Gulabchand Silk Mills Pvt. Ltd v. Commissioner Of C. Ex

T.K. Jayaraman, Member (T).

1. M/s. Gulabchand Silk Mills Pvt. Ltd. (GSML in short), appellant No. 1, is the manufacturer of Man Made Fabrics (MMF in short). They received gray fabrics and undertake processing for conversion into MMF. On the basis of intelligence, the Central Excise Officers, Hyderabad, undertook an elaborate preventive operation in respect of M/s. GSML. On 15-5-1997, the officers searched the factory premises, the Registered Office, Godowns of GSML, the residence of Shri Gopal Gupta, MD of GSML and business premises/residences of various dealers. The above operations revealed a host of irregularities like shortage/excess of finished products, irregular maintenance of accounts, etc. On the same day, a vehicle carrying finished goods was intercepted and it was found that the vehicle carried excess goods on which duty burden was not discharged. Instead of the duplicate, only the original copy of the invoice accompanied the goods. The goods in the two godowns of M/s. GSML valued at Rs. 9,86,343/- were detained. A search of the Registered Office of M/s. GSML resulted in recovery of certain private records. Further the residences of Shri Kamal Kumar Agarwal, Proprietor of M/s. Hanuman Textile Distributors (HTD in short) and Shri Subash Agarwal, Proprietor of M/s. S.N. Textiles (SNT in short) were searched resulting in recovery of unaccounted goods and certain incriminating records. The business premises of M/s. Kunchal Textiles (KT in short) and M/s. Vishnu Cloth Stores (VCS in short) were searched resulting in the detention of unaccounted goods. In the course of investigation, the statements of the following persons were recorded:

(i) Shri Gopal Gupta, MD of M/s. GSML

(ii) Shri Bhavani Kishore, Accountant, M/s. GSML

(iii) Shri Ashok Kumar Agarwal, Director, M/s. GSML

(iv) Shri Kamal Kumar Agarwal, Proprietor of M/s. HTD

(v) Shri Subhash Agarwal, Proprietor of M/s. SNT

(vi) Shri Nirmal Kumar Gupta, Proprietor of M/s. KT

(vii) Shri Mamillalalli Sattaiah, Driver of the Vehicle

(viii) Shri Gouri Shanker Gupta, brother of Gopal Gupta

2. On the basis of the above statements as well as the various records/incriminating documents recovered during the course of investigation, show cause notices were issued to all concerned. The Adjudicating Authority, after following the principles of Natural Justice, dealt with the following broad issues:

(i) Detection of shortages and excesses of MMF during the short verification in the factory of GSML on 15-5-1997.

(ii) Seizure of unaccounted MMF in transit.

(iii) Seizure of unaccounted MMF in the premises of dealers, viz :

(a) M/s. SNT

(b) M/s. KT

(c) M/s. HTD

(iv) Clearances of excess quantities of MMF by manipulation of the entries in the invoice.

3. The Adjudicating Authority, after considering the various submissions made by the Noticees, came to the conclusion that during the period from January 1997 to May 1997, M/s. GSML cleared 11 lakhs Lmtr. of processed MMF clandestinely, without payment of duty. Further, he confiscated the fabrics found in excess in the factory. The fabrics found in excess in the vehicle were also confiscated. The fabrics seized at the business premises of M/s. SNT were also confiscated. The fabrics seized at the shop premises of M/s. HTD were also confiscated. However, in all the cases of confiscation, the noticees were given an option to redeem the goods on payment of fine. The vehicle, which carried the non-duty paid excisable goods, was confiscated and a redemption fine of Rs. 20,000/- was imposed. The duty demanded under Section 11A(1) was Rs. 31,14,524/-. Equal penalty under Section 11AC was imposed. Under Rule 209A of the CE Rules, 1944, penalties were imposed in the following manner:

(a) Gopal Gupta - Rs. 5 lakhs

(b) Subash Agarwal - Rs. 1 lakh

(c) Nirmal Kumar Gupta - Rs. 1 lakh

(d) Kamal Kumar Agarwal - Rs. 1 lakh

The impugned order of the Adjudicating Authority is strongly challenged by the Noticees.

