ORDER
T.K. Jayaraman, Member (T)
1. These appeals have been field against adjudication order No. 111/02-RP dated 28.2.2003 passed by the Commissioner of Central Excise and Customs, Visakhapatnam Commissionerate by both the parties and the Revenue.
2. S/Shri Arvind P. Dattar & J. Sankararaman, learned Advocates appeared for the parties and Shri Ganesh Havanur, SDR appeared for the Revenue.
3. On the basis of the investigation, the Revenue issued Show Cause Notice to M/s. Evergreen Veeners (P) Ltd., M/s. Tirupati Veneers (P) Ltd., M/s. Tirumala Timbers, Shri Aman Garg, Director of M/s. Evergreen Veneers (P) Ltd. and Shri P. K. Agarwal, Director, M/s. Tirupati Veneers (P) Ltd. The main allegation is that M/s. Evergreen Venice indulged in clandestine production and removal of plywood and veneer. There was also a proposal to club the clearances of M/s. M/s. Evergreen Veeners (P) Ltd., M/s. Tirupati Veneers (P) Ltd., M/s. Tirumala Timbers. The case is based on certain documents recovered during the search of the premises of M/s. Evergreen, M/s. Bothra Shipping Services, C & F Agent and M/s. Sarath Chatterjee & Co., CHA for M/s. Evergreen. The factory premises of M/s. Tirupati Veneers Pvt. Ltd. (TVPL) and M/s. Tirumala Timbers were also searched for documents and certain documents were seized. Prima facie, there was irregular maintenance of accounts by M/s. Evergreen. The statement of Shri B. K. Biswal, Production Manager of M/s. Evergreen was recorded under Section 14 of the CE Act. He accepted the discrepancies in stocks. It was alleged that M/s. Evergreen imported timbers logs in the name of M/s. Rashmi Plywoods, M/s. Omega Traders (I), etc., and in their own name, received them into their factory but did not account for the same in the logs consumption register, used for in the manufacture of veneer, which was either cleared clandestinely without payment of duty or was used in the manufacture of plywood which were cleared without payment of duty. The total duty demanded was to the tune of Rs. 5,36,56,646/-. There were allegation of suppression of production and clearance without payment of duty. The Show Cause Notice had Annexure I (A) to I (E); II (A) to II (D); III, IV, V, VI (A) to VI (B), VII and VIII. All the above Annexures indicated the duty short paid on account of various reasons. There was also a charge that M/s. TVPL and M/s. Tirumala Timbers are only dummy units/and M/s. Evergreen used them for availing irregular SSI benefit. On the basis of the replies to the Show Cause Notices and also the record of personal hearing, the Adjudicating Authority passed the impugned order.
4. In the impugned order, the Adjudicating Authority confirmed the demand of duty for Rs. 1,86,04,469/- being the duty payable on the Veneers manufactured and removed clandestinely for the period from 1996-97 to 1999-2000 as detailed in Annexure – I to the order under proviso to Sub section (1) of Section 11A of the CE Act, 1944. An amount of Rs. 53,540/- is already paid by them as duty on shortages was appropriated against the demand. Equal penalty under Section 11AC was imposed. An amount of Rs. 2,84,039/- being the duty payable on account of under valuation was also demanded under proviso to Sub-section (1) of Section of 11A of the CE Act 1944. Further, a penalty equal to the above sum was imposed under Section 11AC. Interest under Section 11AB was also demanded. A penalty of Rs. 25,000/- was imposed under Rule 173Q. A penalty of Rs. 1,00,000/- was imposed on Shri Aman Garg, Director of the assessee company under Rule 209A. A penalty of Rs. 10,000/- was imposed on Shri P. K. Agarwal, Director of M/s. TVPL under Rule 209A. The demand on account of clubbing of clearances of M/s. TVPL and M/s. Tirumala Timbers was dropped.
5. The affected parties have strongly challenged the impugned order. Revenue has also filed an appeal against the impugned order. We shall take up the party’s appeal first.
6. The learned Advocates appearing for the party’s made the following submissions.
(i) Though several decisions were cited in support of the appellants, the Commissioner has not considered them properly.
(ii) The Commissioner in the impugned order concedes that there is no correlated evidence on factors like use of electricity, installed capacity, etc., and yet he chooses to demand duty.
