15 V. 2 (72)09/Ahd.III/2012.

Brief facts of the Case:-

This order covers two appeals filed against Order-in-original No.23/AC/GAR/Ahd-III/2011-12 dated 07.12.2011 (hereinafter referred to as ‘the impugned order’ for the sake of brevity) passed by Assistant Commissioner, Central Excise, Division-Nadiad, Ahmedabad-III (hereinafter referred to as ‘the adjudicating authority’ for the sake of brevity). The first appeal has been filed by M/s Divy Rollform Ltd., Block No. 91, Village: Vavdi, Opp. Elite Children Park, Kheda- Dholka Road, Taluka- Kheda (hereinafter referred to as ‘the appellants’ for the sake of brevity) and the second appeal filed by Shri Hasmukh T. Shah, Director for the appellants (hereinafter referred to as ‘the Director’ for the sake of brevity).

2. Stated briefly, the facts of the case are that the officers of the department conducted search on 12.9.2007 at the factory premises of the appellants, acting on specific intelligence to the effect that the appellants had suppressed the manufacture and indulged in illicit clearance of their finished goods i.e. Cold Roll formed Metal Section/ Profiles falling under Chapter-72 of The Central Excise Tariff Act, 1985, without payment of Central Excise duty. The said search was conducted in presence of ‘the Director’ of the appellants and two independent panchas under the Panchnama proceeding. During the course of search at the factory certain incriminating documents including diaries were seized as listed in the “Annexure- A” to the Panchnama drawn on 12.9.2007 at the factory premises of the appellants. Scrutiny of documents which were seized from the premises of the appellants during the search operation revealed that the appellants had suppressed the production of finished goods valued at `. 13,74,682/- attracting Central Excise duty amounting to `. 2,24,348/- and cleared the said goods without payment of Central Excise duty; that the appellants had received `. 1,02,026/- over and above, the value of goods mentioned in the respective invoices from their buyers and had failed to pay the differential amount of duty of `.16,184/- on the said excess value, so recovered from their buyers. Therefore, a Show Cause Notice F.No.IV./16-30/PI/Divy/2007-08 dated 31.01.2011 was issued to the appellants demanding Central Excise duty of `.2,41,162/- under the proviso to Section 11A of the Central Excise Act, 1944 by invoking extended period of limitation and proposing to adjust an amount of `.5,00,000/- paid by the appellants towards the said demand of Central Excise duty. In this Show Cause Notice, interest was demanded under the provisions of Section 11AB of the Central Excise Act, 1944 and penalty was proposed to be imposed on the appellants under Section 11AC of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules, 2002. The Director was asked to show cause in this notice as to why penalty should not be imposed upon him under Rule 26 of the Central Excise Rules, 2002.

3. The adjudicating authority has issued the impugned order confirming the recovery of Central Excise duty amounting to `.2,41,162/- under Section 11A(1) of the Central Excise Act, 1944 by invoking extended period and he has confirmed the recovery amounting to `. 25,016/-, towards interest under Section 11AB of the Central Excise Act, 1944. The adjudicating authority has adjusted the amount of `.5Lakhs paid by the appellants towards the confirmed demand and interest thereof. A penalty of `.2,41,162/- has been imposed on the appellants under Section 11AC of the Central Excise Act, 1944 with the option to pay 25% of this amount on the condition that the confirmed duty, interest and 25% of the penalty amount imposed are paid up within 30 days of the communication of the impugned order. The adjudicating authority has appropriated the penalty amount of `.60,291/- (i.e. 25% of `.2,41,162/-) from the amount of `. 5Lakhs paid by the appellants. A penalty of `.2,41,162/- has been imposed on the Director under Rule 26 of the Central Excise Rules, 2002 by the adjudicating authority in the impugned order.

