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Case Number

Final Order Nos. A/930-932/2002-NB in Appeal Nos. E/1595-1597/2002-NB

Judges

G.R Sharma, Member (T)
P.S Bajaj, Member (J)

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Smart Summary

Tribunal Order Summary: Kalvert Foods India Pvt. Ltd. & Ors.

Factual and Procedural Background

This is an appeal against a common adjudication order dated 27-02-2002 by the Commissioner of Central Excise, which confirmed duty demands and imposed penalties on the appellants. The appellant No.1, M/s. Kalvert Foods India Pvt. Ltd. (the Company), manufactures P & P food products (jams, pickles, squashes, sauces, chutneys, syrups, synthetic vinegars, etc.) and also trades in sugar, salt and pepper in small packs. Appellant No.2 is the Managing Director of the Company; other appellants include selling agents and traders.

Revenue officers visited the Company's factory on 22-11-2000. A tempo (bearing no. MH-04-S-148) loaded with goods was found on the premises and seized. Goods valued at Rs. 7,33,668/- allegedly found in excess of entries in the RG-I register were also seized. Searches were conducted at dealers' and selling agents' premises, and goods valued at Rs. 6,22,946/- were seized on the belief they were not duty-paid. Records seized from the selling agent M/s. Relish Trading Company (RTC) and M/s. Sai Krupa suggested that excisable goods had been cleared without payment of duty and invoices purportedly described such clearances as sugar.

Following investigation, show cause notices were issued to the Company, its Director, and to other parties; duty demands and penalties (including under Rule 209A) were proposed. The Commissioner adjudicated the matter, confirming duties, ordering confiscation of seized goods, and imposing penalties as detailed in the impugned order. The appellants appealed against that decision to the Tribunal.

Legal Issues Presented

Whether there was sufficient, cogent, and reliable evidence to establish clandestine removal of excisable goods by the appellant-company without payment of duty.
Whether the tempo and goods found on the factory premises (and documents produced at the spot) could be lawfully seized and confiscated.
Whether goods found in dealers' and selling agents' premises could be confiscated as goods cleared without payment of duty when dealers denied receipt without invoices and no reconciliation with the Company's records was made.
Whether the use of the Company's name on containers constituted a brand (liable to excise) or only a 'house mark' (not amounting to a brand attracting duty).
Whether penalties and confiscation orders issued by the Commissioner were legally sustainable in the absence of the required proof.

Arguments of the Parties

Appellants' Arguments

There was no tangible, reliable or cogent evidence to substantiate allegations of clandestine removal of excisable goods without payment of duty by the Company.
Confiscation of the seized tempo and goods was illegal because relevant documents (invoices etc.) were produced on the spot by the Company's representative.
No branded goods were cleared by the Company as alleged; the Company only displayed its full name (a 'house mark') on containers and had not promoted any brand called 'KALVERT'.
The impugned order was based on surmises and conjectures; dealers/traders did not admit receipt of goods without invoices and provided affidavits corroborating no clandestine receipt.
The Commissioner failed to verify records properly (no reconciliation of dealers' stock with Company's records, no evidence of excess raw material or abnormal electricity consumption to support clandestine manufacture), so confiscation and penalties were unsustainable.