(iii) It is settled position of law that demands cannot be made on assumptions and presumptions. (Relied case law: Oudh Sugar Mills Ltd. v. UOI 1978 (2) ELT (J 172).
(iv) The quantity of veneer held by the Commissioner to have manufactured and removed by the appellant is beyond their capacity. There is no material evidence to show that the appellant had consumed excess electricity or had the installed capacity to manufacture finished goods beyond the one shown in RG-I. There was nothing on record to show that any excess raw material was purchased over and above the one shown in the records and cleared without payment of duty.
(v) The demand is based on incorrect inferences drawn from various documents and without any basis.
(vi) There is not even a single piece of evidence to prove that such a huge quantity of goods was manufactured and cleared without payment of duty.
(vii) There is no evidence tracing at least one single purchaser/customer with whom the appellant had such clandestine transaction.
(viii) There is no evidence on the usage of raw materials, electricity flow back of such a huge sum towards sale proceeds.
(ix) There has been no seizure of goods from any purchaser, who had received the goods alleged to have been removed clandestinely.
(x) The impugned order proceeds on the basis that the appellant had imported logs in the name of M/s. Rashmi Plywood and M/s. Omega Traders (I) and they had used the same in the manufacture of veneer, which were cleared without payment of duty. The above basis is totally/incorrect and contrary to facts.
(xi) The Commissioner has erred in including substantial quantity of logs, which are indicated in the show cause notice are quantities imported by the appellant in their own name and accounted in the books.
(xii) Annexure to the order indicates that the appellant has received a total quantity of 2537.95 CBM. The net volume of logs has been assumed as 2013.55 CBM. From this total quantity of logs, which has been assumed by the Department to have been used in its entirety, the quantity of veneer alleged to have been manufactured has been calculated as 3775406 sq. m. RG-I production of 2813694 sq. m has been excluded from the above quantity and duty has been demanded on the net quantity of 961712.25 sq. m of veneer. It is submitted that the above demand is not sustainable. The Commissioner failed to consider the trading of logs to the extent of 608 Cubic Metre during the period 1996-97. The appellant had furnished copies of invoices showing sale of logs to the tune of 608.8 Cu. M but the Commissioner has not considered the same. (xiii) The above transaction is corroborated by cheques received from three parties , No effort was taken by the Department to ascertain the factual position from the three parties. The details of the above transactions were available in the sales register maintained from March 1996 to June 1997. The register was seized by the Department on 29.10.1999. The Department subsequently returned this register to the appellant.
(xiv) The actual consumption made by the appellant for the year 1996-97 would only be 1404.750 Cu. M of logs and not 2013.55 as held by the Commissioner. If 25% reduction has to be given on the above said quantity, then the appellant could have manufactured 2633906 sq. m of veneer. The appellant has recorded 2813694 sq. m of veneer in the RG-I more than the above quantity and therefore, the whole basis of the demand is incorrect. The order of the Commissioner is erroneous on this ground alone. In view of the above, the demand of Rs. 13,35,876/- is not sustainable.
(xv) In respect of a demand of Rs. 50,52,366/- for the year 1997-98, the Commissioner has relied on the records of Clearing and Handling Agent (CHA), the Surveyor’s report. The Commissioner failed to see that the records of the CHA/Surveyor are incorrect and incomplete in several aspects and several mistakes have thereafter crept in the Annexures to the show cause notice.
(xvi) The Commissioner has held that 327.00 Cu. M have been received by the appellant as per the forest permits recovered from the appellant. The timber in question has actually been received and paid for by M/s. Andhra wood Products Pvt. Ltd. A letter from them stating that they have purchased and consumed the said consignment has been filed. The reason why the said forest permit was available with the appellant has been mentioned below. The ship in which the timber was imported carried logs of different parties. The clearing agent/surveyor obtained the forest permit in one name and utilizes the same permit to clear logs from the port and despatch to different parties to avoid demurrage especially when further Transit Pass obtaining takes time when a forest officer is out of station.
(xvii) As regards the finding that the appellant has received 152.76 Cu. M and 90.96 Cu. M of timber based on certain transport challans and log measurement statements which according to the Department are available in File No. 3 recovered from the appellant, the appellant stated that they had examined the records with the department especially File No. 3 and they have not been able to trace the corresponding file. The appellants, therefore are not aware of the details. Hence, they requested that the relevant documents may be made available to them to enable them to give suitable reply. So far, no effort has been made to give the particulars to the appellants. Therefore, the order of the Commissioner is clearly violative of principles of natural justice.