4. Shri B.V. Kumar, the learned Advocate appeared for the appellants and Shri L. Narasimha Murthy, the learned SDR appeared for Revenue.

5. The learned Advocate assailed the findings of the Adjudicating Authority on the following grounds :

(i) The Adjudicating Authority has demanded the duty based on the so-called admission of Shri Gopal Gupta, MD of M/s. GSML. The statement has not been corroborated by any other evidences.

(ii) The Adjudicating Authority relies on the statements of Shri Bhavani Kishore and Shri Gouri Shanker Gupta. But their cross examination was not allowed. This vitiates the entire proceedings.

(iii) The statements of the Noticees were taken under duress. They were coerced and threatened into giving statements as per the liking of the Revenue officers.

(iv) The statements were later retracted. Hence, the demand made based on the statements, is not sustainable.

(v) As per the records, the stock taking took nearly 61/2 hours. Considering the magnitude of the stock supposed to have been verified, it could nearly take two days when 20 persons were employed. Hence, the shortages and the excesses have not been properly arrived at and only have been assumed.

(vi) The adjudicating authority erred in assuming that the kutcha slips, which were seized from the premises of the dealers, indicate that the grey fabrics present were for the purposes of process into M/s. GSML. These slips, on which the entire case has been built, do not even bear the signature of any of the employees of the dealers or the appellants. The kutcha slips said to have been recovered from Nirmal Kumars residence have actually not been recovered from the said dealers house. The House No. 33/99, Officers colony, RK Puram, Secunderabad is not the residence of Nirmal Kumar.

(vii) There is no documentary evidence to show that the quantity seized in the premises of the dealers were in fact received from M/s. GSML without payment of duty.

(viii)The entire quantity mentioned in the said kutcha slips recovered from the said dealers has been attributed to goods manufactured by M/s. GSML without any corroborative evidence to show that -

The said grey fabrics were transported from the said dealers to M/s. GSML;

The said grey fabrics were received by M/s. GSML from the said dealers;

FSM undertook processing of such fabrics alleged to have been sent by the said dealers;

The finished fabrics were sent back by M/s. GSML to the said dealers;

M/s. GSML received the said processing charges;

The said dealers paid M/s. GSML processing charges;

Lorry receipts/Trip sheets to cover the movement of the said fabrics.

(ix) The excesses and shortage noticed during stock taking was on account of wrong accounting due to interchange of the size of the fabric i.e. 86 cm and 112 cm. The excess stock lying within the factory cannot be presumed to be meant for clandestine removal.

(x) The excess quantity of 2972.70 Lmtrs. of processed fabrics found in the vehicle was due to the negligence of the loaders and this was explained at the time of personal hearing. However the Commissioner did not accept the explanation.

(xi) The assumption that excess goods were cleared by showing decimals in the Central Excise invoices/documents is totally unfounded. No evidence has been cited to support such an assumption. No basis to be formulated based on the statement of Shri Bhavani Kishore, which was for all purposes a forced statement. No opportunity was provided to cross-examine Shri Bhavani Kishore.

(xii) The department cannot rely on private papers without any corroborative evidence. The following case-laws were relied on :

- Haricharan Kurmi and Ors. v. State of Bihar - : AIR 1964 SC 1184

- Ram Chandra and Anr. v. State of U.P. - : AIR 1957 SC 381 (F)

- Jainarain Verma v. CC, New Delhi -1995 (76) E.L.T. 421 (T)

- Manindra Chandra Dey v. CEGAT-1992 (58) E.L.T. 192 (Cal.)

