relevant grounds of appeal are therefore, rejected.

5. In the result, appeal is dismissed.”

CIT(A) also confirmed the addition made by the Assessing Officer in Asst. Year 2008-09.

10. Now assessee has filed appeal before us on the ground raised by assessee as already reproduced in Para 2. The stand of the ld. Authorized Representative on behalf of assessee is that additions havebeen solely made on the basis of show-cause notice issued by the DGCEI wherein, it was observed that assessee is engaged in under valuation of sales and clandestine removal of goods. Thus, Assessing Officer has reopened assessment solely on the basis of SCN issued by DGCEI and ultimately made additions of estimated Gross Profit, on under valuation of sales and clandestine removal of goods without independent application of mind.Ld. Authorised Representative further submitted that under excise proceedings, adjudicating authority passed the order, which was ultimately carried in appeal upto Hon’ble CESTAT. Hon’ble CESTAT vide order dated 12.02.2015 has decided the issue in favour of the assessee by holding that department cannot estimate value of alleged suppression of sales as well as clandestine removal of goods merely on the basis of assumption and surmises. The operative portion of CESTAT order is reproduced here as under:

“6. In these proceedings the following issues are required to be deliberated upon:-

(i) Whether the appellants mentioned in Para 5.1 above have indulged in clandestine manufacture and clearance of Ceramic Glazed Mixture (Frit), in view of the adjudication orders passed the adjudicating authorities on the basis of natural gas consumption norms per metric ton?

(ii) Whether the appellants mentioned in Para 5.1 and 5.2 have indulged in undervaluation of frit and also clandestinely cleared frit as per a personal ledgers retrieved from a pen-drive recovered from SANYO and other personal records and pen-drives from the ceramic tile manufacturers read with their statements ?

(iii) Whether the adjudicating authorities were justified in denying cross-examination of witness under the provisions of Section 9D of the Central Excise Act, 1944 read with the judicial pronouncements on the issue?

7. For the purpose of point No. 6(i) above and clandestine removal of frit by the frit manufacturers adjudicating authorities have mainly relied upon average consumption of natural gas for manufacturers one MT of frit by taking data either from the appellants or by conducting some gas consumption studies. Besides certain studies/ data with respect to average packing time taking for filling of finished goods (Frit) in the plastic bags and consumption of electricity units per MT of Frit on the basis of appellants records, have also been used to support that clandestine manufacture and clearances have been effected by the concerned appellants.

8. As per Para 3.5 above, clandestine manufacture and clearance of frits by the appellants have been estimated by taking different gas consumption norms which either got suggested by the appellant or worked out by the investigation. Average gas consumption from 263 SCMs to 484 SCMs were fixed for different appellants and were considered by the Adjudicating authorities for calculating/ confirming the demands and imposing penalties. Following observations have been made by the Adjudicating authority in the case of Belgium Glass & Ceramics Pvt. Limited (Appeal Nos. 796 to 798/2011) in paras 24.4.4, 24.5.4 and 24.5.5 while passing OIO No. 05/VRC-1/MP/2011 dated 23.03.2011 and justifying the calculations/ estimations made by Revenue:-

“24.4.4. Thus, even by considering that 5 nos. of kiln operated by M/s. Belgium during the entire past period, were of lowest size, viz. 146×6, each one of which is having 4000 SCMs of natural gas consumption per day of 24 hours, the net output of ceramic frit per kiln per day by consuming 450 SCMs of gas would not be less than 8.888 MTs. In other words, the minimum monthly production of frit per kiln would be at least 266.640 NTs, and the total minimum monthly production for all the 5 kilns would not be less than 1333.200 MTs.

24.4.5. The above production of M/s. Belgium is fully substantiated from the Annexure F referred supra, wherein it is observed that during a period of 18 months out of the total 65 months covered therein, they have reported production of frit exceeding the quantity of 1300 MTs. In fact, during the month of July 2005, the recorded production quantity was 2574.500 MTs with a total gas consumption rate of 370.557 SCM per MT, which clearly reveals that the aforesaid calculated capacity of 1333 MTs is the barest minimum. Scrutiny of the chart, however reveals that during 15 months, they have declared production quantity less than 1000 MTs per month even with much higher rate of gas consumption. During 32 months, the total quantity declared by them in their statutory records was less than 1275MTs wherein also the gas consumption was exceeding the average requirement of 450SCM per MT.

24.5.4. Thus the above Panchnama proceedings, unambiguously revealed that the normal time required for manufacturing 50 Kgs of frit was 8 minutes, i.e. 100 Kgs in 16 minutes and 1 MT in 2 hours 40 minutes. This reveals that one Kiln can manufacture 10 MT of frit per day of 24 hours, which means that the total quantity of frit produced by M/s. Belgium with their 5 Kilns is 50MTs per day. Thus, it is observed that normal quantity of frit which could be produced in the factory of M/s. Belgium by using 5 Kilns at a time, would be 1500MT per month.

24.5.5 Comparison of the monthly production of frit accounted for by M/s. Belgium in their statutory records as appearing in Col. No. 2 of the Annexure-F vis-a-vis the actual quantity which would have produced by them in their factory as discussed above, fully substantiates large scale suppression of production by them. The fact that the quantity recorded in their statutory records during some months, exceeds the aforesaid average quantity of 1500MT per month, indicates that the physical verification conducted at the factory and inference drawn in respect of their production capacity is factual. In order to have an idea on the quantum of the suppression of production by M/s. Belgium Col. No. 7 has been added to the Annexure-F which indicates the difference of quantity accounted for in the official records as against the average production of 1500MT per month. The chart indicates that except during a period of 7 months, the monthly average production noticed during the aforesaid Panchnama dated 26.09.2009 exceeded the quantity accounted for by M/s. Belgium in their statutory records.”

8.1 From the above findings of the adjudicating authority gas consumption of 450 SCM per MT of frit manufacture has been arrived at for M/s. Belgium Glass & Ceramics Pvt. Limited which according to Revenue will gave a capacity of 1333.2 MTs per month to that appellant. In Para 24.5.4 and 24.5.5, the adjudicating authority observed that the normal quantity of frit that could be manufactured by this appellant will be 1500MTs per month. It has also been fairly mentioned by the adjudicating authority that in certain months the production of this appellant was also more than 1500MT. Adjudicating authority has only seen one side of the coin that a production of more than 1500MT is possible, therefore a capacity of around 1300MTs is justified. The other side of coin will be that appellant has also reflected a quantity of more than 1500MTs of Frit manufactured per month in the records. Such a depiction in the books of accounts gives a certification to the correctness of the data maintained by the appellant. The very fact that using gas consumption method and time taken for packing finished goods adopted by the lower authorities gives different estimations of manufacture and clearances by this appellant, the same cannot be taken as a correct/ dependable method for calculating clearances and is also not prescribed. In the case of Belgium Glass & Ceramic Pvt. Limited, as per Annexure-F to the show cause notice dated 08.10.2009, gas consumptions of 383.715SCM and 321.959 SCM for manufacturing one MT have also been indicated in the records of the appellants along with higher consumption of gas. It is not understood as to why an arbitrary figure of 450SCM per MT is required to be taken for estimating the production/ clearance of finished goods Frits. In the same Annexure-F the units of electricity consumed in certain months is less than 55 units and is even as low as 40.153 units. The above data of the appellant contained in Annexure-F to the show cause notice dated 08.10.2009 reflects that records maintained by this appellant are genuine and correct. There is no corroborating evidence of excess/ short raw materials of frit procured clandestinely by this appellant or any of the other appellants. There is no seizure of clandestinely removed goods from any of the appellants or any excess stock of finished goods. No cash has been seized from any of the premises searched by the Revenue when crores of cash has been alleged to have been transferred to the appellants across the country. There is also no evidence of excess procurement of raw materials. It is also claimed by the appellants that calorific value of the gas supplied by GAIL vary in GCV (Gross Calorific Value) and NCV (Net Calorific Value) which also effect consumption of gas along with the type of frit grade manufactured. It is observed from the ground (d), of the grounds of appeal filed by M/s. Belgium Glass & Ceramic Pvt. Limited, in the case of Belgium that such documentary evidences of gas having different GCV and HCV exist on records. This argument has been brushed aside by the adjudicating authority that Shri PiyushMakadia, Director of the appellant has agreed to consumption of 450SCM/PMT (plus/minus) 10% gas consumption. The above calculations are thus based on statement of Shri PiyushMakadia, Director reproduced in OIO dated 23.03.2011 at Paras 53 & 54. However, such statements can not be relied upon unless the cross-examination of the witnesses is extended to the appellants.

8.2 In the remaining cases also where clandestine clearances have been estimated on the basis of natural gas consumption, there is no evidence of excess raw material purchased by the appellants. No shortages/ excess of raw materials or finished goods have been detected any where during the investigations. In none of the cases there is any seized cash or seizure of clandestinely removed finished goods during transportation from the factory premises of the appellants. In this regard appellants have relied upon the case laws of Arya Fibers Pvt. Limited vs. CCE, Ahmedabad-II [2014 (311) ELT 529 (Tri. Ahmd.)]and Gupta Synthetics Limited vs. CCE, Ahmedabad II [2014 (312) ELT 225 (Tri. Ahmd.)]. Para 38 and 40 of the case law of Arya Fibers Pvt. Limited vs. CCE Ahmedabad-II is relevant and is reproduced below:-

“38. It was, therefore, the submission of the ld. Senior Advocate that, in three cases cited by the ld. Special Counsel for the Revenue, this Tribunal and Hon’ble High Court of Gujarat had taken a view that there was no need to prove such clandestine clearance with mathematical precision. These were cases where evidence was available regarding unaccounted duty paid goods being found, shortage of finished goods found and evidence regarding supply of raw materials and receipt of commission by brokers, which were all tangible evidence of clandestine clearances. It was further submitted by the ld. Senior Advocate that the cases cited by him were cases where no such evidence was available at all and the law laid down as applicable to such cases, to which category the present case belongs.

