ORDER
P.G. Chacko, Member (J)
1. These appeals are against an order of the Commissioner of Central Excise, the operative part of which is as under:-
“1. I confirm and demand duty of Rs. 2326451 (Rupees twenty three lakhs twenty six thousand four hundred and fifty one) (Rs. 2023001 -: BED and Rs. 303450 – AED (T) relating to the period 1998-99 from Shri V. Madhu alias C.V. Maathesh, Proprietor of M/s. Komalagoure Textile, Ganapathy, Coimbatore 6, under Proviso to Section 11 A(1) of the Central Excise Act, 1944.
2. I confirm and demand duty of Rs. 4192460 (Rupees forty one lakhs ninety two thousand four hundred and sixty only) (Rs. 3645617: BEX and Rs. 546843: AED (T) relating to the period 1999-2000 from Shri V. Madhu @ C.V. Maathesh and M/s. Selvaganapathy Textiles, under proviso to Section 11A (a) of the Central Excise Act, 1944.
3. I demand interest at appropriate rates for the above duty amounts under Section 11AB of the Central Excise Act, 1944.
4. I impose a penalty of Rs. 23,26,451 (Rupees twenty three lakhs twenty six thousand four hundred and fifty one) on M/s. Komalagoure Textiles (Proprietor Shri V. Madhu @ C.V. Maathesh) under Rule 173Q of erstwhile Central Excise Rules, 1944 enforceable under Section 38A of the Central Excise Act, 1944 read with Section 11AC ibid.
5. I impose a penalty of Rs. 41,92,460 (Rupees forty one lakhs ninety two thousand four hundred and sixty only) on V. Madhu @ C.V. Maathesh and M/s. Selvaganapathy Textiles (Proprietor Shri C. Devaraj) under Rules 173Q of Central Excise Rules, 1944 enforceable under Section 38A of the Central Excise Act, 1944 read with Section 11 AC of ibid.
6. I impose a penalty of Rs. 5,00,000 (Rupees Five Lakhs only) on Sr. P. Dinesh under Rule 209A of the Central Excise Rules, 1944 enforceable under Section 38A of the Central Excise Act, 1944.
7. I impose a penalty of Rs. 5,00,000 (Rupees Five Lakhs only) on Shri C. Devaraj under Rule 209A of the Central Excise Rules, 1944 enforceable under Section 38A of the Central Excise Act, 1944.
8. I impose a fine of Rs. 20,000 (Rupees Twenty thousand only) in lieu of confiscation for the cotton yarn which was released provisionally to Sri Madhu alias C.V. Maathesh, under Rule 173Q of the erstwhile Rules, 1944 enforceable under Section 38A of the Central Excise Act, 1944. I order appropriation of the security deposit of Rs. 20,000 against the above fine.
9. I impose a fine of Rs. 5,000 (Rupees Five Thousand only), in lieu of confiscation for the vehicle bearing Registration No. TAS 6777, which was released provisionally to M/s. Uttam Roadways P. Ltd., Sukrawarpet, Coimbatore-1, under Section 115 of the Customs Act, 1962 made applicable to Central Excise under Section 12 of the Central Excise Act, 1944. I order appropriation of the security deposit of Rs. 5000 against the above fine.
10. Demand of duty of Rs. 6,81,536 on the yarn valued Rs. 74,08,000 based on paper cones purchased by M/s. Komalagoure Textiles during the period from 17.6.99 to 15.2.2000 is dropped.”
Appeal No. E/316/2004 filed by Shri V. Madhu, Proprietor of M/s. Komalagoure Textiles is against the demand of duty covered by Clause (1) of the above order and the penalty covered by Clause (4) of the order.
Appeal No. E/317/2004 filed by the same person (Shri V. Madhu) is against the demand of duty covered by Clause (2), the penalty covered by Clause (5) and the Redemption Fine covered by Clause (8) of the above order.
Appeal No. E/318/2004 of M/s. Selvaganapathy Textiles (Proprietor Shri C. Devaraj) is against the demand of duty covered by Clause (2), the penalty covered by Clause (5) and the Redemption Fine covered by Clause (8) of the above order.
Appeals No. E/319 and 320/2004 filed by Shri P. Dinesh and Shri C. Devaraj are against the penalties covered by Clause (6) and (7), respectively, of the Commissioner’s order.
