G.R. Sharma, Member (T)
1. M/s. Super Polyplast (P) Limited have filed an appeal against confirmation of demand amounting to Rs. 55,40,108/- alleged to be the duty on PVC pipes clandestinely removed during the period from 1-3-1994 to 31-12-1995, disallowance of Modvat credit of Rs. 6,83,096/- taken on the inputs not properly accounted for, confiscation of PVC pipes valued at Rs. 11,72,011/- and also confiscation of raw materials valued at Rs. 11,99,720/-, and imposition of penalty of Rs. 10 lakhs.
2. S/Shri J.K. Agarwal, Managing Director, T.R. Jain, Authorised Signatory and K.K. Gupta, Clerk have filed these three appeals against imposition of penalty of Rs. 1 lakh each.
3. The facts of the case in brief are that M/s. Super Polyplast (P) Limited are engaged in the manufacture of Rigid PVC pipes. They were taking Modvat credit on the inputs like PVC resin, calcium carbonate and chemicals. The Central Excise Officers visited the factory of the appellants on 2-1-1996. The records were not available in the factory as they were reported to be lying in the registered office of the company. On physical verification of the stock of the finished goods as well as the raw materials, there were excesses and therefore the excesses were seized. Some PVC pipes were also found short. Since the appellants could not provide satisfactory explanation for shortage of the PVC pipes, it was alleged that these PVC pipes involving central excise duty of Rs. 1,92,478/- were removed clandestinely.
4. On the basis of RG 1 register and the actual production shown in the private records, it was alleged that during the period 10-3-1995 to 31-12-1995 (excluding August, 1995 for which private production records were not available), the total production recorded by the appellants in the RG 1 register was only 50,250 pipes whereas the actual production as per the private records was 93,815 pipes. It was therefore alleged that the appellants suppressed the production of 43,565 pipes valued at Rs. 1,22,45,416/- evading the Central Excise duty amounting to Rs. 24,49,083/-. It was also alleged that the appellants had suppressed the production of PVC pipes valued at Rs. 1,54,55,123/- involving central excise duty of Rs. 30,91,025/- during the period April, 1994 to March, 1995 and August, 1995. It was alleged that Modvat credit of Rs. 6,83,096/- was not admissible to the appellants.
5. Investigations revealed that M/s. Super Polyplast (P) Limited was manufacturing Rigid PVC pipes of various grades/ratings described as 110/4, 110/6,63/6 etc. The first number i.e. 110,110,63 etc. indicated nominal outside diameter of the pipe and the second number i.e. 4 and 6 is an indicator of pressure in kgs/cm2. As is indicated above, the appellant was using PVC resin, calcium carbonate (Forcal) and chemicals. It was observed that the total quantities of PVC resin, calcium carbonate and chemicals show that in the RG 1, 23A Part I account match exactly with the recorded production of PVC compound, meaning thereby that there was no wastage. Physical verification of the finished goods and the raw materials brought out certain shortages and excesses. Shri Manoj Awasthi, Quality Control Incharge of the appellant in his statement on 12-10-1998 stated that the factory runs in three shifts; that there were three extruder machines (2 big and one small); that one batch consists of 50 kgs of PVC resin, 10 kgs of calcium carbonate and 1.5 kgs of stabilisers. This statement he subsequently modified. Shri T.R. Jain in his statement stated that he was the authorised signatory.
6. Comparison of the available stock of PVC resin of 85,650 kgs with RG 23A Part I balance of 91,371 kgs and account for fresh receipts of 27,000 kgs., it was revealed that there was a shortage of 32,72 kgs of PVC resin in the stock. Since Shri T.R. Jain could not satisfactorily explain the shortage, he, therefore debited an amount of Rs. 2,87,290/- in the RG 23A Part II entry dated 2-1-1996 which was equal to the amount of credit taken on PVC resin. When comparison was made between the stock of finished goods and the raw materials, it was revealed that none of the 20 different types of finished goods and none of the various raw materials were correctly accounted for in the statutory records. Pipes of 10 different varieties were found to be in excess of their respective recorded balances whereas the pipes of 10 varieties were found to be short compared to their respective recorded balance. Similarly, raw materials like PVC resin was found to be short whereas the calcium carbonate and other misc. chemicals were found to be in excess which were seized.