40. After having very carefully considered the law laid down by this Tribunal in the matter of clandestine manufacture and clearance, and the submissions made before us, it is clear that the law is well-settled that, in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenue which mainly are the following :

(i) There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions;

(ii) Evidence in support thereof should be of :

(a) Raw materials, in excess of that contained as per the statutory records;

(b) Instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty;

(d) Instances of sale of such goods to identified parties;

(e) Receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons authorized by him;

(f) Use of electricity far in excess of what is necessary for manufacture of goods otherwise manufactured and validly cleared on payment of duty;

(g) Statements of buyers with some details of illicit manufacture and clearance;

(h) Proof of actual transportation of goods, cleared without payment of duty;

(i) Links between the documents recovered during the search and activities being carried on in the factory of production; etc.

Needless to say, a precise enumeration of all situations in which one could hold with activity that there have been clandestine manufacture and clearances, would not be possible. As held by this Tribunal and Superior Courts, it would depend on the facts of each case. What one could, however, say with some certainty is that inferences cannot be drawn about such clearances merely on the basis of note books or diaries privately maintained or on mere statements of some persons, may even be responsible officials of the manufacturer or even of its Directors/partners who are not even permitted to be cross-examined, as in the present case, without one or more of the evidences referred to above being present. In fact, this Bench has considered some of the case-law on the subject in Centurian Laboratories v. CCE, Vadodara [2013 (293) E.L.T. 689]. It would appear that the decision, though rendered on 3-5-2013, was reported in the issue of the E.L.T., dated 29-7-2013, when the present case was being argued before us, perhaps, not available to the parties. However, we have, in that decision, applied the law, as laid down in the earlier cases, some of which now have been placed before us. The crux of the decision is that reliance on private/internal records maintained for internal control cannot be the sole basis for demand. There should be corroborative evidence by way of statements of purchasers, distributors or dealers, record of unaccounted raw material purchased or consumed and not merely the recording of confessional statements. A co-ordinate Bench of this Tribunal has, in another decision, reported in the E.L.T. issue of 5-8-2013 (after hearings in the present appeals were concluded), once again reiterated the same principles, after considering the entire case-law on the subject [Hindustan Machines v. CCE [2013 (294) E.L.T. 43]. Members of Bench having hearing initially differed, the matter was referred to a third Member, who held that clandestine manufacture and clearances were not established by the Revenue. We are not going into it in detail, since the learned Counsels on either side may not have had the opportunity of examining the decision in the light of the facts of the present case.

Suffice it to say that the said decision has also tabulated the entire case-law, including most of the decisions cited before us now, considered them, and come to the above conclusion. In yet another decision of a co-ordinate Bench of the Tribunal [Pan Parag India v. CCE, 2013 (291) E.L.T. 81], it has been held that the theory of preponderance of probability would be applicable only when there are strong evidences heading only to one and only one conclusion of clandestine activities. The said theory, cannot be adopted in cases of weak evidences of a doubtful nature. Where to manufacture huge quantities of final products the assessee require all the raw materials, there should be some evidence of huge quantities of raw materials being purchased. The demand was set aside in that case by this Tribunal.

8.3 Appellants have also relied, inter-alia, on the judgment of Allahabad High Court in the case of CCE, Meerut-I vs. RA Castings Pvt. Limited [2012 (26) STR 262 (All.)], which is upheld by the Hon’ble Supreme Court as reported in 2011 (269 ELT A108. The facts of this case and the orders of the Allahabad High Court is as follows:-

“[Order]- These appeals under Section 35-G of the Central Excise Act, 1944 (hereinafter referred to as the Act) are against the order of the Tribunal dated 19-6-2008 [2009 (237) E.L.T. 674 (Tri. – Del.)], by which the Tribunal has allowed the appeals of the respondents and quashed the order passed by the adjudicating authority.

2. The Respondent Nos. 1 and 2 were involved in the manufacturing of MS ingots and in respect thereof had maintained the books of account as provided under the Central Excise Rules and were furnishing the returns and paying the central excise duties. The Superintendent issued the show cause notices dated 1-12-2006 asking the respondent to show cause why the demand towards central excise duty may not be confirmed for the period from 2001-02 to 2004-05 by invoking the proviso to Section 11A(1) of the Act and why the penalty should not be imposed under Rule 25(1) of the Central Excise Rules, 2002 read with Section 11AC of the Act. Various allegations have been made in the show cause notices and from the perusal of the show cause notices it appears that the excess production has been estimated on the basis of the higher electricity consumption. The respondents filed their reply. The Commissioner of Central Excise, Meerut-I, vide its order dated 30-7-2007 has confirmed the demand against the respondent nos. 1 and 2 and also imposed the penalty on the respondent nos. 1 and 2 and on other respondents alleged to have been involved in the clandestine removal of the goods.

3. Being aggrieved by the impugned orders, the respondents filed appeals before the Customs, Excise & Service Tax Appellate Tribunal, New Delhi. The Tribunal observed that it is settled principle of law that the electricity consumption can not be the only factor or basis for determining the duty liability, that too on imaginary basis, especially when Rules 173E mandatorily requires the Commissioner to prescribe/fix norm for electricity consumption first and notify the same to the manufacturers and thereafter ascertain the reasons for deviations, if any, taking also into account the consumption of various inputs, requirements of labour, material, power supply and the conditions for running the plant together with the attendant facts and circumstances. The Tribunal further observed that no experiment have been conducted in the factories of the appellants for devising the consumption norms of electricity for producing on MT of steel ingots. Tribunal also observed that the electricity consumption varies from one heat to another and from one date to another and even from one heat to another within the same date. Therefore, no universal and uniformly acceptable standard of electricity consumption can be adopted for determining the excise duty liability that too on the basis of imaginary production assumed by the Revenue with no other supporting record, evidence or document to justify its allegations. The Tribunal has also considered the report of Dr. Batra, which has been relied upon for making the allegations that there was higher electricity consumption. It appears that Dr. Batra in his report has observed that for the production of 1 MT of steel ingots, 1046 units electricity required.

8.4 In view of the settled proposition of law laid down above, estimation of quantity of goods manufactured and clandestine removal of goods by the appellants cannot be slapped on the basis of averages arrived and calculated based on norms of gas consumption in manufacture of 1 MT of frit. It is rightly contested by the appellants that frit manufactured is not covered by any notification issued under Section 3A of the Central Excise Act, 1944 where Compounded Levy has been prescribed and capacity of the unit is required to be fixed on gas consumption basis, as done by the Revenue. It is observed that Revenue has attempted to adopt an estimation method for demanding duty and proving clandestine removal which is not prescribed by law.

8.5 In the case of appellant M/s. Wellsuit Glass & Ceramics Pvt. Limited – [2014 (304) ELT 618 (Tri. Ahmd.)], this Bench remanded the case to the Adjudicating authority to get, inter-alia, some more studies done on the gas consumption per metric tonne of different grades. It has been argued by the Revenue that the studies suggested by the Bench are not possible now and such studies are also not possible with respect to the other appellants. Para 3.2 and 6 of the order passed by this Bench in the case of M/s. Wellsuit Glass & Ceramics Limited (supra) are reproduced below:-

“3.2 With regard to consumption of gas, learned Advocate relied upon the statements of Shri Balkrishna M. Thakkar, Managing Director, that the consumption of gas would vary on the quality of frit, raw material used, condition of Kiln, gas pressure, fluxes used, etc. It was thus argued that there are various factors which affect the consumption of gas and there cannot be a fixed ratio of consumption of gas for a specific frit output. He also argued that in October, 2007, there was a change in the management and the new management took a series of steps to improve quality of frit and made the gas consumption efficient. They also installed three new Refractory Kiln with greater production capacity and used superior refractories which were better maintained from time to time. He drew attention of the Bench to the fact that services of a Ceramic consultant was engaged to get better yield. He relied upon the submissions and records to show the purchase of new Kiln and generating set. It was due to these efforts that the ratio of gas consumption from 2008-09 onwards went down from 844 SCM/MT to 286 SCM/MT as indicated in Para 13.2 of order-in-original dated 10-5-2011. That before 2008 there was no generator available with appellant and every time there was a power failure, large quantities of gas was used in re-firing the Kiln. He produced documents relating to installation of DG Set. He referred to the purchase bills to show superior quality of refractories replaced in the Kilns after 2008-09. He argued that as per the statement of Shri Balkrishna Thakkar himself, which is recorded by the department, there cannot be any fixed ratio of gas consumption and that after the new management took over, they have improved the efficiency of the unit and that mere gas consumption cannot be used as a factor for clandestine manufacture and removal. He explained that frit consists of two components i.e. glass and silicone dioxide. That the melting point of glass is very high and other materials called fluxes are added, as per expert consultations, to lower melting point such as borax, boric acid and zinc oxide, etc. That when fluxes are used, the melting point required for manufacture of frit is reduced. Learned advocate referred to extracts from the book, Industrial Ceramics by Felix Singer and the book Glassing and Decoration of Ceramics Tiles by Autorivari and extracts from the journal. Ceramic Industry, January, 2000 as well as various extracts downloaded from internet to support his case. He referred to the following decisions to submit that gas consumption alone cannot be the sole basis of clandestine manufacture and removal of the finished product :-

(i) Vishwa Traders Pvt. Limited v. CCE- [2012 (278) E.L.T. 362]

(ii) CCE v. Vishwa Traders Pvt. Limited – [2013 (287) E.L.T. 243]

(iii) Mukesh Dye Work v. CCE – [2006 (196) E.L.T. 237]

(iv) Southern Ispat Limited v. CCE – [2009 (248) E.L.T. 270]

(v) SVM Cera Tea Limited v. CCE – [2013 (292) E.L.T. 580]

4 ..

5 ..

