ORDER
V.K. Asthtana, Member (T)
1. These two appeals against Order-in-Original No. 2/97 dated 21.3.97 passed by Commissioner of Central Excise covering the period from 1.6.89 to 31.12.93. The order impugned confirms duty of Rs. 79,37,402.19 and interest thereon and penalties on both appellants, as alleged in show cause notice dated 17.3.95. A penalty is also imposed on M/s. DCW Ltd. under Rule 209A. Investigations included visit to appellants factory on 19.5.93.
2. Briefly, the charges confirmed are:
(i) Suppression of receipts of raw materials;
(ii) Suppression of production of Calcium Carbide;
(iii) Clandestine removal of this Calcium Carbide;
(iv) Undervaluation thereof; and
(v) Manufacture and clearance without duty of M.S. Casings.
3. Heard Shri Chandra Sekar, Ld. Sr. Advocate assisted by Shri M. Ganesan, Ld. Advocate for appellants and Shri R. Victor Thiagaraj, Ld. SDR and Shri S. Kannan, Ld. JDR.
4. One of the grounds of appeals are that the impugned order is not a speaking order for the following reasons:
(a) It does not consider many points raised in the two written submissions made before the Ld. Commissioner; and
(b) The period covered by the show cause notice exceeds more than 5 years.
5. Ld. Senior Advocate submitted as follows:
(i) The approved ground plan shows that a road of 20 feet divides the appellants factory and that of M/s. J.B.F. Industries Ltd., the major recepient of Calcium Carbide;
(ii) With respect to raw-materials, D2 record was maintained from beginning under Rule 173G (5) but Form IV from 1.1.93. Declarations were filed in 1989. The demand is based partially on discrepancy between D2 & Form IV during 1.1.93 to 26.3.93. However, they have explained all along that these are due to wrong entries in Form IV eg. 60.079 written instead of 260.079 (page 8 paper book V) for Lime Shell. Similarly, for charcoal opening balance starts with NIL and 12.796 MT is that days production. “NIL” entries were erroneously not made. He refers to page 6 of green paper book and reply dated 30.11.95. He assails the Order-in-Original on the ground that on the basis of alleged discrepancies for few months, demand has been confirmed for 5 years.
The majority of the calcium carbide manufactured by them was brought by neighbouring M/s. J.B.F. Industries Ltd. for manufacture of Trichloro Ethylene. If calcium chloride was suppressed and unrecorded input received by them, then there should have been a corresponding charge of suppression etc. of production of Trichloro Ethylene against them. But there is no such charge.
(iv) Their sales registered almost tallies with EG. 1 and variation in weight have been adequately explained.
(v) The charge regarding removal by bullock-carts has also been adequately explained as involving 5 trips of 5 MT for 25 MT removal to neighbour.
(vi) With respect to undervaluation, Ld. Sr. Advocate submitted that the two units had separate bank accounts for their business, that they maintained separate ledgers and identity of Shri P.M. Gopalakrishnan was different from Shri V. Gopalakrishnan. The loan of Rs. 10 lakhs was not interest free and was duly reflected in Ledger Account. Common employees does not, ipso facto, create a relationship and there was no common pool of funds, (page 145 of the paper book). Even if certain purchases were made for both units, payments were accounted for proportionately (page 104 of reply to show cause notice.)
(vii) On time bar, he stressed that though excise officials had visited their factory on 3.3.93 and again on 23.5.93, no stock of raw materials was verified physically. No verification was done from suppliers charcoal or limeshell and all entries in D2 tally with purchase bills. Statements were recorded on 8.10.93, and 22.11.93 and they cooperated fully with Deptt. in giving clarifications on 8.10.93, 13.11.93 and 22.12.93. Despite all this, show cause notice was issued only on 17.3.95 – cited 1997 (75) ELT 377 (T).
(viii) With respect to M.S. Casings, he submitted that no Modvat was involved.