Appeal No. E/321/2004 filed by M/s. Uttam Roadways (P) Ltd. is against the Redemption Fine imposed on them in Clause (9) of the Commissioner’s order.
2. The facts of the case, briefly stated, are as follows:
On 2.2.2000, officers of Central Excise intercepted a vehicle carrying 50 bags of cotton yarn on cones without proper documents evidencing payment of duty. The cotton yarn valued at Rs. 2,08,000 and the vehicle valued at Rs. 2 lakhs were seized. This seizure took place when the goods were being transported from M/s. Selvaganapathy Textiles (“SGT” for short) and M/s. Sree Vignesh Textiles. In a follow-up action, the Superintendent of Central Excise, Pollachi Division interrogated Shri V. Madhu, Technical Advisor of M/s. SGT, on 3.2.2000. Shri V. Madhu stated that M/s. SGT were running the cotton mill under a lease agreement with M/s. Komalagoure Textiles (“KGT” for short): that the mill was functioning in the name and style of KGT during 1998-99: that it was taken over by SGT from 1.4.1999 : that they had sold cotton yarn on cones mainly to M/s. Sree Vignesh Textiles: that they had effected sales of cotton yarn to other parties as well: that they had effected clearances directly to M/s. Siddharth Yarn Traders without issuing any documents: that it was M/s. Sree Vignesh Textiles who issued invoices in respect of such clearances which were not accounted in the mill: that the goods seized by the officers had been cleared under invoice No. 68 dated 1.2.2000 and that no duty had been paid on the said clearance. The seized goods were provisionally released to SGT on execution of B-11 Bond on 4.2.2000. This bond was executed on behalf of SGT by Shri V. Madhu. The seized lorry was similarly released to M/s. Uttam Roadways Pvt. Ltd. on the same date. Investigations continued. On 10.2.2000, officers of the Department visited M/s. Siddharth Yarn Traders, M/s. Ganesh Yarns and M/s. Vijay Yarn Corporation and recorded statements of their representatives. In one of these statements, Shri Siddharth V. Parikh, Proprietor of M/s. Siddharth Yarn Traders, stated that they were purchasing cotton yarn from KGT and SGT through M/s. Sree Vignesh Textiles and M/s. Sree Ganapathy Textiles for the last four to five years; that the purchase invoices used to be issued by M/s. Sree Ganapathy Textiles and M/s. Sree Vignesh Textiles; that usually Shri V. Madhu of KGT used to contact them over phone and inform the rate and quantity that could be supplied in a specific period; that the boxes of cotton received by them used to bear the mark of SGT; that the invoice used to indicate that the yarn was manufactured by KGT/SGT and that such invoices were used to be received from M/s. Sree Vignesh Textiles and M/s. Ganapathy Textiles. The statement given by Shri Vijay Kumar M. Parikh, ‘Karta’ of M/s. Ganesh Yarns and Partner of M/s. Vijay Yarn Corporation, was similar. He stated that the boxes of cotton yarn received by M/s. Ganesh Yarns were bearing the mark of SGT and the goods were received under cover of invoices sent by Sree Vignesh Textiles and Sree Ganapathy Textiles.