6. On the issue of clandestine removal of frit, based on the gas consumption of the main appellant, it is observed from Para 13.2 of the order-in-original dated 10-5-2011 that records maintained by main appellant show the gas consumption for making 1 MT of frit from 844 SCM to 286 SCM. It has been contested by the appellant that gas consumption varied from season to season, from one quality of frit to other quality of frit, use of better technology, etc. It has also been brought on record that after change in the management in Oct., 2007 and installation of new furnaces and new refractories, the gas consumption has reduced. Further appellant has also brought on record that due to expert consultations and use of certain fluxes also the gas consumptions per MT of frit have come down. Evidences were also brought on record during the course of hearing regarding installation of an Electricity Generator and replacement of better quality refractories in the kilns by the main appellant. Under the above factual matrix, the method used by the investigation cannot be a sound method to demand duty on assuming 318 SCM of gas required for manufacturing one MT of any quality of frit. The improper method adopted by the Revenue for calculating duty was agitated by the appellants before the adjudicating authority as per Para 4(xi) to (xxxiii) of the order-in-original dated 10-5-2011. It is observed that during conducting of gas consumption studies on 23/24-2-2010 by investigation only frit product code OP 202was being manufactured. It has been contested by the appellant that different frit product codes may consume different quantities of gas. As the appellant is not undertaking the manufacture of one standard product, in the interest of justice, it will be appropriate to conduct a few more representative studies of different frit product codes in order to arrive at a more realistic gas consumption PMT of frit manufactured.”

8.6 In view of the above observations made by this Bench it has already been held that method adopted by the investigation to estimate clandestine removal of finished goods is not sound and has to be discarded. However, Revenue was given an opportunity to strengthen their case by corroborating evidence with some more factual data from additional studies. No appeal has been filed by the Revenue against the above order passed by this Bench. It is also observed from 3.2 of the remand order that appellant has made certain changes in the plant and machinery and other methodologies to reduce gas consumption. Even in the remand proceedings also adjudicating authority has not countered the arguments taken by the appellant as to why the steps taken by them from time to time, does not effect gas consumption. On a specific query from the Bench, the learned Senior Advocate also argued that similar modernization in processes of manufacture, as undertaken by M/s. Wellsuit Glass in the manufacture of frit, have also been undertaken by other appellants. No findings have been given by the Adjudicating authorities in countering the claims of the appellants, justifying the modernization done to reduce consumption of gas from time to time. No expert opinion has been obtained by the Revenue to challenge the gas consumption pattern adopted by the appellants to indicate that claim of the appellants was wrong.

8. In view of the above observations and judicial pronouncements, methodology adopted by the Adjudicating authorities in estimating and demanding duty from the appellants; based on consumption of natural gas, electricity consumed and packing time taken; is not acceptable and is required to be rejected.

(i) J.K. Cigarettes Limited vs. CCE [2009 (242) ELT 189 (Del.)]

(ii) CCE, Allahabad vs. Govind Mills Limited – [2013 (294) ELT 361 (All.)]

(iii) Basudev Garg vs. CC [2013 (294) ELT 353 (Del.)]

(iv) Swiber Offshore Construction Pvt. Limited vs. Commissioner of Customs, Kandla [2014 (301) ELT 119 (Tri. Ahmd.)]

10.1 Section 9D of the Central Excise Act, 1944 is reproduced below:-

9-D. Relevancy of statements under certain circumstances –

(1) A statement made and signed by a person before any Central Excise Officer of a gazetted rank during the course of any inquiry or proceeding under this Act shall be relevant, for the purpose of proving, in any prosecution for an offence under this Act, the truth of the facts which it contains, –

(a) when the person who made the statement is dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by the adverse party, or whose presence cannot be obtained without an amount of delay or expense which, under the circumstances of the case, the Court considers unreasonable; or

(b) when the person who made the statement is examined as a witness in the case before the Court and the Court is of the opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice.

(2) The provisions of sub-section (1) shall, so far as may be, apply in relation to any proceedings under this Act, other than a proceeding before a Court, as they apply in relation to a proceeding before a Court.”

10.2 In the case of J.K. Cigarettes Limited vs. CCE (supra), following conclusions were drawn by the Delhi High Court, in Para 32:-

“32. Thus, we summarize our conclusions as under:-

(i) We are of the opinion that the provisions of Section 9D (2) of the Act are not unconstitutional or ultra vires;

(ii) while invoking Section 9D of the Act, the concerned authority is to form an opinion on the basis of material on record that a particular ground, as stipulated in the said Section, exists and is established;

(iii) such an opinion has to be supported with reasons;

(iv) before arriving at this opinion, the authority would give opportunity to the affected party to make submissions on the available material on the basis of which the authority intends to arrive at the said opinion; and

(v) it is always open to the affected party to challenge the invocation of provisions of Section 9D of the Act in a particular case by filing statutory appeal, which provides for judicial review.”

10.3 In the adjudicating proceedings, a list of witnesses to be relied upon by the Revenue is disclosed to the appellantsalongwith the show cause notice. The reasons for relying upon the statements are also available from the facts narrated in the show cause notice. It is not necessary that all the witnesses should be called by the Adjudicating authority suo-moto for examination in a quasi-judicial proceedings for cross-examination. However, as per the provisions of Section 9D (1)(b) of the Central Excise Act, 1944, read with the judicial pronouncements relied upon by the appellant every adjudicating authority should call the witnesses when requested by the party against whom those statements are to be used. If by making efforts for a few occasions the witnesses summoned do not appear than automatically the case could be mature for accepting the statements as admissible evidences under Section 9(D)(1)(a) of the Central Excise Act, 1944. However, it was not open to the adjudicating authorities to straightaway reject the request for cross-examination in view of the law laid down by the judicial pronouncements relied upon by the appellants. The reasons for rejecting the appellants request for not allowing are also required to be intimated to the appellants as per the case law of J.K. Cigarettes Limited (supra) so that appellant may explore the possibility of filing appeal against such rejections. The ratio laid down by the J.K. Cigarettes case (supra) has also been followed in series of other judgments. No such rejection orders were given by the adjudicating authorities separately. Hon’ble Supreme Court in the case of UOI &Anr.vs. GTC India and Ors in order dated 03.01.1995 arising out of SLP (C) No. 218131/1994 has already laid the following ratio:

“Special leave granted.

Heard.

The impugned order dated 05.9.94 has to be read alongwith Section 9D of the Central Excise and Salt Act, 1944. SO read, there is no infirmity in the impugned order.

It may, however, be clarified that in case reliance is placed on the provisions of Section 9D of the Act in respect of any particular witness, intimation of the same is required to be given to the respondents and it would be open to the respondents to approach the High Court against the order made by the authority in that behalf.

That appeal is disposed of in these terms. No costs.”

Further in Para 16 and 19 of case law A.Tajudeen vs. UOI[2015 (317) ELT 177 (SC)] Apex court very recently held as follows on admissibility of statements and cross-examination:-

“16. Having given our thoughtful consideration to the aforesaid issue, we are of the view that the statements dated 25-10-1989 and 2610-1989 can under no circumstances constitute the sole basis for recording the finding of guilt against the appellant. If findings could be returned by exclusively relying on such oral statements, such statements could easily be thrust upon the persons who were being proceeded against on account of their actions in conflict with the provisions of the 1973 Act. Such statements ought not to be readily believable, unless there is independent corroboration of certain material aspects of the said statements, through independent sources. The nature of the corroboration required, would depend on the facts of each case. In the present case, it is apparent that the appellant – A. Tajudeen and his wife T. SahiraBanu at the first opportunity resiledfrom the statements which are now sought to be relied upon by the Enforcement Directorate, to substantiate the charges levelled against the appellant. We shall now endeavour to examine whether there is any independent corroborative evidence to support the above statements.

17 &18 .. ..

19. We shall now deal with the other independent evidence which was sought to be relied upon by the Enforcement Directorate to establish the charges levelled against the appellant. And based thereon, we shall determine whether the same is sufficient on its own, or in conjunction to the retracted statements referred to above, in deciding the present controversy, one way or the other. First and foremost, reliance was placed on mahazar executed (at the time of the recovery, from the residence of the appellant) on 25-10-1989. It would be pertinent to mention, that the appellant in his response to the memorandum dated 12-3-1990 had expressly refuted the authenticity of the mahazar executed on 25-10-1989. Merely because the mahazar was attested by two independent witnesses, namely, R.M. Subramanian and HayadBasha, would not led credibility to the same. Such credibility would attach to the mahazar only if the said two independent witnesses were produced as witnesses, and the appellant was afforded an opportunity to cross-examine them. The aforesaid procedure was unfortunately not adopted in this case. But then, would the preparation of the mahazarand the factum of recovery of a sum of Rs. 8,24,900/- establish the guilt of the appellant, insofar as the violation of Section 9(1)(b) of the 1973 Act is concerned? In our considered view, even if the mahazaris accepted as valid and genuine, the same is wholly insufficient to establish, that the amount recovered from the residence of the appellant was dispatched by Abdul Hameed, a resident of Singapore, through a person who is not an authorised dealer in foreign exchange. Even, in response to the memorandum dated 12-3-1990, the appellant had acknowledged the recovery of Rs. 8,24,900/- from his residence, but that acknowledgment would not establish the violation of Section 9(1)(b) of the 1973 Act. In the above view of the matter, we are of the opinion that the execution of the mahazaron 25-10-1989, is inconsequential for the determination of the guilt of the appellant in this case.”

In view of the above, by not allowing the cross-examination of the relied upon witnesses under Section 9D of the Central Excise Act, 1944, the evidentiary value of such statements does not survive and is required to be discarded. We accordingly hold so.

11. It is also the case of the appellants that all the transactions are made by the appellants at the factory gate. That only exact amount of additional consideration received by each appellant has to be added to the transaction value and that no such quantification has been done by the Revenue which could be attributed to each manufacturer. That Revenue can not adopt any best judgment valuation method as suggested in Central Excise Valuation Rules even if all the statements/ documents relied upon by the Revenue are presumed to be correct admissible as evidences.