4. On being aggrieved by the impugned order, the appellants have filed the present appeals along with Stay application. In their grounds of appeal, the appellants have submitted that the demand has been made on the basis of a private diary recovered from the factory premises as well as statement of Shri J.S. Patel, the author of the said diary; that the allegation of clandestine removal of finished goods was made; that certain raw materials were received, on which credit was taken and same had been removed clandestinely, having manufactured from these raw materials, on job work basis to R. K. Industries; that they had prayed before the adjudicating authority for cross examination of both the investigating officer as well as Shri J.S. Patel but the adjudicating authority has denied the cross examination; that the impugned order has been issued in violation of principles of natural justice; that the denial of cross examination was incorrect as any question of accepting or denying cross examination has to be decided in the background of facts on records, allegation and the reason for cross examination; that the details of raw materials received under proper documents and credit taken on the same has been duly reflected in their books, the details of same were given in the working for the demand; that the inputs were received on job work basis has not been supported by facts on record, since the purchase invoices show appellants as the buyer of the goods; that the serious charges of clandestine removal were made but the elementary inquiry, with the parties issuing invoices to ascertain whether the transactions were made with the appellants or with the alleged supplier R. K. Industries have not been conducted or have not been referred; that possibly the inquiry was made, but the result were not supporting, hence same were not referred; that similarly, inquiry at the end of the receiver of the clandestinely goods so removed, has not been conducted though the date of despatch of the goods, details of receiver of the goods and in some cases the vehicle registration numbers were available and same have also been mentioned in the working for the demand .

5. The appellants further contended that the inputs received were accounted for in their books and records also showed use and consequent production of the finished goods as well as its disposal; that the inputs are metal products and the finished goods are also metal products, therefore reasonable comparison is possible from books but no such comparison has even been attempted; that the complete reconciliation available in their books, in support of their claim they have relied upon audited accounts for Year 2006-07 and claimed that as per the said accounts the quantity accounts were also tallied; that the total quantity purchased, which also included the disputed quantity on which credit has been availed, tallied with the production on which the duty has been paid as such the allegation that the inputs were been used for job work was incorrect and without any basis.; that during investigation it has been their consistent stand that the diary was not pertaining to the records of the company nor has been maintained by or under instruction from the company; that the entries in the diary were personal scribing of its author for the purpose best known to him; that when very document based on which demand has been made is doubtful and not reflected the alleged transactions, no demand could be based thereon; that the sole base of the demand was the diary and statement of Shri Patel, and none of the other corroborating evidences were even investigated, the demand could not be sustained; that the demand was also barred by limitation; that the demand is not tenable, penalty and interest also not survived, accordingly appellants have requested to set aside the impugned order with consequential relief. The Director in his grounds of appeal has made the same contentions as the appellants have done.

6. Personal hearing for the appellant as well as the Director was held on 17.08.2012 Shri S.J. Vyas, Advocate appeared and reiterated the points taken in their appeal memo in respect of both appeals. He has nothing more to add.

Discussion and Findings:

7. The appellants have declared in their appeal memorandum that they have deposited an amount of `.5,00,000/- during the course of investigation. The adjudicating authority has adjusted the said deposited amount of `.5 Lakhs towards the confirmed demand, interest and penalty amount of `.60,291/- (i.e. 25% of `.2,41,162/-) as per provision of Section 11AC of the Central Excise Act, 1944 in the impugned order. I find that the substantial amount has already been paid by the appellants, as such without insisting pre-deposit under Section 35F of the Central Excise Act, 1944, the appeals are taken up for decision on merits.

8. The appellants have vehemently argued in their grounds of appeal that the entire case is based on a private diary recovered from the factory premises as well as statement of Shri Jayesh Somabhai Patel, the author of the said diary and the department has not discharged the onus to corroborate the charges levelled against them by adducing evidence. The appellants have consistently relied heavily on the fact that the diary recovered from the factory premises as listed at Sr.No.38 of the Annexure to the Panchnama dated 12.9.2007( herein after referred to as “the said diary”) was not pertaining to the records of the appellants and same has not been maintained as per instruction of the appellants as such the entries in the said diary were personal scribing of its author Shri Jayesh Somabhai Patel, the then Central Excise clerk of the appellants. The appellants have also contended that the impugned order has been issued in violation of principles of natural justice since the cross examination in the matter has incorrectly been denied by the adjudicating authority. Therefore, I proceed to examine these grounds on the basis of facts on record.

