ORDER
T.K. Jayaraman, Member (T)
1. These appeals have been filed against OIO dated 20.07.2000 passed by the Commissioner of Central Excise (Adjudication), Chennai. There are 8 appeals against the above mentioned order. The appellants are three manufacturing units, their three proprietors and the proprietors of two marketing units. The details of the appellant along with the duty/penalty as decided by the adjudicating authority are given in the following tabular column.
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S. Appeal No. Appellant Impugned Passed 1. Duty
No Order & By 2. Penalty
Date
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1. E/1335/2000 M/s. Excel OIO No. CCE 1. Rs.35,07,318/-
Threads 15/2000 dated (Adjn.), 2. Rs.45,07,318/-
Industry 20.07.2000 Chennai
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2. E/1336/2000 Sri. S.S. -do- -do- 1. Nil
Sainudheen, 2. Rs. 50,000/-
Prop.,
Excel Thread
Industry
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3. E/1337/2000 M/s. Success -do- -do- 1. Rs.8,47,001/-
2. Rs.10,97,001/-
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4. E/1338/2000 Smt. Rose 1. Nil
Ann Sapna -do- -do- 2. Rs. 50,000/-
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5. E/1339/2000 M/s. Power -do- -do- 1. Rs.18,912/-
2. Rs.23,912/-
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6. E/1340/2000 Sri. Al-Hadaly 1. Nil
A.Y, -do- -do- 2. Rs.50,000/-
Prop. M/s.
Power
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7. E/1341/2000 M/s. Golden -do- -do- Rs. 2,50,000/-
Threads Redemption Fine
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8. E/1342/2000 M/s. Thread Rs. 1,00,000/-
Embayer, -do- -do- Redemption Fine
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2. Sri. A.K. J. Nambiar, learned advocate appeared for the appellants and Sri. L. Narasimhamurthy, learned SDR for the Revenue.
3. The learned advocate stated the following:
A. M/s. Excel Thread Industry
I. Revenue has made out a case of clandestine production and removal of goods by the appellants without payment of duty. They have also denied the benefit of SSI exemption Notification on the ground that the appellants used the brand name belonging to others.
II. Revenue has alleged clandestine production and removal of goods by the three appellant units for the period from 1996-1999. Even though the Show Cause Notice relied on the statements recorded from thread dealers, transporters, raw material suppliers, factory staff and proprietors of various units in addition to certain documents, for quantification of duty they had placed reliance on the figures furnished by a few raw material suppliers only.
III. The estimation is done based on the oral evidence of one raw material supplier Sir. M. Ranjit of M/s. Roto Prints. This supplier has admitted in the cross examination that he too has unaccounted transactions. No action has been initiated against him by the Central Excise Authorities. The diary recovered from his premises, forming the basis of estimation and production of the appellant units was not actually kept by him. He had not made any entries therein and the author of the diary was not examined even by the department. Hence, the details in the said diary therefore cannot be used as the basis for estimation.
IV. There is no corroboration of the estimation by a comparison of the stock position of the main raw material namely, yarn. The attempt at corroboration using the statement of supplier of boxes is also flawed because the statement was clarified in cross-examination.
V. The production has not been estimated by a trial run.
VI. As regards denial of SSI exemption to M/s. Excel Threads Industry, on the ground that the goods bore the brand name belonging to another it is relevant to note that the denial of exemption for the years 96-97 and 97-98 is not based on any allegation of use of another persons brand name. Hence there is no reason to deny the exemption during those years. In 98-99 the clearance were of goods bearing the name “QUEEN” which was a brand name owned by the appellant. The evidence regarding the clearances of “DONA” Brand thread is based on seizure of such thread from the premises of M/s. Golden Threads. M/s. Golden Thread used to trade in thread of this brand name even during the period when the Brand Name Donna was owned by M/s. Saxon. At any rate, merely because thread was seized from the marketing unit, it cannot be said that the same was manufactured and cleared from M/s. Excel Thread Industry the.