12. Before giving observations on this argument raised by the appellants, it will be relevant to glance through the relevant portion of the provisions of Section 4 of the Central Excise Act, 1944 alongwith definition of transaction value:-

“4. VALUATION OF EXCISABLE GOODS FOR PURPOSES OF CHARGING OF DUTY OF EXCISE.

(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, then, on each removal of the goods, such value shall –

(a) in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value;

(b) in any other case, including the case where the goods are ot sold, be the value determined in such manner as may be prescribed.

(2) .

(0) .

(a) .

(b) .

(d) transaction valuemeans the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to , or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertise or publicity, marketing and selling organisation expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods.”

13. It is not the case of the Revenue that the value of the goods cleared by the appellants is not determinable at the Factory gate and therefore, some other method under the Central Excise Valuation Rules is required to be adopted to arrive at the assessable value. Rather the case of the Revenue on valuation is that certain additional consideration coming to the appellant by way of cash flow from the tile manufacturers to the frit manufacturers is required to be added to the assessable value. In the present circumstances and factual matrix the exact amount of such additional consideration was required to be determined for addition to the transaction value even if all the statements and documents were held to be admissible evidence and satisfied the test of Section 9D of the Central Excise Act, 1944. In Appeal Nos. E/11960/2013 and E/12386/2014, the valuation has been enhanced solely based on the assumption that after booking of the case these appellant enhanced their prices. In the case of transaction value realm the same product can be sold at different prices as per Section 4 of the Central Excise Act, 1944 unless actual additional consideration has been shown to have flown back to the appellants. Appellants in these appeals and in Appeal Nos. E/13720/2014 and E/534/2011 have also not admitted during investigation that they have received any additional consideration. In other appeals on the issue of undervaluation investigation attempted to show the flow back of such additional cash flow through the statements of ceramic tile manufacturer and the statements of Shroffs and Angadias. The amount so worked out has been worked out to be Rs. 38,95,860/- as per the statement of Shri Jayesh Patel, Prop. Of M/s. Kevel mentioned in Para 9.3.3 of OIO dated 23.03.2011 in the case of M/s. Belgium Glass & Ceramics. This statement clearly conveys that amount of Rs. 38,95,860/- was paid to various frit manufacturers and at the same time mentions that the names of the frit manufacturers are not written against each payment in the concerned documents. Under the above factual matrix appellants had the right to cross-examination the witnesses especially Shroffs and Angadias as to what portion of such payment belongs to a particular appellant. As mentioned in the definition of Transaction Value in Para 11.1 above, only actual price paid or payable has to be added to the transaction value and not a hypothetical value based on averaging of prices or standardizing of frit grades. As already mentioned under the realm of transaction value as per Section 4 even the same product could be sold at different prices depending upon several market factors and all these prices will be acceptable as permissible transaction value. Present Section 4 does not go by the concept of Normal Price of the old Section 4 of the Central Excise Act, 1944. In the absence of exact quantification of cash received by individual frit manufacturer, transaction value cannot be enhanced even if there are half cooked circumstantial evidences to the proceedings indicating suspected undervaluation. It is now well understood that suspicion howsoever grave cannot take the place of an evidence. Therefore, it may not be correct to hold that preponderance of probability should always be given to the Revenue, as Hon’ble Apex Court in a particular held it to be so. Each case has to be decided in view of the facts of that case. In view of the above observation and the law laid down by the Apex Court in the case of A. Tajudeen vs. UOI (supra) preponderance of probability cannot always be allowed in favour of the Revenue when there is no independent corroboration of the facts and the case is made only on the basis of statements which were not allowed to be tested under cross-examination as per Section 9D (1)(b) of the Central Excise Act, 1944.

14. In view of the reasons recorded above, appeals filed by the appellants mentioned in paras 5.1 and 5.2 of this order, are allowed with consequential reliefs, if any. Miscellaneous applications are also disposed of accordingly.”

In this background, ld. Authorised Representative submitted that Hon’ble CESTAT has considered the merit of the case, relevant material i.e Pen drive and also statements recorded by Excise Authorities. All such three questions as discussed in its order have been decided in favour of assessee. So far as CIT(A)’s observation are concerned that relief granted by the CESTAT is highly technical, it was submitted by the ld. Authorised Representative that such observations are devoid of merit. CESTAT has passed detailed reasoned order. As regard to CIT(A)’s observation as to opportunity of cross examination of persons whose statements have been recorded, ld. Authorised Representative submitted that it is absolutely illogical on the part of the ld. CIT(A) to seek an opportunity of examination of the statements recorded by the relevant Excise authorities. Ld. Authorised Representative further submitted that Excise Department preferred an appeal against above mentioned order of CESTAT before Apex Court which according to AR was dismissed as withdrawn vide order dated 27/01/2016 and copy of same is placed on Page 327-328 of Paper Book. Content of the same are reproduced as under:

Learned Additional Solicitor General seeks leave to withdraw the appeals with a liberty to approach the High Court in view of the statutory requirement.

Leave and liberty granted.

The appeals are dismissed as withdrawn.

Ld. Authorised Representative further brought to our notice that even the Tax Appeal being Tax Appeal Nos.733 & 734 of 2016 preferred by the Excise Department before the Hon’ble Gujarat High Court was dismissed vide order dated 07.12.2016. and copy of the same has been annexed as Annexure – ‘A’ t the Chart filed on behalf of the assessee and relevant portion of the same is reproduced as under:

[1.0] By way of this petition under article 226 of the Constitution of India, petitioner has prayed for an appropriate writ, direction and order quashing and setting aside the show-cause notice dated 14.03.2012[Annexure C to the petition] as well as the impugned order dated30.03.2013 passed by the Commercial Tax Officer(4), Mehsanaby which an order of reassessment has been passed by the Commercial Tax Officer directing the petitioner to pay an amount of Rs.21,52,832/towards the balance tax under the Gujarat Value Added Tax Act, 2003[hereinafter referred to as “VAT Act”] and also directed to pay 150%penalty i.e. Rs.32,29,248/andin all Rs.73,19,630/.

[2.0] Facts leading to the present special civil application in nutshell are as follows:

[2.1] That the petitioner is a dealer registered under the VAT Act. That the petitioner is excisable to tax on the basis of its turnover under the VAT Act. For the financial year 2006-07,the petitioner filed its return with the authorities under the Act. Such return was processed by the authorities and the order thereon was passed and accordingly the petitioner paid the value added tax of Rs.2,06,448/.

[2.2] A notice came to be issued on 14.03.2012 by the adjudicating authority indicating that for the period from 01.04.2007 to 31.03.2008,he has reason to believe that taxable turnover of the petitioner –

assessee has escaped assessment. That petitioner was required to attend the officer on 31.03.2012. That the petitioner appeared before the Commercial Tax Officer – Assessing Officer and submitted that they have come to know that authority has received certain information from central excise i.e. DGCEI and on the basis of the show-cause notice issued by the Central Excise Department, adjudicating authority has intended to enhance the sales and also intended to reassess undersection 35(1) of the VAT Act It was also submitted that except thes how-cause notice issued by the Central Excise Department, there is no material to show that the petitioner had suppressed the sales and has evaded the tax liability. That solely on the basis of the show-cause notice issued by the Central Excise Department, the AO came to the conclusion that there was a sale of Rs.17,45,46,653/- and accordingly at the rate of 4%, the tax liability would be Rs.67,13,333/-against which the credit of Rs.43,54,053/- is adjusted. The petitioner is liable to pay the VAT of Rs.23,59,280/- and giving the credit of Rs.2,06,448/- paid by the petitioner towards the tax, the petitioner is liable to pay balance ofRs.21,52,832/- towards VAT. Consequently, by order dated 30.03.2013,the AO has passed the reassessment order directing the petitioner to pay the balance amount of Rs.21,52,832/-along with interest upto31.03.2013 and has also imposed the penalty at the rate of 150% i.e. in all Rs.73,19,630/.Feeling aggrieved and dissatisfied with the impugned order, the petitioner the petitioner has preferred the present special civil application under Article 226 of the Constitution of India.

[2.3] At the outset it is required to be noted that we are conscious of the fact that against the impugned order of reassessment the petitioner has a statutory remedy available by way of appeal however, considering the fact in the identical facts and circumstances earlier this Court has entertained the petition and has quashed and set aside the order of reassessment, in the facts and circumstances of the case, we have entertained the present petition.

[2.4] The petitioner has challenged the impugned order passed in reassessment proceedings, which is passed solely on the basis of the show-cause notice issued by the excise department and the additions are made. Learned counsel appearing on behalf of the petitioners has vehemently submitted that this should be wholly impermissible.

[3.0] Shri Parikh, learned advocate appearing on behalf of the petitioner has heavily relied upon the decision of this Court in the case of Futura Ceramics Pvt. Ltd. vs. State of Gujarat rendered in Special Civil Application No.6500/2012 and relying upon the said decision, it is submitted that similar reassessment order passed by the AO solely on the basis of the show cause notice issued by the Excise Department has been set aside by this Court. Therefore, it is requested to quash and set aside the impugned order passed by the AO.

[4.0] Shri Jaimin Gandhi, learned AGP appearing on behalf of the respondent is not in a position to dispute the above. He is also not in a position to dispute that similar reassessment order has been set aside by this Court in the case of Futura Ceramics Pvt. Ltd. (Supra). However, Shri Gandhi, learned AGP appearing on behalf of the respondent has requested to reserve the liberty in favour of the AO and/or appropriate authority to pass reassessment order afresh in accordance with law and on merits.

[4.1] Shri Parikh, learned advocate appearing on behalf of the petitioner has submitted that it may be observed that fresh reassessment order can be passed in accordance with law and only if the same is permissible under the law.

