H.K. Thakur, J.
1. Appeal No.E/185/2013-DB to E/187/2013-DB have been filed by the appellants against common Order-in-Original No.27/MP/VAPI/ 2011, dt.28.12.2011 passed by Commissioner, Central Excise and Service Tax, Vapi. Miscellaneous application No.E/EH/10708/2014 for early hearing has been filed by the Revenue on the grounds of high revenue involved. As the facts in all these appeals/application are same, these are being disposed of by this common order.
2. Briefly stated the facts of the case are that the office as well as the factory premises of the main appellant M/s Jaydeep Tubes Pvt.Ltd. (Appeal No.E/185.2012-DB); manufacturer of drawn/re-drawn copper pipes, brass pipes and cupro-nickel pipes; were simultaneously searched by the Central Excise officers on 29/30.03.2007. During search operations, certain incriminating documents, including four diaries, showing purchase of raw materials and sale of finished goods, were recovered from the factory premises. Two diaries numbered as 1 and 2 allegedly were showing details of purchase of raw materials and two other diaries 3 and 4 allegedly showed sale of finished goods manufactured by the main appellant without accounting the same in their statutory records as explained by Shri Ranjit Singh Chauhan, Manager of the main appellant and Shri Ashok J. Shah, Director. After investigations, the Revenue issued a show cause notice raising demand which was decided under OIO dt.28.11.2011 confirming demand of Central Excise duty of Rs.2,02,31,209/- along with interest against the main appellant and imposing penalty of equivalent amount on the main appellant. Penalty of Rs.25 lakhs was imposed upon Shri Ashok J. Shah, Director of the main appellant for which Appeal No.E/186/2012-DB has been filed. A penalty of Rs.2 lakhs was also imposed upon Shri Ranjit Singh Chauhan, Manager of the main appellant which is appellant in Appeal No.E/187/2012-DB.
3. Shri V.M. Doiphode (Advocate) appearing on behalf of all the above appellants argued as under:-
i). That adjudicating authority has erred in confirming the demands (except demand of Rs.3,50,360/-) on account of finished goods found short on 29/30.03.2007) in the absence of any corroborative evidences, other than the statements of Director Shri Ranjit Singh Chauhan, Shri Lalit Shah, Manager of M/s Indigo Metal Industries and Shri Vimal Shah, General Manager of M/s Sunland Metal Recycling Industries, whose cross-examination was not offered and that the impugned Order-in-Original is required to be set aside on this ground alone. Ld. Advocate cited the case of CCE Meerut Vs Parmarth Iron Pvt.Ltd. [2010 (260) ELT 514 (All.)] in this regard. Ld.Advocate also relied upon the judgment of this Bench in the case of M/s Sakeen Alloys Pvt.Ltd Vs CCE Ahmedabad [2013 (296) ELT 392 (Tri-Ahmd)] to convey that there is no clandestine clearance of goods.