9.  On going through records, I find that it is admitted facts that a diary as listed at Sr.No.38 of the Annexure to the Panchnama dated 12.9.2007 was recovered from the factory premises in presence of the Director of the appellants and entire demand of Central Excise duty has been worked out on the basis of entries mentioned in the said diary. The entries in the said diary were made by Shri Jayesh Somabhai Patel, Central Excise clerk of the appellants, who was working under the supervision of the Director of the appellants. Shri Jayesh Somabhai Patel was directed by Shri Hasmukh T Shah (the Director of the appellants) to record the daily receipt of raw materials, dispatch of the final goods etc in a diary and accordingly Shri Jayesh Somabhai Patel had maintained the said diary. The statement of the Director was recorded on 13.9.2007, wherein he has specifically admitted that they have cleared excisable goods, manufactured out of cenvatable raw materials, without issuing Central excise invoice and without payment of Central excise duty. He has further admitted duty liability for the said clandestine clearances of the excisable goods. The statements of the Director were recorded on 26.3.2009, 3.8.2009 and 11.8.2009, wherein he has categorically admitted that they have availed Cenvat credit on the raw materials, out of which finished goods were manufactured and were cleared clandestinely to M/s R. K. Industries and payment of such transactions was received in cash. The said facts can easily be ascertained from the depositions made by Shri Hasmukh T Shah (the Director of the appellants) during the course of recording of statements dated 26.3.2009, 3.8.2009 and 11.8.2009, wherein he stated about clandestine clearances and under valuation of the finished goods. The relevant extract of the said statements are reproduced as under:-

“They have cleared 14700 Kgs of cold Roll Formal Section to M/s M.M. Enterprise under invoice No. 58 dtd. 4.10.2006, 61 dtd. 09.10.2006 and 63 dtd. 17.10.2006;

All the above mentioned entries were reflected in left hand side page of page No.129 of the said diary; that the total cost of the said three bills was Rs. 4,39,770/- + excise Rs. 70363 plus education cess of Rs.1,407/-;

They have charged Rs.3/- per kg on 14700 kgs on job work and for other work they charges Rs.20/- per piece on 1317 nos. only as per the invoices No.58, 68 & 63;

Total job charges was Rs. 70,440/- and the net value was Rs.3,89,733/-; that the total value of the said goods was thus Rs. 4,60,173/- ( Rs. 3,89,733+Rs.70,440);

Whereas the bill value was Rs. 4,39,770/- so the differential value due to them was Rs.20,403/-;

They have not raised any separate job bill or bill for the said Rs. 20,403/;

As per Sr. No. 2 of page 147 of the said diary, they have received 1980 Kgs of HR coils from M/s Ahmedabad Strips vide bill no. 44/6.04.2008 out of which they manufactured 1980 kgs of sections and dispatched them to M/s R.K. Industries on 20.04.2006;

As per Sr. No. 3 of page 147 of the said diary, they have received 1885 Kgs of HR coils under bill no. 270/27.04.2008 from M/s Ahmedabad Strips, out of which they manufactured 1850 kgs of sections and dispatched them to M/s R.K. Industries on 05.05.2006;

No invoices or job work bills or delivery challans were raised to clear 1980 Kgs and 1885 kgs of Section to M/s R.K. Industries;

As there were a few transactions with M/s R.K. Industries, without preparing invoices, and as M/s R.K. Industries were not having any TIN no. they did not have any details of M/s R.K. Industries;

He was unable to recall the name of the owner/ authorized person of M/s R.K. Industries;

They have sold Sections, manufactured by them out of duty paid raw material on which they had taken credit;