Revenue's Arguments

The learned Junior Departmental Representative (JDR) reiterated the correctness of the impugned order (i.e., that duties were payable and confiscation/penalties were justified as per the show cause notice and investigation findings).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Bhillai Conductors Pvt. Ltd. v. CCE	Goods lying in the factory cannot be confiscated under Rule 173Q of the Rules (as observed by the Tribunal in that case).	The Tribunal relied on this observation to hold that the tempo and goods found on the factory premises (where documents were produced) could not lawfully be confiscated; the Commissioner's confiscation order in respect of those goods was set aside.
TGL Poshak Corpn. v. CCE	Authority for the principle that charges of clandestine removal/manufacture must be proven by cogent, convincing and tangible evidence; not by assumptions or presumptions.	Cited as part of a group of authorities to support the proposition that clandestine removal must be established by cogent evidence; used to conclude that Revenue failed to discharge this burden.
MM Dyeing & Finishing	Same principle: requirement of cogent and tangible evidence to establish clandestine removal/manufacture.	Cited to support the general ratio that assumptions and presumptions are insufficient to sustain confiscation or duty demands for clandestine clearances.
K. Raja Gopal v. CCE	Same principle regarding the evidentiary standard for clandestine removal/manufacture charges.	Relied upon to reinforce that the Department must produce convincing evidence and cannot rest the charge on presumptions.
Prince Ghutka Ltd. v. CCE	Same principle regarding necessity of cogent evidence for clandestine removal/manufacture.	Cited to support the conclusion that the Revenue failed to produce the required evidence to justify confiscation and penalties.
Indra Metal Works v. CCE	Same principle: clandestine removal must be proved by tangible evidence; not by conjecture.	Used together with other authorities to establish the applicable evidentiary standard which the Revenue did not meet.
M/s. Rajdoot Paints Berger Paints v. CCE	Authority concerning the legal distinction between a 'house mark' and a brand/trade name for excise purposes.	Applied to hold that the Company's use of its full name on containers amounted to a 'house mark' and not a brand; therefore, absence of a brand supported the appellants' contention that products were unbranded and not liable on that account.
M/s. Deebha Foundary v. CCE	Authority addressing the 'house mark' versus trade name distinction relevant to excise liability.	Relied upon, along with Rajdoot Paints, to reject the Commissioner's view that a house mark was irrelevant outside pharmaceuticals; the Tribunal concluded the Company's markings were a house mark and not a brand attracting additional duty.

Court's Reasoning and Analysis

The Tribunal conducted a step-by-step factual and legal analysis, applying established legal principles to the record:

Tempo and goods on factory premises — The Tribunal noted that the tempo loaded with goods was seized while standing inside the factory premises, but the Company's representative produced relevant documents (invoices and other papers) at the spot, and that fact was recorded in the show cause notice. On that basis, the Tribunal concluded that neither the tempo nor its goods could lawfully be seized and confiscated because there was no clandestine removal in progress and the requisite documentation was produced at the scene. The Commissioner's confiscation order in respect of the tempo and those goods was therefore set aside.
Goods valued at Rs. 7,33,668/- (not entered in RG-I) — The Tribunal accepted the Director's explanation that the goods were entered in production slips from which RG-I entries were to be made. Further, those goods were released during investigation and subsequently cleared on payment of duty. The Tribunal cited Bhillai Conductors (tribunal observation) that goods lying in the factory cannot be confiscated under Rule 173Q and, on this reasoning, held the Commissioner's confiscation order as unsustainable and set it aside.
Goods found with dealers/traders and selling agents — The Tribunal observed there was no reliable evidence that the Company clandestinely supplied excisable goods without invoices. Dealers/traders did not admit receipt of goods without invoices; some provided affidavits corroborating that they received goods only under invoices and produced details of purchases. The Tribunal criticised the Revenue for not reconciling dealers' stocks with the Company's records, and for failing to collect corroborative evidence (e.g., excess raw material purchases or abnormal electricity consumption) that would support clandestine manufacture/clearance. In absence of such proof, the Tribunal held the confiscation of goods at dealers' premises could not be legally sustained.
Allegation of clearing excisable goods to RTC disguised as sugar/salt/pepper — RTC's proprietor (appellant No.3) denied receipt of dutiable goods without invoices and stated invoices were forwarded to dealers. The Tribunal found that the mere matching of sale values in salt/sugar invoices with sales values in excisable-goods invoices raised by RTC was not sufficient to infer that sugar/salt were not actually sold. The Tribunal accepted that the Company had records (stock register, RT-12 returns) showing dutiable goods cleared to RTC under statutory invoices and that RTC's books reflected purchases of sugar, salt and pepper. Absent additional corroborative evidence, no inference of clandestine substitution could be drawn.
Evidentiary standard — The Tribunal reiterated the settled legal principle (supported by cited authorities) that clandestine removal/manufacture must be established by cogent, convincing and tangible evidence and cannot rest on assumptions or presumptions. The Tribunal found Revenue had not met this standard in the present record.
House mark versus brand — The Tribunal accepted the appellants' submission that the Company had displayed its full name on containers as required by Clause 8(i)(b) of the Food Products Order, 1995. The Tribunal concluded this was a 'house mark' and not a brand name implying branded goods liable to a different treatment. The Tribunal rejected the Commissioner's observation that a house mark is relevant only in pharmaceuticals, relying on precedents (Rajdoot Paints; Deebha Foundary) and a Board circular dated 18-01-2000 to support the position.