[5.0] Having heard Shri Parikh, learned advocate appearing on behalf of the petitioner and Shri Gandhi, learned AGP appearing on behalf of the respondents and having gone through the impugned order passed by the AO, it appears that the reassessment order has been passed by the AO solely on the basis of show cause notice issued by the Excise Department. It can be seen that the assessment which was previously concluded was reopened on the premise that during the excise raid, it was revealed that the petitioner had clandestinely removed goods without payment of excise duty. The Sales Tax Department, therefore, formed a belief that value of the goods + excise duty evaded and formed part of turnover of the assessee for the purpose of tax under the VAT Act. Identical question came to be considered by this Court in the case of Futura Ceramics Pvt. Ltd. (Supra) and a similar reassessment order which was passed on the basis of the show cause notice issued by the Excise Department has been set aside by the Division Bench of this Court by observing as under:

“It may be that the raid carried out by the Excise duty and the material collected during such proceedings culminating into issuance of a show cause notice for recovery of unpaid excise duty and penalty in a given case sufficient to reopen previously closed assessment. In this case, however, we are not called upon to judge this issue and would therefore not give any definite opinion. The question, however, is whether on a mere show cause issued by the Excise Department, the Sales tax Department can make additions for the purpose of collecting tax under the Gujarat Value Added Tax Act without any further inquiry. If the Assistant Commissioner of Commercial Tax has utilized the material collected by the Excise Department; including the statements of the petitioner and other relevant witnesses and had come to an independent opinion that there was in fact evasion of excise duty by clandestine removal of goods, he would have been justified in making additions for the purpose of VAT Act. In the present case, however, no such exercise was undertaken. All that the Assessing Officer did was to rely on the show cause notice issued by the Excise Department. Nowhere did he conclude that there was a case of clandestine removal of goods without payment of tax under the VAT Act. Merely because the Excise Department issued a show cause notice, that cannot be a ground to presume and conclude that there was evasion of excise duty implying thereby that there was also evasion of tax under the VAT Act. It is not even the case of the Department that such show cause notice proceedings has culminated into any final order against the petitioner. We wonder what would happen to the order of reassessment, if ultimately the Excise Department were to drop the proceedings without levying any duty or penalty from the petitioner.

All in all, the Asstt. Commissioner has acted in a mechanical manner and passed final order of assessment merely on the premise that the Excise Department has issued a show cause notice alleging clandestine removal of the goods. Such order, therefore, cannot be sustained and is accordingly quashed. When the order isex facie illegal and wholly untenable in law, mere availability of alternative remedy would not preclude us from interfering at this stage in a writ petition.”

[6.0] In view of the above decision of Division Bench of this Court, the impugned reassessment order deserves to be quashed and set aside. However liberty can be reserved in favour of the department to pass an order afresh in accordance with law and on merits after giving an opportunity to the petitioner and if permissible under the law now.

[6.1] In view of the above and for the reasons stated above, petition succeeds. Impugned order passed by the Commissioner Tax Officer(4),Mehsana [Annexuree] to the petition] dated 30.03.2013 is hereby quashed and set aside. However, it is observed that the same shall not affect the proceedings under the Central Excise Act for which the show cause notice has been issued. A liberty is also reserved in favour of the department to pass reassessment order afresh in accordance with law and on merits and after giving fullest opportunity to the petitioner and if permissible under the law now. Rule is made absolute to the aforesaid extent. In the facts and circumstances of the case, there shall be no order as to costs.

In this background ld. Authorised Representative submitted that additions be deleted in both the years. On other hand ld. Departmental Representative supported the orders of authorities below and contended that order CESTAT is technical one so same should be ignored and orders of authorities below be upheld in both the years.

11. We find that the basis of addition is contents of show-cause notice issued by the Excise Department. An investigation was carried out by DGCEI at assessee premises on 25/08/2008, wherein it was alleged by the Excise Department that assessee has not declared actual assessable value of goods manufactured and cleared from factory. Based on above DGCEI issued show-cause notice dated 19/04/2010, Excise department concluded that assessee was engaged in under valuation of sales and clandestine removal of goods. Only on the basis of same Assessing officer reopened assessee’s income tax assessment for the years under consideration and made addition of estimated Gross Profit on under valuation sales and clandestine removal of goods. The Revenue has brought nothing on record that it has applied it’s mind over and above the contents of show-cause notice in question thus there is lack of independent application of mind on behalf of revenue in these matters.

12. Without prejudice to above, we find that in Excise proceedings, concerned authorities passed order against assessee and matter was carried up to concerned Hon’ble CESTAT. Hon’ble CESTAT vide its order dated 12/02/2015 as discussed above, has decided the issue in favour of the assessee holding that Excise Department could not estimate value of alleged suppression of sales as well as clandestine removal of goods merely on the basis of assumption and surmises. The CESTAT having considered the relevant facts of the case as well as relevant material i.e. Pen drive and statement recorded by the Excise Department has decided the matter in favour of the assessee as discussed above. In these circumstances Ld. CIT(A) was not justified in observing that relief granted by Hon’ble CESTAT was highly technical.

13. We also find that Excise Department carried matter before Hon’ble Apex Court wherein same was dismissed as withdrawn as mentioned above. Nothing contrary was brought to our knowledge on behalf of Revenue in this regard.

14. We also find that Tax Appeal being Tax Appeal No.733 and 734 of 2016 preferred by the Ld. Excise Department before Hon’ble Gujarat High Court came to be dismissed vide order dated 07/12/2016, as mentioned above. Again nothing contrary was brought to our knowledge on behalf of Revenue in this regard as well. In this background, we find that the order passed by Hon’ble CESTAT has achieved the finality against the revenue. As we have observed earlier that only Excise Department action was basis of additions before us in both the years which does not survive for the reasons discussed above, so the basis of additions made by the Revenue does not survive.

15. In view of the above additions made on account as alleged valuation of sales and clandestine removal of goods do not survive and same are directed to be deleted in both the assessment years.In the result both the appeals filed by the assessee are allowed.

16. Now we take up appeals in case of Growmore Ceramics Pvt. Ltd. in ITA Nos. 988, 989 & 990/Ahd/2016 for Asst. Years 2006-07, 2007-08 & 2008-09, respectively. Following Grounds has taken by the assessee:

16.1 For Asst. Year 2006-07:

1. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of Assessing Officer in reopening the assessment u/s.147 of the Act. In the facts and circumstances of the case, learned CIT(A) ought to have held that the action of reopening is without jurisdiction and not permissible either in law or on facts.

2. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of learned Assessing Officer in estimating income of the appellant, without rejecting books of accounts of the appellant.

3. The learned CIT(A) has erred in law and on facts of the case in confirming the action of learned Assessing Officer in holding that the appellant has undervalued sales amounting to Rs.4,93,75,020/-.

4. The learned CIT(A) has erred both in law and on the facts of the case in confirming addition of Rs.74,06,253/- after applying gross profit rate of 15% on alleged undervalued sales.

5. The learned CIT(A) has erred in law and on facts of the case in confirming the action of learned assessing officer in holding that the appellant has clandestinely removed goods amounting to Rs.5,32,45,944/-.

6. The ld. CIT(A) has erred both in law and on the facts of the case in confirming an addition of Rs.79,86,892/- after applying gross profit rate of 15% on alleged clandestine removal of goods.

7. Both the lower authorities have passed the orders without properly appreciating the fact and that they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.

8. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld. Assessing Officer in levying interest u/s 234A/B/C/D of the Act.

9. The learned CIT(A) has erred in law arid on facts of the case in confirming action of the ld. Assessing Officer in initiating penalty u/s 271(l)(c) of the Act.

16.2 For Asst. Year 2007-08:

4. The learned CIT(A) has erred both in law and on the facts of the case in confirming addition of Rs.90,38,523/- after applying gross profit rate of 15% on alleged undervalued sales.

5. The learned CIT(A) has erred in law and on facts of the case in confirming the action of learned Assessing Officer in holding that the appellant has clandestinely removed goods amounting to Rs.60,54,462/-.

6. The ld. CIT(A) has erred both in law and on the facts of the case in confirming an addition of Rs.9,08,169/- after applying gross profit rate of 15% on alleged clandestine removal of goods.

8. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld.Assessing Officer in levying interest u/s 234A/B/C/D of the Act.

9. The learned CIT(A) has erred in law arid on facts of the case in confirming action of the ld. Assessing Officer in initiating penalty u/s 271(l)(c) of the Act.

16.3 For Asst. Year 2009-10 :

4. The learned CIT(A) has erred both in law and on the facts of the case in confirming addition of Rs.76,39,207/- after applying gross profit rate of 15% on alleged undervalued sales.

6. The ld. CIT(A) has erred both in law and on the facts of the case in confirming an addition of Rs.10,47,077/-after applying gross profit rate of 15% on alleged clandestine removal of goods.

8. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld.Assessing Officer in levying interest u/s 234A/B/C/D of the Act.

9. The learned CIT(A) has erred in law arid on facts of the case in confirming action of the ld. Assessing Officer in initiating penalty u/s 271(l)(c) of the Act.

17. Assessee is a Pvt. Ltd. company and engaged in business of manufacturing of Ceramics Glaze Mixture, frit. Return of income for Asst. Year 2006-07 was filed on 07/12/2006 declaring total income of Rs. NIL/- and same was processed u/s.143(1) of the Act.

Thereafter, notice u/s.148 of the Act issued on 26.03.2013 for reopening assessment and in response to the same assessee submitted to treat the original return as return in response to notice u/s.148 of the Act. The reopening of the assessment was made for simple reason that DGCEI, Ahmedabad carried out search operation wherein it was allegedly found that assessee was evading payment of Excise duty and clandestine removal goods, parallel under invoices. Accordingly DGCEI issued show cause notice taking the total turnover of Rs.4,93,75,020/- for the period 01/04/2005 to 31/03/2006 i.e. assessment year 2006-07 and therefore reopened income Tax assessment u/s. 148 for A.Y. 2006-07.