(ix) On power consumption he submits that source of figures in show cause notice are not indicated and figures are wrong. The power consumed as per their records was 1990-91 4469 KWHr 1991-92 3552 " 1992-93 3921 " (x) Instances of break-down, power failure, refixing of furnaces, etc. affecting production loss are not considered. (xi) Statements to banks were inflated to get more funds;
(xii) Regarding formula for manufacture, American text-books cannot be used and GOI publication is more reliable. Purity of raw material affects production and the 4 telexes have been satisfactorily explained.
(xiii) Regarding illicit removals he submits that 100 kg. drums cannot be carried by head loads therefore 2 trucks of the company were transporting. Their movements were in the In & Out Register. Sales Register tallies with RG 1. Out Register also tallies with RGl.
(xiv) Ld. Sr. Advocate cited case-laws as follows on suppression of production and clandestine removals:
(a) Oudh Sugar Mills Ltd. 1978 ELT 172 (J) SC
(b) D.P. Steels Industries 1995 (78) ELT 192 (T)
(c) Calicut Rubber Co.
(d) Phosphate Co. Ltd.
(e) Padmanabh Dyeing & Finishing Works
(xv) Ld. Sr. Advocate cited following case-laws on evidentiary value of statements given to Banks: –
(a) D.S. Screen , and
(b) Goa Cables
6. Ld. DR submitted as follows:
(i) Form IV was not maintained though it was a statutory requirement. Since D2 Register is a private register, the difference involved is without cover of a statutory record.
(ii) The raw-material and final production figures tally with Bank statements.
(iii) For suppression of production alleged even though American conditions may not always apply to India, they cannot be totally ignored and that the SCN already takes into account the impurity in raw-materials. The graph even in GOI publication proves the SCN.
(iv) Bank statement is an important evidence. Further RGl figures are not reliable. If they were for goods in packed condition, they should have been in multiples of 100 kg or 90 kg pickings.
(v) The Ld. Commissioner has rightly noted the contradictions in In & Out timings; that large quantities were claimed to have been transported in Bullock-carts; and that some GPs were not even entered in the In & Out Register.
(vi) On under-valuation, he reiterates the Order-in-Original and stresses that almost 80 to 90% of calcium carbide was sold to M/s. JBF and hence they had acquired a most favoured buyer status. This was also reflected in hardly any increase in price to them whereas goods to others were sold at escalating prices as discussed in Order-in-Original. Therefore, the price was not at arms length and assessable value of show cause notice was to be applied.
(vii) that illicit/clandestine removal was physically possible by a mere wire fence separating the two units and presence of a gate used to transport between the two units as is detailed in page 5 of the show cause notice.
(viii) They had hardly any explanation for M.S. casings. Statement of Plant Manger clearly deposes use of 3 casings / day on an average, whereas records drastically show less consumption. This is an important corroborative evidence as there is a direct production relationship between quantum of such casings used as electrodes and the quantum of calcium carbide produced.
(xi) On time bar, they submit that show cause notice was issued a little later as investigations and verification of voluminous records took more time.
7. Ld. DR therefore concluded that the Order-in-Original was very exhaustive and detailed and needed to upheld as clandestine removal could never be proved with mathematical accuracy.
8. We have carefully considered the rival submissions and records of the case. We find that the Order-in-Appeal impugned is a non-speaking order for the following reasons: –
(i) The show cause notice dated 17.3.95 covers a period from 1.6.89 to 31.12.93. Thus, the period prior to 16.3.90 is beyond five years and hence beyond the extended period under proviso to Section 11A. The order impugned hasconfirmed the demand for the entire period under Rule (2) read with Section 11A proviso. In para 24 it has justified invocation of extended period as follows: –
24. There are also enough grounds for invoking the extended period. In this case, though the assessee argued that there were clearances only with the approval price list, it is apparent that such approval was possible even with incorrect price list. Mere approval of the price list cannot imply that whether the assessee has furnished full facts required by the department or not. Having not done by them so, the extended period is rightly invokable.
A plain reading thereof shows that there is no findings with respect to applicability of Rule 9(2) which reads as follows: –
If any excisable goods are, in contravention of Sub-rule (1), deposited in, or removed from, any place specified therein, the producer or manufacturer thereof shall pay the duty leviable on such goods upon written demand made within the period specified in Section 11A of the Act by the proper officer, whether such demand is delivered personally to him, or is left at his dwelling house, and shall also be liable to penalty which may extend to two thousand rupees, and such goods shall be liable to confiscation.