ii). Alternately, it was the plea of the ld.Advocate that the demand of Rs.1,55,86,616/- [Annexure A(1) to the show cause notice dt.04.01.2011], confirmed by the adjudicating authority as illicit clearances of finished goods, is based on unaccounted raw material purchased as recorded in the diaries 1 and 2 for the period 20.01.2006 to 28.02.2007. Shri Ranjit Singh Chauhan in his statement dt.30.03.2007 has stated that all the raw materials received by the appellants are weighed and entered in these diaries. Shri Ashok J. Shah, Director has agreed to the statement of Shri Ranjit Singh Chauhan. It was thus argued by the ld.Advocate that the worst case against the appellants can be on the basis of the statement of Shri Ranjit Singh Chauhan, author of the diaries. Since the entries in the diaries pertained to the entire purchase of raw materials, entries of raw materials recorded in RG23A Part I will have to be excluded while calculating differential duty. Thus, as per Annexure A(1), the total demand on cupro nickel pipes is based on 1,40,288.78 kgs of raw material received, out of which a quantity of 72,954.10 kgs of cupro nickel inputs have been accounted for in their RG23A Part I register. Therefore, it was emphasized that the main appellant could be asked to pay a demand of duty on 67,334.68 kgs of raw material, which works out to be Rs.54,43,143/-. Similarly, in the case of brass pipes for the period 12.01.2006 to 25.03.2007, the diaries pertained to total purchase quantity of 67,287 kgs against the appellants accountal of 78,443.25 kgs in RG23A Part I register during this period. Thus, it was his case that there was no demand of any duty on brass pipes. In respect of copper pipes, the demand is raised on 4546.4 kgs for the period 22.02.2006 to 28.03.2007, against which the appellants have accounted for 2357.4 kgs in RG23A Part I register. Therefore, demand of duty could be made on 2189 kgs which works out to Rs.1,55,590/-. He further argued that small quantities ranging between 1.1 kg to less than 500 Kgs mentioned in the diaries deserve to be excluded as all such quantities are already included in appellants RG23A Part I register. On this account, the demand of Rs.8,64,697/- deserves to be reduced from the total demand raised in Annexure A(1) to the show cause notice. That if all the above factors are taken into account, the total demand of duty against the appellant would be Rs.51,01,623.50 (including duty of Rs.3,50,360/- involved on shortage of goods, Rs.804.40 of mix scrap, and Rs.27,424.10 on brass scrap). As clandestine manufacture and removal of goods for the period January 2006 to March 2007 has been worked out in Annexure A(1), the demands of Rs.47,81,893/- and Annexure A(2) and Rs.10,04,619/- of Annexure (5) were duplicate demands, and hence not sustainable. That for recorded quantity of raw materials, the entries in diaries 1 and 2 may not match in RG23A Part I register as credit taken may be delayed due to late receipt of duty paying documents.
4. Dr. Jeetesh Nagori, ld.AR for the Revenue argued on the other hand that Commissioner has correctly confirmed the demand of duty along with interest and rightly imposed penalties on the appellants. It was his case that diaries 1 and 2 were indicating only the raw material procured and received by the appellants clandestinely without recording the same anywhere in the statutory records. He made the Bench go through the panchnama dt.30.03.2007 and strongly argued that all non-matching entries in Diaries 1 and 2 pertain to raw material used for the manufacture of clandestinely removed goods. It was also pointed out by the ld.A.R. that 2,567.00 kgs of raw materials and 3700.390 kgs of finished goods were found short during stock taking, which has been admitted by the appellants. It was also his case that finished goods clandestinely removed, as indicated in Diaries 3 and 4, were different than the clandestine manufacture and clearances made out of unaccounted raw materials indicated in Diaries 1 and 2 recovered during search operations. That the entries which were matching in clearance between Annexures A(1) and A(2) to the show cause notice and corresponding duty element of Rs.14,91,354/-[As per Annexure A(3)] have been abetted to arrive at the actual demand of Rs.2,02,31,209/-. That the cross objection of the witnesses was correctly denied to the appellants as per the discussions made by the adjudicating authority in Paras 34.1 to 34.3 of the adjudicating order dt.28.12.2011. Ld.AR therefore, defended the order passed by the adjudicating authority in toto and argued that penalties have also been correctly imposed upon the appellants as they were well aware of the clandestine manufacture and clearance of goods. He also relied upon the following case laws in support of his arguments:-
i). CCE Mumbai Vs Kalvert Foods India Pvt.Ltd [2011 (270) ELT 643 (SC)]
ii). CC Mumbai Vs Vaibhav Exports [2009 (244) ELT 527 (Bom.)]
iii). Montex Dyg. and Ptg. Works Vs CCE Surat-I [2007 (208) ELT 536 (Tri-Ahmd)]
iv).M.R. Tobacco Pvt.Ltd. Vs UoI [2008 (228) ELT 171 (Del.)]