18. Assessee challenged reasons for re-opening assessment u/s. 148 of the Act and same was rejected. Thereafter notice u/s.143 (2) with 142(1) of the Act was issued and served upon assessee. In response to the same assessee submitted details as called for and produced books of accounts for verification. Assessing Officer after rejecting contention raised on behalf of assessee adopted Gross Profit @ 15% on undervaluation and clandestine removal of goods accordingly passed assessment order u/s.143(3) r.w.s. 147 of the Act wherein determined total income of Rs,1,53,93,145/- as against the return income of Rs. NIL/-. Assessing officer also calculated tax and charged interest u/s.234B / 234C. Similar addition were made in Asst. Year 2007-08 and 2008-09.

19. The matter was carried before first appellate authority wherein various submissions were made opposing addition in question, however Ld. CIT(A) upheld the order of the ld. Assessing Officer by observing as under:

“5.6 I have considered the facts of the case, assessment order, submission made by the appellant, remand report and rejoinder filed by the appellant. On perusal of assessment order it is observed that a letter was received from the Deputy Director of Income-tax (Inv.), Unit-II, Ahmedabad along with Show Cause Notice issued to the appellant by Directorate General of Central Excise Intelligence, Ahmedabad (DGCEI). From the show cause notice, it was noticed that appellant was engaged in various types of modes & methods of tax evasion which resulted into escapement of huge tax for the year under consideration. In such facts, case of the appellant for the year under appeal was reopened U/s.147 of the IT Act. After recording the reasons for reopening, notice u/s. 148 of the Act was issued on 26/03/2013. In response to the notice issued appellant requested to treat the original return filed on 07/12/2006 as return filed in response to notice u/s 148. Further, statutory notices u/s 143(2) and u/s 142(1) were issued and served to the appellant. To elaborate the matter, it is perused that in this case on the basis of intelligence gathered by DGCEI as well as the documentary evidences recovered from the premises, a search operation was conducted at the premises of the appellant on 29/08/2008. Investigation conducted by DGCEI against the appellant revealed that they had not declared the actual assessable value of goods manufactured and cleared from their registered factory premises. The documentary as well as oral evidences collected by DGCEI from various buyers clearly indicated that appellantas declaring in their central excise invoices only a part of the actual transaction value manufactured and cleared from their factory. Differential value of 1 frit, over and above the value declared in the invoices, was collected by them from their buyers in cash. The observation and finding given in Show cause notice was on the basis of investigations and evidences gathered by the officials of Excise Department which clearly proved that appellant had suppressed the sale value by way of undervaluation of invoices as well as clandestine removal of goods from their premises. The suppression was revealed on the basis of finding during the course of investigations by the DGCEI and as mentioned in detail in the Show Cause Notice contained in letter F. No. DGCEI/AZU/36(4) 134/200910 1842 dated 9.02.2010. It was revealed from the Show Cause Notice of the DGCEI that appellant was showing sale value of Frit at Rs.10/- per kg whereas the actual price was at. Ks.20/- to 30/- per kg. The amount shown in the invoices were being collected through cheques whereas the remaining amount was being collected by cash. Further it was also found that appellant was declaring less production than the actual production. The company was showing consumption of 2044.494 SCM of natural gas for manufacturing of 1 MT of frit whereas on verification based on the -figures of average Gas consumption against one MT of frit manufactured when appellant had shown-higher production, and also in view of the statement of Sh. Harshadbhai C Patel, Partner and Production In-charge, it was found that 484 SCM of natural gas was consumed for manufacturing of 1 MT of frit. It was proved beyond doubt that appellant was involved in undervaluation of sale invoices, thereby suppressing the sales and also had understated the production and its unaccounted sale of suchclandestine production. For the year under appeal, the amount of undervaluation has been worked out at Rs.4,93,75,020/- [as mentioned in Annexure D-1 (Sr. No. 1 to 505) of SCN issued by DGCEI and the amount of Clandestine removal goods has been worked out at Rs.5,32,45,944/- asmentioned in Annexure D-2 (Apr-05 to Mar-06) of SCN issued by DGCEI]. AO has concluded that appellant had shown G.P. at a rate of 15% for the year under appeal hence, for the purpose, 15% G.P rate adopted at 15%. Accordingly, 15% of total undervalued sales is worked out at Rs.74,06,253 (15% of Rs. 4,93,75,020/-) is added to the total income of the appellant. Similarly 15% of the value of clandestine removal goods for the year under consideration is worked out at Rs.79,86,892/- (15% of Rs. 5,32,45,944/-) and is added to total income of the appellant.

Appellant before me contended that AO in making addition of Rs.74,06,253/- being element of profit on the alleged undervalued sales of Rs.4,93,75,020/-and of Rs.79,86,892/- Being element of profit on the alleged value of alleged clandestine removal of goods of Rs.5,32.45,944/-has entirely relied upon the Show Cause Notice issued by the DGCEI for proposing the additions in his show cause notice dt. 10/03/2014 reproduced in assessment order under appeal and also in making the impugned additions. Further, appellant has also contended that AO had extensively relied upon and reproduced the paragraphs from the SCN issued by me DGCEI and relying upon the same had proceeded to make the additions referred to above. Further, it is contended that Excise Department had passed the adjudication order on the basis of the SCN of the DGCEI determining the additional excise duty payable on the values as determined and had been subject matter of appeal before the Hon. Central Excise & Service Tax Tribunal, WZB, Ahmedabad. It is stated that the Hon’ble CESTAT has decided the said appeals in favour of the “appellants by a common appellate order dt 1205-2015. The Hon. CESTAT has held that no case of undervaluation of sales or of clandestine Removal of frit has been made out and accordingly quashed the adjudication orders passed by the Central Excise authorities on the basis of the Show Cause Notice of the DGCEI. Further appellant has contended and relied on the decision of the Hon’ble ITAT Bench decision in the case of Prima Ceramics Pvt. Ltd. involving facts similar to the appellant’s case that the appeal should be decided in the light of the order of the Excise and Custom Tribunal, It is contended that Hon’ble ITAT had followed the above referred order in another case involving identical facts, M/s. Welsuit Glass & Ceramics Pvt. Ltd. while deciding cross appeals by the Department vide order dated 20/06/2014. The appellant has also argued that AO has not rejected books of account and made addition for gross profit of under valuation and clandestine removal of goods which is incorrect.

Whether the appellants had indulged in clandestine manufacture and clearance of Ceramic Glazed Mixture (Frit) in view of the adjudication orders passed on the basis of natural gas consumption norms per metric ton?
Whether the appellants had indulged in undervaluation of frit and also clandestinely cleared frit as per personal ledgers retrieved from a pen-drive recovered and other personal records read with their statements?
Whether the adjudicating authorities were justified in denying cross-examination of witness under the provisions of Section 9D of the Central Excise Act, 1944 read with the judicial pronouncements on the issue.

It is perused from the common order of CESTAT that clandestine manufacture and clearance of frit by the appellant have been estimated by taking different gas consumption norms which either got suggested by the appellant or worked out by the Investigation. Average gas consumption from 263 SCMs to 484 SCMs were fixed for different appellants and were considered by the adjudicating authorities for calculating/confirming the demands and imposing penalties. On the above lines, Hon’ble CESTAT has concluded in Paras. 8, 9 & 10 that the methodology adopted by the Adjudicating authorities in estimating and demanding duty from the appellants based on consumption of natural gas electricity consumed and packing time taken, as not acceptable and required to be rejected. The paras, are reproduced hereunder:

From the above it is perused that the Hon’ble CETAT finding on the order of the Commissioner of Central Excise-III, Ahmedabad is on highly technical grounds citing various decisions of tribunals and various judicial pronouncements regarding under valuation of goods and on account of Clandestine Removal of goods and also appellant was not given opportunity of cross examination on the statements recorded of various persons related to the appellant for the production of their goods. However, with due respect to Hon’ble CESTAT’s decision it is seen that no where Hon’ble CESTAT has dealt the evidences collected by the Investigating Authorities of Central Excise though mentioned in the body of the order by way of Annexures by the Commissioner of Central Excise-III, Ahmedabad which are still in the possession of Central Excise Department like invoices which were prepared by the appellant in two folds, under valuation of goods which were collected and on that basisAcdl. DGCE had show-caused the appellant. Various statements were recorded of the partners and the technical persons of various concerns from whom appellant used to purchase or sold the products which are also not cross examined as stated by the Hon’ble CESTAT. The Hon’ble jurisdictional Tribunal has decided one M/s. Prima Ceramics Pvt Ltd in ITA No. 453/Ahd/2013, which is one of the 22 cases involved having identical issue. Hon’ble Tribunal has given the directions to decide this case asunder:

Following the above directions of the Hon’ble ITAT, the case of the appellant was remanded to AO and directed to give fresh opportunity to he appellant to produce books of accounts and to provide opportunity to cross-examine of various statements recorded and evidences collected during the action conducted by the Excise Department and the detailed Show Cause Notice prepared by the DGCEI and followed by the AO. AO has submitted a detailed remand report which is reproduced herein above. Appellant was provided opportunity to file rejoinder and a copy of the remand report of the AO was provided to the appellant has filed rejoinder which is reproduced herein above. It is further observed that AO vide its letter dated 07/03/2016 has also submitted following report.

2. This is with respect to the appellant proceedings for the A.Y.2006-07, 2007-08, 2008-09 pending before the Hon’ble CIT(A). In this regard, it is to state that vide this office Letter dated 12/02/2016, the assessee was specifically asked to produce the books of accounts, for verification. However, on 23/03/2016 ShriDaxesh M. Thakkar, Advocate attended the office of the undersigned and inspite of specifically asked to produce the books, the AR did not produce the books. And in its submission dated 23/02/2016, related to the show cause for A.Y.2009-10, A.Y.2010-11, the AR expressed, its inability to produce the books of account, as the same has been lying with the Central Excise Department as seized at the time of search conducted in its premises on 29/08/2008 by DGCEI, Zonal Unit, Ahmedabad.