(xviii) As regards the demand of Rs. 7.3,73,102/- for the period 1998-99, it is seen that out of the total quantity of log imported, a quantity of 2666.3819 Cu. M have been imported by M/s. Omega Traders and M/s. Rashmi Plywood Pvt. Ltd. The department has acknowledged this fact in the show cause notice but still the Commissioner has held that these logs have been transported to the appellant’s factory and used in the production of veneers. The above finding is incorrect because the importers of logs would unload the timber in the yard near to the factory of the appellant and later transport them or sell them. When such logs are transported to the yard, near to the factory of the appellant, the transporters/CHA/Surveyors mention as Velanki or Evergreen. When the importer is not well known locally or does not have permanent place of business nearby the port, then the transporter is given a known address so that material is carried without inconvenience to trailer drivers. Being remote area, the staff of such importer also gets shelter at appellant’s factory and sometimes leave the copy of the forest permit and transporter challan or measurement sheet, which is bundled as unusual and kept if required by the person who has left them over. If the appellant had any malafide intention he would have removed such documents treated by department as vital clue. This being the case merely because the logs have been transported to the yard near to the appellants’ factory, the department cannot assume that these logs have been consumed in their factory when the production records and the books of accounts states otherwise. As could be seen from the books of accounts of the above importers, they have made payments for these logs and the sale proceeds have also been accounted by them. The Commissioner has not properly appreciated this factual position.
(xix) The report of the surveyor with regard to the quantity of logs, name of the consignee, etc., is not dependable as it contains several mistakes and the same was pointed out to the Commissioner. Several instances of mistakes committed by the Surveyor were brought out in the reply to the show cause notice. The Commissioner has not properly appreciated the same and therefore, the order is erroneous.
(xx) The Commissioner failed to see that the appellant had maintained Log Register during the relevant period. Failure to consider the same has resulted in gross injustice to the appellant.
(xxi) The demand for the period 1999-2000 is also based on Surveyor report and the same is liable to be set aside as the Surveyor’s report is not a reliable piece of evidence in view of the facts already stated.
(xxii) As regards confirmation of demand by Commissioner based on transporters documents, it is submitted that the transport challans appear to have been prepared solely on the basis of the Surveyor’s report. Once this is so, it follows that even the transporter’s challans cannot be relied upon.
(xxiii) The Commissioner has erred in adopting the highest rate for each grade of face veneer while arriving at the demand There is no scientific basis for arriving at the highest rate. The appellant has been selling veneer through out the disputed period. Different grades were sold in different quantities. The rate used to differ with respect to the quality and size bought by a customer. This being the case,, it is incorrect to adopt the highest rate for each grade.
(xxiv) There was no excess/shortage of stock as made out in the impugned order. It is submitted that the stock relating to the earlier day is kept for drying or grading. It is after drying that they are graded and separated. It is only after this stage that they are entered into the RG-I register, which is usually done during the first half of subsequent day i.e. by 12 noon. Therefore, the work in process has not been taken into account in the RG-I register. The department has taken the stock during the course of the day and therefore, this discrepancy, the demand of duty to the tune of Rs. 53,540/-is incorrect.
(xxv) The imposition of penalty is incorrect as there has been no removal from the premises.
(xxvi) As regards under-valuation, it is submitted that the goods have been sold by M/s. Omega at the same rate at which it has been cleared by the appellant. The Department while calculating the demand has taken into consideration only the assessable value at which it was sold to M/s. Omega. For example, full face veneer has been cleared to M/s. Omega at an assessable rate of Rs. 7 plus excise duty which works out to Rs. 8.25. M/s. Omega has sold the goods at Rs. 8.25 which includes the element of excise duty as well. The Department has taken into consideration Rs. 7/- at the clearance end and Rs. 8.25 as the end value indicating a difference of Rs. 1.25 without appreciating the fact that the differential amount represents only the excise duty element which is in any case is deductible from the sale price. In some cases, the goods were cleared at Rs. 4.13 at the factory gate but sold at Rs. 3.90 from the depot. In such a cases, there cannot be any demand and it also reveals the fact that there was no malafide intention on the part of the appellant. The consignment sale is specially scrutinized by excise audit party every year and whenever duty is demanded, it was paid accordingly. Therefore, the differential duty on this ground is not sustainable.