- Suresh Chandra Bahri v. State of Bihar - : AIR 1994 SC 2420

- Rhino Rubbers (P) Ltd. v. CCE -1996 (85) E.L.T. 260 (T)

- K. Harinath Gupta v. CCE, Hyderabad -1994 (71) E.L.T. 980 (T)

- Ganga Rubber Industries v. CCE -1989 (39) E.L.T. 650 (T)

- CBI v. V.C. Shukla and Ors. -1998 (75) ECR 484 (SC)

- Pit Ram Singh v. Vimala Devi - AIR 1992 Rajasthan 149 (C)

(xiii) The Tribunal, in the case of T.G.L. Poshak Corporation v. CCE, Hyderabad - 2002 (140) E.L.T. 187 (T), has held that to establish clandestine removal, it is necessary to ascertain and prove that factors like sources of raw materials, utilization of such raw materials, consumption of electricity, receipt of sale proceeds, labour employed, etc. are required to be proved. The burden is on the department. However, in the present case, the adjudicating authority failed to discharge the burden of proof. In view of the above submissions, the demand is not sustainable and the mandatory penalty under Section 11AC also cannot be imposed. In the absence of justification as to how the material ingredients contained in Rule 209A, have been satisfied, penalties on the Noticees under Rule 209A is not sustainable in view of the following decision.

- Killick Nixon Ltd. v. CCE. Aurangabad -1998 (97) E.L.T. 436 (T)

- Standard Pencils Pvt. Ltd. v. CCE, Madras -1996 (86) E.L.T. 245 (T)

- Tolaram Electronics and Ors. v. CCE - 1999 (108) E.L.T. 277 (Tri.) = 1999 (33) RLT 558 (T)

- Ashok India Engineering Works v. CCE -1998 (98) E.L.T. 659 (T)

(xiv) The handwriting of the person who prepared the kutcha bills, has not been compared with the admitted handwriting of any of the employees of the said dealers. Further, such handwriting has not been referred to the govt. examiner of Questioned documents or a handwriting expert to identify the author of such kutcha slips.

(xv) The statements of transport operators/drivers have not been recorded to show that the grey fabrics were transported to M/s. GSML. Similarly there is no evidence to show that the finished fabrics said to have been processed out of the grey fabrics received from the dealers, have been transported from the factory of M/s. GSML, to the premises of the said dealers. Neither the Lorry Receipts nor the Trip sheets have been recovered from the transport operators.

(xvi) No delivery challans issued by M/s. GSML have been recovered either from the premises of M/s. GSML or the said dealers to cover the transport and delivery of the grey fabrics which were allegedly processed by M/s. GSML amounting to 11 Lakh Lmtrs during the period from 1-1-1997 to 15-5-1997.

(xvii) No evidence has been placed on record to show that the processing charges were paid by the said dealers to M/s. GSML or that M/s. GSML received such processing charges.

(xviii) The learned Advocate brought to the attention of the bench the guidelines outlined by the Honourable SC regarding investigation of false accounts, which is reproduced below.

"To establish the charges against the accused it was essential for the prosecution to establish that the secret books of account related to the business transactions carried on by them and none else. This it could have established in a variety of ways viz. (1) by adducing satisfactory proof to the effect that the place from which the secret books of account were seized formed part of the place of business of the accused or was in their exclusive possession and control. (2) that the secret books of account were maintained by or under their orders. (3) that the said books of account were in the handwriting of either of the accused or their accountant, or clerk or some other person employed by them. The third method indicated above could have been adopted by following one or more of the ordinary modes provided in the Evidence Act for proving the handwriting i.e., (i) by calling the Accountant or Clerk or some other employee of the accused who is supposed to have posted the entries in the account books, (ii) by calling a person in whose presence the account books were written, (iii) by calling a handwriting expert to testify that the entries in the secret books of account tallied with the admitted specimen writing of the accused or any of their employees, (iv) by calling a person acquainted with the handwriting of the person by whom the secret books of account were supposed to have been written, (v) by having the comparison done in the court of the secret books of account with some admitted writing as provided in Section 73 of the Evidence Act, (vi) by proof of an admission made by any one of the accused that the secret books of account related to the business transactions carried on by their firm or that any one of them had written the same, (vii) by adducing other unimpeachable circumstantial evidence. The connection of the accused with the secret books of account could also have been established by producing some of the customers whose names are admittedly to he found in the secret books of account to testify that the deals evidenced by the entries were transacted by them with the establishment of the accused [: AIR 1971 SC 2162 , Disting. 1973 Ker LT 731. Affirmed]."