5. Heard both sides and perused the case records. Early hearing application filed by the Revenue is disposed off as the concerned appeals are already listed for regular hearing. After hearing both sides on facts and legal arguments, we find that there are following two points which are required to be deliberated in these appeals:-
i). Whether the appellants have indulged in clandestine manufacture and clearance of goods?
ii). If answer to (i) above is yes, then whether the duty determined by the Revenue is correct in view of the submissions made by the appellants?
5.1.So far as clandestine manufacture and clearance of the finished goods is concerned, Revenue has based their case on the grounds that there was clandestine manufacture and clearance of goods which is indicated by the excess procurement of raw materials shown in Diaries 1 and 2 recovered from the appellants and such clandestine clearances are also reflected in Diaries 3 and 4 maintained by the appellants for clandestinely removed finished goods. Appellants have relied upon the order of this Bench in the case of Sakeen Alloys Pvt.Ltd Vs CCE Ahmedabad (supra) in support of their argument that there is no clandestine manufacture and clearance. On careful consideration of the submissions made in the light of our order in the case of M/s Sakeen Alloys Pvt.Ltd (supra), it is observed that we have held as follows in Paras 8 and 9 of this judgment:-
8. In the cases relating to clandestine removal of excisable goods, following are the indicators of clandestine removal activities by a manufacturer:-
(i). Excess stock of raw materials found in the factory premises.
(ii). Shortage of raw materials in the records of manufacturer.
(iii).Excess/shortage of manufactured goods found in the factory premises.
(iv). Excess consumption of electricity/power used in the manufacture of finished goods.
(v).Any transit seizure of clandestinely removed goods made by the investigating authority.
(vi). Any cash amounts seized from the factory premises or dealers premises or residential premises searched during investigation.
(vii). Confessionary statements of the persons concerned with the clandestine manufacture/removal of excisable goods.
9. It is observed from the case records that in the present proceedings, there are few confessional statements of the persons which were later retracted by the persons concerned. The confessional statements subsequently retracted can be argued to be an afterthought under a proper legal advice but to observe the principles of natural justice, it becomes necessary to provide cross-examination of such witnesses, as held by various judicial courts including the Honble Supreme Court relied upon by the appellants. In the case of CCE v. Omkar Textiles - 2010 (259) E.L.T. 687 (Guj.), it was held by the Jurisdictional Gujarat High Court that onus is on the Revenue to furnish the evidence to prove the charges of clandestine removal and it is not sufficient if some confessional statements have been given by the Director of the Company. Similarly, in the case of CCE v. Arsh Casting Pvt. Limited [2010 (252) E.L.T. 191 (H.P.)], the Honble High Court of Himachal Pradesh held that the private records maintained by the staff of the company cannot be made as the sole evidence to hold that clandestine removal of the goods is established and accordingly, the following point of law was decided in favour of the assessee:-
Whether on the basis of private records, the Central Excise duty can be demanded or not when these private records show higher production than that reflected in the statutory records resulting into removal of the excess stock clandestinely i.e. without issue of invoice and without making entries of production and clearance in the statutory records.
5.2.From the above indicatory parameters for clandestine manufacture and clearance of finished goods outlined by us, we find that in the present appeals the demand is not made only on the basis of few confessional statements made by the appellants but there are other documentary evidences also. There are evidences to the aspect that during stock taking both raw materials and finished goods were found short. The transporter of finished goods has confirmed to the clandestine removal of the goods involving Central Excise duty of Rs.10,04,619/-. The diaries No.1 to 4 maintained by the employee of the main appellant also indicate clandestine procurement of raw materials and clearances of finished goods without payment of duty. All these duty evasion indicators are further corroborated by the confessional statements of the appellant and does not leave any doubt that appellants were indulging in clandestinely manufacturing and clearing excisable goods in view of the parameters fixed by the judicial pronouncements relied upon from time to time.