(xxvii) If the allegations in the show cause notice were true, the appellant would have required almost 632 truck loads to transport such a huge quantity @ 30,000 sq. m/truck and such an operation should have been a continuous one spreading over a long period of time. Not a single sq. m of alleged veneer/plywood manufactured and cleared without payment of duty has been intercepted during the entire span of three years or thereafter. This is all the more than significant since there has been continuous audit of the appellant’s factory by the Central Excise department year after year. In view of the above, the demands beyond six months from the date of the show cause notice are not sustainable.
(xxviii) Surprisingly, the Commissioner has demanded duty on captively consumed veneers. It is submitted that the appellant has paid duty on plywood which have been manufactured out of veneers. In terms of the Notification No. 67/95 captively consumed goods are exempted from payment of duty. Therefore, any demand on captively consumed goods is incorrect.
(xxix) Section 11AC is operative only with effect from 28.9.1996. The adjudicating authority has got the discretion to impose lesser penalty. In view of the above submissions, the impugned order is not sustainable.
7. Revenue has filed an appeal against the impugned order on the following grounds.
(i) The Commissioner in his order has adopted and recovery percentage of 75% which is subjective as the yield percentage of veneer in respect of other similar units located in the same geographical area is as high as 92%.
(ii) In the show cause notice, there was a proposal for clubbing all the clearances of M/s. TVPL and M/s. Tirumala Timbers along with the clearances of M/s. Evergreen. All the points for clubbing the clearances mentioned in the show cause notice are not disclosed in the order in the original, so the conclusion arrived at is not correct. It appears that M/s. TVPL and M/s. Tirumala Timbers are noted dummy units and clearances of such units will have to be clubbed and duty determined accordingly.
(iii) The assessee has contended that there was no production of core veneer in 1996-97. The percentage production of core veneer vis-a-vis the total production of veneers during the years 199/-98, 1998-99 and 1999-2000 was 4.01%, 37% and 53% respectively. It may be mentioned that the value of core veneer is much less when compared to the value of the face veneer and when the assessee has shown an abnormal production of core veneer, it appears to be essentially to undervalue the overall production of veneers to the detriment of Revenue. However, the Commissioner has taken the percentage of core veneer as 25% for the years 1998-99 and 1999-2000. When there was no production of core veneer in 1996-97 and the percentage production of core veneer in 199/-98 was only 4%, the assumption that the production of core veneer should be 25% is not only baseless but is also high when compared to the production of core veneer in the earlier years. Moreover, the value determined by the Commissioner for core veneer is very low and is without any basis.
(iv) With regard to non-account of logs for the year 1998-98, the Commissioner has simply accepted the assessee’s contention regarding duplication without actually verifying the same. To this extent, the decision of the Commissioner is not a reasoned decision.
(v) It was alleged in the show cause notice that 832.6496 Cu. M of timber was imported in the name of M/s. TVBL has actually been used in the factory of the assessee without account. The Commissioner has held that as per log receipt register maintained by TVPL, a quantity of 831.517 Cu. M was entered on 10.2.1999 and the production of M/s. TVPL during the period from 10.2.99 to 31.3.1990 is found to be out of this receipt. The Commissioner has held that the submission of the assessee that the logs were actually used by M/s. TVPL is acceptable. It may be seen that while the allegation in the show cause notice is with regard to the quantity of 832.6496 cu. M. M/s. TVPL has accounted for a quantity of 831.517 Gu. M and this has been accepted by the Commissioner. The order does not establish that the quantity of 832.6496 Cu. M is actually the same goods, which have been accounted for by M/s. TVPL. The Commissioner should have given a clear finding based on Survey reports that the said goods in question were actually received by M/s. TVPL and have been used by them.
8. The learned SDR reiterated the grounds of appeal and the Revenue and requested that these grounds may be taken into account while deciding the issue.
9. We have gone through the records of the case carefully. In the impugned order, the Commissioner has observed as follows:
On going through the allegations set out in the Show Cause Notice I find that the case of clandestine removal is built up only on one factory, viz., non accountable of basic raw materials, the timber logs, so, this is a case where from the non accountable of raw materials, inference has been drawn that these logs have been used in the manufacture of veneers which have been removed without payment of duty either for captive consumption in the manufacture of plywood or on sale. A total demand of Rs. 5,36,56,646/- has been made as per details in Annexure-I (A) to the notice,/though there is no correlated evidence on other factors of production like the use of electricity, installed capacity, etc., yet specific allegation of clandestine production made on the basis of daily production reports, sales tax return and private note books for Rs. 1,31,67,042/- as per details in annexure -II (A) to (B) for Rs. 1,67,993/- in Annexure-II and for Rs. 2,69,522 in Annexure IV have also been made in the Show Cause Notice.