7. Detailed investigation revealed that more than one private record is available for some periods and the factory was running in three shifts. In every shift there is one machine operator supervising the functioning of these machines. He takes different raw materials as per requirement, enters their quantities in the aforesaid private records. The number of pipes manufactured in that shift on each of the three machines is entered by the operator in the private records. This fact according to the SCN is confirmed in the statement of Shri K.K. Gupta, Supervisor and Shri Suresh Chandra Yadav, Machine Operator. Every machine operator and supervisor was supposed to calculate the varieties of calculation and the raw materials issued in the previous three shifts and on this basis the entries in RG 1 and in RG 23A Part I are supposed to be made. Scrutiny of these private records revealed that the actual production of PVC pipes as shown in the private register did not tally with pipes, size or was not recorded in the statutory records. It was also found that on certain occasions, there was entry in the RG 1 register of the PVC pipes manufactured according to the private register. It was, therefore alleged that the entries in the RG 1 register were being recorded without recording correctly various types of pipes. The department, therefore prepared a chart variety-wise based on the private records to arrive at the figure of the actual production as per private records. These figures have been arrived at after preparing the date-wise, shift-wise chart for every manufacture. It was, therefore found that during the period 10-3-1995 to 31-12-1995 except August, 1995, the total production of pipes recorded by the appellant was only 50,250 pipes whereas the actual production of pipes was 93,815. It was therefore alleged that the appellant suppressed the production of 43,565 pipes valued at Rs. 1,22,45,416 thus evading Central Excise duty amounting to Rs. 24,49,083/-.
8. It was further observed from the private records that the quantities of raw materials, namely, PVC resin, forcal and stabilisers/chemicals shown in RG 23A Part I were not tallying with the quantities of the aforesaid raw materials actually issued as seen from the private records explained by the machine operator. The appellant had shown that 100 kgs of PVC resin with 20 kgs of calcium carbonate and 8 kgs of chemicals were required to prepare a mix in the manufacture of PVC pipes but as per entry made in the private records, it was seen that 100 kgs of PVC resin was mixed with 8 kgs of chemicals and 60 kgs of calcium carbonate.
9. Since the appellants did not produce the private records for August, 1995 and for the period prior to 10-3-1995, the actual production for the period was estimated on the basis of the fact that the appellant was using 60 kgs of calcium carbonate for every 100 kgs of PVC resin. Accordingly it was noted that as against declared mix of 100 kgs of PVC resin, 20 kgs of calcium carbonate with 8 kgs of chemicals i.e. 100 kgs plus 20 kgs plus 8 kgs other chemicals, the appellant was actually using 168 kgs of raw materials i.e. 100 kgs of PVC resin plus 60 kgs of calcium carbonate plus 8 kgs of other chemicals. It was, therefore alleged that the appellant was using for every 128 kgs of recorded production, the appellant appears to have suppressed 40 kgs of production. Applying this ratio, it was alleged that the appellant had suppressed the production of rigid pipes valued at Rs. 1,54,55,123/- involving central excise duty of Rs. 30,91,025/- during the period 1-4-1994 to 9-3-1995 and August, 1995.