5.3.So far as the point at Para 5(ii) is concerned, it is the submission of the appellants that there is duplication of amounts during calculation of the duty demanded in the show cause notice. It was argued by the appellants that Diary No. 1 and 2 contains all the raw materials received in the factory. The raw materials used for recorded manufacture, as shown in the RG23A Part I register, is also shown in the Diaries 1 and 2 which should be reduced from the total raw material quantity procured and shown in Diary 1 and 2. It was also the case of the appellants that quantity shown in Diary 3 and 4 as clandestine clearance were also manufactured out of the raw material included in Diary 1 and 2. Similarly, it was argued that duty quantified on the basis of statement of transporter and finished goods found short in the factory premises are also manufactured out of total raw materials indicated in Diaries 1 and 2. On the other hand, ld.AR was of the view that only unaccounted raw material was used for calculating duty demand as per panchnama and the matching entries in Annexures A(1) and A(2) to the show cause notice were given due abatement while calculating duty demand. It is observed from Page 4 of the Panchnama dt.30.03.2007 that Diaries 1 and 2 maintained by Shri Ranjit Singh Chauhan contains actual receipt of goods. It was the case of the main appellant that mismatch of entry in Diary 1 and 2 and RG23A Part I could be due to late receipt of credit taking document and in fact all the raw materials received is entered in Diary 1 and 2. From the facts available on records, it does not get established by the Revenue that Diary 1 and 2 contains only the raw material procured for clandestine manufacture and clearance as indicated in Annexures A(1) and A(2) to the show cause notice when an abetment of duty, as calculated in Annexure A (3), has already been given. There is substance in the argument of the appellant that there could be a delay in taking entry in the RG23A Part I and in the duration of manufacture of finished goods after the receipt of the raw materials.
5.4.Revenues argument that clandestine clearances shown in Annexures A(1) and A(2) are in addition to the clandestine manufacture out of the unaccounted raw materials in Diaries 1 and 2 is unsubstantiated as no corresponding purchase of additional raw materials, other than what is reflected in Diaries 1 and 2, for manufacture of such clandestine removals calculated in Annexures A(1) and A(2) have been brought on record by the investigation. Similarly, additional demand of Rs.10,04,619/- shown in Annexure A (5) based on LRs issued by M/s Moongipa Roadways Pvt.Ltd is not sustainable in the absence of any corresponding additional raw materials purchases required for the manufacture of these manufactured finished goods. However, appellants argument that raw material purchase of 3 kgs to 500 kgs, shown in Diary 1 and 2 should be excluded, is not acceptable as rightly held by the adjudicating authority in Para 31 of the adjudication order on the ground that as these quantities are existing as per the entries made in Diary 1 and 2 by their own employees whether the quantity is 3 kgs or 14 MTs. In view of the above observations, the raw materials indicated in Diaries 1 and 2 has to be considered as total quantities of raw material received by the appellants which also include raw material quantity used for manufacture of the statutorily recorded goods on which duty is paid. Similarly, quantities shown in Annexures A(1) and A(5) to the show cause notice, based upon the LRs of the transporter or finished goods found short during stock verification etc has to be considered to have been manufactured and cleared out of the total raw materials received by the appellant, as per Diaries 1 and 2, after allowing reasonable process loss/burning loss as claimed by the appellants as per Para 12.1 to 12.3 of the OIO dt.28.12.2011. This view is fortified by the fact that there is no evidence on record that any additional raw materials were procured by the main appellant in excess of what was entered in Diaries 1 and 2.
5.5.As the above verifications and duty calculations can only be done by the adjudicating authority, therefore the case is required to be remanded to him for necessary re-quantification of duty. Penalties under various provisions of the Central Excise Act, 1944 and Central Excise Rules, 2002 are also required to be proportionately calculated / imposed upon the appellants. For the above limited purpose, the case is remanded to the adjudicating authority to decide the issue in de-novo consideration after affording an opportunity of personal hearing to the appellants.
6. Appeals filed by appellants are allowed to the extent indicated hereinabove, by way of remand to the adjudicating authority.