10. In para 46 of the impugned order, the Adjudicating Authority has stated the following. It is seen that the demands are based on certain presumptions set out in para 22 of the Show Cause Notice. The presumptions are:
(a)For calculating the duty liability, the output of veneers is taken as 100% in the absence of any recorded evidence to the contrary.
(b) The quality of veneers clandestinely manufactured is taken as the highest grade in the absence of any recorded evidence.
(c) Highest rate per sq, metre i.e. Rs. 9/- in the years 1996-97 and 199/-98 and Rs. 8/~ in the years 1998-99 and 1999-2000, as evident from the invoice No. 157 dated 31.8.1996 and No. 8 dated 11.4.1997, No. 63/22.4.1998 and 105/5.6.1999 is adopted to determine the value of the veneers clandestinely manufactured and cleared in the absence of any recorded evidence to the contrary.
(d) Logs consumption register containing the details of receipt and issue of logs is taken as the basis for arriving at the suppressed quantity of logs.
11. The learned advocates during the hearing emphasized the point that the goods belonging to other importers were also dumped near the appellants’ yard and while sending these goods, the transport documents indicated the destination to be M/s. Evergreen Yard as the area was well known. In other words, it does not mean that all the timber received in the year adjacent to the yard of the appellants was on account of the appellant and they had used the same for manufacture and clandestine clearance. He said that the Revenue has gone by these assumptions and slapped up a huge demand on the appellants. It was further pointed out that the appellants do not have the capacity to manufacture such a huge quantity of plywood and veneers, as assumed by Revenue. He also pointed out to the above observations of the Adjudicating Authority and his conclusions, which are quite contrary to his observations. It was further pointed out that there is not even a single evidence to show that the goods cleared clandestinely have been received by any buyer. There is no evidence of excess electricity consumption. Moreover, the Commissioner has ignored certain evidence of sale of timber by the appellants and assumed that all the timber received had been utilized in the manufacture of plywood and veneer for clandestine clearances. We find that the entire demand is based only on presumptions and assumptions, as considered by the Commissioner in his order. The demand has been worked out theoretically. The Show Cause Notice has assumed zero percentage wastage.
12. In view of all this, we find that the Show Cause Notice as well as the adjudication order are highly defective. No thorough investigation has been made by the Departmental officers. The appellants have given their explanations with regard to the demands made in every annexure to the Show Cause Notice issued. We also find that the departmental officers have been making periodic visits to the unit. If such huge quantity has been removed clandestinely, as alleged in the Show Cause Notice and confirmed by the Adjudicating Authority at least there should at least few instances of seizure of such removals. What is clear from the adjudication order and the Show Cause Notice is that there have been irregularities in the maintenance of accounts. On account of this fact, one cannot jump to a conclusion that there has been clandestine removal. When the irregular maintenance of accounts leads to the suspicion that there has been clandestine production and removal, Revenue should have undertaken thorough investigation. The departmental officers could not get the list of buyers who purchased the goods clandestinely removed from the appellants. They are not able to establish excess consumption of electricity. There is also no evidence of seizure of unaccounted sale proceeds. The Commissioner has thoroughly discussed the clubbing of clearance and has come to the conclusion that in the present case M/s. Tirumala Timbers and M/s. TVPL cannot be considered as dummy units. In his view, the evidences relied in the Show Cause Notice are not sufficient in the light of the decided case laws and Board’s circular to club the clearances. In these circumstances. We are not inclined to confirm the demand on account of clandestine clearance and under valuation. The appellants have also clearly explained the alleged shortages noticed at the time of stock taking on 2.11.1999. It appears that the work in process has not been taken into account in the RG-I register at the time of visit of the departmental officers. In view of all the above reasons, we feel that the Revenue has not made out a strong case against the appellants and the Order-in-Original cannot be sustained. For these reasons, the appeal of the Revenue has also no merits and hence we allow the appeals of the parties with consequential relief and reject Revenue’s appeal.
(Pronounced in open Court on 2 March 2006)