Thus, the Ld. Commissioner ought to have recorded his clear findings that all clearances alleged were in contravention of Rule 9(1) and, therefore, duty was liable to be confirmed under Rule 9(2). However, para 24 of the order (which is the only para on extended period) is totally silent on this. Secondly, a plain reading of Rule 9(2) shows that the extended period would be only as per Section 11 A. Therefore, even under Rule (2), no period beyond 5 years from date of show cause notice can be invoked. However, it is not clear from the Order-in-Original impugned as to whether the amount of duty confirmed has been restricted to 5 years period or not as the order is silent on this aspect.
(ii) The appellants, both in their reply to show cause notice and in written submissions at the time of hearing had submitted that the formula of production adopted by the Ld. Commissioner is not correct inasmuch as it totally ignores variations as is evident from the study team report of Govt, of India of Dec. 1993 and because their RM & power consumptions are well within these norms. This submission is sought to be met in the Order-in-Original only obliquely by referring to a graph therein. However, there is no direct and detailed consideration of these submissions in the order. Therefore, while the order fixes 3000 kV Hr/MT as the power required, this Tribunal has held in the case of Gulf Olefins (P) Ltd. as in that for limestone as main raw material, power consumption would be in the Range of 4100 to 4300 kWT MT. This has been cited before us and since the difference in norms of power are very wide, therefore, this non-discussion of the appellants submission in a direct and detailed manner acquire a greater degree of non-consideration of a moot issue.
(iii) While the appellants had cited a number of case-laws before the Ld. Commissioner on inadmissibility of bank statements as conclusive evidence, etc. the order impugned finds as under: –
Regarding assessee’s contention that bank statements were produced only to raise loans; the same is not accepted. Admittedly, the discrepancies in the RG 1 and the bank statements have not been denied. The statement filled with the bank serves as an important piece of evidence to allege suppression of production unless the difference is properly explained. Having not done this, it would be incorrect to ignore the bank statement.
Clearly, the Ld. Commissioner has not considered these case-laws and has instead held that the bank statements are an important piece of evidence. To arrive at this conclusions, he ought to have distinguished the case-laws cited.
(iv) The assessee had submitted that neither did the officers take stock of the principle raw materials at any stage nor was any verification conducted with even one of the 29 sellers of these raw-materials (whose details were given to the department). Yet the show cause notice alleges that there has been suppression of raw-materials. From a perusal of the order impugned, we find that these submissions have not been discussed at all.
(v) The assessee had submitted to the Ld. Commissioner that merely on the basis of suppression of raw materials for 1 year (Jan. 92 to March 93), demand for 5 years is not justified. There is no finding on this.
(vi) Assessee had claimed washing sieving losses between 3.5% to 5.5% and again invisible loss of 0.5% to 1% in crushing jaws, before the RG 1 stage is reached. They also cited sale of charcoal dust (so arising) to the tune of 499.825 MT between 1990-1994 as evidence of such losses. We find that this has not been considered in the order impugned.
(vii) The order impugned holds that Revenue’s case is not one of relationship between the appellants and M/s. JBF, but that the prices charges by former to latter are not in the ordinary course of business. Assessee had submitted that prices to M/s. JBF was on account of their being a separate class of buyers who purchased 80% of their production and more often in their own drums. They had also submitted that there were no common directors and there was no ‘common pool’ of funding. Furthermore, there was no mutuality of interest as there was no financial flow back. We find that there is no clear finding in the order impugned on mutuality of interest arising out of a financial flow back, particularly from M/s. JBF to the appellants. The assessees had also cited , and , which have not been discussed by Ld. Commissioner.
(viii) Finally, they had submitted that demand cannot be based only on records and on basis of averages. No goods clandestinely removed were seized. They cited and in this behalf. These have not been discussed.
9. In view of aforesaid findings, we set aside the order impugned as being a non-speaking order and remand the matter to the Ld. Commissioner for de novo consideration, hearing the assessees afresh and passing a considered speaking order. Appeals succeed by way of remand.