In a statement dated 11.2.2000 given to the Department, Shri V. Madhu deposed that the unaccounted production of cotton yarn in KGT was cleared from the factory by raising invoices in the name of M/s. Sree Vignesh Textiles and M/s. Sree Ganapathy Textiles which were bogus concerns created by him for the purpose of clearing the unaccounted production. This statement of V. Madhu was accepted by Shri M. Ganesh, SGT’s authorised representative, in his separate statement dated 11.2.2000. Shri V. Madhu also submitted some records of SGT for the period 1999-2000. In a further statement dated 14.2.2000, Shri V. Madhu stated that the statements of Shri Vijay Kumar M. Parikh and Shri Siddharth M. Parikh were true. Later, the departmental officers collected certain documents from Shri V. Madhu and certain statements of accounts of M/s. Sree Vignesh Textiles and M/s. Sree Ganapathy Textiles from their bankers. Subsequently, a statement was recorded from Shri P. Dinesh, Proprietor of M/s. Sree Vignesh Textiles and M/s. Sree Ganapathy Textiles. He admitted having purchased cotton yarn on cones from KGT and SGT and sold the same to M/s. Siddharth Yarns, M/s. Vijay Yarn Corporation and M/s. Ganesh Yarns. He also corroborated the earlier statements of Shri V. Madhu and Shri M. Ganesh. On 29.6.2000, a further statement was recorded from Shri V. Madhu, wherein he deposed that, on 1.4.1998, he obtained Central Excise Registration in the name of KGT and was running a mill; that there were no firms in the name of M/s. Padmavathy Textiles and M/s. Vignesh Textiles and these names were used only for the purpose of obtaining electricity service connections to KGT premises; that the cotton yarn on cones manufactured in KGT were sold to yarn dealers, namely, M/s. Ganesh Yarns, M/s. Siddharth Yarn Traders and M/s. Vijay Yarn Corporation using the invoices of M/s. Sree Ganapathy Textiles and M/s. Sree Vignesh Textiles; that Sree Ganapathy Textiles and Sree Vignesh Textiles were bogus firms floated by him; that, during the years 1998-99 and 1999-2000, the sales proceeds of cotton yarn on cones manufactured by KGT were used for the purposes of KGT only; that the name of KGT was changed to SGT only for astrological reasons; that the Sales Tax Returns and Income Tax Returns for the year 1998-99 were filed for KGT; that, in these returns, the quantum of sales of cotton yarn on cones manufactured by KGT and sold in the name of M/s. Sree Vignesh Textiles and M/s. Sree Ganapathy Textiles were not included because they were sold without payment of Central Excise Duty; that for the year 1999-2000, Sales Tax Returns, Income Tax Ruturns and Central Excise Returns were not filed because the cotton yarns on cones manufactured in KGT were sold without payment of duty of the excise by using the invoices of M/s. Sree Ganapathy Textiles and M/s. Sree Vignesh Textiles and SGT. On 17.7.2000, the factory of KGT was visited by officers of Central Excise, who took inventory of the machinery there, Shri C. Devaraj in his statement dated 18.7.2000 stated inter alia that he had not done any business with Shri V Madhu except having signed certain document without noting the contents thereof; that he did not know anything about SGT, nor did he have any link with KGT; that he had signed the document at the instance of Shri V. Madhu without noting that it was a lease Deed under which he (Devaraj) was shown to have taken over KGT on lease; that he did not have the necessary financial background or experience to run the spinning mill; that he had not signed any of the invoices issued by KGT. Further statements were also recorded from Shri V. Madhu. The departmental officers also examined the statement of accounts of M/s. Sree Ganapathy Texiles and Sree Vignesh Textiles obtained from their respective bankers. These statements disclosed the payments made from the bank accounts of M/s. Sri Ganapathy Textiles and M/s. Sri Vignesh Textiles to cotton merchants, TNEB etc. The total payment to cotton merchants from these accounts was to the tune of Rs. 1.3 crores. These accounts also showed a total payment of over Rs. 45 lakhs to KGT.
3. From the investigative results, it appeared to the Department that there were five Electricity Board service connections, in different names, used for the manufacture of cotton yarn on cones in KGT; that there were 24 spinning frames which were in working condition; that a total payment of Rs. 1,49,24,422 was made for cotton yarn purchase for the period 1998-99 and 1999-2000; that there was production of 49 bags of cotton yarn on cones, of 40s count, per day. It further appeared that M/s. KGT had not accounted for their actual production but suppressed their production, that the suppressed production was removed without payment of duty to various yarn dealers by using the invoices of M/s. Sree Ganapathy Textiles and M/s. Sree Vignesh Textiles; that the sale proceeds were used only for M/s. KGT, its proprietor Shri V. Madhu and Smt. M. Premselvi; that Sree Ganapathy Textiles and Sree Vignesh Textiles were only dummy units floated by Shri V. Madhu only for the purpose of removing cotton yarn on cones manufactured in KGT without payment of duty during 1998-99 and 1999-2000. The Department also believed that the lease deed 1.4.1999 was made only for the purpose of suppressing the factum of manufacture of cotton yarn on cones by M/s. KGT. On the basis of the above investigative findings, the Department issued a show-cause notice to the appellants. The impugned order was passed by the Commissioner in adjudication of this show-cause notice.