10. Arguing the case for the applicants, Shri A.K. Jain, ld. Advocate submits that the order is violative of the principles of natural justice inasmuch as a copy of the letter of Joint Director of BIS, New Delhi was not supplied and that the request for cross-examination was not considered; that the department has relied upon the certain records alleged to be maintained by the appellants. He submits that the handwriting expert clearly indicated that the handwriting in these books was not of the same persons but was the different persons. He submits that these records were not being maintained under any authority of the management. Thus the records maintained, if any, by the staff cannot be relied upon. The main thrust of the arguments of the counsel was on the use of 60 parts of calcium carbonate with 100 parts of PVC resin. He submits that he had filed the affidavits of S/Shri Manoj Awasthi and Rajiv Agarwal stating that the rigid PVC pipes cannot be manufactured by using 60 parts of forcal with 100 parts of PVC resin. He submits that CIPET, Lucknow opined that the calcium carbonate loading is 20 parts or more for 100 parts of PVC resin; that PVC pipes fails in hydraulic and other tests as well. He submits that they were manufacturing rigid PVC pipes as per contract with the DGS & D and RITES. He submits that in the contract ISI number was indicated. He submits that according to the ISI standard, specific gravity of PVC pipes increases if more calcium carbonate used; that if the specific gravity increases it cannot fall in the standard. Ld. Counsel submits that the private records have been given a go bye while calculating the demand for the period 10-3-1995 to 31-12-1995 also and the emphasis has been laid only on use of 60 parts of calcium carbonate. He submits that the specific gravity in their case was 1.4 to 1.45; that it was strictly in accordance with ISI standard. He submits that ash test was conducted. According to this test if the pipe is burnt, the quantity of ash left is much higher if more calcium carbonate is used, he submits that in their case the quantity of ash was not much higher when ash test was conducted. He submits that if larger quantum of calcium carbonate was used pipes cannot pass hydraulic pressure test. He submits that their pipes were passing test; that when they supplied pipes inspection report of CIPET was enclosed which certified that the rigid PVC pipes were according to the ISI standard agreed in the contract executed with the Government Departments. He refers to the Technology of Plastic Products by SIRI Board of Consultants and Engineers and submits that in the rigid PVC pipes, the composition of calcium carbonate is 0 to 10 parts by weight. He also referred to the book on PVC Technology by A.S. Athalye and submitted that for portable water pipe extruded from dry blend calcium carbonate for every 100 parts of PVC resin should be 0 to 10. He submits that the department has no evidence to say that by adding calcium carbonate in larger quantity more length of PVC pipes can be produced. He submits that on the contrary, the appellants have proved by the evidence of CIPET that with the use of more calcium carbonate density increases. He submits that the department has not relied upon the diary and notebook but has gone by additional use of calcium carbonate. He also submits that BIS certificate nowhere stated that the PVC pipes of ISI specification 4985 can be manufactured by using more than 20 parts of calcium carbonate. He submits that this letter was never given to them. He submits that the demand was time-barred inasmuch as there is no evidence of intent of evading duty. He submits that in the recent 5 Members judgment in the case of Jay v. Yuhshin Limited [2000 (39) RLT 501], this Tribunal held that inasmuch as Modvat credit in RG 23A Part II was available to the appellants to cover alleged clandestine clearance without any further duty liability from PLA, the intention to evade duty did not arise.
11. Ld. Counsel also submits that Shri J.K. Agarwal never accepted that diary/notebooks were correct. He submits that no single invoice was found in the search evidencing any clandestine removal. He submits that in the Order-in-Original, penalties were not imposed on S/Shri T.R. Jain and K.K.-Gupta and that the penalties should not be imposed on de novo adjudication. He, therefore submits that since the department has not been able to make out a case against the assessee, the appeals may be allowed.
12. Shri S.K. Das, ld. JDR reading profusely from the SCN and the order submits that the major demand of Rs. 55,40,108/- can be divided into two parts. The first part contains the demand computed on the basis of private records maintained by the machine operators. He submits that the second part of the demand pertains to a period for which there was no private records available and which has been calculated on the basis of 60 parts of calcium carbonate being used as against 20 parts claimed to be used. He submits that there is sufficient evidence in the form of private records. He submits that the person who maintained that records admitted certain entries to be made by him. He submits that the acceptance of that record is authenticated inasmuch as the entries have been explained by the person who maintained it to some extent. He, therefore submits that insofar as the demand of Rs. 24,49,083/- is concerned for the period 10-3-1995 to 31-12-1995 it has been proved by the department. He submits that insofar as the demand of Rs. 30,91,025/- is concerned, the Collector has gone into detail and that every point made by the assessee has been rebutted. He, therefore, submits that the total demand of Rs. 55,40,108/- is sustainable in law. He submits that the Collector had dropped the demand of Rs. 1,92,478/- as collecting duty twice.