I. The finding that the Brand Name “QUEEN” belonged to M/s. True Golden Threads (P) Limited Ltd is wrong. Even assuming that to be so, M/s. True Golden Threads (P) Limited ceased to do business from 96 onwards.
B. M/s. Success
II. This unit is engaged in manufacture of poly sewing thread. Smt. Rose Ann Sapna is the Proprietrix of this unit. The product manufactured at Success is sold through a marketing unit namely, M/s. Thread Embayer whose proprietor is Sri. Subair, the husband of Smt. Rose Ann Sapna. The raw materials required for manufacturing units at the appellant unit are a). Polyester. b) BOPP film, and c) Packing Boxes/labels.
III. Since the clearances from the unit for 97-98 and 98-99 were well below the limits prescribed in SSI Notification No. 1/93 (as amended) no Central Excise registration was taken by the unit.
IV. The evidence gathered by the department against the unit is mainly in the form of statements obtained from raw material suppliers and purchasers. Statements obtained from staff and proprietors of the unit are also relied upon.
V. The evidence regarding parallel invoice and production slip is an isolated instance. While it may be a pointer to unaccounted transactions, it cannot be generalized to cover the entire period in the Show Cause Notice.
VI. As in the case of Excel Threads, the department relies on accounting discrepancies at the marketing unit (Thread Embayer) to allege clandestine removal on the manufacturing unit (Success).
VII. The estimation is done based on the oral evidence of one raw material supplier Sri. Ranjit of M/s. Rotoprint. The diary recovered from his premises has not been kept by him. He had not made any entries therein and the author of the diary has not been examined by the department.
VIII. An alternate method of estimation could have been employed in the case of the appellant by analyzing the electricity consumption of the appellants. The said details indicate the turnover was only Rs.23,78,989/- during 97-98 and Rs.34,88,264/- in 98-99. In 98-99 a dyeing machine was also installed in the unit. The estimation by the department however indicates more production in the year 97-98. The estimation done by the department also includes the yarn supplied by various suppliers to other units. The supplies made to Thread Embayer (which was engaged in trading) are also taken into account. If the said supplies are excluded, corrected figures of receipt of polyester and cotton yarn will go to reduce the duty liability significantly. The supply of yarn by suppliers to units other than Success is treated as supplies to Success, and this has been done based on the oral evidence of Sri. Rajagopal and Sri. Al Hadaly and letters/documents of Janakiram Mills, Rajapalayam. The discrepancies in the documents have been explained through cross-examination (Cross-examination of Rajagopal, Veluchamy, Sri. Rajesh P.V., and M.K. Subramaniyam). Further the department has not ascertained the origin of the Demand Drafts.
IX. The brand names “TRUE”, “BOY” and “TRUE 2300” belonged to Success as evidenced by specific agreements. At any rate, as True Golden Threads (P) Ltd had ceased to business from 1996 onwards and the said brand names could not be said to have been used by the said True Golden Threads (P) Limited for the purpose of denying the benefit of notification to the appellant unit. It is also relevant to state that the department has not enquired as to whether the other brand names used by the appellant actually belonged to another person or not (cross examination of investigating officer).
C. M/s. POWER
X. This unit manufactures Polyester and Cotton sewing thread. The proprietor Sri. Al Hadaly is the brother-in-law of Sri. Subair. The products manufactured by Power are marketed through Thread Embayer. The duty liability of Rs. 18,912/- has been confirmed against the appellant unit, only because the benefit of SSI Exemption notification was denied on the ground that the goods cleared borne the brand names belonging to others. It is submitted that the department has not established through any evidence that the brand name belonged to any other person (cross examination of Investigating Officer)
XI. The learned advocate relied on the following case-laws.
1. – Sharadha Forge Pvt Ltd Vs. CCE, Rajkot
2. – Arch Pharmalabs Ltd Vs. CCE, Hyderabad
3. – Lloyds Steel Industries Ltd Vs. CCE, Nagpur
4. – CCE, Raipur Vs. C.M. Re-rollers & Fabricators
5. – M.T.K. Gurusamy Vs. CCE, Madurai
6. – Sharma Chemicals Vs. CCE, Calcutta
7. – K. Harinath Gupta Vs. CCE, Hyderabad
4. The learned SDR took us through the adjudication order and urged that the commissioner has taken into account all the facts and come to a correct conclusion regarding the clandestine removal as well as use of brand name of others. Hence he requested the bench to confirm the Commissioner’s order.