4. Heard both sides and considered their submissions. The appellants’ Counsel submitted that M/s. KGT had obtained CE registration on 1.4.1998 and it carried on the activity of manufacture of cotton yarn on cone as well as in bank form till 31.3.1999; that they closed business on 31.3.1999 and surrendered Registration Certificate on 7.4.1999; that they leased out the cotton spinning mill to M/s. SGT with effect from 1.4.1999 and the latter filed declarations with the. Department under the relevant Notifications on the same date; that M/s. SGT obtained CE registration on 14.2.2000 and manufactured and cleared cotton yarn on payment of duty from that date. It was also pointed out by the Counsel that, against the show-cause notice dated 25.7.2000 demanding duty from both M/s. KGT and M/s. SGT for 1999-2000, a Writ Petition was filed in the Madras High Court. The Writ Petition was dismissed by a Single Bench of the court observing that the appellant was at liberty to raise preliminary objection as to the joint demand of duty, before the adjudicating authority. An appeal was filed against the judgment of the learned Single Judge and the same was allowed by a Division Bench of the High Court holding that no-joint demand was permissible. The Department filed a Special Leave Petition against the judgment of the Division Bench of the High Court before the Supreme Court and the same was allowed by the Apex Court, whereby the judgment of the Ld. Single Judge of the High Court was restored. Later on, the impugned order was passed by the Commissioner of Central Excise. Ld. Counsel argued that it was not permissible for the Department to demand duty from two persons on the same goods for the same period. In the instant case, the adjudicating authority demanded duty from both M/s. KGT and M/s. SGT for the period 1999-2000 even after holding that such demand could be correctly made from M/s. SGT only. Such a demand was liable to be set aside, Counsel argued. Consequently, the penalty equal to the above duty, imposed on M/s. SGT and Shri V. Madhu of M/s. KGT under Rule 173Q read with Section 11AC was also liable to be set aside. It was also argued that the redemption fine of Rs. 20,000 imposed in lieu of confiscation of the cotton yarn, which was released provisionally to Shri V. Madhu, was also liable to be set aside as it was not specified by the Commissioner as to who should pay the fine. Counsel, in this connection, pointed out that the seized cotton yarn had been provisionally released on the strength of a B-11 Bond executed by Shri V. Madhu on behalf of M/s. SGT. Therefore, the provisional release of the goods had been made to M/s. SGT and not to M/s. KGT or its proprietor Shri V. Madhu. These arguments of the Ld. Counsel have not been successfully contested and, therefore, we have to accept them. Consequently, the challenge in Appeal Nos. 317/2004 (by Shri V. Madhu) and 318/2004 (by M/s. SGT) against the demand of duty raised in Clause 2, and the penalty imposed in Clause 5 of the impugned order is sustainable. Similarly, the challenge in Appeal No. 317/2004 against the confiscation and redemption fine ordered in Clause 8 of the impugned order has also to be sustained. However, the challenge of M/s. SGT in Appeal No. 318/2004 against confiscation and redemption fine does not appear to have succeeded inasmuch as the seized goods which had admittedly been cleared without payment of duty were found to have been manufactured and cleared by M/s. SGT and the same were provisionally released to them on execution of B- Bond by Shri V. Madhu on behalf of M/s. SGT. In the result, Appeal No. 317/2004 filed by Shri V. Madhu succeeds and the same is allowed. Appeal No. 318/2004 is allowed only to the extent of setting aside the demand of duty raised in clause 2 and penalty imposed in Clause 5 of the impugned order. This appeal is rejected insofar as the confiscation the redemption fine covered by Clause 8 of the impugned order are concerned.
5. In Appeal No. 316/2004, the main challenge is against the demand of duty on the appellant (Proprietor of M/s. KGT) on the goods allegedly cleared clandestinely during 1998-99. In this appeal, Ld. Counsel submitted that the Commissioner had found clandestine removal of goods, on the basis of confessional statements of the appellant as well as statements given by Shri M. Ganesh, Shri Vijay Kumar M. Parikh and Shri Siddharth V. Parikh. The retraction, by the appellant, of his confessional statements was not considered by the adjudicating authority. The statements of S/Shri Ganesh, Vijay Kumar and Siddharth were not liable to be relied on as these persons were not allowed to be cross-examined. In his reply to the show-cause notice, the appellant had specifically requested for an opportunity to cross-examine Shri P. Dinesh (Proprietor of Sree Ganesh Textiles and Sree Vignesh Textiles), Shri Siddharth V. Parikh (Proprietor of M/s. Siddharth Yarn Traders) and Shri Vijay Kumar M. Parikh (Proprietor of Sree Ganesh Yarns), but this request was not considered by the Commissioner. In the circumstances, the statements of these persons could not be relied on. It was argued that a finding of clandestine removal of goods on the basis of uncorroborated statements was not sustainable in the absence of positive evidence of purchase of unaccounted raw materials, stock variation, removal without payment of duty etc. In this case, no excess stock of goods was found in the factory at the time of inspection, no documents indicating suppression of purchase of raw material or of production of finished goods was recovered, no seizure or recovery of any duplicate or fake invoices or delivery challans was made and no physical movement of goods without proper invoices or without payment of duty was noticed for the period of dispute. The adjudicating authority found clandestine removal of goods merely on the basis of uncorroborated statements and, therefore, the finding was not sustainable. Vis-a-vis, these submissions of the Counsel, the SDR reiterated the relevant findings of the Commissioner.
