By TIOL News Service

MUMBAI, JAN 31, 2017: WHILE reporting the CESTAT decision 2007-TIOL-1016-CESTAT-MUM on 26 July 2007 captioned "Santogen Textile loses Rs 5 Cr case booked by DGCEI - Notfn. 1/95 - Diversion of raw materials - Duty to be paid by consignee and not consignor if consignee has taken delivery of material", we made the following parting comments -

In this case, the CESTAT had held thus -

+ Notification 1/95CE - In a case where the goods after taking delivery are not brought into hundred per cent EOU and not used in the manufacture of export products, exemption ceases to be available and duty becomes demandable for non accountal of the goods because as per terms of notification 1/95, goods cannot be put to any other use & this interpretation is required to be made in view of the Apex Court decision in the case of Sneh Enterprises vs. Commissioner of Customs, New Delhi 2006-TIOL-114-SC-AD where it has been held that it is trite law while interpreting the statute, the courts not only may take into consideration the purpose for which the same had been enacted, but also the mischief - Tribunal decision in Carrier Aircon Limited 2002(144)ELT70 distinguished as in the present case the it is not denied that the goods were delivered to the appellant though delivery as per their instruction was up to Bhiwandi.

+ Since in this case the purpose of the bond and condition is to prevent misuse of the goods, it is the consignee only who has to be held responsible for accountal of the goods once he has taken delivery of the goods and the goods are no longer under control of the consignor. The above view is supported by a catena of decisions.

+ Duty of Rs.5.26 crores was rightly demanded from the appellants and hence upheld.

+ Penalty on Managing Director and Director not imposable as there is nothing in the notice or the order to show that they were in any way involved in the illegal activity or have physically dealt with the goods which are liable to confiscation - Penalty of Rs.50 lakhs each set aside.

+ Penalty on Shri Manik G. Sharma, Executive Director -   enough material to prove that he was involved in the illegal activity, hence penalty justifiable, but reduced to Rs.10 lakhs as penalty of Rs.50 lakhs exorbitant.

+ Penalty of Rs.5.26 crores on company is excessive - reduced to Rs.25 lakhs.

Aggrieved by this order, the appellant company and its Executive Director had filed appeals before the Bombay High Court.

The CCE, Mumbai-II was also unhappy with the CESTAT order of reduction and waiver of penalties imposed on the company/Managing Director/Executive Director and has also filed an appeal.

After considering the exhaustive submissions made by both sides replete with case laws, the High Court observed thus -

++ In the present case, it is the case of the Revenue that no raw material (i.e. yarn of different qualities purchased by the Appellant from 14 suppliers) came into the Appellant's EOU for manufacture of fabrics during the period 1995-1998. According to the Revenue, the entire quantity of raw material was diverted as there was no evidence of transportation of raw material from Bhiwandi to the Appellant's factory. To come to the aforesaid conclusion, the Revenue and the CESTAT purported to rely upon the statement of a brother of one of the Appellant's Director who stated that his firm never carried out any job work for the Appellant. Over and above this, the Revenue and the CESTAT also relied upon the statements made by the transporters of the suppliers that they did not transport any of the raw material to the Appellant's EOU factory but the same was done only upto Bhiwandi. It is basically on these oral statements recorded under section 14 of the Act that the Revenue and the CESTAT came to the conclusion that the raw materials purchased by the Appellant from the 14 suppliers never reached the factory of the Appellant but in fact were wrongly diverted.

++ Revenue and the Tribunal have totally ignored and/or brushed aside all the documentary evidence that was produced by the Appellant to negate the aforesaid contention. On carefully going through the documentary evidence, we find that all the statutory registers which were maintained by the Appellant, were countersigned by the Excise Inspectors. Further, when a detailed panchanama was drawn up at the time of stock verification (during the raid conducted), the same indicates that there was no real discrepancy between the stock and the statutory registers.

++ Apart from the voluminous documentary evidence which clearly indicated, at least prima facie, that the raw materials were in fact received at the factory premises of the Appellant and which fact is even recorded in the impugned order, there have been statements that have been recorded of the Excise Inspectors under section 14 of the Act who have categorically stated that they have verified the raw materials received in the factory, that some goods were sent for job work as per standing practice, that the fabrics were exported and that all the statutory registers were duly signed by them.

After extracting the statements recorded u/s 14 of CEA, 1944, of the Excise Inspectors G.B. Moholkar, Ashok Kumar Karan, Arvind Rabhaji, Sanjay Raghunath Shinde, the High Court observed -

++ Looking at all this evidence that has been recorded of the Excise Inspectors themselves, what is clear is that the same is in tune with the documentary evidence. The preponderance of probabilities is, therefore, in favour of the Appellant. Looking to these facts and evidence, we find it difficult to sustain the conclusion of the CESTAT that not a single piece of raw material (yarn) reached the Appellant's factory, which in turn was a violation of the provisions of the Central Excise Act, 1944 and/or Notification No.1/95-CE dated 4th January, 1995. We find that no person has given any statement under section 14 of the Act that the goods were diverted nor any such duty free goods were seized by the Revenue outside the factory of the Appellant. In fact, during stock taking, the Officers of the Revenue found goods in different form lying in the factory in various stages. This would further caste grave doubts on the allegation of diversion. In fact, there was no dispute that the supplier had supplied the goods and its receipt by the Appellant. Further, there was no dispute on payment for the transportation of the said goods from the supplier to Bhiwandi. All this clearly establishes that the allegation of diversion was not based on any concrete material but rather only on suspicion and without any real basis. In light of this oral and documentary evidence, we find that the allegation / contention of the Department that the raw materials bought by the Appellant from 14 suppliers was diverted and never brought to the Appellant's factory, cannot be sustained.

++ In view of this voluminous documentary evidence read with the statements of the Excise Inspectors recorded under section 14 of the Act, we are clearly of the view that the reliance placed by the CESTAT as well as the Revenue only on the oral statements of an estranged brother of one of the Directors of the Appellant as well as the transporters of the suppliers (to come to the conclusion that the raw material - yarn had been diverted), was wholly erroneous and contrary to all well known settled legal principles.

++ It is now trite law that documentary evidence has far greater weightage against oral evidence especially when the oral evidence is contrary to the documentary evidence. [Ramdhandas Jhajharia v/s Ramkisondas Dalmia and Others [AIR 1946 Privy Council page178] relied upon]

The impugned order passed by the CESTAT confirming duty demand of Rs.5.26 crores was set aside.

The appeals of the appellant assessee and the Executive Director were allowed.

In the matter of the Revenue appeal, the High Court observed that since duty itself could not have been imposed on STML, the question of imposing any penalty on STML/Executive Director cannot/did not arise.

The appeals were disposed of.