5. We have gone through the records of the case carefully. There are three manufacturing units involved in this case. They all manufacture different types of sewing threads. M/s. Excel Threads Industry alone has got in all three units. The proprietors of all the three units belong to the same family. The investigation by the Director General of Anti-Evasion (Central Excise), Chennai unit revealed that these units procured raw materials under different fictitious trading firms without accounting. The goods manufactured by these units were supplied to the marketing firms run by their family members. There was no proper accounting. The goods were also sold under bills showing fictitious firms. The departmental officers have conducted very elaborate investigations at the raw material supplier premises, at the premises of the units and also at the premises of various customers. In fact, the list of mahazars runs to 39. Statements of 46 persons have been taken. The total seizure of finished goods in 13 premises amounts to Rs. 43,21,527/-.
6. When the raw materials were procured, it is seen that the fictitious names such as M/s. National Threads, M/s. Indian thread emporium, M/s. Bhanu traders etc., have been used. In other words even though M/s. Success procured raw material the same would not be billed in their names. No sufficient reason is forthcoming from the appellants as to why they have been doing this. Further, M/s. Excel Thread industry, had purchased yarn in the name of a non existent firm called Excel Thread Industry, Bangalore. M/s. Success had procured paper tube without accounts from M/s. Super Paper Products. Paper tubes had been procured from Masha enterprises in the name of M/s. India Threads. M/s. Success and M/s. Excel Thread industry had purchased wrappers for sewing threads from M/s. Roto Print, Thrissur and did not account such purchases. They had procured boxes for packing the sewing threads without accounts from M/s. Vinod Cine Printographs, Sivakasi. The units did not have any Central Excise Registration. They cleared the sewing threads to M/s. Golden Threads and M/s. Thread Embayer without accounting/without following the Central Excise procedures and without payment of duty.
7. The above firms are marketing firms owned by family members. They had also keeping parallel invoices (Invoice books with same serial Nos.) and used the invoices with same numbers more than once. The marketing units had cleared the goods received to their dealers without accounting the same. The Marketing firms further adopted the modus of making Bills in the name of fictitious firms, like National Threads and Indian threads etc., for subsequent removal to dealers and under invoiced them. The sale proceeds of unaccounted goods and those cleared under trading bills of fictitious firms were realized in cash. The Brand Name “GT GOLDEN QUEEN” used by M/s. Excel Thread industry and the brand name “TRUE” and “BOY” used by M/s. Success belonged to M/s. True Golden Threads. The Brand Name “DONA” used by M/s. Excel Thread Industry belonged to M/s. Saxon and the Brand Name “ACE” and “EASE” used by M/s. Excel Thread Industry belonged to Manikchand Das, Bombay and ‘Amrithlal Silk, Bombay’.