6. We find that, as rightly pointed out by the Counsel, the only evidence gathered by the Revenue is what is contained in the statements of the appellant as well as S/Shri Dinesh, Vijay Kumar and Siddharth, who were second-stage dealers and allegedly received consignments of cotton yarn from M/s. KGT during 1998-99. The appellant wanted to cross-examine these dealers so as to test the veracity of their statements. He made a specific request in this behalf in his reply to the show-cause notice. We find that this request was not considered by the adjudicating authority. The finding of clandestine removal is not based on any corroborative independent evidence. We think, it was incumbent upon the adjudicating authority to have allowed the appellant to cross-examine the dealers, who gave statements against him. In this view of the matter, we are inclined to remand the case to the lower authority. The penalty imposed in Clause 4 of the impugned order under Rule 173Q read with Section 11AC is in relation to the demand of duty confirmed against the appellant for the period 1998-99 and, therefore, the penal liability also requires to be examined afresh by the Commissioner. In the result, we set aside the demand of duty confirmed in Clause 1 and the penalty imposed in Clause 4 of the impugned order and allow this appeal by way of remand, directing the adjudicating authority to pass a fresh order after allowing the appellant to cross-examine the witnesses named in para 14 of his reply to the show-cause notice. Needless to say that the appellant shall be given a reasonable opportunity of being heard.
7. In Appeal Nos. 319 and 320/2004, the penalties imposed on Shri P. Dinesh and Shri C. Devaraj under Rule 209 A are under challenge. The finding against these appellants is that they had associated themselves with Shri V. Madhu, Proprietor of M/s. KGT by abetting the offence allegedly committed by the latter. But we have already set aside the penalty imposed on Shri V. Madhu who was held to be the main offender. This apart, the requirement for a penalty under Rule 209A during the material period has not been satisfied in this case. The requirement was that the person sought to be penalised should have acquired possession of or in any other manner physically dealt with, the excisable goods which, he believed, were liable to confiscation under Rule 173Q. In the impugned order, we have not found, against these appellants, any finding that they had acquired possession of, or otherwise physically dealt with, the seized goods (cotton yarn) with the knowledge or belief that the said goods were liable to confiscation under Rule 173Q. It is also pertinent to note that the said cotton yarn was released to M/s. SGT and not to M/s. KGT of Shri V. Madhu. In other words, it was M/s. SGT who where found to have physically dealt with the goods. In the circumstances, the penalties imposed on these appellants under Rule 209 A cannot be sustained and the same are set aside. Appeal Nos. 319 and 320/2004 stand allowed.
8. M/s. Uttam Roadways Pvt. Ltd. Have challenged, in Appeal No. 321 /2004, the redemption fine of Rs. 5,000 imposed on them by the adjudicating authority in clause 9 of the impugned order. This fine was imposed in lieu of confiscation of the vehicle, which was seized while transporting the aforesaid cotton yarn from M/s. SGT’s premises to Sree Vignesh Textiles. It is an admitted fact that the goods, not covered by any duty-paying documents, were being transported in the appellants’ vehicle. Under Section 115 of the Customs Act, read with Section 12 of the Central Excise Act, the vehicle could be confiscated in such circumstances. This appeal does not state any forceful ground against this confiscation. We are also of the view that the fine of Rs. 5,000 in lieu of confiscation of the vehicle worth Rs. 2 lakhs is quite reasonable. Hence, the imposition of the fine and appropriation of the security deposit of Rs. 5,000 towards the fine vide Clause 9 of the impugned order are affirmed and this appeal is rejected.