However, since the appellant has demanded the same before the Hon’ble CIT(A), vide its rejoinder/rebuttal dated 12/01/2016, in which they claim before the Hon’ble CIT(A) that no cross examination opportunity was given by the ACIT, Mehsana. In this regard, it is to state that the decision of A.Y 2006 07, 2007-08, 2008-09 was not only on the basis of information received from the Excise Department, but also on the basis of the statement recorded at the time of assessment proceeding by then AO of one of the Director Shri Harshad Patel, which is also formed part of the assessment order. Therefore, before finalizing the issue, it consider essential to impart justice by providing opportunity of cross examination of Shri Harshad Patel, Director for all the years i.e. A.Y.2006 07, 2007-08, 2008-09, 2009-10 and the date of compliance was fixed on 29/02/2016.

However on 29/02/2016. Shri Harshad Patel was not produced before the undersigned. The AR attended the office of the undersigned at around 4:30 P.M., with incomplete sets of books, when he was asked to produce production register, stock register which form one of the essential element of addition in all these year. He informed the undersigned that, he will brought the same from the factory premise. However for that undersigned waited till 6:30 P.M. but nothing produced till that time and when one of his staff Shri Manish S. Patel who was present was asked to sign the order sheet, he refused to do the same after taking with the C-A, Shri Daxesh M. Thakkar, Advocate on phone Later on next day on 01/03/2016. Neither, no body attended the office, just they submit me photocopy of the various document through Dak. In the absence of verification as given to the assessee, the genuinely of the books cannot be determined. Therefore, it is requested to Hon’ble CIT, to please decide the issue on the basis of facts and material on record. As the appellant is just trying to delay the procedure before the CIT(A) for A.Y.2006-07, 2007-08, 2008-09 with the sole motive to delay reassessment proceedings for A.Y.2009-10 and A.Y.2010-11, it is therefore requested to kindly dispose the appeal as early as possible so that this office can decide the identical issue in above mentioned assessment year.

Photocopies of the order sheets for both the years as well as copies of covering letters of submissions filed on 01/03/2016 are annexed herewith.”

As is evident from the direction of the Hon’ble ITAT vide order dated 05/09/2013 reproduced, in the case of Prima Ceramics Pvt Ltd and other 22 cases including appellant, a reasonable opportunity of being heard and opportunity of cross examination on the basis of evidences collected by DGCEI and relied upon by the AO was granted to the appellant by the AO. The opportunity granted was denied by the appellant simply stating in his letter that since they already received the relevant documents during the assessment proceedings, there was no need for further cross verification as the appellant had received the relevant documents during the assessment proceedings. However, the AR on that day only submitted the copy of order passed by the appellate Tribunal of Central Excise in which the issue in question was allowed in favour of the assessee. AO has further requested the appellant to produce the books of accounts and relevant documents to verify and examine the issues raised by the Addl. DGCEI in his show cause notice for determining the under valuation of goods and Clandestine Removal. In response thereto appellant submitted the same submission submitted during the assessment proceedings and no original bills/vouchers were produced before the AO. AO therefore was of the view that appellant do not have any material evidence on record which it can rely. It is further observed from copy of order sheet provided by AO which pertains to remand proceedings along with remand report dated 7lh March 2016, AO has provided opportunity to appellant to cross examine Mr Harshad Patel, director of company for all the three years because during the search and post search investigation by excise department, he has admitted that rates charged were much lower than the actual selling price and clandestine removal of goods but said director was not produced before AO inspite of providing sufficient opportunity. Even during remand proceedings, appellant has not submitted complete set of books of account even though it was specifically asked to produce production register, stock register which form one of the essential element of additions.

Considering the directions as well as after considering issues involved on the basis of facts covered and show cause issued/ the following facts are revealed:

1) The reasons for providing the opportunity of being heard and cross examination to the appellant was as per the directions of the Hon’ble ITAT and also to verify and examine various evidences which was mentioned in the show cause letter issued to the appellant by Addl. DGCEI like the evidences of under valuation of goods, under valuation of freight and evidences mentioned on page no.8, 9 & 10 in order dated 29/3/2014 of Commissioner of Central Excise, Ahmedabad.

2) Also, one of the issue like statement recorded of director wherein the director has accepted modus operandi of tax evasion by under-valuation of goods and freight and unaccounted production. It is not out of place to mention that these facts were not dealt by the Hon’ble ITAT in the order passed CESTAT has given relief on the basis of technical ground but Income-tax Department has not examined the Partners of the company and other persons whose statements were recorded on oath during the search action by the Excise Department as well as on those evidences which was collected and was inpossession of Excise Department which were very wellmentioned in the show cause letter of Addl. DGCEI and order passed by the Commissioner of Central Excise-III, Ahmedabad in the case of the appellant.

The case was remanded to the AO to confront the appellant on these issues as well as to give opportunity to the appellant to produce the books in support of the claim which was not relied upon by the AO. Appellant has not availed the opportunity with the plea that the AO has to follow the order of the Hon’ble CESTAT and directions of Hon’ble Jurisdictional ITAT which is well discussed in above paragraphs. The denial of opportunity by the appellant indicates that the issue is still very live in the case of the appellant as reported by the AO also as Central Excise Department has further preferred appeal before the Apex Court against the order of CESTAT which was decided on the basis of technicalities and judicial pronouncements. The case was remanded to the AO with a specific direction to give opportunity of being heard and opportunity of cross examination on the basis of facts, findings given in Show Cause Notices issued by the by the Addl. DGCEI, Ahmedabad but appellant voluntarily denied to avail the opportunities and did not produce the books of accounts arid on such facts, the appeal is decided in the basis of evidences gathered by the Excise Department which was followed by the AO and made the disallowance and addition to the total income of the appellant on the grounds that Partners of the appellant company and others in their statements had accepted and stated how the modus operandi was carried out by them for undervaluation of goods and clandestine removal; the statement recorded with regard to frit and Show Cause letter regarding books which was rejected by the AO.

During the course of Investigation a statement of Shri Harshadbhai C Patel, director of appellant company was recorded on oath on 30/1/2010 by the Central Excise Authorities and during the search operation he has very categorically admitted in his statement that rates charged were much lower than the actual selling price and also accepted the fact that appellant company was involved in parallel invoices. Even during the course of search conducted by excise authorities, various materials were found which reveal the above fact of under invoicing and issuance of parallel Invoices. The above fact is also substantiated by statement of director recorded by excise authority and relevant portion of said statement is reproduced herein under :

Q.1 8: Shri Harshadbhai Patel, you are being shown the ‘Original for Buyer’ copy furnished by Shri AshakbhaiJayrambhaiSavsani, Partner of M/s Uday Industries and M/s Uday Gold Ceramics, of Invoice No.132 dtd. 08-08-2007 issued by your company in favour M/s uday Industries for supply of 200 bags i.e. 10000 kgsof Ceramic glaze mixture Chemicals, describing the quality as “TR”, at the rate ofRs 7/-per kg., having value of Rs.70,000/-, showing Central Excise duty as Nil in view of benefit o/Exemption under Notifn. No. 8/2003-C.E. dtd. 01-03 2003 and VAT @ 4 % as Rs. 2,800/, showing the total value of Rs.72,800/-. Further, you ore also been shown the official ledger of M/s Uday Industries in your favour for the year 2007-08, wherein on left hand side, showing the details of value, date of purchase and Invoice/bill No. of supplier i.e. M/s Growmore Ceramics P. Ltd. and on Right hand-side, showing the payments, the date of payment made. Cheque Nos.& date, for the purchases made by you. Alongwith this, you ore showing the Invoice No. 132dtd. 10-08-2007 of M/s Growmore Ceramics Pvt. Ltd., issued in the name of M/s Seron Ceramics Pvt. Ltd. for 6000 kgs of Ceramic Glaze Mixture Chemicals – “Opaque ” grade @ Rs.9/-, having Assessable value of Rs. 54,000/-, and 4000 kgs Ceramic Glaze Mixture Chemicals – “TR” grade, @ Rs. If- per kgs., having assessable value of Rs. 28,000/-, total value as Rs. 82,000/- and showing Central Excise duty as Nil claiming the benefit of Notifn. No. 8/2003-S.T. dtd. 01-03-2003. alongwilh VAT @ 4 % amounting to Rs.3,280/-, total amount of Rs. 85,280/-. Copies of both the invoices are scanned herein below. Please explain the same in detail?

A.18: Sir, after carefully going through, the above two documents, I put my dated signature on each of it. I state that vide the Triplicate copy of assesses’ copy of Invoice No. 132 dtd. 10-08-2007 of M/s Growmore Ceramics Pvt. Ltd., issued in the name of M/s Seron Ceramics Pvt. Ltd. for 6000 kgs of Ceramic Glaze Mixture Chemicals – “Opaque” grade @ Rs. 9/-, having Assessable value of Rs.54,000/-, and 4000 kgs Ceramic Glaze Mixture Chemicals .. “TR” grade, @ Rs. 7/- per kgs., having assessable value of Rs.28,000/-, total value as Rs.82,000/- and showing Central Excise duty us Nil claiming the benefit of Notifn. No. 8/2003-S.T. dtd. 01-03-2003, alongwithVAT@4% amounting to Rs. 3,280/. total amount of Rs. 85,280/-, we have cleared the above-mentioned quantities of “Opaque ” and “TR” grade to M/s Seron Ceramics Pvt. Ltd. and received the total value of Rs. 85,280/-. I further state the above invoices have been shown in the official invoices issued by our company during the financial year 2007-08and received the payment of the total value mentioned in the above invoice.