6. The learned SDR submitted that the adjudicating authority has elaborately dealt with all the points raised by the learned advocate in his adjudication order. He also referred to about the excess consumption of electricity during certain period but the production shown in the RG-1 register was quite low. This indicates suppression of production and clandestine removal. Further he said that there are scientific methods of taking the stock and it is not impossible to do the stock taking of GSM in 61/2 hours. He urged that there is sufficient evidence to indicate suppression of production and clandestine removal. Moreover, the statements were retracted after two months. Hence, retraction has no value in this case. He pleaded that the adjudication order should be upheld in its entirety.

7. We have gone through the rival submissions. The main thrust of the learned advocates argument is that the adjudication authority has based his demand merely on statements taken under duress and without any corroborative evidence. In addition, permission to cross-examine Shri Bhavani Kishore, Accountant and Shri Gouri Shanker Gupta was denied thereby vitiating the entire proceedings. We find that all the points raised by the Advocate have been gone in-depth by the adjudicating authority. It is not correct to say that the demand of duty on 11 lakh Lmtrs. of MMF, alleged to have been clandestinely removed, is merely based on the statements of Shri Gopal Gupta and others. The learned advocate contends that there is no corroborative evidence. What is meant by Corroboration "Corroborate" means to provide evidence or information that supports a statement, theory etc. [Oxfords Advanced Learners Dictionary]. Is this case merely based on statements Let us refer to the SCN.

8. The SCN relies on several documents. 16 panchanamas were drawn at various places. It is not in dispute, when the stock was ascertained at the factory there were discrepancies. When the vehicle was intercepted, the same was carrying non-duty paid goods. The duplicate copy of invoice did not accompany the goods. Both Shri Gopal Gupta and his Accountant Shri Bhavani Kishore clearly explained the modus operandi of manipulating the figures in the invoice which resulted in payment of duty only on one-tenth of the goods cleared. The statements of Shri Gopal Gupta and Bhavani Kishore provide a wealth of details which in our opinion could not have been dictated or taken under duress. In fact Gopal Gupta has given his statement in his own handwriting. His retraction was also not immediate. Even in the dealers premises, unaccounted non-duty paid goods were found and the dealers also gave statements to the effect that M/s. GSML supplied goods with bills and without bills. Many kutcha slips were found in the dealers premises and the dealers have given incriminating statements. The brain behind the nefarious deeds appears to be Shri Gopal Gupta. The electricity consumption is also an indication that things were not above board in the appellants factory. On 15-5-1997, a duplicate copy of the invoice was found in the factory premises. Shri Gopal Gupta when questioned as to how he could clear more quantities of processed fabrics without being noticed during the course transit checks by the Officers gives the following answer :

"Initially when the processed fabrics are cleared from the factory we issue Central Excise invoice for the total quantity. However after the consignment is delivered at the destination we get back the duplicate copy of the invoice and alter the actual quantity cleared, value of the goods, duty payable etc., to 1/10th of the actual quantity cleared on all the copies of the invoice by placing a decimal before the last digit and adding a zero to the last digit. To enable the adjustment we do not write the duty payable in words."

9. A significant thing to be noted is when the vehicle was intercepted and the invoice was perused, duty particulars were not written in words. This factual position corroborates Shri Gopal Guptas statement. Therefore to hold that Shri Gopal Guptas statement is not at all corroborated is not correct. The entire statement of Shri Gopal Gupta is very revealing. On the point of manipulation of invoice, Shri Bhavani Kishore, Accountant of M/s. GSML, has elaborated in great detail, which, in our view could not have been the imagination of the Investigation Officers. Shri Bhavani Kishore has clearly stated that the duty is paid on only 10% of the actual quantity cleared. He has also stated that the practice of putting a decimal and showing lesser duty is as per the directions of the Managing Director Shri Gopal Gupta. Shri Subash Agarwal, Proprietor of M/s. SNT has also stated that they received processed fabrics from M/s. GSML with bills and without bills. In respect of goods purchased without bills the payments are made in cash.