Holding and Implications

HOLDING: The Tribunal held that the impugned order of the Commissioner could not be sustained and ordered it to be set aside in toto. All the appeals of the appellants were allowed.

Implications:

The confiscation orders in respect of the tempo and goods seized at the factory, and the confiscation of goods valued at Rs. 7,33,668/-, were set aside on the record and reasons given (documents produced at the spot; production-slip entries; subsequent duty payment; reliance on Tribunal precedent regarding factory-held goods).
The Tribunal found no reliable evidence to sustain confiscation of goods seized from dealers/traders and selling agents for alleged clandestine clearances; accordingly those confiscation/penalty aspects could not be sustained.
The Tribunal held that the Company's marking of containers constituted a 'house mark' and not a brand; there was no reliable evidence of branded clearances attracting a different consequence.
The appeals were allowed with consequential relief, if any, permissible under law (as stated in the order). The opinion does not elaborate further on the specific consequential reliefs granted beyond the setting aside of the impugned order in toto.

This summary is based exclusively on the content of the provided Tribunal order and does not add facts or inferences not present in that opinion.

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Kalvert Foods India Pvt. Ltd. v. Commissioner Of C. Ex., Mumbai

[Order per : P.S. Bajaj, Member (J)]. - The above captioned appeals have been preferred against the common order-in-original, dated 27-2-2002 vide which the Commissioner of Central Excise has confirmed the duty and imposed penalties on the appellants as detailed in the order itself.

2. The appellant No. 1, M/s. Kalvert Foods India Pvt. Ltd. is a company (in short hereinafter referred to as ‘Company’) engaged in the manufacture of P & P Food Products, such as, assorted jams, pickles, squashes, cooking sauces, chutneys, syrups, synthetic vinegars etc. The company is also trading in sugar, salt and pepper by packing into small packs. The appellant No. 2, Shri Yunus A. Kalvert is the Managing Director of the Company. The Revenue authorities visited the factory premises of the company on 22-11-2000. One tempo was standing there loaded with the goods and the same was seized. The goods found lying excess in the stock than what were entered into RG-I register, valued at Rs. 7,33,668/- were also seized. Thereafter, search was also carried out at the premises of the dealers/traders, to whom the company allegedly supplied the finished goods. The goods found lying in those premises of the value of Rs. 6,22,946/- were also seized on the belief that they were not duty paid. Similarly, the search was carried out by the Officers on 28-11-2000, at the premises of M/s. Relish Trading Company (in short ‘RTC’), the selling agent of the appellant-company and M/s. Sai Krupa, and record pertaining to the sale and purchase of the goods, lying in the offices of these companies, were seized. It revealed to the officers that, in fact, the appellant-company had cleared jams, syrup, sauces, pickles, etc., from the factory premises without payment of duty to the above said selling agents without payment of duty, but had shown those clearances as that of the sugar, in the invoices and had also cleared the branded goods to the dealers/traders.

3. On completion of the investigation, show cause notice was issued to the company, appellant No. 1 and its Director, appellants No. 2. The notice was also issued to appellants No. 3, Ms. Vinita M. Khanolkar, Proprietor of M/s. RTC and Partner of firm, M/s. Sai Krupa Corporation, vide which duty demand was raised from the company and penalty was also proposed to be imposed on the company. The penalty was also proposed on the other appellants under Rule 209A of the Rules.

4. The appellants contested the correctness of the show cause notice. The company denied any clandestine removal of the excisable goods to any of the dealers or the selling agent. The company also denied of having cleared the excisable goods without payment of duty in the guise of sugar, salt and pepper, to the selling agent, M/s. RTC. The Commissioner who adjudicated the show cause notice, however, confirmed the duty demand and ordered the confiscation of the seized goods, imposed penalty equivalent to the amount of duty on the company, appellants no. 1, and also imposed penalty on the other two appellants, as detailed in the impugned order itself.