Further, as regards the “Original of Buyer copy of Invoice No. 132 dtd. 08-08-2007 issued by my company in favour M/s Uday Industries for supply of 200bags i.e. 10000 kgs of Ceramic glaze mixture Chemicals, describing the qualityas “TR”, at the rate of Rs.71- per kg., having value of Rs.70,000/-, showingCentral Excise duty as Nil in view of benefit of Exemption under Notifn. No. 8/2003-C.E. dtd. 0103-2003 and VAT @ 4 % as Rs. 2,800/-. showing the total value ofRs.72,800/-, I state that the above quantity of “TR” grade frit from our company has been sold toM/s. Uday Industries under the above invoice, however, the said invoice has been a “Parallel invoice” issued by our company, which has issued by our company, alongwith the original invoice No. 132 did. 10-08-2007 and we have not considered the same in our official records.

I further state that the above-mentioned Parallel invoice No.132 dtd. 08-08-2007 in favour of M/s Uday Industries has been issued by our company for supply of 10000 kgs of “TR” Quality of Ceramic Glaze Mixture i.e. frit from our company to M/s Uday Industries, however, we have not accounted for the-above quantity of “TR ” grade frit in our books of account and Daily Stock Account register, during the material time I state that as like the official invoices issued by us, we issue in case of parallel invoice also, we issue- three copies, out of which the “Original” and ‘Duplicate’ copies were sent to the buyer alongwith the goods and ‘Triplicate copy was retained by us. Further, “Triplicate for assessee” copy of the Parallel invoice No. 132 dtd. 0808-2007, which we retained with us as per routine procedure, I confirm that after dispatch and receipt of the frit cleared under Parallel invoice, we have destroyed the same and we have not kept any records.

Further, on being asked the raw materials purchase and consumption of it, in the production of above-mentioned 10000 kgs of “TR” grade frit, I State that we had purchased the required raw materials in cash for manufacture of above quantity of “TR” grade frit and that we had not accounted for the said raw materials in our books of account. Regarding the invoices of raw material purchase or its copies, I state that we have purchased the required raw materials in cash and after receipt of the raw materials purchase in cash at our factory premises, we use to destroy the said invoices.–.”

All the buyers of Frit whose statements were recorded had confirmed that the quality of frit beginning from 2006-07 to 2009-10 were similar and thus appellant undervalued the goods. Similarly 8 to 10 persons statements were recorded which confirms this fact. In the statement recorded of Shri Ashok J Savasani, partner of M/s Uday Industries which was recorded on 24/12/2009 has admitted that they were purchasing ceramic frit from the appellant and in the invoices they were showing about Rs.7/- to Rs.9/- per kg and actual value of frit was about Rs.20 to 26 per Kg and balance amount was paid in cash. Similarly in the statement of Shri Nileshbhai M Ghodasara, director of Seron Ceramics Pvt Limited was recorded on 07th January 2010 wherein he has stated that during the period 2004-05 to 2007-08, manufacturers were showing value of frit at Rs 7/- to Rs 12/- per kg and from 2008-09, increased the prices from Rs.20/- to Rs.30/- per kg which were the actual value and hence in the past period, over and above, the invoice amount, they were paying remaining amount in cash directly to the frit manufacturers. Similarly, in the statement recorded of ShriJayendrabhai Kababhai Kalaria, partner of M/s.Atlas Industries, Morbi, he has admitted that they had purchased opaque quality frits and sometimes transparent quality also. However, the quality of both the opaque and transparent frit received were the same. He also confirmed that there was undervaluation of ceramic frit as they were getting invoices from the suppliers @7/- to Rs.12/- per kg, which was paid in cheque. The balance was collected in cash and was also not shown in the invoices raised. In the statement recorded of Shri JagdishbhaiGovindbhai Patel, partner of M/s Satyam Ceramic, Lakhdirpur Road, Morbi, he has admitted that there was undervaluation of cermic frit as they were getting invoices from the suppliers @ 7/- to Rs.12/- which was paid through cheques, however for the difference in value of frit, which was Rs.20/- to Rs.30/- per kg, the balance was paid in cash. Similar Statement has been given by Shri BalubhaiArnarsinhbhai Patel, partner of M/s Leo Ceramic, Morbi; Shri KishorebhaiRaghavjibhai Patel, partner of M/s Priya Gold Ceramics, Morbi; Shri SureshbhaiKarsanbhaiFefar, partner of M/s Omson Ceramic, Morbi; Shri LaljibhaiVishrambhyai Patel, partner of AM/s Swagat Ceramic, Morbi; Shri JitendrabhaiPurchottamdasRojmala, partner of M/s. Silk Ceramics, Morbi; Shri ChhaganbbaiValjibhai Patel, Director of M/s Sacmi Ceramic Pvt Ltd. Morbi; Shri ChamanbhaiJirrajbhai Patel, Director of M/s Square Ceramic Pvt. Ltd. Morbi and various other persons. From the above, it is very clear that appellant was engaged in under valuation of goods and Clandestine removal of frits. It was for the appellant to prove that the allegations made against it are not correct by producing books of accounts and the facts against evidences collected during the search operation by the Excise Department which was not done by the appellant and hence the only conclusion that can be drawn is that appellant was involved in the practice of undervaluation of goods and removal of clandestine of goods.

It is pertinent to note that appellant has indulged in under invoicing of sales bills and were recording sales below at sale value which is supported by various evidences found during the course of search carried out by excise department along with statement of director reproduced herein above wherein he has categorically admitted that there are recording sales below its actual value which prove beyond doubt that appellant is not maintaining proper books of account. The appellant has failed to submit such books of account even during remand proceedings. Even AO while passing original assessment proceedings has clearly mentioned that books of appellant cannot be relied upon as the appellant was engaged in suppression of sales by way of under valuation of sales invoice as well as clandestine removal of unaccounted production and consequent unaccounted sales. Thus AO was correct in applying gross profit as adopted by appellant on unaccounted sales and clandestine removal of goods.

In view of the above, action of the AO in making the addition of Rs.74,06,253/- on account of under valuation and addition of Rs.79,86,892/- on account of Clandestine Removal of frits to the total income of the appellant is held justified and is hereby confirmed. Relevant grounds of appeal are therefore, rejected.

6. Next ground of appeal against charging of interest u/s.234B and 234C of the Act being mandatory and consequential to the determination of total income is decided as such.

7. In the result, appeal is dismissed.”

20. Before us ld. Authorised Representative submitted that he is not pressing the issue of re-opening so same is dismissed as not pressed in all three years.

21. Now Coming to the additions on merit raised parallel under invoicing according Excise Department took turnover of Rs.4,93,75,020/-for A.Y. 2006-07 in excise matter and impugned additions were made on the basis excise proceedings as mentioned above in all three years which were confirmed by the ld. CIT(A) in all three years.

22. Ld. Authorised Representative submitted that Excise matter was carried before Hon’ble CESTAT wherein order was passed o 12/05/2015 in favour of assessee which has been reproduced in Para 10 of this order and same is not being repeated for sake of brevity. In this background ld. Authorised Representative submitted that income tax additions does not survive because basis of the same has already been demolished by the Hon’ble CESTAT as mentioned above. Nothing contrary was brought to notice on behalf of revenue.

23. Now appeal is before us, we find that assessee is Pvt. Ltd. Company and engaged in business of manufacturing of Ceramics Glaze Mixture, Frit. Return of income for Asst. Year 2006-07 was filed on 07/12/2006 declaring total income of Rs.NIL/- and same was processed u/s.143(1) of the Act.As discussed above notice u/s.148 of the Act was issued for reopening however assessing officer rejected the contentions of the assessee made impugned additions u/s.143(3) read with section 147 of the Act, which was confirmed by the ld. CIT(A) in all three years. Accordingly, we find that the basis of addition is contents of show-cause notice issued by the Excise Department. An investigation was carried out by DGCEI at assessee premises, wherein it was alleged by the Excise Department that assessee has not declared actual assessable value of goods manufactured and cleared from factory. Based on the same DGCEI issued show-cause notice, Excise department concluded that assessee was engaged in under valuation of sales and clandestine removal of goods. Only on the basis of same Assessing officer reopened assessee’s income tax assessment for the years under consideration and made addition of estimated Gross Profit on under valuation sales and clandestine removal of goods.

24. We also find that in Excise proceedings, concerned authorities passed order against assessee and matter was carried up to concerned Hon’ble CESTAT. Hon’ble CESTAT passed an order dated 12/05/2015 as discussed above, has decided the issue in favour of the assessee holding that Excise Department could not estimate value of alleged suppression of sales as well as clandestine removal of goods merely on the basis of assumption and surmises. The CESTAT having considered the relevant facts of the case and statement recorded by the Excise Department has decided the matter in favour of the assessee as discussed in the order of the CESTAT. In our considered opinion and in the facts and circumstances of the case ld. CIT(A) was not justified in observing that relief granted by Hon’ble CESTAT was highly technical.

25. It is pertinent to mention here that in connected matter we also find that Excise Department carried matter before Hon’ble Supreme Court wherein same was dismissed as withdrawn. Nothing contrary was brought to our knowledge on behalf of Revenue in this regard.

26. We also find in connected matter that Tax Appeal being Tax Appeal No.733 and 734 of 2016 preferred by the Ld. Excise Department before Hon’ble Gujarat High Court came to be dismissed vide order dated 07/12/2016 as discussed earlier. Again nothing contrary was brought to our knowledge on behalf of Revenue in this regard as well.

27. In this background, in our considered opinion orders passed by the Hon’ble CESTAT in these years have achieved finality against the revenue. As we have observed earlier that only Excise Department action was basis of additions in all the three years which does not survive for the reasons stated therein, so the basis of additions made by the Revenue does not survive.

28. In view of the above observation, addition made by the revenue has alleged undervaluation sales and Clandestine removal of goods do not survive and same are directed to be deleted in all the three years. Therefore, All the three appeals are allowed.

29. In the result, all five appeals of the assessee’s in both groups are allowed.

This Order pronounced in Open Court on 30/11/2017

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Addition merely based on SCN issued by Excise Department not sustain if CESTAT decided in favour of assessee

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Zirconia Cera Tech Glazes Vs DCIT (ITAT Ahmedabad)

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