CX - Alleging clandestine removal, demand raised against each unit on pro rata basis-clubbing of units, therefore, cannot sustain-not tracing original documents; holding no official liable shows negligent attitude: CESTAT
By TIOL News Service
CHANDIGARH, OCT 10, 2016: THIS is a Revenue appeal against the order passed by CCE, Ludhiana.
SCNs were issued by DGCEI to the respondents alleging that the clearances of the four units should be clubbed together and the benefit of SSI exemption should not be given and demanding duty on account of clandestine manufacture and clearance of ERW pipes.
The adjudicating authority dropped the demand and, therefore, Revenue is before the CESTAT.
The AR emphasized that the adjudicating authority did not consider the confessional statements made but over emphasised the irregularity in search and seizure procedure by ignoring the hostile atmosphere created by the respondents at the time of search; that during investigation, police was required to be called and thereafter records were resumed;that allegation of clubbing is based on creation of new front companies, arrangement of funds for the same, financial flow back from one company to another, common staff, common office premises and common management; that Tribunal has held in favour of Revenue in the case of Dhampur Sugar Mills Ltd. - 2002-TIOL-476-CESTAT-DEL.
The respondent submitted that all the four units are legally distinct and the adjudicating authority had correctly dropped the demand.
A plethora of Case laws were cited in support –
2007-TIOL-119-SC-MISC
2015-TIOL-1729-CESTAT-DEL
2012-TIOL-1742-CESTAT-MUM
2005-TIOL-1481-CESTAT-BANG
2002-TIOL-815-SC-CX
2005-TIOL-581-CESTAT-BANG
2014-TIOL-15-CESTAT-AHM
2014-TIOL-1527-HC-ALL-CX
2014-TIOL-15-CESTAT-AHM
2014-TIOL-1527-HC-ALL-CX
After considering the submissions, the Bench made the following observations on the below mentioned crucial issues –
A. Whether the panchnama drawn can be relied upon and whether photocopies of the documents are admissible in the absence of original documents. [paragraphs 4.10 & 4.11 of o-in-o refers]
++ The panch witnesses were taxi drivers which brought the raiding party from Ludhiana to Dirba and they have received remuneration from the raiding party. In their respective statements that the raid were carried out and signed the papers at the behest of the officers without being able to read or understand the contents. These facts have not been denied by the Revenue, in that circumstance, panchnama drawn during the course of investigation have no evidentiary value. Therefore, the statement recorded and records seized during the course of investigation have no evidentiary value, therefore, these documents cannot be relied upon to allege the allegation of clubbing of clearances of the units on the basis of said records as the panch witnesses are independent persons were not present at the time of search. In the show cause notices, the photocopies of the documents which are not available in original has been relied on by the revenue is not admissible evidence in light of the decision of the Apex Court in the case of J.Yashoda vs. Shobha Rani- = 2007-TIOL-119-SC-MISC.
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Held: Panchnama is not admissible evidence and the photocopies of the documents are not admissible evidence.
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B. Whether the clearances made by the respondents, namely, M/s.Dirba Pipes Pvt. Ltd., M/s.North India Pipes Pvt. Ltd., M/s.M.A. Pipes Pvt. Ltd. and M/s.Garg Pipes Pvt. Ltd. can be clubbed together and the benefit of SSI exemption can be denied.
++ On organisational structure it cannot be held that all the units are controlled by one person as -
+ All the units are independent separately incorporated private limited companies under the Companies Act,1956;
+ All the units are separately registered under the Central Excise although and fall within the same the Central Excise range and division;
+ All the units registered as SSI unit with the Directorate of Industries, they have their own investment of capital, machinery and work force;
+ They have their own financial sources and credit facilities; All units have separate factories and manufacturing facilities;
+ All the units have purchased the machinery owned by them and also all the raw materials required for manufacturing from their own resources;
+ All the salaries, wages are paid by the all the units from their own sources of finance;
+ All the units have their own Sales Tax and Income Tax Registration;
+ All the units had paid their own electricity Bills;
+ All the units have separate electricity and telephone connections.
These facts have not been controverted by the Revenue.
| Held: In the circumstances, we hold that the all the units cannot be clubbed together and the respondents are entitled to the benefit of SSI exemption from time to time. |
C. Whether the demand can be confirmed on the basis of allegation of clandestine manufacture and clearance of excisable goods by the respondents or not.
++ The demands were raised on the basis of data collected from ICC of Punjab Government and it has been alleged that the sales were being effected from the manufacturing units through three trading firms. We have seen that Sales tax assessments of all the four firms have been finalized for the period in dispute after verifying the data recovered from the ICC and it has been held that there is no clandestine sale of the finished goods, therefore, through these trading firms as no sales took place as per sales tax assessment and there is no corroborative evidence to allege that clandestine removal of the goods by the respondents, moreover, the demand on clandestine clearance is made on assumption and presumption. No calculation has been given and the demand was sought to be distributed in all four respondents manufacturers equally which is against the judicial discipline. Further, as no corroborative evidence to support the allegation of clandestine manufacture, therefore, in the light of the decision of the Arya Fibres Pvt.Ltd. - 2014-TIOL-15-CESTAT-AHM the charge of clandestine removal of goods is not sustainable against the respondents.
++ In the show cause notice, it is alleged that since it is not ascertainable how much the quantify and value of ERW pipes had been cleared in the aforesaid manner from each of the manufacturing units, the duty not paid has been equally apportioned in respect of these manufacturing units.
++ While distributing the demand on account of clandestine removal, the units have been recognised independent that is why the demand on the clandestine removal of the goods have been demanded from all four units separately. In that circumstance, the clearances of the said units cannot be clubbed together.
| Held: The quantity and value of clearance in respect of each of the manufacturing units is required to be identified and duty liability is to be determined. No effort has been made to quantify the value and quantity of ERW pipes cleared by each unit. Therefore, without ascertaining of value of the goods cleared clandestinely, the demand is not sustainable. |
D. Missing original documents:
++ The original documents were not available with revenue. No efforts were made to trace the documents, no official was held liable for the said discrepancy which shows the negligent attitude of the investigating agency, despite that the impugned order has been challenged before this Tribunal is not appreciable.
All the case laws cited by the AR were held to be ‘somehow' different from the case in hand and, therefore, not applicable.
Holding that there is no infirmity in the impugned order,the same was upheld and the appeals filed by the Revenue were dismissed.
(See 2016-TIOL-2661-CESTAT-CHD)