8. The adjudicating authority in para 24 of his findings has stated that the notices had not disputed the authenticity of the documents seized, relied upon and discussed in the case, such as use of parallel sets of invoices, which had been used for the clandestine removal of the goods etc. Further, they had also not disputed the identity and seizure of goods made on the day of the search operation at the factory premises and the premises of the distributors. They had also not disputed the fact that the commodity manufactured and cleared buy them during the material period was sewing thread. They had also not disputed that the process carried out by them at their respective premises amount to manufacture. In para 26 of the order the commissioner has analysed the evidences showing unaccounted purchases. The inescapable conclusion from the above analysis is that the appellants purchased raw materials without accounting them. This is very clear from the private records maintained by M/s. Roto Prints, the diary seized from Excel unit, the boxes seized from M/s. Vinod cinei printographs and also investigations conducted with the yarn suppliers. The Commissioner has stated that the raw material suppliers who have given details regarding sale of raw materials to the appellants have not retracted their statements. The facts recorded in the statements given by them are supported by documentary evidence. Therefore, he has rejected the result of cross-examination of the raw material suppliers, which is adverse to the Revenue. The commissioner has taken into account the fact that the capacity of plant and machinery actually installed show that large scale production was very much possible. The sewing threads have been cleared by using parallel sets of invoices. In the SCN it is stated that even though there will be six clearances per week only one clearance would be shown in records. The finished goods were also supplied under bills of fictitious firms like Indian Thread Emporium, Indian Threads, Thread India and Thread Embayer, etc., This is evident from the sales invoices seized from customers in various parts of Kerala. In para 33 of his order the Commissioner has summed up the evidence of illicit clearances which is reproduced below:
“To sum up, the investigating officers have unearthed lot of evidences to prove the modus-operandi adopted by M/s. Excel and Success in procuring raw materials in an unaccounted manner and in their unauthorized production and clandestine clearances. The said units had used the trading firms Golden Threads and Thread Embayer, which had otherwise acted as their sole distributors, as conduits to siphon off the clandestinely removed sewing threads. In view of the clear cut evidences adduced by the investigating officers with respect to purchase of raw materials and sale of sewing threads and in view of the fact that the said units had the necessary infrastructure to produce such large volumes of sewing threads, the offence on the part of M/s. Excel & Success has been clearly established.”
9. The commissioner has also found that M/s. Golden Thread, a distributor of the goods manufactured by M/s Excel is a related person under Section 4 (4) (c) of central Excise Act, 1944. Similarly M/s. Thread Embayer who is the sole distributor of goods manufactured by M/s. Success is a related person. The Commissioner’s reasoning in treating the above persons as related is correct in the light of Section 4 (4) (C), because M/s. Golden Thread and Excel have mutuality of interest in business of each other. Similar is the case of Thread India and Success. It is seen from the records available and also given in the finding of the adjudicating authority that M/s. Excel and M/s. Success have used the brand name of M/s. Golden Thread. However there is no finding in the adjudication order that M/s. Power has used brand name belonging to others. It was pointed out by the learned advocate that the amount in respect of Power has been confirmed only on the ground of Brand name. Since the adjudicating authority has not given a clear cut finding on the issue we set aside the demand of Rs. 18912/- in respect of M/s. Power. The penalties are also set aside.
10. We have gone through all the case laws relied on by the learned advocate. In our view the said case laws are distinguishable. The Revenue has conducted elaborate investigation and these investigations clearly reveal that the appellants did not properly account for the raw material, production and clearances. However, there is clear evidence of supply of raw materials to their marketing firms and from there to the various dealers. The private records in the statements of various persons, which have been analysed in depth in the Show Cause Notice, clearly point to the guilt of the appellants. The adjudicating authority has also taken a decision considering the totality of facts and circumstances of the case.
11. Therefore, we hold that the charges against the appellants have been established except for the demand against M/s. Power. Therefore, we modify the Order- in – original by setting aside the demand and penalty on M/s. Power and upholding the rest of the OIO. The penalty on Sri. Al Hadaly A.Y, proprietor of M/s. Power is also set aside. However, taking into the facts and circumstances of the case the penalties imposed on the appellants are modified as follows.
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S.No. Appeal No. Appellant Reduced Penalty
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1. E/1335/2000 M/s. Excel Threads 1. U/S11AC - Rs.
Industry 15,00,000/-
2. U/R 173Q - Rs. 5,00,000/-
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2. E/1336/2000 Sri. S.S. Sainudheen,
Prop. 1. U/R 209A - Rs. 25,000/-
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3. E/1337/2000 M/s. Success 1. U/S11AC - Rs.
4,00,000/-
2. U/R 173Q - Rs. 1,25,000/-
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4. E/1338/2000 Smt. Rose Ann Sapna 1. U/R 209A - Rs. 25,000/-
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12. The appeals are disposed of in above terms.