10. Shri Nirmal Kumar Gupta Proprietor of M/s. KT in his statement has stated that they do not receive any delivery challan or invoice along with the processed fabrics received from M/s. GSML. The consignment will be sent on a kutcha bill showing the quantity of processed fabrics and number of packages. Such type of kutcha bills are available from the files recovered from his residence under panchanama dated 15-5-1997. On few occasions they have received the processed fabrics along with Central Excise invoice. So the practice of sending non-duty paid goods from M/s. GSML is very evident not only from the statements of the various persons, but also the incriminating documents. In any type of clandestine activity, the persons try their best not to leave any evidence. We cannot expect persons indulging in clandestine clearance to faithfully put the details of all such clearances in some register and append their signature. This is never done. Hence, clandestine activity at best can be established only by circumstantial evidence. It should also be borne in mind that it will be humanly impossible to establish every link in the chain of clandestine activity. For example, in this case, the recovery of unaccounted goods, the admissions of the persons involved, the recovery of goods/incriminating documents in the dealers premises, the statement of the dealers etc., all indicate that M/s. GSML were in the habit of suppressing production and clearing the goods without payment of duty. It would be too much to expect that the Investigating Officers should establish by what transport on which dates and where the supposed non-duty paid goods were sent and who received them, when and how they were distributed and all the financial dealings etc. We are very sure that humanly it would be impossible to establish all the links of clandestine activity without any break. In this case, the statements or the admissions are supported by the recovery of non-duty paid goods as well as incriminating documents. A modus operandi of paying only one tenth of the duty actually payable has been graphically described by Shri Gopal Gupta and Shri Bhavani Kishore in their statements. Hence, in our view, the adjudicating authority has rightly confirmed the demand based on the quantity of 11 lakh Lmts. of MMF cleared without payment of duty on the basis of admission by Shri Gopal Gupta, corroborated by the incriminating documents, unaccounted goods and the statements of all others. When a fact is admitted it doesnt need further corroboration. We have no reason to believe that the statements have been taken under duress. We also hold that the retraction made after two months is an after thought. The denial of cross-examination of the two persons Shri Bhavani Kishore and Shri Gouri Shanker Gupta does not vitiate the proceedings. These people have not retracted their statements also. As regards Shri Bhavani Kishore, it is worth quoting the finding of the Adjudicating Authority in para 96 of his order:

"Shri Bhavani Kishore did not retract from his statement dated 15-5-1997, the very fact that he left the services of GSM and has been absconding since then, without even collecting his salary as revealed by GSM in their written submissions dated 2-1-2002, strongly indicates that he was scared to face the repercussions of his divulsion of the practice adopted by GSM for alteration of the entries in the invoices with an intent to evade the duty payable on the MMF cleared thereunder. Since it was from the deposition of Shri Bhavani Kishore that the investigating officers first came to know about such practice adopted by GSM, the contentions of GSM in their reply dated 8-9-1998 to the show cause notice issued to them and in their written submissions dated 2-1-2002 that his statement was recorded under threat and coercion and that without his cross-examination the statement given by him could not be relied upon are not tenable."

11. In view of the above observations, we hold that the OIO is legal and proper. Shri Gopal Gupta, Shri Subash Agarwal, Shri Nirmal Kumar Gupta and Shri Kamal Kumar Gupta have dealt with the goods, which they knew was not duty paid. They are rightly liable for penalty under Rule 209A. The clandestine removal is clearly established by various circumstantial evidences. Therefore we reject all the appeals and uphold the OIO.