5. The learned Counsel for the appellants has contended that there is no tangible, reliable and cogent evidence to substantiate the allegations of clandestine removal of the goods without payment of duty by the appellant- company. The confiscation of the seized goods had also been made illegally for want of any evidence to prove any intention on the part of the company to remove the same without payment of duty in a clandestine manner. No branded goods were also cleared by the company as alleged in the show cause notice and observed by the Commissioner in the impugned order. The impugned order has been passed on the surmises and conjuctures. No dealer/trader or selling agent of the company had admitted the receipt of the goods without the cover invoices and as such the goods lying with them could not be legally ordered to be confiscated. The impugned order deserves to be set aside.

5. On the other hand, the learned JDR, has reiterated the correctness of the impugned order.

6. We have heard both sides and gone through the facts on record. The appellant-company admittedly is engaged in the manufacture of various types of P & P Food Products. The company is manufacturing excisable products, such as, jam, pickle, syrups, etc., and also trading in salt, sugar and pepper. For trading activity, the company had even filed a declaration under Rule 173B of the Rules. The tempo bearing no. MH-04-S-148 loaded with the goods was seized by the Excise Officers at the time of visit to the factory of the company when it was standing in the factory premises itself. The relevant documents in respect of these goods were produced at the spot by the representative of the company and this fact even finds mentioned in the show cause notice itself. Therefore, neither the tempo nor the goods loaded therein could be legally seized and confiscated when the relevant documents were shown to the officers at the spot. It could not be said that an attempt was being made to clear those goods in tempo in a clandestine manner, when the company’s representative produced the invoices and other relevant documents in respect thereof. The Commissioner has thus wrongly ordered the confiscation of those goods and the tempo. Therefore, his order in this regard cannot be sustained and is set aside.

7. Similarly, the confiscation of the goods valued at Rs. 7,33,668/- as ordered by the learned Commissioner in the impugned Order could not be made on the ground that those were not entered in the RG-I Register as at the spot the Director of the company clarified that all those goods were duly entered in the production slips from where the entries in the RG-I register were to be carried out. Moreover, the goods were released to the company during the investigation and the company had cleared the same on payment of duty. In the case of Bhillai Conductors Pvt. Ltd. v. CCE, , it has been observed by the Tribunal that goods lying in the factory cannot be confiscated under Rule 173Q of the Rules. Therefore, the impugned order of the Commissioner in this regard also deserves to be set aside.

8. Regarding the alleged clandestine removal of the goods by the company, appellant No. 1, to its various dealers/traders and the selling agent, as detailed in the show cause notice, there is not reliable evidence whatsoever to establish the same. None of the dealers/traders in his statement had admitted of having received the goods at any time from the company without the cover of the invoice. The company even submitted the affidavits of the dealers from Ratnagiri, Chiplun, Khed, wherein they had corroborated the stand of the company of having not received the goods without the invoice in a clandestine manner. They had given the details of the purchases made by them through various bills/invoices from the company. The fact that they could not correlate the duty element with the goods found lying with them in their premises, could not be made basis for raising inference that those goods were received by them without payment of duty, from the company. The Revenue officials did not reconcile the stock found lying with the dealers/traders and the selling agents with the record of the company, appellants No. 1 to ascertain if any goods had been not accounted for in the record of the company and had been cleared without payment of duty. No evidence had been also collected to, prima facie, show the excess receipt of raw material, excess consumption of electricity by the company for manufacturing the extra goods than what were recorded in the record. Therefore, the goods found lying in the stock of the dealers/traders and selling agents could not be legally confiscated without getting clear proof of the sale of the same to them by the company without payment of duty. The company had furnished the details of the goods cleared to the dealers during the period 1996-97 to November, 2000, which are at pages 355-370 of the paper book and without questioning the correctness of those details, and verifying the duty paid character of the goods, confiscation of the same could not be made. No presumption about the clandestine sale of those goods to the dealers, by the company could be legally raised.