13. Ld. JDR submits that the demand of Rs. 6,93,096/- has correctly been confirmed by disallowing the credit inasmuch as the inputs on which this amount was taken as credit were found in the premises.
14. Ld. JDR also submits that insofar as confiscation of the goods is concerned, the Commissioner confiscated the PVC pipes which are finished goods. He submits that other goods have been confiscated as they were found in excess on which Modvat credit was admissible. He submits that there is no incorrect confiscation. Regarding imposition of penalties, he submits that looking to the duty involved and seriousness of the case, the penalties are not on the higher side. He, therefore prays that the appeals may be rejected.
15. We have heard the rival submissions. On careful consideration of the submissions made, we find that the total demand confirmed of Rs. 55,40,108/- comprised of two demands. The first demand is of Rs. 24,49,083/- for the period 10-3-1995 to 31-12-1995 except August, 1995. This demand has been computed based on the private records diary and notebooks maintained shift-wise, the department went to the extent of calculating the size-wise and date-wise production based on these diaries/records. The department has at no stage held that they are not relying on the diaries maintained shift-wise only. In passing they have said that this also supports the contention that the diaries show that 60 parts of calcium carbonate was being used. Since this demand is based on the private records maintained by the assessee, we uphold this demand of Rs. 24,49,083/- for the period 10-3-1995 to 31-12-1995 except August, 1995. We also note that private records were not given a go-bye.
16. Insofar as the demand of Rs. 30,91,025/- for the period April, 1994 to March, 1995 and August, 1995 is concerned. We find that the appellants produced the evidence in the form of inspection report by CIPET itself an apex agency in the particular field. We also note that the department is contending that the applicants produced more pipes. However, we note that it is indicated nowhere that 60 parts of calcium carbonate will increase the length of pipes on pro rata basis. On the contrary, we find that there is evidence on record that the contention is that more calcium carbonate will lead to increase in density/ specific gravity. We find that the pipes are sold in length. There is no evidence or record to show that the use of 60 parts calcium carbonate will increase the length of the pipes. In the absence of any definite indication on this issue, we give the benefit of doubt to the appellants and hold that the demand of Rs. 30,91,025/- is not sustainable in law.
17. In regard to limitation, we note that there is a presumption that in case the assessee has sufficient credit balance in the Modvat account, there will be no intention to evade payment of duty. In the instant case, we find that for the period 10-3-1995 to 31-12-1995 except for August, 1995, the demand has been calculated on the basis of private records maintained, shift-wise for the period and hence the above presumption will not be applicable to this demand in the present case.
18. Insofar as the disallowane of Modvat credit of Rs. 6,83,096/- is concerned, we note that it was taken on certain inputs at the time of physical verification of the inputs, the inputs were not found there, therefore disallowance of the credit of Rs. 6,83,096/- is sustainable in law.
19. Insofar as confiscation of the raw materials is concerned, we note that not only the raw materials have been confiscated but also PVC pipes which are the finished products. We further note that the Commissioner has given an option to the assessee to redeem the confiscated goods on payment of fine of Rs. 1 lakh. Looking to the value of the goods including the finished goods, we find that the redemption fine is not out of all proportion. On the question that the penalty on the appellant’s firm is very much higher. We find that the penalty of Rs. 10 lakhs has been imposed on the company. Since we have held that only demand of Rs. 24,49,083/- is sustainable in law. We, therefore reduce the penalty to Rs. 5 lakhs on the company.
20. Insofar as the penalty on Shri J.K. Agarwal is concerned, we note that he was Managing Director who was the active Director and hence was the concerned person. We, therefore, hold that the penalty is imposable on him. However, looking to the facts and circumstances of the case, we reduce the penalty to Rs. 50,000/-.
20. Insofar as imposition of penalty on Shri T.R. Jain and Shri K.K. Gupta is concerned, we note that no penalty was imposed on them in the order passed earlier, therefore no penalty can be imposed on them in readjudication without following proper procedure. In the circumstances, the penalty of Rs. 1 lakh each imposed on S/Shri T.R. Jain and K.K. Gupta is set aside. The appeals are disposed of in the above terms.