9. In the show cause notice, it was no doubt alleged that the appellant-company had cleared jams, syrups, sauces, pickles, etc., without payment of duty under the guise of sugar, salt and pepper, the non-excisable goods, to its selling agent, M/s. RTC. But appellant No. 3, who is the proprietor of the company, M/s. RTC and also Partner of M/s. Sai Krupa Corporation, has denied this fact in her statement. She rather stated that the goods had always been received by her under the cover of invoice and those very invoices were forwarded to the dealers/traders, while selling the goods to them. The purchase of excess raw material for manufacture of the goods allegedly sold in the guise of sugar, salt, etc., by the appellant-company to M/s. RTC, had also been not proved on the record. The fact that M/s. RTC raised invoices of almost equal amount for sale of dutiable goods, such as syrups, vinegar, jams, sauces, etc., for which the appellant-company cleared the sugar, salt etc. to them, was not enough to raise an inference that sugar and salt was never sold to them by the appellant-company. The company had produced record regarding the sale of sugar, salt and pepper, etc., to M/s. RTC and the latter (M/s. RTC) had even shown the purchase of the same in their books of account. During the period when the sale of sugar, salt, etc., was made to M/s. RTC, the appellant-company also cleared the dutiable goods, such as, vinegar, jams, sauces, etc., under statutory invoices to that company and all that was reflected in the stock register of the company. The appellant-company even reflected the sale of those goods in their RT-12 returns. The copy of the entries made in the stock register had been placed on record by the company wherein all the details of the dutiable goods cleared by the company to M/s. RTC had been recorded. Merely because the sale value in the invoices of salt and sugar issued by the appellant-company tallied with the sale value recorded in the invoices of excisable goods issued by M/s. RTC, to the customers, no such inference that the appellant-company, cleared excisable goods, such as, vinegar, jams, sauces etc. instead of salt, sugar, etc., to that company, could be raised.

10. It is well settled that the charge of clandestine removal/ manufacture of the goods by the assessee has to be established by the Department by producing cogent, convincing and tangible evidence and such a charge cannot be based on assumptions and presumptions. In this context, reference may be made to - (i) TGL Poshak Corpn. v. CCE, ; (ii) MM Dyeing & Finishing, ; (iii) K. Raja Gopal v. CCE, ; (iv) Prince Ghutka Ltd. v. CCE, ; and Indra Metal Works v. CCE, , wherein such a ratio of the law has been laid down.

11. Besides this, the plea of the appellants that they never cleared the goods in question under any brand name and being unbranded were chargeable to NIL rate of duty, also deserves to be accepted. There is no reliable evidence on the record to prove that any brand name had been put on the containers containing jam, pickle, syrups, etc., cleared by the appellants company, to its distributors/traders and selling agent. The company has only mentioned its full name, M/s. Kalvert Foods India Pvt. Ltd. on the containers. The company had never promoted any brand name by the name ‘KALVERT’ on any of the products in dispute in the present case. They had even produced search report received by them from the Trade Mark and Patent Company to show that the brand name ‘KALVERT’ did not even stand registered in their name. The Company, in terms of Clause 8(i)(b) of the Food Products Order, 1995, had displayed its complete name on the goods manufactured and cleared by them in the market. That name could only be termed as ‘HOUSE MARK’ and not trade name. The observation of the learned Commissioner that ‘HOUSE MARK’ is only relevant for pharmaceutical industry and not for others, in our view, is wholly misconceived in view of the ratio of the law laid down by the Tribunal in (i) M/s. Rajdoot Paints Berger Paints v. CCE, ; and (ii) M/s. Deebha Foundary v. CCE, . Even the Board has also cleared this position vide Circular dated 18-1-2000.

12. In view of the discussion made above, the impugned order of the Commissioner cannot be sustained and is ordered to be set aside in toto. As a result, all the appeals of the appellants stand allowed with consequential relief, if any, permissible under the law.

Kalvert Foods India Pvt. Ltd. v. Commissioner Of C. Ex., Mumbai

Tribunal Order Summary: Kalvert Foods India Pvt. Ltd. & Ors.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellants' Arguments

Revenue's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Kalvert Foods India Pvt. Ltd. v. Commissioner Of C. Ex., Mumbai

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